                       T.C. Memo. 1996-494



                     UNITED STATES TAX COURT


                 NELLWYN A. BUCK, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 11766-95.                   Filed November 4, 1996.


     Jeffrey A. Dickstein, for petitioner.

     Michael J. O'Brien, for respondent.


                       MEMORANDUM OPINION

     ARMEN, Special Trial Judge:   This case is before the Court

on petitioner's motion to recover administrative and litigation

costs1 pursuant to section 7430 and Rule 231.2

     1
       Although petitioner's motion is styled "Motion for
Litigation Costs", we are satisfied that petitioner intended to
move for an award of administrative costs as well as litigation
costs.
     2
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable year in
issue; however, all references to sec. 7430 are to the Internal
Revenue Code in effect at the time that the petition was filed.
     We decide the matter before us based on the pleadings,

petitioner's motion, respondent's response to petitioner's

motion, petitioner's reply to respondent's response, and

respondent's response to petitioner's reply, as well as the

various exhibits attached thereto.

Background

     Petitioner Nellwyn A. Buck (petitioner) resided in Texas

City, Texas, at the time that the petition was filed with the

Court.

     At all relevant times, petitioner was married to, and

resided with, Pittman A. Buck, Jr. (Mr. Buck).

     Petitioner and Mr. Buck prepared a document purporting to be

a joint Federal income tax return for the taxable year 1988 (the

purported return).    Petitioner and Mr. Buck mailed the purported

return to respondent on April 17, 1989, and respondent received

it 2 days later on April 19, 1989.

     The purported return was not signed by either petitioner or

Mr. Buck.    Rather, the purported return contained the statement

"Fifth Amendment" in the spaces provided for petitioner's and Mr.

Buck's signatures.3


All Rule references are to the Tax Court Rules of Practice and
Procedure.
     3
       An asterisk placed opposite each of the "Fifth Amendment"
statements served to reference certain documents attached to the
purported return. One such document, in the form of a "legal
opinion", expressed the view that "liability for filing returns
and paying income tax with respect to federal individual income
taxes applies only to third parties who have withheld taxes for
                                                   (continued...)
                               - 3 -

     Line 53 of the purported return reported "total tax" in the

amount of $24,939.21.   Line 61 of the purported return claimed

"total payments" in the amount of $15,470.11, consisting of

withheld tax in the amount of $9,470.11 and estimated tax

payments in the amount of $6,000.      Line 65 of the purported

return reported a balance due in the amount of $9,469.10 (i.e.,

$24,939.21 less $15,470.11).   A check for such amount was

enclosed with the purported return and was apparently negotiated

by respondent.

     Respondent did not process the purported return as a return.

Rather, respondent assessed a frivolous return penalty pursuant

to section 6702.4

     On November 10, 1994, respondent issued a 30-day letter to

petitioner with respect to petitioner's 1988 taxable year.     On

December 5, 1994, petitioner mailed a letter to respondent

protesting the adjustments proposed in the 30-day letter and

requesting administrative review.   In her letter dated December




     3
      (...continued)
another." Another such document, in the form of a letter signed
by Mr. Buck, stated that "By invoking the Fifth Amendment at the
jurat location we specifically intend to exercise our rights
under the First, Fourth and Fifth Amendments to the
Constitution".
     4
       Petitioner and Mr. Buck unsuccessfully challenged the
assessment of the frivolous return penalty by first filing an
administrative claim for refund and thereafter an action in
District Court. See sec. 6703. Their appeal to the Court of
Appeals for the Fifth Circuit was equally unsuccessful.
                                - 4 -

5, 1994, petitioner informed respondent that she had already paid

her taxes for the taxable year 1988.

     By notice of deficiency dated April 14, 1995, respondent

determined a deficiency in petitioner's income tax in the amount

of $22,779.    Respondent also determined that petitioner was

liable for additions to tax under sections 6651(a) and 6654(a) in

the amounts of $3,327.25 and $783.20, respectively.

