                        T.C. Memo. 2005-42



                      UNITED STATES TAX COURT



                   MARDI RUSTAM, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3316-04L.            Filed March 7, 2005.


     Stephen M. Lopez, for petitioner.

     John D. Faucher, for respondent.


                        MEMORANDUM OPINION


     WELLS, Judge:   This case is before the Court on respondent’s

motion to dismiss for lack of jurisdiction and petitioner’s

motion for award of reasonable litigation costs.1   Unless

otherwise noted, all section references are to the Internal



     1
      The parties appeared via video conference from Los Angeles,
Cal., presenting oral arguments on the instant motions to the
Court sitting in Washington, D.C.
                                     - 2 -

Revenue Code, as amended, and all Rule references are to the Tax

Court Rules of Practice and Procedure.

                                Background

     At the time of filing his petition, petitioner resided in

Toluca Lake, California.

     On January 21, 2004, respondent’s Appeals Office issued a

Notice of Determination Concerning Collection Action(s) Under

Section 6320 and/or 6330, determining that a proposed levy to

recover a section 6672 trust fund penalty liability with respect

to petitioner’s 1997 tax year was appropriate.2        The first page

of the notice of determination stated:

     If you want to dispute this determination in court, you
     must file a petition with the United States Tax Court
     for a redetermination within 30 days from the date of
     this letter.

          *        *       *     *      *    *     *

     The time limit for filing your petition is fixed by
     law. The courts cannot consider your case if you file
     late. If the court determines that you made your


     2
      SEC. 6672.       FAILURE TO COLLECT AND PAY OVER TAX, OR
                       ATTEMPT TO EVADE OR DEFEAT TAX.

          (a) General Rule.-- Any person required to collect,
     truthfully account for, and pay over any tax imposed by this
     title who willfully fails to collect such tax, or truthfully
     account for and pay over such tax, or willfully attempts in
     any manner to evade or defeat any such tax or the payment
     thereof, shall, in addition to other penalties provided by
     law, be liable to a penalty equal to the total amount of the
     tax evaded, or not collected, or not accounted for and paid
     over. No penalty shall be imposed under section 6653 or
     part II of subchapter A of chapter 68 for any offense to
     which this section is applicable.
                             - 3 -

     petition to the wrong court, you will have 30 days
     after such determination to file with the correct
     Court. [Emphasis added.]

     Petitioner subsequently petitioned this Court for review

pursuant to section 6330(d).   Petitioner contended that he was

not liable for the underlying tax liability because he was not a

“responsible person” for purposes of collecting, accounting for,

and paying over taxes as required by sections 6671 and 6672.

     Before answering the petition, respondent filed a motion to

dismiss for lack of jurisdiction pursuant to section

6330(d)(1)(B) and Rule 53.   In response, petitioner filed an

opposition.   Subsequently, petitioner filed a motion for award of

reasonable litigation costs.   On October 13, 2004, the parties

presented oral arguments before this Court with regard to

respondent’s motion to dismiss for lack of jurisdiction and

petitioner’s motion for award of reasonable litigation costs.

                             Discussion

Motion To Dismiss for Lack of Jurisdiction

     Section 6330 provides persons liable for tax with the right

to a hearing with the Commissioner’s Appeals Office before the

Secretary may levy upon the property of such persons.3    The


     3
      SEC. 6330.   NOTICE AND OPPORTUNITY FOR HEARING BEFORE LEVY.

          (a) Requirement of Notice Before Levy.--

              (1) In general.--No levy may be made on any
          property or right to property of any person unless the
                                                   (continued...)
                                - 4 -

determination of the Commissioner’s Appeals Office is subject to

judicial review, pursuant to section 6330(d)(1):

     SEC. 6330(d).   Proceeding After Hearing.--

          (1) Judicial review of determination.--The
     person may, within 30 days of a determination under
     this section, appeal such determination–-

               (A) to the Tax Court (and the Tax Court shall
          have jurisdiction with respect to such matter); or

               (B) if the Tax Court does not have
          jurisdiction of the underlying tax liability, to
          a district court of the United States.

