                       T.C. Memo. 1999-109



                     UNITED STATES TAX COURT




         W. GREGORY AND PATRICIA L. RYAN, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1274-96.                       Filed April 2, 1999.



     Daniel P. McGlinn, Russell A. Kries, and Matthew S.

DePerno, for petitioners.

     Alexandra E. Nicholaides, for respondent.



                       MEMORANDUM OPINION

     DEAN, Special Trial Judge:   This matter is before the Court

on a Motion for Litigation Costs filed by W. Gregory Ryan and
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Patricia L. Ryan, pursuant to section 7430 and Rule 231.1    The

issues for decision are (1) whether petitioners should be awarded

reasonable litigation costs pursuant to section 7430, and if so,

(2) whether the amount of litigation costs requested by

petitioners is reasonable, and (3) whether petitioners have

unreasonably protracted the litigation.

     At the time the petition was filed in this case, petitioners

resided in Schofield, Wisconsin.

     The underlying claim which gave rise to the present dispute

involved the classification of certain payments made by Gregory

Ryan (petitioner) to his former wife, Frances Ryan, pursuant to a

Judgment of Divorce.   The Judgment of Divorce was granted by the

Circuit Court for the County of Kalamazoo, Michigan (trial

court), and provided for permanent alimony payable to Frances

Ryan as follows:

          IT IS FURTHER ORDERED AND ADJUDGED that the
     Plaintiff, W. GREGORY RYAN, shall pay to the Defendant,
     FRANCES RYAN, for her support and maintenance, the sum
     of SEVEN HUNDRED ($700.00) DOLLARS per month, in
     advance, commencing January 5, 1990, for January,
     February, March and April of 1990, and commencing
     May 5, 1990, the sum of TWO HUNDRED FIFTY ($250.00)
     DOLLARS PER WEEK, and continuing thereafter until the
     death or substantial change in circumstances, or until
     further order of this Court having competent
     jurisdiction. This alimony shall be paid through the
     Friend of the Court consistent with the provisions
     hereinafter found dealing with payment of support.

     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code. All Rule references are to the Tax
Court Rules of Practice and Procedure.
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     In 1991, petitioner appealed the Judgment of Divorce to the

Michigan Court of Appeals (court of appeals) on the grounds that

the alimony granted by the trial court was in excess of the

alimony requested by Frances Ryan.     In the divorce proceedings,

Frances Ryan had asked for alimony for a term of 8 years, yet the

Judgment of Divorce provided alimony until Frances Ryan's death

or a substantial change in circumstances.

     The court of appeals rendered a per curiam opinion dated

May 8, 1991, finding that the trial court's alimony award was

improper and remanded the matter to the trial court "for

modification of the divorce judgment to reflect an alimony award

of $250 a week for eight years."

     Petitioner subsequently filed a motion for clarification

with the court of appeals, which was dismissed because it was not

timely filed.   The trial court did not amend the Judgment of

Divorce pursuant to the court of appeals' opinion.

     Frances Ryan did not include payments from petitioner in

1991, 1992, and 1993 as income.    Although she did not testify at

trial, the record reflects that she treated the court of appeals'

opinion as having specifically removed the termination-upon-death

provision contained in the original Judgment of Divorce.

Petitioner, on the other hand, treated the payments as though a

termination upon death provision was still in effect and the

payments were alimony for a term of 8 years.
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     Respondent determined a deficiency in petitioner's Federal

income tax for 1991 in the amount of $4,030, and deficiencies in

petitioners' Federal income taxes for 1992 and 1993 in the

amounts of $3,954 and $4,019, respectively.   Respondent

determined that petitioner failed to establish that the $13,000

he paid during each of the taxable years 1991, 1992, and 1993

qualified for the alimony deduction under section 215.

     This Court rendered Ryan v. Commissioner, T.C. Memo.

1998-331, deciding that the amounts paid by petitioner to his

former wife were properly deductible as alimony.   Petitioner now

requests the Court to award him reasonable litigation costs in

the amount of $24,409.

                              OPINION

     In general, section 7430 allows a taxpayer who is a

prevailing party in a civil tax proceeding to recover reasonable

administrative and litigation costs incurred in such proceeding.

An award of administrative or litigation costs may be made where

the taxpayer:   (1) Is the prevailing party; (2) exhausted

available administrative remedies; and (3) did not unreasonably

protract the administrative or judicial proceeding.   See sec.

7430(a) and (b)(1), (4).
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Prevailing Party

     To be a "prevailing party", a taxpayer must2 (1) establish

that respondent's position was not substantially justified; (2)

substantially prevail with respect to either the amount in

controversy or the most significant issue or set of issues

presented, and (3) meet the net worth requirements of 28 U.S.C.

sec. 2412(d)(2)(B).   See sec. 7430(c)(4)(A)(i), (ii), and (iii).

     Respondent concedes that petitioners substantially prevailed

with respect to the amount in controversy and the most

significant issue involved in this case and met the net worth

requirements.   The parties dispute, however, whether respondent's

position in the judicial proceeding was substantially justified.

