                       T.C. Memo. 1999-367



                     UNITED STATES TAX COURT



                LINDA MARIE SHERBO, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 16291-98.                   Filed November 4, 1999.



     Douglas A. Drees, for petitioner.

     Henry N. Carriger, for respondent.



                       MEMORANDUM OPINION


     DEAN, Special Trial Judge:   This case is before the Court on

petitioner's Motion for Award of Attorney's Fees filed pursuant

to section 7430 and Rule 231.   All references to section 7430 are

to such section as in effect at the time the petition was filed.

All other section references are to the Internal Revenue Code in
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effect for the years in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

     The issues for decision are:   (1) Whether respondent's

position in the underlying proceedings was substantially

justified, and (2) whether the amount claimed by petitioner as

attorney's fees and costs is reasonable.

     Neither party requested a hearing in this case, and we

conclude that none is necessary to decide this motion.    See Rule

232(a)(2).   Accordingly, we rule on petitioner's motion for

attorney's fees on the basis of the parties' submissions and the

record in this case.   See Rule 232(a).   Petitioner resided in Des

Moines, Iowa, at the time she filed her petition.

                             Background

     The underlying claim that gave rise to the present dispute

involved petitioner's eligibility to receive earned income credit

in the 1995 and 1996 tax years.   Both petitioner and her former

husband, Stephen Sherbo (Mr. Sherbo), claimed earned income

credit in 1995 and 1996 with respect to the same child.

     Petitioner and Mr. Sherbo have two children, Sean and Liane

Sherbo.   Petitioner claimed earned income credit on her 1995 and

1996 individual Federal income tax returns using her two children

to qualify for the credit.   Mr. Sherbo claimed earned income

credit for tax years 1995 and 1996 using Liane to qualify for the

credit in 1995 and Sean to qualify for the credit in 1996.
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     Respondent, unable to determine which parent was entitled to

the earned income credit, issued "whipsaw" notices of deficiency

for the 1995 and 1996 tax years to petitioner and Mr. Sherbo.1

The notices of deficiency disallowed the earned income credit to

both petitioner and Mr. Sherbo.   Petitioner filed a timely

petition objecting to the notices of deficiency and seeking a

redetermination.   Mr. Sherbo defaulted on the notices of

deficiency for 1995 and 1996.   The Appeals officer assigned to

petitioner's case thereafter recommended that petitioner be

allowed the earned income credit for both 1995 and 1996 as

claimed on her tax returns on the basis that Mr. Sherbo could no

longer claim earned income credit for either of the years in

issue.

     On April 12, 1999, pursuant to the stipulation of the

parties, the Court entered an agreed decision reflecting that no

deficiencies or overpayments are due.   On May 6, 1999, petitioner

filed a Motion to Vacate Decision and lodged a Motion for Award

of Attorney's Fees.   On May 10, 1999, the Court issued an Order

granting petitioner's Motion to Vacate Decision, ordering the



     1
       By issuing notices of deficiency to both petitioner and
Mr. Sherbo, respondent has ensured the comprehensive resolution
of petitioner and her former husband's inconsistent treatment of
the qualifying children and the resulting earned income credits.
See Wickert v. Commissioner, T.C. Memo. 1986-277, affd. 842 F.2d
1005 (8th Cir. 1988); Deutsch v. Commissioner, T.C. Memo. 1997-
470 n.4.
                               - 4 -


Clerk of the Court to file the agreed decision document as a

Supplemental Settlement Stipulation, and filing petitioner's

Motion for Award of Attorney's Fees.     The Court also ordered

respondent to file a response to petitioner's Motion for Award of

Attorney's Fees.   After filing for an extension of time, which

the Court granted, respondent filed a Notice of Objection to

Petitioner's Motion for Award of Attorney's Fees.     We now

evaluate petitioner's motion seeking litigation costs totaling

$4,310.

                            Discussion

     In general, section 7430 allows a taxpayer who is a

prevailing party in a civil tax proceeding to recover reasonable

administrative and litigation costs incurred in such proceeding.

An award of administrative or litigation costs may be made where

the taxpayer:   (1) Is the prevailing party, (2) has exhausted

available administrative remedies, (3) did not unreasonably

protract the administrative or judicial proceeding, and (4) shows

that the costs claimed are reasonable costs incurred in

connection with the administrative or judicial proceeding.     See

sec. 7430(a) through (c)(4).   Both petitioner and respondent

agree that all administrative remedies available within the

Internal Revenue Service have been exhausted and that the

proceeding has not been unreasonably protracted.     The parties

disagree, however, as to whether petitioner is a prevailing party
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and whether petitioner has demonstrated that the attorney's fees

and costs sought are reasonable litigation costs.

