                         T.C. Memo. 1999-237



                       UNITED STATES TAX COURT



   MICHAEL H. JOHNSON AND PATRICIA E. JOHNSON, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent*



     Docket No. 23702-96.              Filed July 22, 1999.


     Terry B. Bates, Brian J. Seery, and Robert A. Olson, for

petitioners.

     Steven M. Roth, for respondent.



                 SUPPLEMENTAL MEMORANDUM OPINION

     VASQUEZ, Judge:    This case is before the Court on

petitioners' motion for reconsideration of findings and opinion



     *
        On Dec. 23, 1998, and Apr. 16, 1999, the Court issued its
opinions (T.C. Memo. 1998-448 and T.C. Memo. 1999-127), which we
incorporate herein.
                                - 2 -

under Rule 161 (motion for reconsideration) and petitioners'

motion to vacate decision under Rule 162 and vacate order dated

April 16, 1999 (motion to vacate).1

     On January 22, 1999, petitioners filed a motion for award of

litigation and administrative costs and attorney's fees

associated with Johnson v. Commissioner, T.C. Memo. 1998-448.

Attached to this motion was a net worth schedule.    On February

16, 1999, respondent filed an objection to petitioners' motion

for award of litigation and administrative costs and attorney's

fees.    On March 3, 1999, petitioners filed a motion for leave to

file a reply to objection to motion for award of reasonable

litigation costs (motion to file reply #1).    On March 23, 1999,

respondent filed a notice of no objection.    On March 25, 1999,

the Court granted petitioners' motion to file reply #1 and filed

petitioners' reply to objection to motion for award of reasonable

litigation costs (reply #1).    Attached to reply #1 was a second

net worth schedule.    On April 12, 1999, petitioners filed a

statement of errata.    Attached to the statement of errata was a

third net worth schedule.

     On April 16, 1999, the Court issued an opinion, Johnson v.

Commissioner, T.C. Memo. 1999-127 (Johnson II), in which we held


     1
        Unless otherwise indicated, all Rule references are to
the Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code in effect for the
year in issue.
                               - 3 -

that petitioners were not entitled to an award of administrative

and litigation costs and attorney's fees.    We so held because

petitioners failed to prove that they met the net worth

requirements of section 7430 and therefore failed to establish

that they were the "prevailing party".    See Johnson v.

Commissioner, T.C. Memo. 1999-127.

     On May 14, 1999, petitioners filed their motion for

reconsideration and motion to vacate.    On June 2, 1999,

respondent filed an objection to petitioners' motion for

reconsideration and an objection to petitioners' motion to vacate

(respondent's objections).   On June 7, 1999, petitioners filed a

motion for permission to file a reply to respondent's objection

to the motion for reconsideration (motion to file reply #2) and a

motion for permission to file a reply to respondent's objection

to the motion to vacate (motion to file reply #3).    On June 21,

1999, the Court granted petitioners' motion to file reply #2 and

motion to file reply #3 and filed petitioners' replies to

respondent's objections.

     In petitioners' motion for reconsideration, motion to

vacate,2 and replies to respondent's objections, petitioners

argue that in Johnson II the Court misread the case law and that


     2
        Petitioners' motion for reconsideration and motion to
vacate are virtually identical. The only difference is that one
asks for reconsideration and the other asks for the decision to
be vacated.
                               - 4 -

a taxpayer is not required to offer any evidence of net worth

when the Commissioner objects to the taxpayer's affidavit and net

worth schedule.   Petitioners also suggest that an evidentiary

hearing is required.

     Reconsideration under Rule 161 permits us to correct

manifest errors of fact or law, or to allow newly discovered

evidence to be introduced that could not have been introduced

before the filing of an opinion, even if the moving party had

exercised due diligence.   See Rothwell Cotton Co. v. Rosenthal &

Co., 827 F.2d 246, 251, amended per order 835 F.2d 710 (7th Cir.

