                        T.C. Memo. 2000-387



                     UNITED STATES TAX COURT



              MICHELE D. LIVINGSTON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15040-97.                 Filed December 20, 2000.


     Howard B. Teller, for petitioner.

     Richard A. Stone, for respondent.



                        MEMORANDUM OPINION


     THORNTON, Judge:   This case is before the Court on

petitioner’s motion for litigation and administrative costs

pursuant to section 7430 and Rule 231.1


     1
        References to sec. 7430 in this opinion are to that
section as amended by the Taxpayer Bill of Rights 2, Pub. L. 104-
168, sec. 701, 110 Stat. 1452, 1463 (1996), effective with
respect to proceedings commenced after July 30, 1996. The 1996
                                                   (continued...)
                               - 2 -

     Neither party has requested an evidentiary hearing on

petitioner’s motion, and we conclude that none is necessary.      See

Rule 232(a)(1) and (2).   We base our decision on the pleadings,

petitioner’s motion for litigation and administrative costs,

respondent’s objection to that motion, the supporting memoranda

and affidavits, and the record in this case.

     The full findings of fact underlying the substantive dispute

between the parties appear in the Court’s opinion, Livingston v.

Commissioner, T.C. Memo. 2000-121.     We repeat only the facts

necessary to clarify our discussion.

Background

     For taxable years 1989 and 1990, petitioner and Theron

Livingston (Theron) were married.    For taxable year 1989,

petitioner filed a separate individual Federal income tax return.

Theron filed no 1989 Federal income tax return.    For taxable year

1990, petitioner and Theron filed a joint individual Federal

income tax return.




     1
      (...continued)
amendment shifted to the Commissioner the burden of proving that
the position of the United States was substantially justified.
See sec. 7430(c)(4)(B).
      A judicial proceeding is commenced in this Court with the
filing of a petition. See Rule 20(a). Petitioner filed her
petition on July 14, 1997. Accordingly, the 1996 amendments to
sec. 7430 apply here. See Maggie Management Co. v. Commissioner,
108 T.C. 430 (1997). Other section references are to the
Internal Revenue Code in effect for the years in issue. All Rule
references are to the Tax Court Rules of Practice and Procedure.
                                - 3 -

     In 1994, Theron pleaded guilty to income tax evasion

pursuant to section 7201 for taxable year 1990 and to a 1993

offense for distribution of cocaine base.   As part of the

criminal proceeding, respondent reconstructed Theron’s income for

taxable years 1989, 1990, and 1991 using a net worth analysis.

In the plea agreement, Theron admitted, consistent with

respondent’s net worth analysis, that in 1990 he had additional

unreported income of $63,610.

     After Theron’s plea agreement, respondent conducted a civil

examination of Theron’s 1989 Federal income tax return and

petitioner’s and Theron’s 1990 joint Federal income tax return.

As part of this examination, respondent’s revenue agent requested

petitioner and Theron, who was then in prison, each to provide

documentation such as income records and expense records.

Neither petitioner nor Theron complied with the request.

     Relying upon the income reconstructions prepared in the

criminal investigation, with certain modifications, respondent

determined a $3,424 deficiency in Theron’s 1989 Federal income

tax liability and a $24,676 deficiency in petitioner’s and

Theron’s 1990 joint Federal income tax liability.   For taxable

year 1990, respondent also determined that Theron was liable for

an $18,507 addition to tax for fraud.   On April 15, 1997,

respondent issued a notice of deficiency reflecting these

determinations.
                                 - 4 -

     After the notice of deficiency was issued, respondent

assigned the case to an IRS Appeals officer.    Petitioner’s

counsel had several telephone discussions with respondent’s

Appeals officer but never met with him in person.    Petitioner’s

counsel asked the Appeals officer to concede that petitioner was

entitled to relief from joint liability pursuant to former

section 6013(e) but presented no information, documentation, or

other evidence to explain why petitioner qualified for this

relief.   Petitioner’s counsel also requested all the information

in respondent’s administrative files regarding the criminal net

worth computations.   The Appeals officer denied this request on

the ground that the information sought was grand jury information

that was not available to the Appeals officer.    Petitioner’s

counsel then insisted that the case be sent to respondent’s

district counsel.

     In her petition to this Court, petitioner disputed

respondent’s determination of the 1990 deficiency and sought

relief from joint liability under former section 6013(e).      Theron

filed a separate petition for taxable years 1989 and 1990.     The

cases were consolidated for trial, briefing, and opinion.

     On May 21, 1998, a trial was held in the consolidated cases.