     If a court determines that the appeal was to an
     incorrect court, a person shall have 30 days after the
     court determination to file such appeal with the
     correct court.

The jurisdiction of this Court to review administrative

determinations with respect to levy actions, therefore, is

limited to actions in which we have jurisdiction of the

underlying tax liability.   See sec. 6330(d)(1)(B).

     Petitioner does not argue that this Court has jurisdiction

over the underlying section 6672 liability that is the subject of



     3
      (...continued)
          Secretary has notified such person in writing of their
          right to a hearing under this section before such levy
          is made. * * *

               *      *     *     *      *    *       *

          (b) Right to Fair Hearing.--

               (1) In general.--If the person requests a hearing
          * * *, such hearing shall be held by the Internal
          Revenue Service Office of Appeals.
                                 - 5 -

respondent’s collection action.    Rather, petitioner contends that

respondent waived the right to challenge this Court’s

jurisdiction by stating on the notice of determination that the

proper method for disputing the determination was to file a

petition with this Court.

     Petitioner’s contention is without merit.     We previously

have held that this Court lacks jurisdiction to determine the

liability of taxpayers with respect to penalties imposed by

section 6672.     Moore v. Commissioner, 114 T.C. 171, 175 (2000);

Medeiros v. Commissioner, 77 T.C. 1255, 1260 (1981); Wilt v.

Commissioner, 60 T.C. 977, 978 (1973).      In Moore v. Commissioner,

supra at 175, we stated:    “Section 6672(c)(2) contemplates that

the Federal District Court or the Court of Federal Claims shall

have jurisdiction to determine a taxpayer’s liability for a

penalty imposed under that section.      The Tax Court does not have

jurisdiction”.4


     4
      Whereas sec. 6672(c)(2) imposes procedural requirements for
refund suits in U.S. District Courts and the U.S. Court of
Federal Claims, sec. 6672 makes no reference to the
jurisdictional authority of this Court. Sec. 6672(c)(2)
provides:

          (2) Suit must be brought to determine liability
     for penalty.--If, within 30 days after the day on which
     his claim for refund with respect to any penalty under
     subsection (a) is denied, the person described in
     paragraph (1) fails to begin a proceeding in the
     appropriate United States district court (or in the
     Court of Claims) for the determination of his liability
     for such penalty, paragraph (1) shall cease to apply
                                                   (continued...)
                               - 6 -

     The right to question the jurisdiction of this Court cannot

be waived by the actions or inactions of a party.   David Dung Le,

M.D., Inc. v. Commissioner, 114 T.C. 268 (2000), affd. 22 Fed.

Appx. 837 (9th Cir. 2001).   Consequently, respondent did not

waive the right to challenge our jurisdiction over the underlying

tax liability by instructing petitioner that the proper method

for disputing the determination was for petitioner to file a

petition with this Court.

     For the foregoing reasons, we conclude that this Court lacks

jurisdiction over the underlying section 6672 penalty in the

instant case and that respondent’s motion to dismiss must be

granted.5   Petitioner, however, is not necessarily without


     4
      (...continued)
     with respect to such penalty, effective on the day
     following the close of the 30-day period referred to in
     this paragraph.
     5
      Petitioner also contends that respondent’s motion to
dismiss is premature because respondent failed to notify
petitioner or petitioner’s counsel before the filing of the
motion pursuant to Rule 50(a), leaving petitioner with no
opportunity to object to the motion. This contention lacks
merit. Rule 50(a) provides:

          (a) Form and Content of Motion: An application to
     the Court for an order shall be by motion in writing,
     which shall state with particularity the grounds
     therefor and shall set forth the relief or order
     sought. The motion shall show that prior notice
     thereof has been given to each other party or counsel
     for each other party and shall state whether there is
     any objection to the motion. If a motion does not
     include such a statement, the Court will assume that
     there is an objection to the motion.
                                                   (continued...)
                                   - 7 -

remedy.   Pursuant to section 6330(d), petitioner has 30 days to

file an appeal with the appropriate U.S. District Court.