     To be a "prevailing party", a taxpayer must substantially

prevail with respect to either the amount in controversy or the

most significant issue or set of issues presented and must meet

the net worth requirements of 28 U.S.C. sec. 2412(d)(2)(B)(1994).

See sec. 7430(c)(4).   Even if a taxpayer meets these

requirements, she still is not a "prevailing party" if respondent

establishes that the United States' position in the proceeding

was substantially justified.   See sec. 7430(c)(4)(B)(i).

     Although respondent concedes that petitioner has

substantially prevailed in this case and that petitioner meets

the net worth requirements, respondent contends that petitioner

is not a prevailing party because respondent was substantially

justified in issuing the notices of deficiency.

     A position is substantially justified if it could satisfy a

reasonable person and if it has a reasonable basis in both fact

and law.   See Pierce v. Underwood, 487 U.S. 552, 565 (1988)

(defining "substantially justified" in the context of the Equal

Access to Justice Act (EAJA), 28 U.S.C. sec. 2412(d)(1994));

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

basis exists if legal precedent substantially supports

respondent's position given the facts available to respondent.

See Coastal Petroleum Refiners, Inc. v. Commissioner, 94 T.C.
                               - 6 -


685, 688 (1990).   Respondent must prove that his position was

substantially justified.   See sec. 7430(c)(4)(B).   Although the

concession of a case is a factor to be considered in determining

whether a position is substantially justified, such concession is

not by itself sufficient to establish an unreasonable position.

See Estate of Merchant v. Commissioner, 947 F.2d 1390, 1395 (9th

Cir. 1991), affg. T.C. Memo. 1990-160; Powers v. Commissioner,

100 T.C. 457, 471 (1993), affd. on this issue, revd. in part and

remanded on other issues 43 F.3d 172 (5th Cir. 1995).

     Petitioner seeks only litigation costs in this matter;

therefore, we must examine respondent's position in the judicial

proceeding.   See sec. 7430(c)(7)(A).   Respondent first took a

position in the judicial proceeding on the date respondent's

answer was filed--November 16, 1998.    See California Marine

Cleaning, Inc. v. Commissioner, T.C. Memo. 1998-311; Kahn-Langer

v. Commissioner, T.C. Memo. 1995-527; Lockett v. Commissioner,

T.C. Memo. 1994-144 (citing Huffman v. Commissioner, 978 F.2d

1139, 1148 (9th Cir. 1992), affg. in part, revg. in part and

remanding on other issues T.C. Memo. 1991-144).

     Respondent contends the position of the United States was

substantially justified on the basis of the following information

the Internal Revenue Service possessed at the time the notice of

deficiency was issued:   (1) Both petitioner and Mr. Sherbo

claimed earned income credit with respect to Liane on their 1995
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individual Federal income tax returns; (2) both petitioner and

Mr. Sherbo claimed earned income credit with respect to Sean on

their 1996 individual Federal income tax returns; (3) petitioner

and Mr. Sherbo are the biological parents of Liane and Sean; (4)

petitioner, Mr. Sherbo, Liane, and Sean appeared to share the

same household for the 1995 and 1996 tax years; and (5) Mr.

Sherbo's modified adjusted gross income was higher than

petitioner's modified adjusted gross income in tax years 1995 and

1996.   We now assess whether respondent reasonably relied on

these facts in forming and maintaining his litigation position.

     To be eligible to claim earned income credit with respect to

a qualifying child, a taxpayer must establish that the child

bears the relationship to the taxpayer prescribed by section

32(c)(3)(B) and that the child shares the same principal place of

abode as the taxpayer for more than one-half of the taxable year

as prescribed by section 32(c)(3)(A)(ii).    Section 32(c)(1)(C)

provides further that if two or more individuals would otherwise

be eligible for earned income credit with respect to the same

qualifying child for the same taxable year, only the individual

with the highest adjusted gross income for the taxable year will

be eligible to claim the qualifying child.

     As biological parents of Liane and Sean, both petitioner and

Mr. Sherbo meet the relationship test of section 32(c)(3)(B).