1987); see also Traum v. Commissioner, 237 F.2d 277, 281 (7th

Cir. 1956), affg. T.C. Memo. 1955-127.   The granting of a motion

for reconsideration rests within the discretion of the Court, and

we shall not grant a motion for reconsideration unless the party

seeking reconsideration shows unusual circumstances or

substantial error.   See Alexander v. Commissioner, 95 T.C. 467,

469 (1990), affd. sub nom. without published opinion Stell v.

Commissioner, 999 F.2d 544 (9th Cir. 1993); Estate of Halas v.

Commissioner, 94 T.C. 570, 573 (1990); Vaughn v. Commissioner, 87

T.C. 164, 166-167 (1986); Estate of Bailly v. Commissioner, 81

T.C. 949, 951 (1983); Haft Trust v. Commissioner, 62 T.C. 145,

147 (1974), affd. on this issue 510 F.2d 43, 45 n.1 (1st Cir.

1975).   Reconsideration is not the appropriate forum for

rehashing previously rejected legal arguments or tendering new
                                   - 5 -

legal theories to reach the end result desired by the moving

party.       See Estate of Quick v. Commissioner, 110 T.C. 440, 441-

442, supplementing 110 T.C. 172 (1998); Stoody v. Commissioner,

67 T.C. 643, 644 (1977), supplementing 66 T.C. 710 (1976).

        In their motion for reconsideration and motion to vacate,

petitioners merely rehash arguments considered and rejected by

the Court in Johnson II.      When the Court granted petitioners'

motion to file reply #1, instead of presenting evidence regarding

their net worth, see Estate of Hubberd v. Commissioner, 99 T.C.

335, 341 (1992); Dixson Intl. Serv. Corp. v. Commissioner, 94

T.C. 708, 719 (1990); see also McCoy v. Commissioner, T.C. Memo.

1992-423, petitioners simply provided additional net worth

statements that drastically changed the amount claimed to be

petitioners' net worth,3 which gave the Court reason to question

each statement's veracity.      From a review of the record, the

Court is still of the opinion that no evidentiary hearing is

necessary pursuant to Rule 232 and that petitioners have failed

to establish that they met the net worth requirements of section

7430.       See Rule 232(a)(2) ("A motion for reasonable litigation or

administrative costs ordinarily will be disposed of without a

hearing"; emphasis added).


        3
        The first net worth schedule claimed petitioners' joint
net worth was $3,806,248; the second net worth schedule claimed
petitioners' joint net worth was ($3,891,976); and the third net
worth schedule claimed petitioners' joint net worth was
$1,097,312.
                               - 6 -

     Furthermore, for the sake of completeness, we note that even

if we granted an evidentiary hearing and found that petitioners

established that they met the net worth requirements, petitioners

still would not be entitled to an award of administrative and

litigation costs and attorney's fees.   This is so because

petitioners are not the "prevailing party" for an additional

reason:   Respondent established that the position of the United

States was substantially justified at both the administrative and

litigation level.   See sec. 7430(c)(4)(B)(i).

     The substantially justified standard is "essentially a

continuation of the prior law's reasonableness standard."    See

Swanson v. Commissioner, 106 T.C. 76, 86 (1996).   A position is

substantially justified if it is justified to a degree that could

satisfy a reasonable person and has a reasonable basis in both

fact and law.   See Pierce v. Underwood, 487 U.S. 552, 565

(1988);4 Huffman v. Commissioner, 978 F.2d 1139, 1147 (9th Cir.

1992), affg. in part and revg. in part T.C. Memo. 1991-144;

Swanson v. Commissioner, supra at 86.   A position that merely has

enough merit to avoid sanctions for frivolousness will not

satisfy this standard.   See Pierce v. Underwood, supra at 566.

