                        T.C. Memo. 2002-237



                      UNITED STATES TAX COURT



                   TAM N. HUYNH, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13540-99.            Filed September 23, 2002.




     Bruce E. Gardner, for petitioner.

     Roger W. Bracken, for respondent.



                        MEMORANDUM OPINION



     WOLFE, Special Trial Judge:   This matter is before the Court

on petitioner’s motion for an award of administrative and

litigation costs, filed pursuant to section 7430 and Rules 230

through 233.   Unless otherwise indicated, all section references

are to the Internal Revenue Code, as amended; however, references
                                 - 2 -

to section 7430 are to that section in effect when the petition

was filed (August 9, 1999).    All Rule references are to the Tax

Court Rules of Practice and Procedure.

                              Background

     Petitioner resided in Alexandria, Virginia, at the time the

petition was filed with the Court.       Petitioner is the father of

three children who were, respectively, 16, 18, and 20 years of

age at the time of the hearing (July 18, 2001).       Petitioner and

his ex-wife, who is the mother of the children, divorced in 1989.

The divorce decree granted petitioner custody of their two sons

and his ex-wife custody of their daughter.

     During 1998, petitioner was self-employed as a manicurist.

Petitioner timely filed a 1998 Federal income tax return on which

he reported total income of $10,698.       On the tax return,

petitioner listed his filing status as head of household, claimed

dependency exemption deductions for his three children, and

claimed an earned income credit of $3,756.       Petitioner also

claimed an income tax refund of $2,244.

     By letter dated March 18, 1999 (the examination letter),

respondent informed petitioner that “We are examining your

Federal income tax return for 1998 and find we need documentation

to verify certain items.”     Respondent requested that petitioner

mail documentation to verify the claimed dependency exemptions,

head of household status, and earned income credit.
                                 - 3 -

     Petitioner responded to the examination letter by mailing

various documents to respondent.    After reviewing the documents,

respondent concluded that the information submitted by petitioner

was insufficient to verify the items under examination.

     By letter dated April 6, 1999 (the proposed adjustment

letter), respondent proposed a deficiency of $4,215 in

petitioner’s 1998 Federal income tax.     The proposed deficiency

was predicated on a change in petitioner’s filing status from

head of household to single, the disallowance of the three

dependency exemptions, and the partial disallowance of the earned

income credit.   The proposed adjustment letter informed

petitioner that he had not submitted all of the documentation

that respondent had requested.    The letter also listed each item

that respondent still required for verification.

     Petitioner responded to the proposed adjustment letter by

mailing various documents to respondent.     After reviewing the

documents, respondent concluded that they were insufficient to

verify the items under examination.      By letter dated May 11, 1999

(the May 11th letter), respondent so informed petitioner.

Respondent also repeated his request for documentation

establishing that petitioner’s children lived with petitioner for

more than 6 months of 1998 and a record of funds that petitioner

spent in support of his children.    Respondent also informed

petitioner that any further supporting documents or information
                                - 4 -

that petitioner wished respondent to consider should be received

within 15 days of the date of the May 11th letter.

     By a notice of deficiency dated May 28, 1999, respondent

determined a deficiency of $4,196 in petitioner’s 1998 Federal

income tax.   Petitioner hired counsel to represent him in June

1999.   The petition was filed August 9, 1999.   Respondent’s

answer was filed October 12, 1999.

     On November 3, 1999, respondent assigned the case to an

Appeals officer.    On November 18, 1999, the Appeals officer spoke

with petitioner’s counsel about settling the dispute.    The

following day, the Appeals officer mailed a letter to

petitioner’s counsel proposing that respondent would concede the

earned income credit issue if petitioner conceded the dependency

deductions and head of household filing status issues.

     On January 11, 2000, the Appeals officer received a letter

from petitioner’s counsel suggesting that she agree to concede

all three issues.    Attached to the letter were documents

concerning petitioner’s public assistance, dependency deductions,

and filing status.    After reviewing the letter and documents, the

Appeals officer did not alter her settlement position.

     In February 2000, the Appeals officer forwarded the case to

respondent’s District Counsel office for trial preparation.

After reviewing the case, the District Counsel office offered to

settle the dispute with petitioner on the same terms that had
                                - 5 -

been proposed by the Appeals officer.

     At calendar call (March 20, 2000), the parties filed a

stipulation in which they resolved all of the issues raised in

the notice of deficiency.    The stipulation did not differ from

the settlement offers that the Appeals and District Counsel

offices previously had made.    Specifically, the parties

stipulated that for 1998:    (1) Petitioner is not entitled to any

dependency exemptions for his three children; (2) petitioner is

not entitled to head of household filing status, but rather to

single filing status; and (3) petitioner is entitled to an earned

income credit in the amount claimed by petitioner on his 1998

Federal income tax return, based on two qualifying children.     The

stipulation resulted in a tax deficiency of $448 for 1998.

