                        T.C. Memo. 2020-98



                  UNITED STATES TAX COURT



   GARY M. DENNIS AND SHARON D. DENNIS, Petitioners v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 398-18L.                          Filed July 1, 2020.



        A collection due process (CDP) hearing pursuant to I.R.C. secs.
6320 and 6330 was held with respect to (1) a notice of Federal tax
lien filing for 2013 and 2014 and (2) a notice of intent to levy for
2014. R issued notices of determination that (1) sustained the filing
of the notice of Federal tax lien for 2013 and 2014 and (2) did not
sustain the levy for 2014. Ps, who are self-represented, filed a timely
petition. After a remand, R issued a supplemental determination in
which he did not sustain the tax lien filing for 2013 or 2014. Upon
R’s full concession of all issues in this case Ps filed a motion for
reasonable litigation or administrative costs pursuant to I.R.C. sec.
7430.

      Reasonable administrative costs are those incurred in an
administrative proceeding. See sec. 301.7430-4(a), Proced. &
Admin. Regs. CDP hearings held pursuant to I.R.C. secs. 6320 and
6330 are generally considered collection actions and not
administrative proceedings. See sec. 301.7430-3(a)(4), (b), Proced. &
Admin. Regs. Reasonable litigation costs do not include the value of
                                        -2-

[*2] the personal time in handling the litigation. Frisch v. Commissioner,
     87 T.C. 838, 846-847 (1986).

           Held: Ps are not entitled to reasonable litigation or
      administrative costs, and their motion will be denied.



      Gary M. Dennis and Sharon D. Dennis, pro sese.

      Sean P. Deneault, for respondent.



                           MEMORANDUM OPINION


      PANUTHOS, Special Trial Judge: This matter is before the Court on

petitioners’ amended motion for reasonable litigation or administrative costs filed

August 1, 2019. The motion is made pursuant to section 7430 and Rules 230

through 233.1 Petitioners seek to recover (1) administrative costs of $2,465, and

(2) litigation costs of $5,757 in connection with respondent’s determination

sustaining the filing of a notice of Federal tax lien (NFTL) for tax years 2013 and

2014. For the reasons below, we will deny petitioners’ motion.




      1
       Unless otherwise specified, section references are to the Internal Revenue
Code, as amended, and Rule references are to the Tax Court Rules of Practice and
Procedure.
                                         -3-

[*3]                                 Background

       The record consists of the parties’ filings including attachments thereto.

Petitioners are married and resided in Florida when the petition was filed.

       Petitioners jointly filed Federal income tax returns for tax years 2013 and

2014. They entered into an installment agreement to pay their tax liabilities for

those tax years. Petitioners later filed their 2015 income tax return but failed to

remit interest on the balance due. The balance due from the taxable year 2015 was

made part of the existing installment agreement. Petitioners did not pay the tax

year 2015 interest and associated penalties until February 2017.2

       In March 2017 petitioners’ 2013 and 2014 liabilities were assigned to an

Internal Revenue Service (IRS) revenue officer for collection. On April 11, 2017,

respondent issued a Letter 1058A, Final Notice of Intent to Levy and Notice of

Your Right to a Hearing (levy notice), with respect to petitioners’ 2014 liability.

Respondent filed an NFTL with respect to petitioners’ 2013 and 2014 liabilities

and on May 2, 2017, issued a Letter 3172, Notice of Federal Tax Lien Filing and

Your Right to a Hearing.




       2
       The precise circumstances of interest and penalties were not made clear in
the record.
                                         -4-

[*4] Petitioners filed collection due process (CDP) hearing requests for both

notices. The matter was assigned to Settlement Officer (SO) S. Simpson for

resolution at the IRS Office of Appeals on August 30, 2017. SO Simpson held a

hearing with petitioners on September 21, 2017, and closed the case for issuance

of notices of determination on November 2 and 6, 2017, for the levy notice and the

