                        T.C. Memo. 1999-8



                     UNITED STATES TAX COURT



 GARRY F. BETTENCOURT AND PHYLLIS C. BETTENCOURT, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 7950-96, 17884-96.      Filed January 19, 1999.



     Donald H. Read, for petitioners.

     Daniel J. Parent, for respondent.



                       MEMORANDUM OPINION


     DINAN, Special Trial Judge:   These cases are before the

Court on petitioners' motions for litigation and administrative

costs pursuant to section 7430 and Rules 230, 231 and 232,1 filed



     1
          Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the years 1993 and
1994. All Rule references are to the Tax Court Rules of Practice
and Procedure.
                                 - 2 -

May 1, 1997, and October 6, 1997, respectively.    Neither party

requested a hearing, and we conclude that a hearing is not

necessary.    Rule 232(a).   We decide petitioners' motions on the

bases of the motions, the memoranda of law, and the declarations

submitted by the parties.

     On their 1993 joint Federal income tax return, petitioners

deducted $55,200 as alimony payments.    On their 1994 joint

Federal income tax return, they deducted $27,000 as alimony

payments.

     On March 13, 1995, respondent wrote to petitioners to inform

them that their 1993 return was under examination and requested

that they substantiate the claimed alimony deductions and various

claimed employee business expenses.

     In April 1995, petitioners met with respondent's tax

auditor.    On May 5, 1995, petitioners submitted to respondent

documents substantiating the claimed employee business expenses

and those expenses were allowed by respondent.    On May 5, 1995,

petitioners also provided to respondent documents to support the

claimed alimony deduction.    Those documents included a copy of a

judgment (hereinafter the judgment) dissolving the marriage

between petitioner Garry F. Bettencourt (petitioner) and his

former spouse, Kim T. Bettencourt, filed in the Superior Court of

California, County of Contra Costa (the court) on June 18, 1987.

At the same time, there were also provided to respondent a Wage

and Earnings Assignment Order re Spousal or Family Support filed
                               - 3 -

with the Superior Court on August 30, 1991, "Child Support Paid

by Garry Bettencourt" summaries for the year 1993, and wage stubs

showing amounts paid to petitioner by Medallion Mortgage Company

during 1993.

     On May 18, 1995, respondent sent petitioners a 30-day letter

proposing to disallow the claimed alimony deduction.

     In response to the 30-day letter, on June 3, 1995,

petitioners' counsel, Mr. Read, mailed to respondent a five page

letter protesting respondent's proposed income tax examination

changes.   He forwarded with his letter a power of attorney, Form

2848, and requested that petitioners' return be accepted as

filed.   In the event that respondent would not accept the return

as filed, Mr. Read requested that his letter be treated as a

formal protest and that the matter be referred to the Appeals

Office for hearing.   By letter dated June 14, 1995, Mr. Read sent

to respondent an original Form 2848, signed by petitioners.

     On June 27, 1995, respondent sent Mr. Read a letter

proposing the same adjustments to petitioners' 1993 return as

were proposed in the May 18, 1995, 30-day letter.

     During the summer months of 1995, correspondence was

exchanged between Mr. Read and respondent through which

respondent sought additional information about the alimony issue.

     A statutory notice of deficiency for 1993 was mailed to

petitioners on February 7, 1996.   Petitioners filed their

petition in docket No. 7950-96 with the Court on April 26, 1996,

and respondent filed an answer on May 21, 1996; the case was then

referred to respondent's Appeals Office.
                                 - 4 -

     In a letter to Mr. Read dated July 12, 1996, from

respondent's Appeals Office, respondent informed Mr. Read that it

was thought that the case might be resolved by mail.   The letter

further read:

          I have a copy of the June 18, 1987 decree issued
     by Judge Libbey. However, the administrative file did
     not contain copies of the March 8, 1989 and/or December
     22, 1989 modifications as described in your letter of
     June 3, 1995. Please submit complete copies of these
     orders as well as any subsequent to the 1989 order
     (sic). Once I receive the orders, I will call you to
     discuss my findings.

     A letter dated August 6, 1996, from Mr. Read to respondent's

Appeals Office reads, in part:

          Thank you for your letter of July 12, 1996. I am
     pleased to learn that you believe this case can be
     settled by mail. I would have responded sooner, but I
     have been on vacation.