     At calendar call, petitioner also filed a motion for an

award of reasonable administrative and litigation costs (motion

for costs), requesting an award of $1,837.45.    Subsequently,

petitioner filed a supplement to the motion for costs in which he

raised his previous request to $2,335.11.

     On May 4, 2000, respondent filed a response to petitioner’s

motion for costs and supplement thereto.    In the response,

respondent disputed petitioner’s allegations that respondent’s

position was not substantially justified, that petitioner did not

unreasonably protract the proceedings, and that the costs

requested were reasonable.
                               - 6 -

     On June 7 and 15, 2000, petitioner filed a motion in limine

and a motion to strike, respectively.   In these motions,

petitioner sought to exclude from evidence the declaration of the

Appeals officer and the exhibits attached thereto.   On June 30,

2000, respondent filed responses objecting to these motions.   The

Court subsequently denied both petitioner’s motion in limine and

motion to strike.

     On June 28, 2001, petitioner filed a reply to respondent’s

response to petitioner’s motion for costs.   Petitioner argued,

among other things, that at the time respondent sent the notice

of deficiency to petitioner, petitioner had already provided

respondent with enough documentation to resolve the issues

conclusively in favor of petitioner.

     On July 2, 2001, petitioner filed a supplement to his reply

to respondent’s response to petitioner’s motion for costs.   The

supplement reiterated his request for an award of reasonable

administrative and litigation costs, and also detailed a summary

of litigation costs totaling $6,610.45 incurred between June 2000

and June 2001.   Presumably, this request for costs was in

addition to his previous request of $2,335.11, which he

previously made in his supplement to his motion for costs filed

on March 31, 2000.
                                 - 7 -

                              Discussion

     In general, section 74301 allows a taxpayer who is a

prevailing party in an administrative or court proceeding brought

against the United States in connection with the determination,

collection, or refund of any tax to recover reasonable

administrative and litigation costs incurred in such proceeding.

Sec. 7430(a).    A judgment for litigation costs incurred in

connection with a court proceeding may be awarded only if a

taxpayer:   (1) Is the prevailing party; (2) exhausted available

administrative remedies; and (3) did not unreasonably protract

the court proceeding.     Sec. 7430(a), (b)(1), (3), (c)(4).

Similarly, a judgment for administrative costs incurred in

connection with an administrative proceeding may be awarded only

if a taxpayer:    (1)   Is the prevailing party; and (2) did not

unreasonably protract the administrative proceeding.     Sec.

7430(a), (b)(3), (c)(4).

     A taxpayer qualifies as a prevailing party only if:       (1) The

taxpayer substantially prevailed with respect to either the

amount in controversy or the most significant issue or set of

issues presented; (2) the taxpayer satisfies the applicable net


     1
        We apply sec. 7430 as amended by Congress in the Internal
Revenue Service Restructuring and Reform Act of 1998 (RRA 1998),
Pub. L. 105-206, sec. 3101, 112 Stat. 685, 727. The amendments
made by RRA 1998 to sec. 7430 apply to costs incurred or services
performed after Jan. 18, 1999. Since petitioner’s counsel
neither incurred costs nor performed services for petitioner
until June 1999, the RRA 1998 amendments clearly apply to this
case.
                               - 8 -

worth requirement; and (3) the Commissioner fails to establish

that his position was substantially justified.    Sec.

7430(c)(4)(A) and (B).

     The parties agree that petitioner exhausted his

administrative remedies, substantially prevailed with respect to

the amount in controversy, and meets the applicable net worth

requirement.   The remaining issues are:   (1) Whether respondent’s

position in the administrative and court proceedings was

substantially justified; (2) whether petitioner unreasonably

protracted any portion of such proceedings; and (3) whether the

amount of administrative and litigation costs petitioner seeks is

reasonable.

     Respondent bears the burden of proving that his position was

substantially justified, while petitioner bears the burden of

proof with respect to all other requirements.    Sec.

7430(c)(4)(B); Rule 232(e); Maggie Mgmt. Co. v. Commissioner, 108

T.C. 430, 437 (1997).

