UNITED STATES TAX COURT

124 T.C. No. 17

UNITED STATES TAX COURT

JOHN G. GOETTEE, JR. AND MARIAN GOETTEE, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent*

Docket No. 26591-96.

Filed May 31, 2005.

Ps claimed investment credits and losses arising out of

a partnership in which they held a limited interest. By

notice of deficiency, R disallowed these claimed credits and

losses. Ps accepted a settlement offer from R and paid all

deficiencies and additions reflected in the entered

decision. Ps requested abatement of interest on these

amounts. R initially disallowed the abatement request in

full, then later allowed partial abatement. Ps then paid

the remaining assessed interest liabilities. Ps petitioned

this Court to review R’s disallowance of interest

abatements. After R’s concessions, we determined (1) R

abused R’s discretion only for the period Jan. 24 through

Apr. 24, 1995, and not for any of the other time periods

(aggregating about 15-3/4 months) specifically put in issue,

*

This opinion supplements our previously filed opinions in

Goettee v. Commissioner, T.C. Memo. 1997-454, T.C. Memo. 2003-43

(hereinafter sometimes referred to as Goettee I), and T.C. Memo.

2004-9.

- 2 and (2) R did not err in calculating the amounts of interest

on any remaining issue raised by Ps.

Ps move for an award of litigation costs.

Held: Ps have not “substantially prevailed” with

respect to the most significant issue or set of issues

presented, nor have they “substantially prevailed”

with respect to the amount in controversy. Sec.

7430(c)(4)(A)(i), I.R.C. 1986. Consequently, Ps are not the

“prevailing party” (sec. 7430(c)(4)(A), I.R.C. 1986), and

are not entitled to an award of reasonable litigation costs.

Sec. 7430(a)(2), I.R.C. 1986.

Matthew J. McCann, for petitioners.

William J. Gregg and Warren P. Simonsen, for respondent.

OPINION

CHABOT, Judge:

This matter is before us on petitioners’

motion for an award of reasonable litigation costs pursuant to

section 74301 and Rule 231.2

The issues for decision are:

(1) Whether petitioners are the “prevailing party” for

purposes of section 7430--in particular:

(A)

Whether petitioners “substantially prevailed”

1

Unless indicated otherwise, all section references are to

sections of the Internal Revenue Code of 1986 as in effect for

proceedings commenced at the time the petition in the instant

case was filed.

2

Unless indicated otherwise, all Rule references are to the

Tax Court Rules of Practice and Procedure.

- 3 with respect to either the most significant issue or

set of issues or the amount in controversy, within the

meaning of section 7430(c)(4)(A)(i), or

(B)

Whether respondent established that

respondent’s position was “substantially justified”

within the meaning of section 7430(c)(4)(B)(i);

(2) Whether petitioners unreasonably protracted the

proceedings; and

(3) Whether petitioners’ claimed costs are unreasonable

or excessive.

We reach issues (2) and (3) only if petitioners prevail, in

whole or in part, on issue (1).

In their memorandum of law, petitioners requested a hearing

on their litigation costs motion, on the ground that “respondent

has not favored petitioners with the basis for disagreement with

any allegations contained in petitioners’ motion”, in violation

of Rule 232(b)(7).

Having examined the parties’ stipulations and

memoranda of law, we conclude that this litigation costs motion

may properly be resolved without an evidentiary hearing.

See

Rules 231(b)(8), 232(a)(2) (last sentence), and 232(b) (final

flush language).

Background

The underlying facts of this case are set out in detail in

Goettee v. Commissioner, T.C. Memo. 1997-454, T.C. Memo. 2003-43,

- 4 and T.C. Memo. 2004-9.

We summarize the factual and procedural

background briefly here and make additional findings as required

for our ruling on the instant motion.

At all relevant times, petitioners resided in Maryland.

Petitioners requested an abatement of interest with respect

to underpayments for 1978, 1979, 1981, 1982, and 1983, which

respondent partially disallowed, and petitioners petitioned this

Court under section 6404 to review that disallowance as to all 5

years.

In Goettee v. Commissioner, T.C. Memo. 1997-454, we

granted respondent’s motion for partial summary judgment as to

1978.

Petitioners later conceded as to 1983.

In Goettee I, what

remained before us was the matter of abatement of interest with

respect to the remaining 3 years (1979, 1981, and 1982) for the

periods of (1) December 2, 1993, through October 26, 1994, and

(2) December 14, 1994, through May 2, 1995.

In Goettee I,

petitioners also urged us to order abatement for unspecified

additional periods.