     On or about June 12, 1995, petitioner and Mr. Buck submitted

a joint Federal income tax return for the taxable year 1988,

which respondent processed as a return (the filed return).      The

filed return was virtually identical to the purported return,

except that petitioner and Mr. Buck signed the filed return,

under penalties of perjury, in the spaces provided for their

signatures.5


     5
       The filed return also differed from the purported return
in terms of the extraneous material attached thereto. Thus, in
lieu of the "legal opinion" and the letter signed by Mr. Buck, a
lengthy affidavit signed by petitioner and Mr. Buck and a
newspaper article concerning petitioner and Mr. Buck were
attached to the filed return. The affidavit, which was entitled
"Affidavit Concerning The Affiants' Coerced Signing Of The
Attached IRS 1988 Form 1040", concluded as follows:

          Plainly, our consciences cannot be awakened and
     appealed to when we are compelled to sign a prescribed
     document or jurat premised upon political dogma that we
     do not believe and may not be required to believe. As
     individuals acting in our personal capacities and
     believing that wages and earned pensions are not
     income, profit or gain, we cannot fill in lines 7
[regarding wages] and 17a [regarding pensions and annuities] of
Form 1040 and willfully sign its jurat without committing
                                                   (continued...)
                               - 5 -

     In the top right corner of the first page of the filed

return, Mr. Buck's Social Security number was entered in the

space entitled "Your social security number".   Petitioner's

social security number was entered immediately below Mr. Buck's

in the space provided for "Spouse's social security number".

     On June 30, 1995, petitioner filed a petition for

redetermination (the petition) in respect of the notice of

deficiency dated April 14, 1995.   On that same day, petitioner

designated Oklahoma City, Oklahoma, as the place of trial of this

case.6

     The petition contains an allegation that the purported

return was "accepted" by respondent "for all purposes".   The

petition contains a further allegation that assessment of any

deficiency against petitioner for the taxable year 1988 is barred

by the 3-year statute of limitations under section 6501(a).

     Respondent filed an answer (the answer) to the petition on

August 30, 1995.   The answer contains affirmative allegations

regarding the statute of limitations on assessment.   Thus, the

answer alleges that the purported return was not a valid return

     5
      (...continued)
perjury. Hence, the coercing of our signatures to the unbelieved
Form 1040 is not meaningful but illicit and renders them null and
void. It is nature's law that each person must live with his or
her own conscience, in peace or in conflict. We choose to live
in peace with ours. [Emphasis in the original.]
     6
       Although petitioner resided in Texas City, Texas, at the
time that the petition was filed, petitioner's counsel maintains
his office in Tulsa, Oklahoma.
                               - 6 -

and that, as a consequence, the statute of limitations does not

bar the assessment of any deficiency against petitioner for 1988.

     The answer was prepared by an attorney in respondent's

District Counsel office in Houston, Texas.7   The attorney

attempted to locate the filed return, which was mentioned in the

petition.   However, by the time the answer was due, the filed

return could not be obtained, and it was therefore not available

to respondent's attorney in preparing the answer.

     On September 14, 1995, respondent transferred petitioner's

case to respondent's District Counsel office in Oklahoma City,

Oklahoma, for trial preparation.   As previously indicated,

Oklahoma City had been designated by petitioner as the place of

trial of this case.

     On October 10, 1995, respondent's counsel in the Oklahoma

City District Counsel office (respondent's counsel) discussed

this case with petitioner's counsel and immediately thereafter

contacted the IRS Service Center in Austin, Texas (the Austin

Service Center) in order to obtain the filed return.

Respondent's counsel learned that the filed return was located

under Mr. Buck's account, apparently because Mr. Buck's taxpayer




     7
       As previously mentioned, petitioner resided in Texas City,
Texas, at the time that the petition was filed. Texas City is
located about 40 miles southeast of Houston, not far from
Galveston.
                               - 7 -

identification number (TIN) was the "primary TIN" and

petitioner's TIN was the "spousal TIN."8

     Respondent's counsel received the filed return from the

Austin Service Center in late October 1995.   After reviewing the

filed return, respondent's counsel ordered transcripts of account

in order to verify the correctness of the information contained

in the filed return.