NFTL filing, respectively. At the hearing petitioners noted orally and in writing

that a $7,500 payment credited to their account on April 18, 2017, was not

reflected in the total lien amount.3

      SO Simpson concluded that petitioners had not defaulted on the installment

agreement. The revenue officer and the Collection Division, however, concluded


      3
        Petitioners drafted a “discussion points document” dated September 21,
2017, which they presented to SO Simpson at the CDP hearing. In that document,
petitioners stated that “[t]his is minor but the total amount of the lien appears to be
incorrect.” They further explained that an IRS Letter 3174A dated April 11, 2017,
listed their unpaid tax as $120,533.14 and that the NFTL, which they incorrectly
state was filed April 19, 2017, reflected the same total amount of unpaid tax.
Petitioners stated that a direct debit of $7,500 was paid in the interim and credited
to their account on April 18, 2017, and therefore should have lowered the lien
amount.
       The Court notes that an examination of the Letter 3174A dated April 11,
2017, shows that it applied only to tax year 2013. The letter listed the unpaid
amount from prior notices as $120,533.14 and the total amount owed for tax year
2013, including additional penalties and interest, as $172,663.41. The amounts
reflected on the NFTL as filed on May 2, 2017, were $120,533.14 for tax year
2013 and $226,006.10 for tax year 2014. These factual discrepancies do not affect
the Court’s analysis for reasons discussed infra.
                                        -5-

[*5] that petitioners were in default. According to SO Simpson, petitioners were

never in default on the installment agreement, only on the direct debit portion.

      On November 16, 2017, SO Simpson issued two Notices of Determination

Concerning Collection Action(s) Under Section 6320 and/or 6330 of the Internal

Revenue Code. One notice of determination, concerning the section 6330 levy,

did not sustain the proposed levy and directed the IRS to reinstate the direct debit

portion of petitioners’ installment agreement. The other notice of determination,

concerning the section 6320 lien, indicated that all legal and procedural

requirements were met before the filing of the NFTL and that the filing was

otherwise appropriate and, therefore, sustained. In a letter dated December 29,

2017, after receiving the notices of determination, petitioners once again

challenged the amount of the lien and noted that the objection that they had raised

to that amount at the CDP hearing was not listed in the “Challenges to the

Existence and Amount of Liability” section of the notice of determination

concerning the section 6320 lien.

      On January 5, 2018, petitioners filed a timely petition in this Court

challenging the notices of determination.4 Petitioners also filed an amended

      4
       The petition was filed some 20 days after the 30-day period to petition this
Court had expired. See sec. 6330(d)(1). Nonetheless, the parties assert that the
                                                                      (continued...)
                                        -6-

[*6] petition and amendment to amended petition. Respondent filed his answer to

the amended petition as amended. On August 20, 2018, respondent requested that

this case be remanded to the Office of Appeals so that a supplemental hearing

could be conducted to determine whether it was appropriate under Internal

Revenue Manual guidelines to file an NFTL given the conclusion of the SO that

petitioners were not in default on the installment agreement. The motion to

remand was supplemented on August 31, 2018. This Court granted the motion to

remand as supplemented. On October 1, 2018, the Office of Appeals issued a

supplemental notice of determination concerning the section 6320 lien hearing.

The supplemental notice of determination indicated that petitioners were not in

default on the installment agreement at the time the lien was filed and therefore the

filing of the NFTL was not sustained. The parties filed a stipulation of settled

issues with the Court on May 24, 2019. The stipulation sustained the notice of

determination concerning the proposed levy action issued on November 16, 2017,

and the supplemental notice of determination concerning the filing of the NFTL

      4
        (...continued)
petition was timely. We agree with respondent that pursuant to sec. 7508A(a)(1)
the deadline to perform time-sensitive actions described in the IRS regulations,
including filing a petition with the Tax Court, was extended until January 31,
2018, for certain taxpayers affected by Hurricane Irma. See sec. 7508A; sec.
301.7508A-1(c)(1)(iv), Proced. & Admin. Regs.; I.R.S. News Release FL-2017-04
(Sept. 12, 2017).
                                         -7-

[*7] issued on October 1, 2018. In summary, the determination as to the levy

action was not sustained and the supplemental determination as to the filing of the

NFTL was not sustained.