Finally, relying on our overpayment

jurisdiction in the interest abatement area (see sec.

6404(h)(2)(B)), petitioners also contended that respondent made

numerous computational errors in the interest calculations and

that failure to correct those errors constitutes an abuse of

discretion.

Respondent conceded that abatement was appropriate

for February 25 through April 25, 1995, but contended failure to

abate interest for the remaining time in dispute did not

- 5 constitute an abuse of discretion by respondent.

Respondent also

conceded some of the computational matters and disputed others in

whole or in part.

In Goettee I, we held for petitioners as to

January 25 through April 24, 1995,3 and for respondent as to all

the remaining time periods in issue.

Also in Goettee I, we held

for respondent as to all the computational matters that

respondent had not conceded.

In other words, in addition to the

time period and other matters conceded by respondent, we held for

petitioners only as to the 1-month period of January 25 through

February 24, 1995.

In Goettee v. Commissioner, T.C. Memo. 2004-

9, we denied petitioners’ motion that we reconsider our opinion

in Goettee I.

____________________

Petitioners have not substantially prevailed with respect to

the most significant issue or set of issues.

Petitioners have not substantially prevailed with respect to

the amount in controversy.

Discussion

The Congress has provided for the awarding of litigation

costs4 to a taxpayer who satisfies a series of requirements.

Sec.

3

In Goettee I, we refused to give effect to respondent’s

concession as to one of the days--Apr. 25, 1995. See Goettee I,

n.15.

4

Petitioners have requested only litigation costs in the

instant case, so we do not consider a possible award of

(continued...)

- 6 7430.5

4

(...continued)

administrative costs.

5

Sec. 7430 provides, in pertinent part, as follows:

SEC. 7430 AWARDING OF COSTS AND CERTAIN FEES.

(a) In General.--In any administrative or court

proceeding which is brought by or against the United States

in connection with the determination, collection, or refund

of any tax, interest, or penalty under this title, the

prevailing party may be awarded a judgment or a settlement

for-*

*

*

*

*

*

*

(2) reasonable litigation costs incurred

in connection with such court proceeding.

(b) Limitations.-*

*

*

*

*

*

*

(3) Costs denied where party prevailing protracts

proceedings.--No award for reasonable litigation and

administrative costs may be made under subsection (a)

with respect to any portion of the administrative or

court proceeding during which the prevailing party has

unreasonably protracted such proceeding.

*

*

*

*

*

*

*

(c) Definitions.--For purposes of this section-*

*

*

*

*

*

*

(4) Prevailing party.-(A) In general.--The term “prevailing party”

means any party in any proceeding to which

subsection (a) applies * * *-(i) which-–

(continued...)

- 7 In general, the requirements of section 7430 are in the

conjunctive; i.e., the taxpayer must satisfy each of them in

order to succeed.

See Corson v. Commissioner, 123 T.C. 202, 205-

5

(...continued)

(I) has substantially prevailed

with respect to the amount in

controversy, or

(II) has substantially prevailed

with respect to the most significant

issue or set of issues presented, and

(ii) which meets the requirements of the

1st sentence of section 2412(d)(1)(B) of

title 28, United States Code * * *

(B) Exception if United States establishes

that its position was substantially justified.-(i) General rule.--A party shall not be

treated as the prevailing party in a

proceeding to which subsection (a) applies if

the United States establishes that the

position of the United States in the

proceeding was substantially justified.

*

*

*

*

*

*

*

(C) Determination as to prevailing party.-Any determination under this paragraph as to

whether a party is a prevailing party shall be

made by agreement of the parties or–*

*

*

*

*

*

*

(ii) in the case where such final

determination is made by a court, the court.

*

*

*

*

*

*

*

(6) Court proceedings.--The term “court

proceeding” means any civil action brought in a court

of the United States (including the Tax Court * * *).

- 8 206 (2004); Minahan v. Commissioner, 88 T.C. 492, 497 (1987).

Respondent concedes that petitioners (1) exhausted available

administrative remedies (sec. 7430(b)(1)) and (2) met the net

worth requirements (subpars. (A)(ii) and (D)(ii) of sec.

7430(c)(4)).

Respondent contends that (1) petitioners are not

“the prevailing party” because (A) petitioners did not

substantially prevail (sec. 7430(c)(4)(A)(i)) and (B)

respondent’s position “was substantially justified” (sec.

7430(c)(4)(B)(i)); (2) the amount of costs petitioners claim is

not reasonable (sec. 7430(a)(2)); and (3) petitioners

“unreasonably protracted such proceedings” (sec. 7430(b)(3)).