     The Supreme Court has interpreted “substantially justified”

to mean “justified to a degree that could satisfy a reasonable

person.”   Pierce v. Underwood, 487 U.S. 552, 565 (1988)

(construing similar language in the Equal Access to Justice Act,

28 U.S.C. sec. 2412(d)(1)(A) (1994)).    Respondent’s position need

not be correct to be substantially justified; it need only have a

“reasonable basis in law and fact.”     Id. at 566 n.2.   Whether
                                 - 9 -

respondent acted reasonably “ultimately turns upon those

available facts which formed the basis for the position taken in

the notice of deficiency and during the litigation, as well as

upon any legal precedents related to the case.”       Maggie Mgmt. Co.

v. Commissioner, supra at 443.    The fact that respondent

eventually loses or concedes a case is not determinative.          Sokol

v. Commissioner, 92 T.C. 760, 767 (1989).       However, it is a

factor that may be considered.     Estate of Perry v. Commissioner,

931 F.2d 1044, 1046 (5th Cir. 1991).

     For purposes of the administrative proceedings in this case,

respondent’s position is that which was articulated in the notice

of deficiency, dated May 28, 1999.       See sec. 7430(c)(7)(B).    For

purposes of the court proceedings in this case, respondent’s

position is that which was set forth in the answer to the

petition filed on October 12, 1999.       See Maggie Mgmt. Co. v.

Commissioner, supra at 442.   Ordinarily, we consider the

reasonableness of each of these positions separately.       Id.     Here,

however, we need not consider them separately because there is no

indication that respondent’s position changed or that respondent

became aware of any additional facts that rendered his position

any less justified between the issuance of the notice of

deficiency and the filing of the answer to the petition.       See id.

at 442-443; Pittman v. Commissioner, T.C. Memo. 1999-389.
                              - 10 -

Dependency Exemptions

     Section 151(c)(1) allows a taxpayer to deduct an exemption

amount for each dependent as defined in section 152.    Under

section 152(a), the term “dependent” means certain individuals

over half of whose support during the calendar year was received

from the taxpayer.   Eligible individuals who may be claimed as

dependents include a son or daughter of the taxpayer.     Sec.

152(a)(1).

     When a child’s parents are divorced, section 152(e)(1)

provides a special rule to determine which one of them, if

either, is entitled to the dependency exemption.   That section

provides that, if a child received over half of his support from

his divorced parents, and such child is in the custody of one or

both of his parents for more than one-half of the calendar year,

then the parent having custody for a greater portion of the

calendar year is entitled to the dependency exemption.2    See sec.

1.152-4(a), Income Tax Regs.; sec. 1.152-4T, Temporary Income Tax

Regs., 49 Fed. Reg. 34459 (Aug. 31, 1984), to the effect that


     2
        Sec. 152(e)(2) provides an exception to the rules stated
above. That section allows the dependency exemption to the
noncustodial parent when the custodial parent agrees to release
the exemption. To obtain the advantage of this exception, the
noncustodial parent must obtain from the custodial parent a
written declaration that he or she “will not claim such child as
a dependent for any taxable year beginning in such calendar
year”, and the noncustodial parent must attach the written
declaration to his or her tax return. Sec.152(e)(2).
                               - 11 -

sec. 152(e) and the regulations concerning that section are

inapplicable where both parents combined do not provide more than

one-half the child’s total support during the year in question.

     In applying the support test, we evaluate the amount of

support furnished by the taxpayer (or the taxpayer and his former

wife in the case of divorced parents) as compared to the total

amount of support received by the claimed dependent from all

sources.    Turecamo v. Commissioner, 554 F.2d 564, 569 (2d Cir.

1977), affg. 64 T.C. 720 (1975); sec. 1.152-1(a)(2)(i), Income

Tax Regs.    The taxpayer must initially demonstrate, by competent

evidence, the total amount of support furnished by all sources

for the taxable year at issue.    Blanco v. Commissioner, 56 T.C.

512, 514 (1971).   Otherwise, the taxpayer cannot be said to have

established that he provided more than one-half of the support

for the claimed dependent.    Id. at 514-515.

     Support provided by a third party, such as a Federal or

State agency, is not considered support furnished by the

taxpayer.    See, e.g., Gulvin v. Commissioner, 644 F.2d 2 (5th

Cir. 1981), affg. T.C. Memo. 1980-111; Lutter v. Commissioner, 61

T.C. 685 (1974), affd. 514 F.2d 1095 (7th Cir. 1975); Williams v.

Commissioner, T.C. Memo. 1996-126, affd. without published

opinion 119 F.3d 10 (11th Cir. 1997).

     Petitioner reported total income of $10,698 on his 1998
                               - 12 -

Federal income tax return.    Petitioner sent documents to

respondent showing that during 1998 he received public assistance

of $1,584 from the Fairfax County Department of Human Development

(FCDHD), and that during the period between December 1, 1998, and

December 1, 1999, petitioner received housing assistance of

$9,036 from the U.S. Department of Housing and Urban Development

(HUD).    Petitioner did not send to respondent any documents that

showed how much assistance he received from HUD prior to December

1, 1998.