Motion for Reasonable Litigation Costs

     Section 7430(a) provides that the prevailing party in a

court proceeding brought by or against the United States in

connection with the determination or collection of a tax,

interest, or penalty may recover reasonable litigation costs.6

Section 7430(c)(4)(A) defines “prevailing party” as follows:

     (4) Prevailing Party.--

          (A) In general.--The term “prevailing party” means
     any party in any proceeding to which subsection (a)
     applies (other than the United States or any creditor
     of the taxpayer involved)–-




     5
      (...continued)
Where notice of a motion is not provided, objection to the motion
is assumed by this Court. Id. Accordingly, petitioner’s
objection to respondent’s motion to dismiss was assumed, and
petitioner has been permitted ample opportunity to voice the
objection to this Court.
     6
      Sec. 7430(a) provides in part:

     SEC. 7430.       AWARDING OF COSTS AND CERTAIN FEES.

          (a) In General.–-In any * * * 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.
                             - 8 -

                   (i) which–-

                      (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 (as in effect
                   on October 22, 1986) except to the extent
                   differing procedures are established by
                   rule of court and meets the requirements of
                   section 2412(d)(2)(B) of such title 28 (as
                   so in effect).

Section 7430(c)(4)(A)(ii) effectively limits the award of

litigation costs to parties with net worth of $2 million or

less.7   Stieha v. Commissioner, 89 T.C. 784, 790 (1987).

Consequently, to qualify as the prevailing party pursuant to

section 7430(c)(4), a party must, inter alia, (1) “substantially

prevail” with respect to either the amount in controversy or the

most significant issue or set of issues presented, and (2)

satisfy the $2 million net worth limitation.   The taxpayer bears

the burden of proving that the foregoing two requirements have

been satisfied.    Rule 232(e); Minahan v. Commissioner, 88 T.C.

492, 497 (1987).

     Section 7430(c)(4)(B) provides the following exception to



     7
      Rule 231(b)(4) requires that a motion for award of
reasonable litigation costs contain a statement, supported by an
affidavit of the moving party, that the moving party meets the
net worth requirement.
                                - 9 -

the definition of “prevailing party”:

          (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.

Consequently, a party that satisfies the section 7430(c)(4)(A)

definition of prevailing party is not treated as the prevailing

party if the United States establishes that its position in the

proceeding was substantially justified.   Sec. 7430(c)(4)(B)(i).

     “Reasonable litigation costs” include reasonable court costs

and reasonable attorney’s fees.8   Such costs and fees must be


     8
      SEC. 7430(c).   Definitions.–-For purposes of this section–-

          (1) Reasonable litigation costs.--The term “reasonable
     litigation costs” includes–-

               (A) reasonable court costs, and

               (B) based upon prevailing market rates for the
          kind or quality of services furnished–-

                    (i) the reasonable expenses of expert
               witnesses in connection with a court proceeding,
               except that no expert witness shall be compensated
               at a rate in excess of the highest rate of
               compensation for expert witnesses paid by the
               United States,

                    (ii) the reasonable cost of any study,
               analysis, engineering report, test, or project
               which is found by the court to be necessary for
               the preparation of the party’s case, and

                      (iii) reasonable fees paid or incurred for
                                                     (continued...)
                               - 10 -

based on prevailing market rates.   Sec. 7430(c)(1)(B).

Attorney’s fees, generally, are capped at $125 per hour, with an

adjustment for inflation.   Sec. 7430(c)(1).

     We understand petitioner’s position to be that he

substantially prevailed with respect to the most significant

issue or set of issues presented pursuant to section

7430(c)(4)(A)(i)(II).   Without elaboration, petitioner contends

that he prevailed with respect to respondent’s motion to dismiss

or with respect to petitioner’s own motion for reasonable

litigation costs.    Petitioner makes no contention as to whether

the position of respondent was substantially justified or whether

petitioner satisfied the net worth requirements of section

7430(c)(4)(A)(ii).   Petitioner requests litigation costs of



     8
      (...continued)
               the services of attorneys in connection with the
               court proceeding, except that such fees shall not
               be in excess of $125 per hour unless the court
               determines that an increase in the cost of living
               or a special factor, such as the limited
               availability of qualified attorneys for such
               proceeding, the difficulty of the issues presented
               in the case, or the local availability of tax
               expertise, justifies a higher rate.