In order to be entitled to an award of litigation costs, one

of the requirements is that petitioners have “substantially

prevailed”.

Although in general the requirements for an award

are in the conjunctive, the substantially prevailed requirement

is satisfied if petitioners satisfy either one of two statutory

alternatives.

We proceed to consider first whether petitioners

substantially prevailed with respect to the most significant

issue or set of issues presented (sec. 7430(c)(4)(A)(i)(II)), and

then whether petitioners substantially prevailed with respect to

the amount in controversy (sec. 7430(c)(4)(A)(i)(I)).

A.

Most Significant Issue

The parties have stipulated that they “agree that the most

- 9 significant issue raised was whether Respondent abused its [sic]

discretion by denying Petitioners’ claims for abatement of

interest.”

Petitioners assert that there were two aspects to

respondent’s abuse of discretion--(1) delay in performing

ministerial acts and (2) error in performing ministerial acts.

Petitioners point out that respondent conceded error in both

aspects, contend that petitioners prevailed on both aspects, and

conclude that they “satisfy the prevailing party requirement.

Bowden v. Comm’r, TCM 1999-30, citing Huckaby, 804 F.2d 297 (5th

Cir. 1986).”

Respondent contends:

Petitioners originally requested interest abatement of

all assessed interest (other than the partial abatement

granted by respondent’s Appeals Office) attributable to

petitioners’ disallowed losses and credits claimed from

their investment in Thompson Equipment Associates.

Other than for a three-month period, petitioners were

unsuccessful in their argument for interest abatement.

Petitioners also argued for interest abatement derived

from errors by respondent in the amount of interest

computed. Respondent conceded before trial * * *

[several small items listed]. Other than these

concessions, all of petitioners’ arguments about errors

in calculating interest in this case were rejected by

the Court. Goetee, T.C. Memo. 2003-43, slip op. at 66,

67, and 71. Petitioners did not substantially prevail

as to the interest abatement and interest errors issues

in this litigation.

We agree with respondent.

The instant case is brought under section 6404(h)(1), to

determine whether respondent’s “failure to abate interest under

- 10 this section was an abuse of discretion”.

The parties’

stipulation as to the most significant issue presented (sec.

7430(c)(4)(A)(i)(II)) basically tracks the statute’s language.

Thus, petitioners’ overall success controls whether they

substantially prevailed on the most significant issue presented.

We discuss individual elements of petitioners’ claims and what

became of these elements, but we do so for convenience of

analysis, with the focus being on the forest and not the

individual trees.

Initially, petitioners proceeded pro se.

In their petition,

they requested abatement of interest as to 1978, 1979, 1981,

1982, and 1983.

After respondent’s motion for partial summary

judgment was granted and respondent’s motion to dismiss was

denied, petitioners retained their present counsel.

Commissioner, T.C. Memo. 1997-454.

Goettee v.

At the time of the first

partial trial in the instant case, petitioners’ trial memorandum

requested abatement of an aggregate of about $55,000 of interest

for 1979, 1981, and 1982, and ascribed this entirely to “delays

attributable in part to delay by IRS personnel in their

performance of ministerial acts.”

In their opening brief after

completion of the trial in the instant case, petitioners

contended that:

2. Petitioners are entitled to an abatement of interest

from December 2, 1993 to October 26, 1994, and December

14, 1994 to April 25, 1995, and other periods due to

delays by Respondent in performing ministerial acts.

- 11 3. Petitioners are entitled to an abatement or correction

of Respondent’s interest computation errors.

Petitioners’ opening posttrial brief listed a number of asserted

errors, the most significant of which appeared to be (1)

incorrect starting dates for interest computations as to all 3

years’ liabilities, and (2) respondent’s failure to pay interest

or provide offsets on account of a $40,000 settlement offer

amount which respondent held for about 7 months.

In petitioners’

motion for reconsideration of our opinion in Goettee I, they

specified about 2-1/2 months of delay periods in addition to the

16-1/4 months they had specified in their opening posttrial

brief.

See Goettee v. Commissioner, T.C. Memo. 2004-9, issues 2,

3, and 4.

We agree with petitioners’ contention in their motion

papers:

However, the government cannot avoid an award of

litigation costs by conceding a matter when such

concession is conditioned on terms unacceptable by the

other party. See, Culpepper-Smith v. U.S.A., 50 F.

Supp. 2nd 425, 430 (E.D. Pa 1999).

However, we do not determine that respondent in the instant case

improperly conditioned any concessions.