     On November 22, 1995, petitioner filed a reply (the reply)

to the affirmative allegations pleaded in the answer.   The reply

concludes by alleging that the purported return "was 'accepted'

for all purposes in accordance with governing case law, and is

deemed to be a return for the purpose of the running of the

statute of limitations".

     Upon receiving the transcripts of account in respect of the

filed return in January 1996, respondent's counsel conceded that

petitioner had paid her tax liability for 1988 and apparently

also conceded that petitioner was not liable for the addition to

tax under section 6654(a).   In contrast, respondent's counsel

continued to pursue the addition to tax under section 6651(a).

However, on March 1, 1996, respondent's counsel conceded such

addition.




     8
       See Abeles v. Commissioner, 91 T.C. 1019, 1023 (1988), for
a discussion concerning the significance of these terms.
                                   - 8 -

     No later than March 5, 1996, respondent's counsel mailed an

agreed form of decision (the form of decision) to petitioner's

counsel for his signature.

     On March 29, 1996, the Court entered a decision in this case

(the decision) utilizing the form of decision furnished by the

parties.   The decision reflected the parties' agreement that

petitioner's income tax liability for 1988 is as follows:


     Deficiency (without taking into consideration
       the assessment subsequent to the mailing of
       notice of deficiency on April 14, 1995)                 $24,939.21

     Tax paid                                                   24,939.21

                     *   *     *    *      *   *     *

     Deficiency (to be paid)                                      NONE


The decision also reflected the parties' agreement that

petitioner was not liable for any addition to tax under either

section 6651(a) or section 6654(a).

     The amount of the deficiency reflected in the decision

(without taking into consideration the assessment subsequent to

the mailing of notice of deficiency on April 14, 1995) was equal

to the tax reported on the filed return.

     On April 24, 1996, petitioner filed her motion for costs.

Thereupon, the Court vacated the decision and filed the form of

decision as a stipulation of settlement.           See Rule 232(f).
                               - 9 -

Discussion

     Section 7430(a) provides that the prevailing party may be

awarded a judgment for (1) reasonable administrative costs

incurred in connection with an administrative proceeding within

the Internal Revenue Service, and (2) reasonable litigation costs

incurred in connection with a court proceeding.    Congress enacted

section 7430 in the Tax Equity and Fiscal Responsibility Act of

1982, Pub. L. 97-248, sec. 292(a), 96 Stat. 572, and, as relevant

to the present case, amended it by the Technical and

Miscellaneous Revenue Act of 1988 (TAMRA), Pub. L. 100-647, sec.

6239(a), 102 Stat. 3342, 3743-3747, applicable to proceedings

commenced after November 10, 1988.9    Because both the

administrative proceeding and the court proceeding in this case

were commenced after November 10, 1988, and before July 31, 1996,

we apply section 7430 as amended by TAMRA.

     A judgment for costs may only be awarded under section

7430(a) if a taxpayer (1) is the "prevailing party", (2) where

the taxpayer seeks litigation costs, has exhausted the

administrative remedies available to the taxpayer within the

Internal Revenue Service, and (3) does not unreasonably protract

the proceedings.   Sec. 7430(a), (b)(1), (4).



     9
       Sec. 7430 was amended most recently by the Taxpayer Bill
of Rights 2, Pub. L. 104-168, secs. 701-704, 110 Stat. 1452,
1463-1464, applicable to proceedings commenced after July 30,
1996.
                                - 10 -

     In order to qualify as the "prevailing party", a taxpayer

must establish that: (1) The position of the United States in the

proceeding was not substantially justified; (2) the taxpayer has

substantially prevailed with respect to the amount in controversy

or the most significant issue or set of issues presented; and (3)

the taxpayer satisfies the applicable net worth requirements.

Sec. 7430(c)(4)(A).   We understand respondent to concede that

petitioner has satisfied the applicable net worth requirements

and that petitioner has not unreasonably protracted the judicial

proceeding.