           I enclose copies of the March 18, 1989 and
     December 22, 1989 orders you requested. I know of no
     other orders affecting support that were issued between
     the December 22, 1989 order and the end of tax year
     1993.

     In a letter to Mr. Read dated August 13, 1996, respondent's

Appeals Office forwarded to Mr. Read a proposed stipulation-

decision document in which respondent conceded the case for the

year 1993.

     In a letter pertaining to their 1994 tax year, respondent

forwarded to petitioners a report of examination which disallowed

the alimony deduction claimed on their 1994 joint Federal income

tax return.   Respondent's disallowance of the 1994 claimed

alimony deduction mirrored respondent's 1993 disallowance of the

similarly claimed alimony deduction.
                                - 5 -

       By letter dated April 11, 1996, respondent asked petitioners

to respond to the proposed disallowance of the alimony deductions

claimed by petitioners on their 1994 return.

       In a letter to respondent dated April 30, 1996, Mr. Read

invited respondent's attention to his arguments previously made

regarding the identical alimony issue raised regarding

petitioners' 1993 tax year and cited to respondent this Court's

then recent opinion in Ambrose v. Commissioner, T.C. Memo. 1996-

128.

       A statutory notice of deficiency for 1994 was mailed to

petitioners on May 23, 1996.    In response, petitioners timely

filed a petition in this Court at docket No. 17884-96, on August

19, 1996.    A Stipulation of Settled Issues was filed on April 4,

1997, in which respondent conceded the case.

                             Discussion

       A taxpayer who substantially prevails in an administrative

or court proceeding may be awarded reasonable costs incurred in

those proceedings.    Sec. 7430(a).   To be a "prevailing party", a

taxpayer must show that:    (1) The position of the United States

in the proceeding was not substantially justified,2 (2) the

taxpayer substantially prevailed with respect to either the

amount in controversy or the most significant issue or issues


       2
          Because the petition in docket No. 17884-96 was filed
after July 30, 1996, in that case the burden is on respondent to
show that the Government's position was substantially justified.
Taxpayer Bill of Rights 2 (TBR2), Pub. L. 104-168, secs. 701-704,
110 Stat. 1452, 1463-1464 (1996). See Maggie Management Co. v.
Commissioner, 108 T.C. 430 (1997). Our holding, however, does
not depend on which party has the burden.
                                - 6 -

presented, and (3) the taxpayer met the net worth requirements of

28 U.S.C., sec. 2412(d)(2)(B) (1994), on the date the petition

was filed.   Sec. 7430(c)(4)(A).   The taxpayer must also show that

all administrative remedies have been exhausted (to obtain a

judgment for litigation costs), section 7430(b)(1), that the

taxpayer has not unreasonably protracted the administrative or

judicial proceedings, section 7430(b)(4), redesignated as (b)(3)

by the 1996 Act, and that the costs claimed are reasonable in

amount, section 7430(c)(1) and (2).      These requirements are in

the conjunctive and each must be met in order for the Court to

determine that administrative or litigation costs should be

awarded pursuant to section 7430.       Minahan v. Commissioner, 88

T.C. 492 (1987); Renner v. Commissioner, T.C. Memo. 1994-372.

     Petitioners contend that they have substantially prevailed

with respect to the amounts in controversy and on the most

significant issue in these cases.   They further contend that they

have met the net worth requirements of 28 U.S.C., sec.

2412(d)(2)(B), that they have exhausted the administrative

proceedings available to them within the Internal Revenue

Service, and that they have not unreasonably protracted the

administrative or court proceedings.      They also argue that the

costs claimed are reasonable.

     Respondent agrees that petitioners have substantially

prevailed, that they meet the net worth requirements of 28

U.S.C., sec. 2412(d)(2)(B), and that they have not unreasonably

protracted the administrative and court proceedings.      Respondent
                                - 7 -

does not agree that his position was not substantially justified,

he does not agree that petitioners exhausted the administrative

remedies available to them within the Internal Revenue Service,

and he does not agree that the costs claimed are reasonable.

     We first consider whether respondent's position in each case

was substantially justified.   For the reasons stated, infra, we

find that it was.

