                        T.C. Memo. 1997-384



                      UNITED STATES TAX COURT



        GERALD JACOBY AND ARLENE JACOBY, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7073-87.               Filed August 21, 1997.



     Ira B. Stechel and Thomas J. Fleming, Jr., for petitioner

 Arlene Jacoby.


     Diane R. Mirabito and Gary W. Bornholdt, for respondent.



                        MEMORANDUM OPINION

     CLAPP, Judge:   This case is before us on a Motion for Award

of Reasonable Litigation Costs pursuant to section 7430 and Rules

230 through 232 filed by Arlene Jacoby (petitioner).   Gerald

Jacoby (Gerald) is not a party to this motion, and he has reached
a settlement with respondent regarding his liabilities for all

taxable years.

     The findings of fact underlying the substantive dispute

between the parties can be found in this Court's memorandum

opinion, Jacoby v. Commissioner, T.C. Memo. 1996-477.     The issue

in the underlying case was whether petitioner qualified as an

innocent spouse.

     Section 7430(a) authorizes the Court to award reasonable

litigation costs to taxpayers who prevail against the United

States in civil tax litigation.   Respondent concedes that

petitioner substantially prevailed with respect to the amount in

controversy and with respect to the most significant issue.    Sec.

7430(c)(2)(A)(ii).   Respondent also concedes that petitioner has

not unreasonably protracted this proceeding.   Sec. 7430(b)(4).

Petitioner has satisfied the so-called net worth requirement set

forth in section 7430(c)(2)(A)(iii).   We must decide (1) whether

respondent's litigating position was "not substantially

justified", as that phrase is used in section 7430(c)(2)(A)(i)

(now section 7430(c)(4)(A)(i)), and (2) whether petitioner

exhausted her administrative remedies as required by section

7430(b)(1).   If those questions are resolved in favor of

petitioner, then we must decide whether the amount of attorney's

fees claimed by petitioner is reasonable.

     We hold that petitioner failed to exhaust her administrative

remedies.
     All section references are to the Internal Revenue Code in

effect for the years in issue, unless otherwise indicated, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.    References to section 7430 are to that section as

amended by section 1551 of the Tax Reform Act of 1986, Pub. L.

99-514, 100 Stat. 2085, 2752 (effective for proceedings commenced

after Dec. 31, 1985).    Section 7430 was amended most recently by

the Taxpayer Bill of Rights 2, Pub. L. 104-168, secs. 701-704,

110 Stat. 1452, 1463-1464 (1996), applicable to proceedings

commenced after July 30, 1996.    The parties do not dispute that

this proceeding was commenced before July 30, 1996.

     We decide petitioner's motion on the basis of the motion,

memoranda of law, and affidavits submitted by the parties.

Neither party requested a hearing, and we conclude that a hearing

is not necessary.    Rule 232(a)(3).

     We first address whether petitioner exhausted the

administrative remedies available to her within the Internal

Revenue Service (IRS) as required by section 7430(b)(1).

Respondent contends that petitioner failed to exhaust her

administrative remedies because she never requested an Appeals

conference after respondent issued a 30-day letter on October 6,

1984.   Petitioner does not dispute that respondent issued a 30-

day letter.   Petitioner makes no argument that the 30-day letter

was never received either by her, Gerald, or their
representative.    We find that petitioner has conceded these

matters.   Money v. Commissioner, 89 T.C. 46, 48 (1987).

     The sole issue in this case was petitioner's status as an

innocent spouse.    Initially, petitioner was not aware of her

innocent spouse claim.    Petitioner had no representation separate

from Gerald's in connection with respondent's audit of the

Jacobys' U.S. individual income tax returns for the taxable years

in issue, nor did she have separate representation at the time

the petition was filed.    Petitioner never contested the merits of

the disallowed tax shelter deductions.    It was not until

petitioner obtained separate counsel that she raised her innocent

spouse claim.   Petitioner averred her status as an innocent

spouse in an amended petition filed April 18, 1990.

     Petitioner had minimal, if any, involvement in respondent's

audit of the taxable years in issue.    We found in the innocent

spouse case that Gerald handled the family's financial and

business affairs.    Petitioner separated from Gerald in April

1984, 7 months before respondent issued the 30-day letter.

     This Court addressed similar circumstances in Burke v.

Commissioner, T.C. Memo. 1995-608 (Burke I), and Burke v.

Commissioner, T.C. Memo. 1997-127 (Burke II).    In Burke I, the

Commissioner asserted a joint tax liability against the Burkes.

Mrs. Burke successfully argued that she did not file, or consent

to file, joint returns with Mr. Burke.    Burke I is relevant to

the instant case in that Mrs. Burke was not involved in the audit
process leading up to the issuance of the notice of deficiency.

In addition, it was not until the summer of 1993, almost a year

after the Commissioner issued a 30-day letter, that Mrs. Burke

became aware that the IRS was seeking to hold her liable for any

taxes relating to the years in issue.   Mrs. Burke did not raise

the issue of whether she had signed the returns until shortly

before trial.

     In Burke II, this Court considered Mrs. Burke's motion for

an award of litigation costs and held that Mrs. Burke failed to

exhaust her administrative remedies.    The Commissioner issued a

30-day letter on May 15, 1992, which gave the Burkes the

opportunity to request an administrative Appeals conference.

Despite the fact that Mrs. Burke was not involved in the audit

process, we held that Mrs. Burke did not exhaust her

administrative remedies because she failed to request such a

conference as required by section 301.7430-1(b)(1), Proced. &

Admin. Regs.

     We see no relevant distinction between petitioner's

circumstances and those of Mrs. Burke as set forth in Burke I and

Burke II.   Petitioner, Gerald, and their representative each had

the opportunity to request an administrative Appeals conference;

yet, they failed to do so.   Thus, following the rationale of this

Court's opinion in Burke II, we conclude that petitioner failed

to exhaust the administrative remedies available to her because
she did not request an Appeals conference after respondent issued

the 30-day letter.

     Petitioner's motion for award of reasonable litigation costs

will be denied.   We need not decide whether respondent's

litigating position was "not substantially justified" or reach

the further question as to the reasonableness of such costs.

                                          An appropriate order

                                    and decision will be entered.