     Finally, if a taxpayer qualifies as the prevailing party,

only administrative and litigation costs that are reasonable may

be awarded.   Sec. 7430(a), (c)(1) and (2).

     We begin with whether respondent's position was

substantially justified.   Petitioner bears the burden of proving

that respondent's position was not substantially justified.   Rule

232(e); Dixson Corp. v. Commissioner, 94 T.C. 708, 714-715

(1990); Ganter v. Commissioner, 92 T.C. 192, 197 (1989), affd.

905 F.2d 241 (8th Cir. 1990).

     As originally enacted, section 7430 required that a taxpayer

establish that the position of the United States was

unreasonable.   In 1986, Congress adopted the standard applicable

to the Equal Access to Justice Act (EAJA), 28 U.S.C. sec. 2412

(1988), by changing "unreasonable" to "not substantially

justified".   Tax Reform Act of 1986, Pub. L. 99-514, sec. 1551,
                               - 11 -

100 Stat. 2752; see H. Conf. Rept. 99-841, at II-801 (1986),

1986-3 C.B. (Vol. 4) 1, 801.   The purpose of the amendment was to

conform section 7430 more closely to EAJA.    H. Rept. 99-841,

supra at II-801, 1986-3 C.B. (Vol. 4) 801.    We have consistently

held that the "substantially justified" standard is not a

departure from the "reasonableness" standard.    E.g., Sokol v.

Commissioner, 92 T.C. 760, 763 n.7 (1989); Sher v. Commissioner,

89 T.C. 79, 84 (1987), affd. 861 F.2d 131 (5th Cir. 1988).

     A position is "substantially justified" if the position is

"justified to a degree that could satisfy a reasonable person".

Pierce v. Underwood, 487 U.S. 552, 565 (1988) (construing similar

language in EAJA).   A position that merely possesses enough merit

to avoid sanctions for frivolousness will not satisfy this

standard; rather, the position must have a "reasonable basis both

in law and fact".    Id.

     As relevant herein, the position of the United States that

must be examined against the substantial justification standard

with respect to the administrative proceeding is the position

taken by the Commissioner as of the date of the notice of

deficiency.   Sec. 7430(c)(7)(B).   The position of the United

States that must be examined against the substantial

justification standard with respect to the judicial proceeding is

the position taken by the Commissioner in her answer to the

petition.   Bertolino v. Commissioner, 930 F.2d 759, 761 (9th Cir.

1991), affg. an unpublished decision of this Court; Sher v.
                             - 12 -

Commissioner, 861 F.2d 131, 134-35 (5th Cir. 1988), affg. 89 T.C.

79 (1987).

     In deciding whether the Commissioner's position was

substantially justified, the Court will consider not only the

basis of the Commissioner's legal position, but also the manner

in which the Commissioner maintained that position.    Wasie v.

Commissioner, 86 T.C. 962, 969 (1986).    In assessing the

Commissioner's position in each of the proceedings, we may

consider, inter alia, whether the Commissioner used the costs and

expenses of litigation to extract unjustified concessions from

the taxpayer, whether the Commissioner pursued litigation to

harass or embarrass the taxpayer, or whether the Commissioner's

pursuit of the litigation was politically motivated.    Rutana v.

Commissioner, 88 T.C. 1329, 1333 (1987); DeVenney v.

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

     In the present case, respondent's position, both at the time

she issued the notice of deficiency and at the time she filed the

answer, was that petitioner was liable for a deficiency in income

tax and additions to tax for 1988.    It is respondent's agreement

that petitioner paid her total income tax liability for 1988 in

April 1989 that forms the basis of petitioner's claim for

administrative and litigation costs.   In other words, petitioner

posits that she is a prevailing party within the meaning of

section 7430 on the ground that respondent's position was not

substantially justified, either at the time the notice of
                              - 13 -

deficiency was issued or the answer was filed, because, at both

times, petitioner had already paid her tax liability for 1988.