On July 22, 1998–-before opening briefs were due--section 6015

was enacted, replacing former section 6013(e), which was repealed

generally as of the same date.    See Internal Revenue Service
                               - 5 -

Restructuring and Reform Act of 1998 (RRA), Pub. L. 105-206, sec.

3201(a), (e)(1), 112 Stat. 734.   On August 3 and 18, 1998,

petitioner filed administrative elections for relief from joint

liability pursuant to section 6015(b) and (c), respectively.    The

Court suspended the briefing schedule to provide respondent an

opportunity to respond to petitioner’s administrative elections.

     On January 13, 1999, respondent notified petitioner that she

is entitled to relief from joint liability pursuant to section

6015(c) and mailed her a proposed decision representing a

concession that she has no liability for any amount of the

deficiency in dispute.   Respondent made no determination whether

petitioner qualified for relief under section 6015(b).

      On January 25, 1999, petitioner advised the Court that she

agreed with respondent’s concession of the entire deficiency

against her pursuant to section 6015(c) but that she would not

agree to respondent’s proposed decision unless respondent also

responded to her election under section 6015(b).

     With leave of the Court, on March 17, 1999, petitioner filed

an amendment to petition, in which she requested the Court to

require respondent to make a determination as to her eligibility

for relief from joint liability under former section 6013(e) and

section 6015(b).   On March 26, 1999, respondent filed an answer

to petitioner’s amendment to petition.   The Court then directed

the parties to file opening and answering briefs.
                               - 6 -

     In Livingston v. Commissioner, T.C. Memo. 2000-121, this

Court held that because of infirmities in respondent’s net worth

computations, respondent’s determination of a 1989 deficiency for

Theron was not sustained.   For taxable year 1990, this Court held

that Theron’s admission of unreported income was strong evidence

of the prima facie validity of respondent’s net worth

computations but that the evidence offered at trial established

that the 1990 deficiency was less than that determined in

respondent’s notice of deficiency.     We also held that, with

regard to petitioner’s request for a determination as to her

eligibility for relief from joint liability pursuant to section

6015(b), respondent’s concession that pursuant to section 6015(c)

petitioner has no liability for any amount of deficiency for

taxable year 1990 had resolved the controversy between petitioner

and respondent that was before us.     We declined to express an

advisory opinion as to whether petitioner would have qualified

for relief under section 6015(b).2

Discussion

     Section 7430(a) permits the award of reasonable

administrative and litigation costs to a taxpayer in an

administrative or court proceeding brought against the United

States in connection with the determination of any tax, interest,



     2
        We determined that petitioner had conceded the issue of
her entitlement to relief pursuant to former section 6013(e).
                               - 7 -

or penalty under the Internal Revenue Code.   An award of

reasonable administrative or litigation costs may be made where

the taxpayer is the prevailing party and did not unreasonably

protract the administrative or judicial proceedings.    See sec.

7430(a) and (b)(3).   Litigation costs may be awarded only if the

taxpayer exhausted available administrative remedies.    See sec.

7430(b)(1).

     To be a prevailing party, a taxpayer must:   (1)

Substantially prevail with respect to either the amount in

controversy or the most significant issue or set of issues

presented, and (2) meet certain net worth requirements.     See sec.

7430(c)(4)(A)(i) and (ii).

     Respondent concedes that petitioner substantially prevailed

and meets the net worth requirements.   Respondent argues,

however, that petitioner is not the prevailing party because

respondent was substantially justified in maintaining his

position in the administrative and judicial proceedings.

Respondent also argues that petitioner did not exhaust all

administrative remedies, that petitioner unreasonably protracted

the proceedings, and that the fees requested are unreasonable.

     As a general rule, the taxpayer in an administrative or

court proceeding is not treated as the prevailing party if

respondent establishes that the position of the United States was

substantially justified.   See sec. 7430(c)(4)(B)(i).   Pursuant to
                              - 8 -

section 7430(c)(7), the term “position of the United States”

means:

          (A) the position taken by the United States in a
     judicial proceeding to which subsection (a) applies,
     and
          (B) the position taken in an administrative
     proceeding to which subsection (a) applies as of the
     earlier of–-
               (i) the date of the receipt by the taxpayer
          of the notice of decision of the Internal Revenue
          Service Office of Appeals, or
               (ii) the date of the notice of deficiency.