     In the case of any calendar year beginning after 1996, the
     dollar amount referred to in clause (iii) shall be increased
     by an amount equal to such dollar amount multiplied by the
     cost-of-living adjustment determined under section 1(f)(3)
     for such calendar year, by substituting “calendar year 1995"
     for “calendar year 1992" in subparagraph (B) thereof. If
     any dollar amount after being increased under the preceding
     sentence is not a multiple of $10, such dollar amount shall
     be rounded to the nearest multiple of $10.
                              - 11 -

$5,078.10, which represents 15.25 hours of service billed at $325

per hour, together with various miscellaneous costs.9     Petitioner

does not contend, however, that special factors justify the

payment of attorney’s fees at a rate higher than that prescribed

by section 7430(c)(1).

      We will deny petitioner’s motion.    The only issue presented

by respondent’s motion to dismiss for lack of jurisdiction is

whether this Court has jurisdiction over the collection of

petitioner’s section 6672 penalty liability.10     See sec.

7430(c)(7).   As noted above, petitioner did not substantially

prevail with respect to that issue.11     Furthermore, petitioner

failed to demonstrate that his net worth does not exceed $2

million, pursuant to section 7430(c)(4)(A)(ii).     Consequently,

petitioner is not the prevailing party in the proceeding before

us.

      Even if petitioner were the prevailing party, respondent’s


      9
      In addition to billing petitioner $325 per hour for 15.25
hours of service, petitioner’s counsel states that he advanced
costs of $60 for filing the petition and $30.85 for postage,
copying, and faxes. Petitioner’s counsel added anticipated court
parking costs of $17 and the $14 cost of “Federal Express Filing”
the amended motion to the litigation cost total.
      10
      We note that respondent has not yet filed an answer in
this case. Consequently, respondent’s only position with respect
to petitioner’s sec. 6672 liability is that this Court lacks
jurisdiction over the issue. See sec. 7430(c)(7).
      11
      Although petitioner contends that he prevailed with
respect to the motion for litigation costs, that argument is
circular, and we will not consider it.
                               - 12 -

position in the motion to dismiss for lack of jurisdiction was

substantially justified; as we held above, we lack jurisdiction

with respect to respondent’s attempt to collect the section 6672

penalty from petitioner.    See Moore v. Commissioner, 114 T.C. 171

(2000).    Consequently, petitioner is not the prevailing party in

the proceeding before us.

     For the foregoing reasons, petitioner is not entitled to an

award of reasonable litigation costs by this Court.12

Conclusion

     We conclude that respondent’s motion to dismiss must be

granted because this Court lacks jurisdiction over respondent’s

collection of the underlying section 6672 liability from

petitioner.   We further conclude that petitioner’s motion for

costs must be denied because petitioner is not the prevailing

party.13   We have considered all remaining arguments and, to the


     12
      We also note that sec. 7430(c)(1) permits the award of
attorney’s fees in excess of the prescribed limitation only where
a special factor justifies a higher rate. Petitioner’s claimed
rate of $325 per hour far exceeds the prescribed limitation, and
petitioner has not demonstrated any special factor justifying
such a rate. See sec. 7430(c)(1)(B)(iii).
     13
      We sympathize with petitioner’s argument that respondent’s
notice of determination erroneously directed him to this Court.
We do not know whether petitioner will refile this case in the
District Court. If he does, we express no view herein as to
whether he would substantially prevail on the sec. 6672 issue and
otherwise qualify for an award of litigation costs. However, if
he is otherwise entitled to such an award, we do not intend our
holding that he did not substantially prevail on the
jurisdictional issue in this Court to affect whether the District
                                                   (continued...)
                             - 13 -

extent not addressed above, conclude that they are irrelevant or

without merit.

     To reflect the foregoing,

                                      An order and order of

                                 dismissal for lack of jurisdiction

                                 will be entered, and petitioner’s

                                 motion for award of litigation

                                 costs as amended will be denied.




     13
      (...continued)
Court includes costs petitioner incurred in this Court in an
award under sec. 7430.