     In contrast, respondent maintains that her position was

substantially justified throughout the administrative and

judicial proceedings.   Respondent contends that petitioner was

liable for income tax for 1988 and that respondent was forced to

issue a notice of deficiency in order to assess such liability

because petitioner did not file a valid return.   Respondent also

contends that the 6-month period between the time that the answer

was filed and the time that respondent agreed to settle the

entire case was a reasonable period of time for respondent to

locate the return filed by petitioner and Mr. Buck on June 12,

1995, and to verify the information set forth on such return.

Thus, respondent maintains that her position remained

substantially justified throughout the judicial proceeding.

     1.   The Administrative Proceeding

     We begin with petitioner's contention that respondent's

position was not substantially justified at the time that the

notice of deficiency was issued.

     This Court has previously set forth the essential elements

of a return:

     First, there must be sufficient data to calculate [a] tax
     liability; second, the document must purport to be a return;
     third, there must be an honest and reasonable attempt to
     satisfy the requirements of the tax law; and fourth, the
     taxpayer must execute the return under penalties of perjury.
     [Beard v. Commissioner, 82 T.C. 766, 777 (1984), affd. 793
     F.2d 139 (6th Cir. 1986).]
                              - 14 -

     On April 17, 1989, petitioner and Mr. Buck mailed the

purported return to respondent.   The purported return was not

signed by either petitioner or Mr. Buck.    Rather, the purported

return contained the statement "Fifth Amendment" in the spaces

provided for petitioner's and Mr. Buck's signatures.

     This Court has specifically held that the submission of an

unsigned document purporting to be a return does not constitute

the filing of a "return".   Beard v. Commissioner, supra at 777-

778; Richardson v. Commissioner, 72 T.C. 818, 823 (1979); Joseph

v. Commissioner, T.C. Memo. 1996-77 (where Form 1040 contained

the statement "5th" in the space provided for the taxpayer's

signature, the Court held that such form was not a valid return

and did not start the running of the statute of limitations); see

Sloan v. Commissioner, 102 T.C. 137 (1994), affd. 53 F.3d 799

(7th Cir. 1995); see also sec. 6061; sec. 1.6061-1(a), Income Tax

Regs.   Thus, the purported return submitted by petitioner and Mr.

Buck on April 19, 1989, did not constitute a return.

     As relevant herein, the term "deficiency" is defined by

section 6211(a) as the excess of the amount of tax actually due

over the amount shown as tax by the taxpayer upon the return, if

the taxpayer made a return showing an amount of tax due.      Sec.

6211(a)(1)(A).   Because petitioner did not file a return before

the notice of deficiency was issued, a deficiency existed in an

amount equal to the entire tax due.    See sec. 6211(b)(1);

Olmstead v. Commissioner, T.C. Memo. 1993-216 (where the taxpayer
                               - 15 -

paid taxes through withholding but failed to file a return, the

Court held that the amount of the deficiency was equal to the

amount of tax due); Schneiker v. Commissioner, T.C. Memo. 1989-

378 (where the taxpayer submitted an invalid return, the Court

held that the amount shown as the tax by the taxpayer upon his

return was zero).

     A taxpayer's liability for a deficiency becomes fixed, or

accrues, by an assessment of the tax.   See secs. 6201, 6203.   If

a taxpayer fails to file a return, then in order to assess a tax

liability, the Commissioner generally must issue a notice of

deficiency.   Sec. 6212(a).   It is for this reason that respondent

issued the notice of deficiency to petitioner, who had not

previously filed a return.

     Because petitioner was liable for income tax for 1988, and

because she did not self-assess such liability by filing a valid

return for that year before the mailing of the notice of

deficiency, we hold that respondent was substantially justified

in issuing the notice of deficiency.

     2.   The Judicial Proceeding

     Petitioner further contends that respondent's position was

not substantially justified at the time respondent filed the

answer because respondent had information available to her at

that time demonstrating that petitioner had satisfied her income

tax liability in April 1989.   As previously indicated, respondent
                              - 16 -

filed the answer on August 30, 1995, approximately 2-1/2 months

after petitioner and Mr. Buck submitted the filed return.

