T.C. Memo. 2003-275
UNITED STATES TAX COURT
PATRICIA P. KEAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
ROBERT W. KEAN, III, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent*
Docket Nos. 8966-00, 9144-00. Filed September 22, 2003.
R determined deficiencies for H’s 1995 and 1996
taxable years. R’s determinations were based upon R’s
inconsistent position that payments made by H to W,
pursuant to pendente lite unallocated support orders,
were includable in the gross income of W as alimony
received, and not deductible by H as alimony paid. H
filed a petition for redetermination. This Court held
that the payments were alimony for Federal income tax
purposes and were deductible by H, under sec. 215,
I.R.C. H seeks recovery of litigation costs pursuant
to sec. 7430, I.R.C., in the amount of $54,012.63.
*
This opinion supplements our previously filed opinion in
Kean v. Commissioner, T.C. Memo. 2003-163.
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Held: R’s position that the payments made by H to
W were not deductible by H as alimony paid was
substantially justified, within the meaning of sec.
7430(c)(4)(B)(i), I.R.C. H is not entitled to recover
litigation costs.
Alan R. Adler, for petitioner in docket No. 8966-00.
Jeffrey M. Garrod and Eugenia Yudanin, for petitioner in
docket No. 9144-00.
Joseph J. Boylan, for respondent.
SUPPLEMENTAL MEMORANDUM OPINION
NIMS, Judge: This matter is before the Court on petitioner
Robert W. Kean III’s Motion for Award of Reasonable Litigation
Costs, pursuant to section 7430 and Rule 231. Respondent
objects. Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect at all relevant times, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
Petitioner Robert W. Kean III (Mr. Kean) seeks to recover
litigation costs in the amount of $54,012.63 incurred in
connection with respondent’s determination of deficiencies with
respect to his Federal income tax liabilities for his 1995 and
1996 taxable years. The issues for decision are whether the
position of the United States in the judicial proceeding was
substantially justified for the purposes of section 7430, and if
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not, whether Mr. Kean meets the net worth requirements, and
whether the litigation costs Mr. Kean seeks are reasonable. Mr.
Kean resided in Far Hills, New Jersey, when he filed his
petition.
Background
The underlying claim that gave rise to the present dispute
involved whether any part of the unallocated support payments
(disputed payments) paid by Mr. Kean to petitioner Patricia P.
Kean (Ms. Kean) constitutes alimony under section 71 that is
deductible by Mr. Kean, under section 215, and includable in the
gross income of Ms. Kean, under sections 61(a)(8) and 71(a). In
the notices of deficiency, and in the answers filed by
respondent, respondent took inconsistent positions, disallowing
the deductions to Mr. Kean and requiring Ms. Kean to report
alimony income. On brief, however, respondent argued that Mr.
Kean should be allowed to deduct the disputed payments and Ms.
Kean should report the disputed payments as income.
This Court rendered Kean v. Commissioner, T.C. Memo. 2003-
163, deciding that the disputed payments were alimony for Federal
income tax purposes.
Discussion
Section 7430 provides for the award of litigation costs to a
taxpayer in a court proceeding brought against the United States
involving the determination of any tax, interest, or penalty
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pursuant to the Internal Revenue Code. An award of litigation
costs may be made where the taxpayer (1) is the “prevailing
party”, (2) has exhausted available administrative remedies, (3)
did not unreasonably protract the administrative or judicial
proceeding, and (4) claimed reasonable litigation costs. Sec.
7430(a), (b)(1), (3), (c). Respondent concedes that Mr. Kean
exhausted available administrative remedies and did not
unreasonably protract the administrative or judicial proceeding.
To be a prevailing party, the taxpayer must substantially
prevail with respect to either the amount in controversy or the
most significant issue or set of issues presented, and, at the
time the petition in the case is filed, the taxpayer must meet
certain net worth requirements. Sec. 7430(c)(4)(A). Section
7430(c)(4)(B) provides that a taxpayer shall not be treated as
the prevailing party in any proceeding if the United States
establishes that its position in the proceeding was substantially
justified. The position of the United States in a deficiency
proceeding in this Court is that set forth in the Commissioner’s
answer. Maggie Mgmt. Co. v. Commissioner, 108 T.C. 430, 442
(1997); see also sec. 7430(c)(7)(A).
For purposes of section 7430, a position of the United
States is substantially justified if it has a reasonable basis in
both law and fact. Maggie Mgmt. Co. v. Commissioner, supra at
443. The determination of the reasonableness of that position is
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based upon the available facts that formed the basis for the
position, as well as any controlling legal precedent. Id. The
fact that the Commissioner ultimately concedes an issue does not,
by itself, establish that his prior position with respect to that
issue was unreasonable. Id. However, it is a factor that may be
considered. Id.
As an initial matter, respondent argues that he is “entitled
to take inconsistent positions against former spouses in the
alimony context.” We agree with respondent. Inconsistent
determinations may be made against the former spouses in order to
protect the revenue in a “whipsaw” situation. See Doggett v.
Commissioner, 66 T.C. 101, 103 (1976); Marten v. Commissioner,
T.C. Memo. 2000-186; Ryan v. Commissioner, T.C. Memo. 1999-109.
Inconsistent positions were appropriate in this case.
Respondent cites Gonzales v. Commissioner, T.C. Memo. 1999-
332, as justification for the position taken in his answer that
the payments made by Mr. Kean were not alimony. Based on the
particular facts in Gonzales, this Court held that the
unallocated support payments there did not constitute alimony
under section 71. As in the instant case, the payments in that
case were made pursuant to an order of a New Jersey court, and
this Court applied New Jersey law in its determination as to
whether the payments constituted alimony under section 71.
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In the case before us, Mr. Kean made payments to Ms. Kean
pursuant to a series of orders from a New Jersey court, and this
Court applied New Jersey law in its determination as to whether
the disputed payments constituted alimony pursuant to section 71.
Ultimately, this Court distinguished the facts of Gonzales from
the facts of the instant case, and determined that the disputed
payments in the instant case were alimony. Nonetheless, based on
the fact that Gonzales and the instant case both involve
unallocated support payments and interpretation of New Jersey
law, respondent’s reliance on Gonzales to frame his answer in the
instant case was substantially justified.
Based on the facts available to respondent, as well as the
legal precedent regarding the deductibility of unallocated
support payments, specifically this Court’s holding in Gonzales
v. Commissioner, supra, respondent’s position in his answer had a
reasonable basis in both law and fact, and therefore was
substantially justified.
Because respondent’s position in the judicial proceeding was
substantially justified, Mr. Kean is not deemed to be a
prevailing party as defined in section 7430(c)(4). Consequently,
Mr. Kean is not entitled to recover any of his claimed costs
under section 7430. As a result of this holding, we need not
address the questions of whether Mr. Kean meets the net worth
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requirements and whether the litigation costs Mr. Kean seeks are
reasonable.
To reflect the foregoing,
An appropriate order will be
issued denying the motion for award
of reasonable litigation costs.