In evaluating the extent

of petitioners’ success we take into account those matters that

respondent conceded (whether early or late in the proceedings) as

well as the one contested matter as to which we held in part for

petitioners.

Petitioners point to the fact that at one point during the

- 12 proceedings before the court respondent escalated the dispute by

indicating that petitioners owed almost $15,000 additional

interest and that “This was respondent’s position when trial

commenced”.

As petitioners note, this contention was raised

almost 2-1/2 years after the instant case was begun, was not

embodied in any document filed with the Court, and was conceded

by respondent at the start of the trial (about 2 weeks after this

contention was raised), before the first witness was called to

the stand.

This contention arose and vanished, without becoming

a part of the case; it never became part of what petitioners

asked this Court to require respondent to abate.

Under these

circumstances, we do not take this evanescent contention into

account in determining whether petitioners substantially

prevailed as to the most significant issue or set of issues

presented.

Petitioners prevailed to some extent.

They achieved some

success on the delay periods and some success on the error

disputes.

However, these successes in the aggregate were barely

more than trivial compared to petitioners’ failures in the

litigation.

As to the delay periods, petitioners prevailed with

respect to 3 months, and respondent prevailed with respect to 153/4 months.

Goettee I, issue I; Goettee v. Commissioner, T.C.

Memo. 2004-9, issues 2, 3, 4, and 5.

As to the major errors

disputes, petitioners prevailed on one starting date; respondent

- 13 prevailed on the two other starting dates and on the $40,000

settlement offer amount.

Goettee I, issues II.A. and III.

As to

the other errors disputes, petitioners prevailed on several

matters because of respondent’s concessions, and respondent

prevailed on all the unconceded items that went to opinion.

Goettee I, issue II.B.

There is no indication in the record, and petitioners do not

contend, that any matter as to which petitioners prevailed-whether by respondent’s concession or by our holding--would

significantly benefit petitioners in later years.

Cf. sec.

301.7430-5(h), Example (2), Proced. & Admin. Regs.

We conclude that, taking into account respondent’s

concessions as well as our holdings, petitioners have not

substantially prevailed with respect to what they and respondent

have stipulated to be the most significant issue or set of issues

presented.

Petitioners cite only one opinion on the issue of

substantially prevailing--Bowden v. Commissioner, T.C. Memo.

1999-30.

In Bowden, we held that the taxpayers lost on the most

significant issue presented.

In Bowden, we cited Bragg v.

Commissioner, 102 T.C. 715, 719-720 (1994), in which we also held

that the taxpayers lost as to the most significant issue or set

of issues presented.

Petitioners point out that in Bowden we

cited Huckaby v. United States, 804 F.2d 297 (5th Cir. 1986).

In

- 14 Huckaby v. United States, 804 F.2d at 300, the Court of Appeals

stated as follows:

Huckaby, however, has prevailed on the primary issue:

whether the government was liable for tax return

disclosures that were given without written consent.

Section 7430(c)(2)(A)(ii)(II) is phrased in terms of

issues not claims. We therefore hold that Huckaby has

met the second prong of the “prevailing party”

requirement. [Emphasis in original.]

We have not found, and petitioners have not directed our

attention to, any element in the instant case that plays a role

similar to the significance of the “written consent” issue in

Huckaby.

In Wilkerson v. United States, 67 F.3d 112, 120 (5th Cir.

1995), the Court of Appeals stated as follows:

Wilkerson has prevailed on her claim of wrongful

levy, but failed on all her other claims, including

wrongful disclosure. Although she sought a greater

amount of damages for the disclosures, that fact alone

does not make the disclosure issue most significant.

See Huckaby, 804 F.2d at 299-300 (holding that a party

was a “prevailing party” despite award of only $1,000

out of possible $28,000 in damages). In order to

determine which issue is most significant, we must

determine which issue is primary or most nearly central

to the case. See id. at 300 (holding an issue most

significant because it was “the primary issue”).

Looking at the gravamen of Wilkerson’s complaint, the

primary issue was whether the levies on Wilkerson’s

property were wrongful. The bulk of Wilkerson’s claims

were in some way derived from the wrongfulness of the

levies. For example, Wilkerson’s argues that she is

entitled to recover under the Fifth Amendment because

the levies caused her to lose her business without due

process or just compensation. Likewise, Wilkerson

based her claim of wrongful disclosure on a theory that

the wrongfulness of the levies made the disclosures

wrongful. Although we reject this position,

Wilkerson’s complaint indicates the centrality of the

- 15 levy issue. Accordingly, we hold that the wrongful

levy issue was the most nearly central to her case.