     Respondent contends that she was not able to obtain the

filed return and verify the information on such return before she

filed the answer.   Specifically, respondent asserts that the

filed return was not readily available to her Houston District

Counsel office because: (1) The filed return had only recently

been filed; and (2) the filed return was difficult to locate

because it was located under Mr. Buck's account, rather than

petitioner's, apparently because Mr. Buck's TIN was the "primary

TIN" and petitioner's TIN was the "spousal TIN."

     We have no reason to question respondent's explanation.    We

also note that the petition contained an allegation that the

purported return was "accepted" by respondent "for all purposes"

and that assessment of any deficiency against petitioner for the

taxable year 1988 was barred by the 3-year statute of

limitations.   Rule 39 obligated respondent to address this

matter in the answer by way of affirmative allegations if

respondent wished to preserve the issue.   Accordingly, we

conclude that respondent's position on August 30, 1995; i.e.,

that petitioner was liable for income tax for 1988, was

substantially justified.

     Finally, petitioner contends that respondent took an

unreasonable amount of time to verify the information on the

filed return and settle the case.   Here we recall that
                              - 17 -

petitioner's case was transferred from respondent's District

Counsel office in Houston to respondent's District Counsel office

in Oklahoma City for trial preparation because petitioner had

designated Oklahoma City as the place of trial.    Thereafter, the

record demonstrates that respondent acted reasonably promptly in

settling the case.   Thus, shortly after being assigned the

defense of this case, respondent's counsel contacted petitioner's

counsel.   Thereafter, respondent's counsel acted promptly to

retrieve the filed return from the Austin Service Center.     Upon

receiving the filed return, respondent's counsel again acted

promptly in ordering transcripts of account in order to verify

the correctness of the return.   After those transcripts were

received in January 1996, respondent's counsel immediately

conceded that petitioner had paid her tax liability for 1988 and

apparently also conceded that petitioner was not liable for the

addition to tax under section 6654(a).    Respondent's counsel

conceded the balance of the case on March 1, 1996, and no later

than March 5, 1996, he mailed the form of decision to

petitioner's counsel for his signature.    Thus, this case was

completely settled 6 months after respondent filed the answer.

In this regard, we observe that some delay in the settlement

process, in and of itself, does not make respondent's position

unreasonable.   See Sokol v. Commissioner, 92 T.C. at 765, and

cases cited therein.
                               - 18 -

     Although one might wish that settlement had come even

quicker, the present case is not one in which respondent adopted

an inflexible attitude concerning settlement or attempted in an

unfair manner to cause petitioner to compromise her case.

Similarly, petitioner has not shown that respondent advanced a

position that respondent knew to be factually or legally

incorrect.   Further, petitioner has not shown that respondent

pursued her position for purposes of harassment or embarrassment,

or out of political motivation, or for any other improper

purpose.

     In addition, and as we have already noted, the petition

contained an allegation that the purported return was "accepted"

by respondent "for all purposes" and that assessment of any

deficiency against petitioner for the taxable year 1988 was

barred by the 3-year statute of limitations.   Petitioner

ultimately abandoned this position, as demonstrated by the fact

that the form of decision reflects a deficiency in the amount of

$24,939.21.10   Under these circumstances, we are unable to

conclude that respondent acted unreasonably in not settling the

entire case before March 1, 1996.

     In summary, petitioner has not established that respondent's

position, either in the administrative proceeding or in the

     10
       See sec. 7459(e), which provides that if the assessment
of any tax is barred by any statute of limitations, then this
Court's decision to that effect shall be considered as its
decision that there is no deficiency in respect of such tax.
                               - 19 -

judicial proceeding, was unreasonable and therefore not

substantially justified.11   Consequently, petitioner does not

qualify as a "prevailing party" within the meaning of section

7430(c)(4).   We therefore hold that petitioner is not entitled to

an award of administrative or litigation costs.

     In order to reflect the foregoing,



                                          An appropriate order and

                                    decision will be entered.




     11
       We therefore need not decide whether petitioner
substantially prevailed, exhausted administrative remedies, or
unreasonably protracted the administrative proceeding, or whether
the costs incurred by petitioner were reasonable.