     Here, the record does not reflect that the Appeals Office

ever issued a notice of decision prior to the issuance of the

notice of deficiency; accordingly, respondent is considered to

have taken a position in the administrative proceedings on the

date the notice of deficiency was issued.   Respondent is

considered to have taken a position in the judicial proceedings

herein when the answer was filed.   See Huffman v. Commissioner,

978 F.2d 1139, 1148 (9th Cir. 1992), affg. in part and revg. in

part on another ground T.C. Memo. 1991-144.   Although the

positions respondent takes in the administrative and judicial

proceedings are normally considered separately, to permit

consideration of changes in respondent’s position in the two

proceedings, see Austin v. Commissioner, T.C. Memo. 1997-157,

here the distinction is of little consequence, as

respondent appears to have taken the same position in both the

notice of deficiency and in the answer.
                                - 9 -

     The United States’ position is substantially justified if it

is “justified to a degree that could satisfy a reasonable

person.”    Pierce v. Underwood, 487 U.S. 552, 565 (1988).   To be

substantially justified, the United States’ position need not be

correct but need only have a “reasonable basis both in law and

fact.”    Id.; see also Wasie v. Commissioner, 86 T.C. 962, 969

(1986).    Whether respondent’s position was substantially

justified depends upon the reasonableness of the position, based

on all the facts known to the respondent when he took positions

in the administrative and judicial proceedings.   See Maggie

Management Co. v. Commissioner, 108 T.C. 430, 443 (1997);

DeVenney v. Commissioner, 85 T.C. 927, 931 (1985).    The fact that

respondent eventually loses or concedes a case does not establish

that respondent’s position was unreasonable.   See Sokol v.

Commissioner, 92 T.C. 760, 767 (1989); Wasie v. Commissioner,

supra at 969.   The burden of proof is on respondent to show that

the position of the United States was substantially justified.

See sec. 7430(c)(4)(B)(i); Rule 232(e).

     The substantive issues in the underlying case were:     (1)

Whether petitioner and Theron were jointly liable for the 1990

deficiency as determined in the notice of deficiency, and (2)

whether petitioner qualified for relief from joint liability

pursuant to former section 6013(e) or section 6015.
                                - 10 -

1.   Respondent’s Justification as to the Asserted 1990
     Deficiency

     Respondent had a reasonable basis in law and fact for

concluding that petitioner and Theron were jointly liable for a

deficiency as determined in the notice of deficiency for taxable

year 1990.   Theron had admitted that he had unreported income in

1990 as determined in the criminal net worth computation.    As we

stated in Livingston v. Commissioner, T.C. Memo. 2000-121,

Theron’s admission was strong evidence of the validity of the

1990 criminal net worth computation and consequently of the 1990

civil net worth computation, upon which the 1990 deficiency

determination was predicated.

2.   Respondent’s Justification as to Denial of Petitioner’s
     Claim for Relief From Joint Liability

           a.   Period Before Repeal of Former Section 6013(e)

     As described above, during the administrative proceedings

and throughout the trial of this case, the applicable statutory

provision for relief from joint liability was former section

6013(e), which was repealed shortly after the trial and replaced

by section 6015, effective July 22, 1998.   See RRA sec. 3201(a),

(e)(1).   Under former section 6013(e), to qualify for relief, a

taxpayer had to establish that:    (1) A joint Federal income tax

return was filed; (2) there was a substantial understatement of

tax attributable to grossly erroneous items of the other spouse;

(3) in signing the return, the spouse seeking relief did not
                              - 11 -

know, and had no reason to know, of the substantial

understatement; and (4) taking into account all the facts and

circumstances, it would be inequitable to hold the spouse seeking

relief liable for the deficiency attributable to such substantial

understatement.   Of particular significance here were items (3)

and (4) above.

     During the civil examination, petitioner refused to provide

requested records to respondent’s revenue agent.   Although

petitioner asserted her entitlement to relief from joint

liability at some point in the administrative proceedings, she

never provided any corroborating evidence to justify her claim;

indeed, it is unclear from the record that she ever provided any

explanation why she believed she merited relief from joint

liability.3   Similarly, during trial preparation she provided no

significant support for her position that she was entitled to

innocent spouse relief.

     Whether a spouse is entitled to relief from joint liability

depends upon an examination of all the facts and circumstances,



     3
       It is unclear whether petitioner ever asserted a claim for
relief from joint liability during the civil examination. At
trial, petitioner produced an executed Form 8379, Injured Spouse
Claim and Allocation, dated Nov. 29, 1996. Petitioner offered no
documentation, however, that the form was ever transmitted to
respondent. Respondent’s agent testified that she never received
the form. Even if we were to assume, arguendo, that petitioner
did submit the Form 8379 to respondent, the Form 8379 offered
into evidence includes no explanation as to why petitioner
believed she qualified for relief from joint liability.
                             - 12 -

including the credibility of the spouse seeking relief.    See

Estate of Sell v. Commissioner, T.C. Memo. 1993-325; Brailsford

v. Commissioner, T.C. Memo. 1991-639.   Because the burden is on

the taxpayer to establish entitlement to relief from joint

liability, see Adams v. Commissioner, 60 T.C. 300, 303 (1973),

respondent does not act unreasonably in requiring better proof

than mere assertions of entitlement to relief without independent

corroboration, see Sliwa v. Commissioner, 839 F.2d 602, 608 (9th

Cir. 1988).

