                        T.C. Memo. 2002-151



                      UNITED STATES TAX COURT



         WAYNE HAMPTON AND LOIS HAMPTON, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3092-01.              Filed June 13, 2002.



     John M. Moles, for petitioners.

     Gary L. Bloom, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     SWIFT, Judge:   Respondent determined a deficiency of $75,075

in petitioners’ Federal income tax for 1994.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for 1994.
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     After concessions, the remaining issue for decision is

whether petitioners are entitled under section 7430 to an award

of $12,339 in litigation costs.


                        FINDINGS OF FACT

     At the time the petition was filed, petitioners resided in

Watts, Oklahoma.

     On December 27, 1996, respondent began an audit of

petitioners’ 1994 Federal income tax liability.

     On April 15, 1997, as a result of petitioners’ failure to

attend several scheduled appointments with respondent’s revenue

agent and to provide respondent with requested records,

respondent issued to petitioners a 30-day letter with regard to

petitioners’ 1994 Federal income tax liability.

     Petitioners filed with respondent’s Appeals Office a protest

to the above 30-day letter.   Because petitioners represented to

the Appeals Office that they possessed records for 1994 that they

had not yet provided to respondent’s revenue agent, respondent’s

Appeals Office returned petitioners’ case to respondent’s

Examination Division for review of the additional records that

petitioners offered to provide.

     Over the next 12 months, progress was made by petitioners

and respondent’s revenue agent towards an agreement of

petitioners’ 1994 Federal income tax liability.   Petitioners

provided to respondent additional records relating to some but
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not all of the adjustments reflected in respondent’s above 30-day

letter.   Upon respondent’s review of the additional records

provided, some adjustments set forth in the 30-day letter were

conceded by respondent, and on August 27, 1998, respondent issued

to petitioners a revised 30-day letter.

     On July 16, 1999, after petitioners had provided to

respondent’s revenue agent yet additional records, respondent

issued to petitioners a second revised 30-day letter, reflecting

additional concessions by respondent.

     Petitioners again protested to respondent’s Appeals Office

the adjustments set forth in respondent’s second revised 30-day

letter.   Petitioners then provided to respondent’s Appeals Office

even more records relating to some of the remaining adjustments

that had previously not been provided.    Upon review of these

records, respondent conceded or settled additional adjustments.

     On December 7, 2000, respondent mailed to petitioners a

notice of deficiency for petitioners’ 1994 Federal income tax

liability that reflected the adjustments that had not been agreed

to, and on March 7, 2001, petitioners filed their petition

herein.

     Shortly prior to the scheduled trial and as a result of

additional records provided by petitioners to respondent for the

first time, petitioners and respondent reached a basis for
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settlement on all of the remaining adjustments set forth in

respondent’s notice of deficiency.

     On February 11, 2002, petitioners filed under section

7430(a) their motion for an award of $12,339 in litigation costs.


                              OPINION

     Respondent acknowledges that petitioners substantially

prevailed with respect to the adjustments set forth in

respondent’s notice of deficiency, that petitioners met the net

worth requirement, that petitioners exhausted available

administrative remedies, and that the $12,339 in claimed

litigation costs is reasonable.   See sec. 7430(c)(4), (b)(1),

(c)(1), (2), and (3).   Respondent contends, however, that

petitioners unreasonably protracted the administrative and court

proceedings herein and that respondent’s position was

substantially justified.   See sec. 7430(b)(3) and (4).

     Petitioners emphasize that they seek recovery only of

litigation costs incurred after respondent mailed the notice of

deficiency (namely, of litigation costs incurred after

December 7, 2000), and not administrative costs incurred during

the audit examination and Appeals protest when their delay in

producing records to respondent may have delayed the resolution

of the adjustments.

     In connection with the audit, appeals, and litigation of

this case (from December 27, 1996, to February 2002), petitioners
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failed to attend various scheduled meetings with respondent’s

representatives and failed timely to produce records.

     Respondent’s audit, respondent’s Appeals Office

consideration, and the ultimate settlement of petitioners’ case

in this Court all appear to have been delayed by the haphazard

fashion in which petitioners produced their records.

     On the limited record before us in this case, we conclude

that petitioners’ delay in producing records protracted the

administrative and court proceedings within the meaning of

section 7430(b)(3).   Petitioners are not entitled to an award of

any litigation costs.   See Polyco, Inc. v. Commissioner, 91 T.C.

963, 968 (1988).

     To reflect the foregoing,

                                              An appropriate order and

                                         decision will be entered.