Specifically, petitioners make three arguments as to why

respondent's position was not substantially justified:   (1)

Respondent took inconsistent positions with respect to

petitioners and Frances Ryan, claiming that the payments made by

petitioners were not alimony, but the payments received by


     2
      In 1996, legislation was enacted which shifted to the
Commissioner the burden of proving whether the position of the
United States was substantially justified. See sec.
7430(c)(4)(B), as amended by the Taxpayer Bill of Rights 2 (TBOR
2), Pub. L. 104-168, sec. 701, 110 Stat. 1452, 1463 (1996). The
changes made by this legislation apply only to proceedings
commenced after July 30, 1996. TBOR 2 secs. 701(d), 702(b), 110
Stat. 1464. Since petitioners filed their petition on Jan. 22,
1996, the proceedings at issue were commenced before the
effective date of TBOR 2, and the changes enacted by TBOR 2 are
not applicable. See Maggie Management Co. v. Commissioner, 108
T.C. 430, 441 (1997).
                               - 6 -


Frances Ryan were alimony; (2) respondent took inconsistent

positions by disallowing deductions claimed as alimony by

petitioner in 1991, 1992, and 1993, while allowing those same

deductions claimed in 1990 and 1994; and (3) respondent's

position was not supported by facts and law.

     Respondent asserts that it was reasonable to argue

inconsistent positions against petitioner and Frances Ryan in

order to protect the revenue, and that the failure to audit

petitioner's prior or subsequent taxable years is irrelevant to a

determination of the tax liability for the years at issue in this

case.   Furthermore, respondent argues that this case focused on

the legal question of whether the subsequent State court order

modified the alimony award in the original Judgment of Divorce by

eliminating the termination-upon-death provision.    Under these

circumstances, respondent contends, the position of the United

States was substantially justified.

     We agree with respondent that taking inconsistent positions

with respect to petitioner and Frances Ryan was reasonable.

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); Smith v.

Commissioner, T.C. Memo. 1996-292.     Unlike the case of Human v.

Commissioner, T.C. Memo. 1998-65, inconsistent positions were
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appropriate in this case because the facts and law did not make

it clear that the payments were alimony.

     We also agree with respondent that it is irrelevant whether

petitioner took alimony deductions on his 1990 and 1994 returns.

It is well settled that respondent may assert a position as in

the instant case even though he raised no objection to similar

claims by the taxpayer in prior years.    See Yeaman v. United

States, 584 F.2d 322, 326 (9th Cir. 1978); Rose v. Commissioner,

55 T.C. 28, 32 (1970); Meneguzzo v. Commissioner, 43 T.C. 824,

836 (1965).    Even if the Commissioner erroneously accepted the

tax treatment of certain items in previous years, he is not

precluded from correcting that error in a subsequent year.      See

Hawkins v. Commissioner, 713 F.2d 347, 351-352 (8th Cir. 1983),

affg. T.C. Memo. 1982-451.    We focus, therefore, on whether

respondent's position for the years in suit was supported by fact

and law.    See Pierce v. Underwood, 487 U.S. 552, 565 (1988).

     For purposes of litigation costs in a judicial proceeding,

the Government initially takes a position on the date the answer

is filed.     See Lockett v. Commissioner, T.C. Memo. 1994-144; Han

v. Commissioner, T.C. Memo. 1993-386.    Respondent filed an answer

on August 6, 1996.    Thus, we shall consider respondent's position

as of this date in determining whether to award petitioner

litigation costs.    Respondent's position in the answer was the

same as in the notice of deficiency; i.e., that petitioner's
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deduction of the claimed alimony payments to Frances Ryan was

disallowed.

     In this case, respondent's position was based on the

uncertainty associated with what effect, if any, the court of

appeals' opinion had on the alimony provisions contained in the

Judgment of Divorce.   If the court of appeals' opinion eliminated

the termination-upon-death provision contained in the Judgment of

Divorce, the payments made by petitioner to Frances Ryan may not

have qualified as alimony under State law, and may not have been

deductible.   If the court of appeals' opinion did not alter the

termination-upon-death provision contained in the Judgment of

Divorce, the payments would be considered alimony and would have

been deductible under section 215.     This was ultimately a matter

of legal interpretation.

     Under these circumstances, we find that respondent acted

reasonably in raising the issue of what effect, if any, the court

of appeals' opinion had on the alimony provisions contained in

the Judgment of Divorce.   The Judgment of Divorce had not been

modified to reflect the changes mandated by the court of appeals'

decision.   The absence of a corrected Judgment of Divorce,

coupled with Frances Ryan's position on her tax return, left the

terms of the payment provisions open to interpretation. We

addressed the effect of the court of appeals' opinion in Ryan v.

Commissioner, supra, and ultimately rejected the position on this
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issue taken by respondent in the notice of deficiency to

petitioner.   The position, however, was grounded in the

uncertainty of the interpretation of the court of appeals'

opinion.

     In light of the conflicting positions taken by Frances Ryan

and petitioner, and taking into consideration our decision in

Ryan v. Commissioner, supra, we hold that respondent's position

in the civil proceeding was reasonable in fact and law and thus

substantially justified.

     Consequently, petitioner is not a prevailing party as

defined in section 7430(c)(4).    As a result of this holding, we

need not address the question of whether petitioner has satisfied

the other requirements of section 7430.       Petitioner is not

entitled to an award for reasonable litigation costs.

     To reflect the foregoing,

                                         An appropriate order and

                                 decision will be entered.