Having prevailed on the wrongful levy issue, Wilkerson

has prevailed as to the most significant issue in the

case.

We have not found, and petitioners have not directed our

attention to, any element in the instant case that plays a role

similar to the significance of the “wrongful levy” issue in

Wilkerson.

In the instant case, the parties have chosen by stipulation

to conflate all the different disputes--large, small, and

trivial--into one abuse of discretion issue.

In accordance with

the parties’ stipulation, we have evaluated the bits and pieces

of the claimed abuse of discretion and concluded that by any

reasonable measure of significance it was respondent and not

petitioners who substantially prevailed on the most significant

issue or issues presented.

Accordingly, the instant case is

properly distinguishable from Huckaby and Wilkerson.

Under these

circumstances, we need not, and we do not, examine into the

analysis presented in Scrimgeour v. Internal Revenue, 149 F.3d

318, 326-329 (4th Cir. 1998), relating to whether section 7430

applies to disputes of the sort presented in Huckaby.

We hold for respondent on this issue.

7430(c)(4)(A)(i)(II).

Sec.

- 16 B.

Amount in Controversy

Petitioners do not contend that they substantially prevailed

with respect to the amount in controversy because, they state,

“no simple mathematical application of the ‘amount in

controversy’ test seems possible in connection with this interest

abatement claim.”

Nevertheless, it may help to put this matter in perspective

to compare petitioners’ trial memorandum with the parties’ joint

Rule 155 computation.

Table 1

Year

Petitioners’ Trial Memorandum

“Interest Paid Abatement Requested”

1979

1981

1982

Totals

Joint

Rule 155

Overpayment

Overpayment As Percent

of Abatement Requested

$36,520

4,975

13,952

$950.97

456.23

1,286.15

2.6

9.2

9.2

55,447

2,693.35

4.9

As table 1 shows, petitioners claimed in their trial

memorandum that they were entitled to an abatement of more than

$55,000 of the interest they paid for the 3 years remaining in

the case, but the parties’ joint Rule 155 computation shows that

they have been awarded not quite 5 percent of what they claimed.

We do not attempt in the instant case to set forth a

universal definition of “amount in controversy” in interest

abatement cases.

See Dixson Corp. v. Commissioner, 94 T.C. 708,

715 (1990), as to deficiency cases.

But surely, in the setting

of the instant case, that amount is not less than the amount

- 17 petitioners claimed just before the start of the trial.

To

paraphrase our comment in Bragg v. Commissioner, 102 T.C. at 719,

no matter which method or manner of analysis we use, petitioners

come out substantially defeated.6

Petitioners’ defeat is all the

clearer when the $2,700 overpayment amount (even as enhanced by

interest accruing after May 6, 2003, per the parties’ agreement)

is compared to petitioners’ claim for almost $60,000 in

litigation costs.

See, e.g., Dang v. Commissioner, 259 F.3d 204,

206 (4th Cir. 2001), affg. an unreported order and decision of

this Court entered July 21, 2000.

We hold, for respondent, that petitioners did not

substantially prevail with respect to the amount in controversy.

Sec. 7430(c)(4)(A)(i)(I).

C. Conclusion

Petitioners have not “substantially prevailed” with respect

to either the amount in controversy or the most significant issue

or set of issues presented.

Accordingly, petitioners are not a

“prevailing party” for purposes of section 7430.

Because the

requirements of section 7430 are in the conjunctive, we need not

6

We note petitioners’ suggestion in their legal memorandum

that respondent’s concession of the additional $15,000 contention

“should affect any consideration of the amount in controversy

component of the test.” If we were to do so, adding that amount

to the totals, supra in table 1, would result in petitioners’

claiming relief of about $70,000 and obtaining relief of less

than $18,000. Even under this approach, petitioners would have

prevailed as to only one-fourth of the amount in controversy.

- 18 here discuss whether respondent’s position was “substantially

justified”, whether petitioners unreasonably protracted the

proceedings, or whether petitioners’ claimed costs are

unreasonable or excessive.

Also, we do not consider whether or

to what extent the analysis in Fla. Country Clubs, Inc. v.

Commissioner, 122 T.C. 73 (2004), affd. 404 F.3d 1291 (11th Cir.

2005), relating to deficiency cases, applies in interest

abatement cases.

For the above reasons, we hold petitioners are not entitled

to litigation costs.

To reflect the foregoing,

An appropriate order and

decision will be entered denying

petitioners’ motion for award of

litigation costs, as supplemented,

and determining overpayments in

accordance with the filed joint

Rule 155 computations.