                       T.C. Memo. 1998-306



                     UNITED STATES TAX COURT



           GIRISH AND NALINI G. PATEL, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5033-97.                     Filed August 24, 1998.



     Girish and Nalini G. Patel, pro sese.

     David B. Mora, for respondent.


                       MEMORANDUM OPINION

     GOLDBERG, Special Trial Judge:    This case is before the

Court on petitioners' motion for an award of reasonable

litigation costs under section 7430.   Unless otherwise indicated,

all section references are to the Internal Revenue Code of 1986,

as amended and in effect for the year in issue.   All Rule

references are to the Tax Court Rules of Practice and Procedure.
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     At the time their petition was filed, petitioners resided in

Houston, Texas.   References to petitioner are to Girish Patel.

     The Internal Revenue Service, Austin, Texas, Service Center

(IRS) mailed a letter (30-day letter) to petitioners on September

25, 1996, proposing changes in their 1994 income tax return.      On

the schedule attached to the 30-day letter, respondent increased

taxable income by $7,161, resulting in an increase of $1,072 in

petitioners’ 1994 tax liability.       The adjustments were (1) $7,146

of additional interest income from two accounts at NationsBank of

Texas, and (2) $15 of additional wage income.      Respondent’s

adjustments were based upon a comparing of the amounts reported

on petitioners’ Federal income tax return for wages and interest

with Forms W-2 and Forms 1099 received from the payors.      The 30-

day letter stated:

     If you don’t agree with the proposed changes on page 2:
          - Check box B on the last page of this notice,
          - Enclose a signed statement explaining why you
     disagree,
          - Include any supporting documents you wish us to
     consider, and
          - Use the envelope enclosed to return the last page of
     this notice with your statement and documents. Please
     include a telephone number, including an area code, and the
     best time to call you.

     The letter stated that if the IRS did not receive a response

within the 30-day period, a notice of deficiency would be issued.

Petitioners would be able to contest the notice of deficiency in

Court.   Petitioners did not respond to the 30-day letter, nor did

they request an Appeals Office conference.
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     Respondent mailed a notice of deficiency to petitioners on

December 18, 1996.    In the notice, respondent determined a

deficiency in the amount of $1,072 in petitioners’ Federal income

tax for 1994.    The deficiency is based on determinations by

respondent as set forth in the 30-day letter which was attached

to the notice.

     In their petition, filed on March 17, 1997, petitioners

contested the deficiency and alleged that the interest had been

reported by "someone else", the IRS had the necessary

information, and the motive for the issuance of the notice was

intimidation by the IRS to get to petitioners’ savings account.

     However, prior to the filing of the petition, and after the

mailing of the notice of deficiency, correspondence took place

between the parties; namely, petitioner and the IRS Problem

Resolution Officer.    On January 4, 1997, petitioner wrote a

letter to the IRS explaining that the interest ascribed to

petitioners was reported on another individual’s income tax

return.   In response to petitioner’s letter, the IRS sent letters

dated January 30 and February 13, 1997, requesting the Social

Security number of the individual or a copy of the return on

which the income was reported.    This information was again

requested by the IRS in a letter dated February 24, 1997.      It

appears this correspondence involved petitioners’ 1988 tax year,

as well as the 1994 tax year.
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     Petitioner, on February 12, 1997, sent a letter to

respondent giving the name of petitioner's father and telling

respondent to search the administrative files for information

petitioner had earlier provided to the IRS in Houston.

Petitioner's letter contained petitioner's Social Security

number, but not the Social Security number of the person

petitioners claimed paid the tax on the interest income.    After

the filing of the petition, respondent's Appeals Office attempted

to contact petitioners by telephone and by letters dated June 2

and June 17, 1997.

     On September 17, 1997, the Clerk of the Court sent a notice

to the parties informing them that the case was set for trial at

the Trial Session beginning on December 8, 1997, in Houston,

Texas.   When the case was called for trial, the parties appeared

and were heard.   Respondent reported that a basis of settlement

had been reached with regard to the case and that respondent

conceded that there was no deficiency in income tax due from, or

overpayment due to, petitioners for the tax year 1994.    At that

time, petitioners requested an award of litigation costs.

     Petitioners filed a Motion for Litigation Costs in the

amount of $3,000 on January 12, 1998.   Respondent’s objection to

petitioners’ motion was filed on April 3, 1998.   A Stipulation of

Settled Issues was filed by the parties on March 2, 1998.

     Section 7430 provides that in any court proceeding brought

by or against the United States in connection with the
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determination, collection, or refund of any tax, the "prevailing

party" may be awarded reasonable litigation costs.   To be a

"prevailing party" taxpayers must establish (1) that they

substantially prevailed with respect to the amount in controversy

or with respect to the most significant issue presented, (2) that

the position of the United States in the proceeding was not

substantially justified, and (3) that taxpayers met the net worth

requirements of 28 U.S.C. 2412(d)(2)(B)(1994) on the date the

petition was filed.   Sec. 7430(c)(4)(A).   As a prerequisite for

obtaining a judgment for litigation costs, the taxpayers must

also establish that they have exhausted the administrative

remedies available to them within the IRS, that they did not

unreasonably protract the proceeding, and that the costs claimed

are reasonable.   Sec. 7430(b).   Taxpayers must establish each of

these elements to recover litigation costs.   Rule 232(e); Dixson

Intl. Serv. Corp. v. Commissioner, 94 T.C. 708, 714-715 (1990).

     Respondent contends that petitioners should not be entitled

to recover litigation costs because petitioners did not exhaust

the administrative remedies available within the IRS.

     As stated above, a judgment for reasonable litigation fees

shall not be awarded in any court proceeding unless the court

determines that the prevailing party has exhausted the

administrative remedies available within the Internal Revenue

Service.   Sec. 7430(b)(1).   A taxpayer has not exhausted his

administrative remedies if he does not request an Appeals Office
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conference where one is available or when a taxpayer fails to

file a written protest if one is required in order to obtain an

Appeals Office conference.   Sec. 301.7430-1(b)(1), Proced. &

Admin. Regs.   A taxpayer's failure to establish any one of the

requirements of section 7430 will preclude an award of costs.

Minahan v. Commissioner, 88 T.C. 492, 497 (1987).

     In this case, petitioners did not request an Appeals Office

conference after receiving the 30-day letter and did not file a

written protest.   Because petitioners failed to exhaust all

administrative remedies available within the IRS, petitioners did

not comply with section 7430(b)(1).    Therefore, we need not

address the issue of whether this claim for costs was reasonable.

Based on the record, we hold that petitioners are not entitled to

recover litigation costs because of their failure to comply with

the requirements of section 7430(b)(1).

     To reflect the foregoing,

                                           An appropriate order and

                                      decision will be entered.