      Petitioners filed a motion for reasonable litigation or administrative costs on

June 28, 2019 (motion for reasonable costs). They later filed an amended motion

for reasonable costs on August 1, 2019. Respondent filed a response to the

amended motion for reasonable costs on August 26, 2019. Petitioners’ filed a

reply to respondent’s response on November 1, 2019.

                                     Discussion

      Section 7430(a) provides for the award of reasonable costs incurred in an

administrative or court proceeding against the United States brought in connection

with the determination, collection, or refund of any tax, interest, or penalty

pursuant to the Internal Revenue Code. Such an award may be made for (1)

reasonable administrative costs incurred in connection with such an administrative

proceeding within the Internal Revenue Service and (2) reasonable litigation costs

incurred in connection with such a court proceeding. Sec. 7430(a). The award

shall be made only for reasonable litigation and administrative costs which are

allocable to the United States and not to any other party. Sec. 7430(b)(2).
                                        -8-

[*8] To recover costs, the taxpayers must establish that (1) they are the

prevailing party, (2) they did not unreasonably protract the proceedings, (3) the

amount of the costs requested is reasonable, and (4) they exhausted the

administrative remedies available. See sec. 7430(b) and (c); Friends of the

Benedictines in the Holy Land, Inc. v. Commissioner, 150 T.C. 107, 111-112

(2018). These requirements are conjunctive, and the failure to satisfy any one of

them will preclude an award of costs. See Minahan v. Commissioner, 88 T.C.

492, 497 (1987). Petitioners have the burden of proving they have satisfied each

requirement of section 7430.

      Respondent concedes that petitioners did not unreasonably protract the

proceedings and that petitioners have exhausted the administrative remedies

available to them. Respondent further concedes that petitioners have substantially

prevailed with respect to the most significant issues presented and does not argue

that the position of the United States as outlined in the notice of determination

concerning the filing of the NFTL was correct or substantially justified.5

Respondent argues, however, that reasonable costs may not be awarded in this

case because: (1) administrative costs are not awardable with respect to a CDP

      5
       Respondent disputes whether the costs requested are reasonable; however,
we need not discuss the reasonableness of the requested costs for reasons
discussed infra.
                                        -9-

[*9] hearing where the underlying tax liability is not properly at issue and

(2) litigation costs are not awardable for time pro se taxpayers spend representing

themselves.

      A.      Reasonable Administrative Costs

      Petitioners claim that they are entitled to recover $2,465 as reasonable

administrative costs under section 7430. Reasonable administrative costs are the

reasonable and necessary costs incurred by the taxpayer in connection with an

administrative proceeding. Sec. 301.7430-4(a), Proced. & Admin. Regs. An

administrative proceeding does not include a proceeding in connection with a

collection action. Sec. 301.7430-3(a)(4), Proced. & Admin. Regs. CDP hearings

under sections 6320 and 6330 are considered collection actions “unless the

underlying tax liability is properly at issue.” Sec. 301.7430-3(a)(4), (b), Proced. &

Admin. Regs.; see Worthan v. Commissioner, T.C. Memo. 2012-263; Dalton v.

Commissioner, T.C. Memo. 2011-136, 2011 Tax Ct. Memo LEXIS 135, at *20-

*21 (finding the taxpayers were “not permitted to recover costs incurred in

connection with the collection due process hearing”), rev’d on other grounds, 682

F.3d 149 (1st Cir. 2012).

      Respondent maintains that petitioners may not recover reasonable

administrative costs because the CDP hearing at issue was not an “administrative
                                        - 10 -

[*10] proceeding” under the regulations’ interpretation of that term. See sec.

301.7430-3(a)(4), (b), Proced. & Admin. Regs. Petitioners assert that the CDP

hearing in issue was an administrative proceeding because they questioned the

amount of the underlying tax liability both orally and in writing during the

hearing. See id.

      According to the record, on multiple occasions petitioners questioned why a

$7,500 payment credited to their account on April 18, 2017, was not reflected in

the liability underlying the NFTL. On the basis of their claim that a payment

proximate to the issuance of the NFTL was not reflected therein, petitioners argue

that their challenge to the NFTL filing is a challenge to the underlying tax liability.