Petitioner and Mr. Sherbo's individual Federal income tax returns
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indicate that Mr. Sherbo had a higher adjusted gross income than

petitioner in both 1995 and 1996.    Consequently, if Mr. Sherbo

and petitioner both shared the same principal place of abode

along with their children during the taxable years in issue, only

Mr. Sherbo would be eligible to claim earned income credit with

respect to both Liane and Sean in both 1995 and 1996.     Whether

respondent's litigation position was substantially justified thus

turns on whether respondent had reasonable grounds to conclude

that petitioner and Mr. Sherbo may have shared the same household

in 1995 and 1996.

     Both petitioner and Mr. Sherbo's tax returns for these years

provide the same mailing address.    Furthermore, petitioner listed

Mr. Sherbo as a member of her household in her December 23, 1997,

reply to respondent's request for information.     It was not until

her reply to respondent's March 2, 1998, letter proposing changes

to petitioner's 1995 and 1996 tax liability that petitioner

indicated Mr. Sherbo used her address only for mailing purposes

and did not actually live with her during the years in issue

except for 4 months in 1996.   Petitioner, however, did not

substantiate this claim with any corroborating evidence.

     Although petitioner enclosed with her reply copies of a Form

8332 as requested by respondent and wage withholding records,

this evidence does not establish that petitioner was entitled to

the earned income credit at issue.     The Form 8332 provided by
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respondent indicates that Mr. Sherbo released his claim to

dependency exemptions for both Sean and Liane for tax year 1995

and future years.   Petitioner's entitlement to section 32 earned

income credit for 1995 and 1996, however, is not conditioned on

petitioner's entitlement to dependency exemption deductions under

section 151.   The statutory language that previously linked those

issues was removed by the Omnibus Budget Reconciliation Act of

1990, Pub. L. 101-508, sec. 11111, 104 Stat. 1388, 1388-408,

effective for taxable years beginning after December 31, 1990.

     The wage withholding records supplied by petitioner in

response to respondent's request for information provide evidence

of the court-ordered child support payments Mr. Sherbo made to

petitioner and suggest that petitioner was the custodial parent.

These records do not establish, however, that Mr. Sherbo did not

share a residence with petitioner during the years in issue.

     Respondent's refusal to rely on petitioner's claims

regarding Mr. Sherbo's residence was not unreasonable.

Petitioner's claims were in direct conflict with petitioner's

earlier reply to respondent and with the information provided by

Mr. Sherbo on his tax returns for the years in issue.    Under

these facts and circumstances, it was reasonable to conclude that

petitioner and Mr. Sherbo may have shared the same residence for

the 1995 and 1996 tax years.   The legal consequence of these

facts under section 32(c) was that respondent was unable to
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determine which parent was entitled to receive the earned income

credit with respect to Liane and Sean.

     Respondent's position remained unchanged on November 16,

1998, when respondent filed an answer to petitioner's petition.

In respondent's explanation of the notices of deficiency,

respondent informed petitioner that in order to have the

deficiencies redetermined, petitioner would have to provide

documentation verifying that her ex-husband did not reside with

her during the years in issue.     The record does not reflect that

petitioner ever brought forth any such documentation.

     It is not unreasonable for respondent to require a taxpayer

to corroborate claims regarding a dispositive and unresolved

fact.     See Baker v. Commissioner, 83 T.C. 822, 830 (1984),

vacated and remanded on another issue 787 F.2d 637 (D.C. Cir.

1986); Pan Pac. Trading Corp. v. Commissioner, T.C. Memo. 1994-

101, affd. 73 F.3d 370 (9th Cir. 1995).     Respondent was entitled

to defend against inconsistent results by holding both petitioner

and Mr. Sherbo liable for the deficiency until the facts

established which party was entitled to the earned income credit

at issue.     See Maggie Management Co. v. Commissioner, 108 T.C.

430, 446 (1997).

        Respondent maintained his position only so long as it was

necessary to resolve the whipsaw situation.     When Mr. Sherbo

defaulted on the notices of deficiency, respondent regarded the
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whipsaw situation as resolved because Mr. Sherbo could no longer

claim in the Tax Court the earned income credit at issue.

Respondent immediately conceded petitioner's case allowing

petitioner the earned income credit as claimed on her tax

returns.   Respondent's position throughout the entire judicial

proceeding remained reasonably based on the facts known to

respondent and on the well-established legal consequences of

those facts.

     Accordingly, we hold that respondent's position on the

issues in this case was substantially justified and that

petitioner is not entitled to an award for litigation costs under

section 7430.   We thus need not address the reasonableness of the

costs claimed by petitioner.     Petitioner's motion will therefore

be denied.

     To reflect the foregoing,

                                           An appropriate Order

                                      and Decision will be entered.