     The limited information available to respondent’s Appeals

officer and district counsel when the notice of deficiency was

issued and when the answer was filed included information that

petitioner had failed to cooperate with requests for information,

that petitioner’s and Theron’s expenses were greater than the

income reported on their 1990 return, that petitioner was living

in the house where drugs were discovered upon Theron’s arrest in

1991, and that petitioner remained married to Theron.    On the

basis of this information, respondent would have been reasonable

in concluding that petitioner may have known or have had reason

to know of the unreported income, and thus would not be entitled

to relief from joint liability under former section 6013(e).

Indeed, even after submission of all the evidence by both parties

at trial, it was not a foregone conclusion that respondent’s

asserted deficiency for 1990 would not be sustained–-a
                               - 13 -

determination that, if the parties had not settled the issue,

would have been made by the Court only after carefully weighing

all the evidence and assessing the credibility of several key

witnesses--or that petitioner would have prevailed on her claim

for relief from joint liability under former section 6013(e)–-an

issue that we need not reach, given respondent’s concession that

petitioner is entitled to full relief from joint liability

pursuant to section 6015(c).

b.   Period After Enactment of Section 6015

      Effective July 22, 1998, former section 6013(e) was repealed

and replaced, with retroactive effect, by new section 6015.    See

RRA sec. 3201(a), (e)(1), 112 Stat. 740.      In Corson v.

Commissioner, 114 T.C. 354, 359-360 (2000), we summarized the

effect of new section 6015 as follows:

           Whereas section 6013(e) had offered only a single
      avenue of relief, based on a spouse’s lack of knowledge or
      reason to know of a substantial understatement, section 6015
      authorizes three types of relief. Subsection (b) provides a
      form of relief available to all joint filers and similar to,
      but less restrictive than, that previously afforded by
      section 6013(e). Subsection (c) permits a taxpayer who has
      divorced or separated to elect to have his or her tax
      liability calculated as if separate returns had been filed.
      Subsection (f) confers discretion upon the Commissioner to
      grant equitable relief, based on all facts and
      circumstances, in cases where relief is unavailable under
      subsection (b) or (c).

       In August 1998 petitioner made administrative elections for

relief pursuant to new section 6015.    On January 13, 1999,

respondent conceded that petitioner was entitled to relief under

section 6015(c).   Respondent was entitled to take a reasonable
                               - 14 -

amount of time to verify whether the facts established by

petitioner met the conditions for relief under section 6015(c),

particularly considering that the new statute raised novel and

complex interpretive issues.   See Sokol v. Commissioner, 92 T.C.

760, 765 n.10 (1989).   We believe that respondent’s concession

within 5 months of petitioner’s election under section 6015 was

reasonable.   See Ashburn v. United States, 740 F.2d 843 (11th

Cir. 1984) (United States was substantially justified in waiting

11 months after filing of complaint in Equal Access to Justice

case, because the issues were not simple); Rouffy v.

Commissioner, T.C. Memo. 1987-5 (5-month delay in conceding case

was not unreasonable where amended statute raised novel issues).

     c.   Period After Respondent Conceded Relief Under Section
          6015(c)

     In Livingston v. Commissioner, T.C. Memo. 2000-121, we

concluded that respondent prevailed on the issue of whether he

was required to address petitioner’s election under section

6015(b) after respondent had conceded that petitioner was

entitled to relief under section 6015(c).   Respondent’s position

was substantially justified in this regard.   Moreover, for the

period after respondent had offered to concede that petitioner

was entitled to full relief from joint liability, petitioner

unreasonably protracted the proceedings and is therefore

ineligible for costs pursuant to section 7430(b)(3).   See Mearkle

v. Commissioner, 90 T.C. 1256 (1988).
                             - 15 -

     In light of our conclusions that the position of the United

States was substantially justified, we need not reach

respondent’s arguments that petitioner unreasonably protracted

the proceedings (apart from our conclusion that petitioner

unreasonably protracted the proceedings after January 13, 1999),

that petitioner has failed to exhaust administrative remedies,

and that the fees requested are unreasonable.

     Petitioner’s motion for litigation and administrative costs

will be denied.

                                        An appropriate order and

                                   decision will be entered.
