                        T.C. Memo. 1997-77



                      UNITED STATES TAX COURT



             ESTATE OF HELEN G. WILLIAMSON, DECEASED,
            DOUGLAS F. WOODS, EXECUTOR, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20857-94.                Filed February 12, 1997.



     Wendy Abkin, for petitioner.

     Elizabeth L. Groenewegen, for respondent.


                        MEMORANDUM OPINION

     KÖRNER, Judge:   This case is before the Court on

petitioner's motion to recover administrative and litigation

costs pursuant to section 7430 and Rule 231.1    The opinion in




     1
        All section references are to the Internal Revenue Code
as amended, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                                - 2 -

this case on the substantive issues was issued on September 19,

1996, as T.C. Memo. 1996-426.

       Section 7430(a) provides that the prevailing party may be

awarded a judgment for (1) reasonable administrative costs

incurred in connection with an administrative proceeding within

the Internal Revenue Service, and (2) reasonable litigation costs

incurred in connection with a court proceeding.    Congress enacted

section 7430 in the Tax Equity and Fiscal Responsibility Act of

1982, Pub. L. 97-248, sec. 292(a), 96 Stat. 572, and, as relevant

to the present case, amended the statute by the Technical and

Miscellaneous Revenue Act of 1988, Pub. L. 100-647, sec. 6239(a),

102 Stat. 3342, 3743-3747, applicable to proceedings commenced

after November 10, 1988.2

       A judgment for costs may be awarded under section 7430(a)

only if, among other requirements, a taxpayer (1) is the

"prevailing party", and (2) where the taxpayer seeks litigation

costs, has exhausted the administrative remedies available to the

taxpayer within the Internal Revenue Service, and (3) does not

unreasonably protract the proceedings.    Sec. 7430(a), (b)(1),

(4).


       2
        Sec. 7430 was amended most recently by the Taxpayer Bill
of Rights 2, Pub. L. 104-168, secs. 701-704, 110 Stat. 1452,
1463-1464, applicable to proceedings commenced after July 30,
1996. However, the parties do not dispute that sec. 7430 as
amended by the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, sec. 6239(a), 102 Stat. 3342, 3743-3747, is
applicable.
                               - 3 -

     In order to qualify as the "prevailing party", a taxpayer

must establish:   (1) The position of the United States in the

proceeding is not substantially justified; (2) the taxpayer has

substantially prevailed with respect to the amount in controversy

or the most significant issue or set of issues presented; and (3)

the taxpayer satisfies the applicable net worth requirements.

Sec. 7430(c)(4)(A); sec. 301.7430-5(a), Proced. & Admin. Regs.

     Finally, if a taxpayer qualifies as a prevailing party, only

administrative and litigation costs that are reasonable may be

awarded.   Sec. 7430(a), (c)(1) and (2).   These requirements are

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

requirements to be entitled to reasonable litigation and

administrative costs.   Minahan v. Commissioner, 88 T.C. 492, 497

(1987).

     We begin with whether respondent's position was

substantially justified.   Petitioner bears the burden of proving

that respondent's position was not substantially justified.       Sec.

7430(c)(4)(A)(I); Rule 232(e); Ganter v. Commissioner, 92 T.C.

192, 197 (1989), affd. 905 F.2d 241 (8th Cir. 1990); Dixson Corp.

v. Commissioner, 94 T.C. 708, 714-715 (1990).     A position is

"substantially justified" if the position is "justified to a

degree that could satisfy a reasonable person".     Pierce v.

Underwood, 487 U.S. 552, 565 (1988).

     We examine here whether the Commissioner's position was not

substantially justified.   Respondent took a position in the
                               - 4 -

administrative proceeding when she issued the notice of

deficiency to petitioner.   Sec. 7430(c)(7)(B).    Respondent took a

position in this proceeding when the Court filed respondent's

answer herein.   Sec. 7430(c)(7)(A); Sher v. Commissioner, 89 T.C.