     Whether respondent's position was substantially justified

depends on whether respondent's position and actions were

reasonable in light of the facts of the case and applicable

precedents.    Bragg v. Commissioner, 102 T.C. 715, 716 (1994);

Powers v. Commissioner, 100 T.C. 457, 470-471 (1993), affd. in

part and revd. and remanded in part 43 F.3d 172 (5th Cir. 1995).

The fact that respondent concedes the case is not necessarily

indicative that a position is not substantially justified.     Price

v. Commissioner, 102 T.C. 660, 662-665 (1994), affd. without

published opinion sub nom. TSA/THE Stanford Associates, Inc. v.

Commissioner, 77 F.3d 490 (9th Cir. 1996).    A position is

"substantially justified" when it is "justified to a degree that

could satisfy a reasonable person."     Pierce v. Underwood, 487

U.S. 552, 565 (1988).

     Respondent's disallowance of the alimony claimed by

petitioners on their 1993 and 1994 returns was predicated upon

the provisions of the judgment entered by the court in 1987,

dissolving the marriage of petitioner and his former wife, Kim T.

Bettencourt.   That judgment provided that the legal care, custody
                               - 8 -

and control of the two minor children born of the marriage,

Brandon and Lisa Ann, were awarded to both parents.    Physical

custody of the children was to be shared by the parents but the

primary residence of the children was to be with their mother.

     The judgment further provided that petitioner was to pay to

Kim T. Bettencourt as and for unallocated family support the sum

of $5,000 per month, commencing with the payment due and owing

May 1, 1987, and continuing thereafter until the death of either

party, Kim T. Bettencourt's remarriage, further order of the

court, or June 1, 1994.   The judgment further provided:

     Said family support shall be modifiable (and subject to
     allocation between spousal support and child support)
     upon motion of either party. Said jurisdiction to
     modify shall include the jurisdiction to extend the
     period of family support payments (or spousal support
     payments) beyond June 1, 1994, conditioned upon
     Petitioner carrying the burden of demonstrating why she
     has not become self-supporting and why she is in need
     of extended support from respondent.

     On August 30, 1991, there was filed with the Court a Wage

and Earnings Assignment Order addressed to petitioner's employer,

Allied Capitol Mortgage Corporation, ordering petitioner's

employer to pay to Kim T. Bettencourt from petitioner's earnings,

$4,600 per month current spousal or family support.

     On May 5, 1995, petitioners submitted to respondent's tax

auditor a schedule of payments made to Kim T. Bettencourt during

1993.   That schedule is titled:   "Child Support Paid by Garry

Bettencourt."

     On their 1993 return, petitioners claimed an alimony

deduction of $55,200.   On their 1994 return, they claimed an
                                - 9 -

alimony deduction of $27,600.   On their 1994 return, petitioners

also claimed dependency exemptions for petitioner's minor

children and reported on the return that the children lived with

petitioners during the entire year 1994.     Respondent's tax

auditor had at hand petitioners' 1993 and 1994 returns, and it

appeared that there was a reduction in support payments made to

Kim T. Bettencourt in 1994.

     On July 12, 1996, respondent's     Appeals officer requested

that petitioners submit additional information.     On August 8,

1996, petitioners' counsel, Mr. Read, for the first time provided

to respondent's Appeals officer the court orders dated March 8,

1989 and December 22, 1989.   Mr. Read also represented to

respondent's Appeals officer that, to his knowledge, the court

issued no other orders through 1993.     Based upon the information

provided by Mr. Read subsequent to the issuance of the notice of

deficiency in docket No. 7950-96, respondent's Appeals officer

determined that petitioner and Kim T. Bettencourt had not

petitioned the Court to allocate the family support payments

between child support payments and spousal support and agreed

with petitioners that their claimed alimony deductions were

allowable.

     On the basis of the facts contained in the record, we find

and hold that respondent was diligent in examining petitioners'

1993 and 1994 returns, and that at all relevant times

respondent's position in the administrative and litigation

proceedings was substantially justified.
                             - 10 -

     Because the provisions of section 7430 are conjunctive,

Minahan v. Commissioner, 88 T.C. at 497, and because we hold that

respondent's position in these cases was substantially justified,

we will deny petitioners' motions.    We, therefore, need not

address respondent's other objections to the motions.

                                     Appropriate orders and

                               decisions will be entered.