      In Kovacevich v. Commissioner, T.C. Memo. 2009-160, slip op. at 15, this

Court held that “questions about whether a particular check was properly credited

to a particular taxpayer’s account for a particular tax year are not challenges to his

underlying tax liability.” See also Melasky v. Commissioner, 151 T.C. 89 (2018),

aff’d, 803 F. App’x 732 (5th Cir. 2020). Further in Kovacevich v. Commissioner,

slip op. at 15 n.10, the Court distinguished instances in which taxpayers assert

they are due refunds from prior years, as these types of challenges are considered a

challenge to the taxpayers’ underlying tax liabilities. See also Landry v.

Commissioner, 116 T.C. 60 (2001).
                                        - 11 -

[*11] Petitioners, like the taxpayers in Kovacevich, question the application of a

payment. They do not claim they are due a refund or other tax credit that would

change the amount of their underlying tax liability. Their challenge is to the

amount of tax liability that remained unpaid at the time the NFTL was filed, not

the total tax liability as imposed by the Code. Accordingly, the CDP hearing was

a proceeding in connection with a collection action and was not an administrative

proceeding pursuant to section 7430. We therefore hold that petitioners are barred

from recovering compensation for administrative costs.

      B.     Reasonable Litigation Costs

      Petitioners claim that they are entitled to recover $5,757 as litigation costs

under section 7430. Respondent argues that petitioners are not entitled to recover

their requested litigation costs because they handled the litigation pro sese and did

not pay or incur any actual costs.

      A prevailing party may be awarded reasonable litigation costs incurred in

connection with a case filed in this Court. Sec. 7430(a); Rule 230. The term

“reasonable litigation costs” includes a reasonable amount of court costs; expert

witness expenses; costs of a study, analysis, engineering report, test, or project;

and “reasonable fees paid or incurred for the services of attorneys”. Sec.

7430(c)(1). Petitioners do not claim court costs or other actual expenditures
                                        - 12 -

[*12] related to the litigation; they claim only the value of their personal time

spent researching, preparing legal documents, and conversing with respondent’s

representatives.

      The courts have consistently held that under section 7430 pro se taxpayers

may not be awarded an amount reflecting the value of their personal time in

handling litigation, even though fees taxpayers pay to attorneys to handle the

litigation would be recoverable. See, e.g., Dunaway v. Commissioner, 124 T.C.

80, 83 (2005); Frisch v. Commissioner, 87 T.C. 838, 846-847 (1986) (stating that

a pro se taxpayer, who also was an attorney, was not entitled to the value of his

time in handling the litigation). The plain text of section 7430 cannot be read to

include lost opportunity costs but is limited to actual expenditures. Frisch v.

Commissioner, 87 T.C. at 845-846.

      Petitioners argue that although they are “aware of precedent relating to

reimbursement of [p]ro [s]e petitioners”, this Court’s holdings ignore “the

possibility that responsibility for [p]ro [s]e representation of two [p]etitioners may

be disproportionately shared between the individuals.” Petitioners claim that

petitioner Gary Dennis produced all documents and performed all other legal

services related to the case, while petitioner Sharon Dennis did not participate in

the case in any way. Petitioners assert that the number of hours of requested
                                        - 13 -

[*13] compensation has been reduced by 50% to reflect the lost income-producing

capacity of one spouse in defending the other during litigation.

      Though petitioners’ position regarding representation of a spouse is

understandable, the requirement for actual expenditures still applies where a pro se

taxpayer represents a spouse in addition to himself or herself. See, e.g., Frisch v.

Commissioner, 87 T.C. 838. In representing himself and his wife, Mr. Dennis did

not pay or incur fees for legal services. We therefore hold that petitioners are

barred by the plain text of the statute from recovering compensation for time spent

in litigating their own case.

      We have considered all of the parties’ arguments, and, to the extent not

addressed herein, we conclude that they are moot, irrelevant, or without merit.

      To reflect the foregoing,


                                                 An appropriate order and decision

                                       will be entered.