     4
        Although the dispute in Pierce v. Underwood, 487 U.S. 552
(1988), arose under the provisions of the Equal Access to Justice
Act (EAJA), 28 U.S.C. sec. 2412(d) (1994), the relevant
provisions of the EAJA are almost identical to the language of
sec. 7430. See Cozean v. Commissioner, 109 T.C. 227, 232 n.9
(1997). We, therefore, consider the holding in Pierce v.
Underwood, supra, to be applicable to the case before us. See
Cozean v. Commissioner, supra.
                               - 7 -

     The determination of reasonableness is based on all of the

facts and circumstances surrounding the proceeding and the legal

precedents relating to the case.   See Coastal Petroleum Refiners,

Inc. v. Commissioner, 94 T.C. 685, 694-695 (1990).     A position

has a reasonable basis in fact if there is such relevant evidence

as a reasonable mind might accept as adequate to support a

conclusion.   See Pierce v. Underwood, supra at 565.    A position

is substantially justified in law if legal precedent

substantially supports the Commissioner's position given the

facts available to the Commissioner.   See Coastal Petroleum

Refiners, Inc. v. Commissioner, supra at 688.   Determining the

reasonableness of the Commissioner's position and conduct

requires considering what the Commissioner knew at the time.    See

Rutana v. Commissioner, 88 T.C. 1329, 1334 (1987); DeVenney v.

Commissioner, 85 T.C. 927, 930 (1985).

     The fact that the Commissioner loses on the merits or

concedes the case does not establish that a position was not

substantially justified; however, it is a factor to be

considered.   See Powers v. Commissioner, 100 T.C. 457, 471

(1993), affd. in part and revd. in part 43 F.3d 172 (5th Cir.

1995).

     Respondent interviewed many people in order to determine

what had actually transpired between petitioner Michael H.

Johnson (Mr. Johnson) and officials from the City of Lancaster
                               - 8 -

regarding the City of Lancaster's condemnation of the property

upon which Mr. Johnson's auto dealerships were located (the 23d

Street property).   At the initial interview of Mr. Johnson by two

revenue agents, Mr. Johnson told the revenue agents that the City

of Lancaster had condemned the 23d Street property and that a

school had been built on the property.   No school was built on

the property.   The Commissioner became aware of this fact

sometime after the interview of Mr. Johnson.   This misstatement

by Mr. Johnson reasonably raised respondent's suspicion as to

whether the City of Lancaster properly had condemned the 23d

Street property.

     At the initial interview of two Lancaster Redevelopment

Agency (LRA) officials, Steven Dukett (Mr. Dukett) and Mark

Asturias (Mr. Asturias), by respondent, Mr. Dukett and Mr.

Asturias told the revenue agents that the LRA did not threaten

Mr. Johnson with condemnation of the 23d Street property.

Sometime after these initial interviews, in sworn statements, Mr.

Dukett and Mr. Asturias changed their story and stated that they

had threatened Mr. Johnson with condemnation of the 23d Street

property.   Respondent was left with the conflicting statements of

Mr. Dukett and Mr. Asturias regarding whether Mr. Johnson had in

fact been threatened with condemnation of the 23d Street

property.
                               - 9 -

     Respondent also interviewed members of the City Counsel of

Lancaster (LCC) from the relevant time period.   Henry Hearns (Mr.

Hearns), a member of the LCC, stated that the LCC had never

discussed condemning the 23d Street property and that the

condemnation was made as a mere accommodation to Mr. Johnson.

Mr. Hearns also provided an affidavit to this effect.   Other

members of the LCC told respondent that the City of Lancaster had

threatened Mr. Johnson with condemnation.   At this point,

respondent was left with more conflicting accounts regarding

whether Mr. Johnson had been threatened with condemnation of the

23d Street property.

     At trial, the Court had to determine the credibility of the

witnesses and reconcile the conflicting documentary and

testimonial evidence.   Under the facts of this case, the United

States was substantially justified at both the administrative and

litigation level in positing that neither the LRA nor the LCC had

threatened Mr. Johnson with condemnation of the 23d Street

property or, if there had been a threat, that Mr. Johnson did not

reasonably believe the threat (because the LCC was providing the

condemnation as a convenience to Mr. Johnson).
                             - 10 -

     Accordingly, we shall deny petitioners' motion for

reconsideration and deny petitioners' motion to vacate.   To

reflect the foregoing,

                                             An appropriate order

                                        will be issued.
