Cloward v. Comm'r

MEMORANDUM OPINION

WELLS, Judge: The instant matter is before the Court on petitioner's motion for reasonable administrative and litigation costs ¹ pursuant to Rule 231² and section 7430. The issue we must decide is whether petitioner was the prevailing party. For the reasons stated below, we deny petitioner's motion for reasonable costs.

Background

At the time of filing the petition in the instant case, petitioner resided in Trenton, New Jersey. *229 Vanya Tyrrell (Mrs. Tyrrell) prepared petitioner's 2002 Form 1040, U.S. Individual Income Tax Return (tax return). ³

In the spring of 2005, respondent sent a letter to petitioner requesting that he submit documentation to support certain deductions claimed on his 2002 tax return. This was the initial contact letter and did not provide petitioner an opportunity for administrative review with respondent's Office of Appeals. Petitioner did not respond with the requested documentation. Instead, petitioner's attorney, Lowell E. Mann (Mr. Mann), sent a letter protesting respondent's proposed adjustments and requesting that the case be transferred to respondent's*230 Appeals Office. Because petitioner failed to submit the requested documentation substantiating the disputed deductions, respondent determined a deficiency of $ 750 in income tax for 2002 and sent petitioner a notice of deficiency on June 13, 2005.

Mr. Mann sent a letter to respondent requesting that respondent rescind the notice of deficiency. Respondent did not rescind the notice of deficiency, and petitioner timely filed his petition in this Court on September 6, 2005. Respondent filed his answer on October 25, 2005. By notice dated November 10, 2005, the instant case was placed on the April 3, 2006, calendar in Philadelphia, Pennsylvania.

On February 18, 2006, Ms. Tyrrell sent documentation to support the deductions in question to Mr. Mann, who forwarded it to respondent's Appeals officer. At the call of the instant case from the Philadelphia trial session calendar on April 3, 2006, the parties filed a stipulation of settled issues, which indicated respondent's concession and a reduced deficiency of $ 480. In the instant motion, petitioner now seeks $ 3,152.50 in administrative and litigation costs.

Discussion

The prevailing party in a Tax Court proceeding may be entitled to*231 recover administrative and litigation costs. See sec. 7430(a); Rule 231. However, a taxpayer will not be treated as the prevailing party if the Commissioner's position was substantially justified. Sec. 7430(c)(4)(B); see Pierce v. Underwood, 487 U.S. 552, 565, 108 S. Ct. 2541, 101 L. Ed. 2d 490 (1988). The fact that Commissioner concedes is not determinative of the reasonableness of Commissioner's position. Wasie v. Commissioner, 86 T.C. 962, 969 (1986). The taxpayer bears the burden of proving the elements in section 7430 required for an award of costs, except that the taxpayer will not be treated as the prevailing party if the Commissioner establishes that the position of the Commissioner was substantially justified. ⁴ See Rule 232(e).

The Court determines the reasonableness of respondent's position as of the time respondent took respondent's position. Sec. 7430(c)(7). In the administrative proceeding*232 here, respondent took a position as of the date of the notice of deficiency. Sec. 7430(c)(7)(B). In the judicial proceeding, respondent took a position when respondent filed respondent's answer. Sec. 7430(c)(7)(A); Huffman v. Commissioner, 978 F.2d 1139, 1144-47 (9th Cir. 1992), affg. in part, revg. in part on other grounds and remanding T.C. Memo. 1991-144. Respondent's administrative and litigation positions are substantially justified if they have a reasonable basis in both law and fact. Maggie Mgmt. Co. v. Commissioner, 108 T.C. 430, 443 (1997).

In the instant case, we conclude that respondent's position was both reasonable and substantially justified in both the administrative and judicial proceedings. Petitioner failed to provide the requisite documentation until after respondent issued the notice of deficiency and filed an answer. Deductions are a matter of legislative grace, and petitioner must prove he is entitled to the deductions. Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440, 54 S. Ct. 788, 78 L. Ed. 1348, 1934-1 C.B. 194 (1934). In the absence of any proof of entitlement to the disputed deductions, respondent was reasonable to maintain his position*233 that the disputed deductions were not allowed. Prouty v. Comm'r, T.C. Memo 2002-175. It was not until February 18, 2006, that Ms. Tyrrell sent the documentation relating to the disputed deductions to Mr. Mann. ⁵ Respondent conceded the propriety of the deductions upon receipt of the documentation. Accordingly, we hold that petitioner is not entitled to recover his administrative or litigation costs.

*234 We have considered all of petitioner's contentions, ⁶ and, to the extent they are not addressed herein, they are irrelevant, moot, or without merit.

To reflect the foregoing,

An appropriate order and decision will be entered.