79 (1987), affd. 861 F.2d 131 (5th Cir. 1988).     Ordinarily, we

consider the reasonableness of each of these positions

separately.   Huffman v. Commissioner, 978 F.2d 1139, 1144-1147

(9th Cir. 1992), affg. in part, revg. in part, and remanding on

another issue T.C. Memo. 1991-144.     In the instant setting,

however, when these positions are the same, we evaluate their

reasonableness together.

     Whether the Commissioner's position was not substantially

justified turns on the finding of reasonableness, based on the

facts and circumstances of the case, as well as on any legal

precedents that may relate thereto.     Nalle v. Commissioner, 55

F.3d 189, 191 (5th Cir. 1995), affg. T.C. Memo. 1994-182; Coastal

Petroleum Refiners, Inc. v. Commissioner, 94 T.C. 685, 688-696

(1990).   We ask ourselves "whether * * * [the Commissioner] knew

or should have known that her position was invalid at the onset".

Nalle v. Commissioner, supra at 191.

     As related in our principal opinion herein, this estate

secured a 6-month extension of time until September 30, 1988, for

filing its Federal estate tax return because of an ongoing

dispute between the estate and decedent's surviving husband

regarding the nature, amount, and valuation of assets that were
                               - 5 -

returnable in decedent's Federal estate tax return.    Pursuant to

the extension of time granted, the Federal estate tax return was

timely filed on September 30, 1988.    Attached to that return was

a copy of the request for extension of time originally made, and

that request contained an explanation and justification for

granting the extension of time.   At the time the return was

filed, the controversy between decedent's estate and decedent's

surviving husband still continued and was not settled until at

least January 14, 1991.   As a result, the estate tax return that

was filed herein did not include a large volume of assets, which

was one subject of respondent's deficiency notice herein.

     Exactly when respondent became aware of the quantity and

value of the assets that had been omitted from petitioner's

Federal estate tax return is unclear in this record.   However, on

September 21, 1994, more than 3 years after the return was filed,

but less than 6 years thereafter, respondent issued the statutory

notice of deficiency that has been contested herein.   There is no

evidence that any amended estate tax return was filed by

petitioner.

     In the controversy between petitioner and respondent, both

at the administrative level and in the proceeding before this

Court, respondent took the position that, since the omission of

assets from the return as filed was in excess of 25 percent of

the gross estate, the applicable period of limitations was
                                 - 6 -

extended to 6 years under section 6501(e)(2), and the notice of

deficiency that was sent was therefore timely.

     On the other hand, petitioner contended that the explanation

that was attached to the request for extension of time, a copy of

which was attached to the return when filed, was a clear

notification of the omitted assets that was disclosed in the

return, or in a statement attached thereto, and should have put

the Commissioner on notice of the omission, thereby eliminating

the 6-year period of limitations and reverting the period of

limitations to the basic 3 years under section 6501(a).

     In this matter, we held that the notification by petitioner

to respondent contained in the original application for extension

of time, and repeated in the Federal estate tax return when

filed, constituted an adequate written notice within the meaning

of section 6501(e)(2).   This decided the statute of limitations

matter in favor of petitioner.    Nevertheless, we emphasized then,

and we repeat now, that no estate tax cases have been found

interpreting section 6501(e)(2), and we can find no regulation or

case authority that would offer either support or opposition for

petitioner's position or for respondent's position.

     Accordingly, we conclude that petitioner has failed to show

that respondent was not substantially justified in taking the

position that attaching a copy of the request for extension of

time to the return as filed was an inadequate compliance with the

requirements of section 6501(e)(2).      We held contrary to
                              - 7 -

respondent's position on the statute of limitations question, but

we are not prepared to say that respondent was not substantially

justified in urging that position.    See Estate of Wall v.

Commissioner, 102 T.C. 391, 394 (1994).

     Because we have held that petitioner has not proven that

respondent's position was not substantially justified, we need

not address the other requirements provided in section 7430.

Therefore,

                                      An appropriate order and

                              decision will be entered.