     Respondent’s position in the administrative and litigation

proceedings was that petitioner did not establish that he

furnished over half the support of his three children during

1998.    Respondent received the following documentation from

petitioner in support of petitioner’s claimed dependency

exemptions:    (1) An account ledger maintained by the apartment

building where petitioner lived indicating that petitioner paid

rent of $176 each month during 1998; (2) monthly phone bills

ranging from $37 to $269 during 1998; and (3) an account

statement indicating that during 1998 petitioner’s monthly

utility bills ranged from $49 to $125, prior to adjustment for

“energy assistance”.

     On this record, we conclude that respondent’s position

denying petitioner dependency exemptions for his children during
                               - 13 -

1998 was substantially justified.   The documents that petitioner

sent to respondent failed to establish that his children received

over half of their support from petitioner during 1998.

Petitioner furnished no evidence that his ex-wife provided any

support for the children during 1998, and the record does not

include any indication of the amount of support, if any, that she

may have provided.   Moreover, the record does not indicate that

petitioner’s ex-wife signed a waiver of her right to claim a

deduction for support of the child of whom she was awarded

custody in the divorce, and no such waiver was attached to

petitioner’s tax return as required by section 152(e)(2).

Petitioner’s failure to show how much assistance he received from

HUD during 1998 justified respondent’s disallowance of

petitioner’s claimed dependency exemptions.   Even on the

assumption that petitioner’s assistance from HUD did not

significantly change from 1998 to 1999, petitioner’s combined

public assistance from HUD and FCDHD during 1998 nearly equaled

his total income of $10,698.   The other documents that petitioner

submitted in support of his claimed dependency deductions did not

establish that petitioner’s children received over half of their

support from petitioner and his wife during 1998.

Head of Household Filing Status

     Section 2(b)(1) defines a head of household as including an

individual taxpayer who is not married at the close of the
                              - 14 -

taxable year, and who maintains as his home a household that

constitutes for more than one-half of such year the principal

place of abode of the taxpayer’s child.   Other provisions of

section 2(b) are not relevant to this case.

     A taxpayer is entitled to head of household filing status

only if he pays more than half the cost of maintaining the

household during the year.   Sec. 2(b)(1).   The cost of

maintaining a household consists of the “expenses incurred for

the mutual benefit of the occupants thereof by reason of its

operation as the principal place of abode of such occupants”.

Sec. 1.2-2(d), Income Tax Regs.   Such expenses include “property

taxes, mortgage interest, rent, utility charges, upkeep and

repairs, property insurance, and food consumed on the premises”,

but do not include “the cost of clothing, education, medical

treatment, vacations, life insurance, and transportation.”      Id.

     Respondent’s position in the administrative and litigation

proceedings was that petitioner did not establish that he

maintained as his home a household that constituted for more than

one-half of 1998 the principal place of abode of his children and

that petitioner did not establish that he paid over half the cost

of maintaining the household during 1998.

     As stated above, the documents that petitioner sent to

respondent showed that petitioner received housing assistance

from HUD of $9,036 during the period between December 1, 1998,
                             - 15 -

and December 1, 1999, but did not show how much housing

assistance he received from HUD prior to December 1, 1998.    On

the assumption that petitioner’s housing assistance from HUD did

not significantly change from 1998 to 1999, petitioner’s housing

assistance from HUD nearly matched his total income of $10,698

during 1998.

     We hold that respondent was substantially justified in

concluding that petitioner failed to provide sufficient

documentation to establish that he paid over half the cost of

maintaining the household during 1998.

Earned Income Credit

     Section 32(a) provides that, subject to limitations, in the

case of an “eligible individual” an earned income credit shall be

allowed against the individual’s income tax liability.    Section

32(c)(1)(A) defines an eligible individual as either (1) any

individual who has a qualifying child for the taxable year, or

(2) any other individual who does not have a qualifying child for

the taxable year, if the individual’s principal place of abode is

in the United States for more than one-half of such taxable year,

the individual is at least 25 years of age but has not reached 65

years of age before the close of the taxable year, and the

individual is not a dependent for whom a deduction is allowable
                             - 16 -

under section 151 to another taxpayer in the same year.3   A

qualifying child must have the same principal place of abode as

the taxpayer for more than one-half of the taxable year.     Sec.

32(c)(3)(A).

     As set forth in the notice of deficiency, a portion of

petitioner’s claimed earned income credit was denied because

respondent determined that petitioner failed to establish that

any of his children had the same principal place of abode as

petitioner for more than one-half of 1998.

     In support of petitioner’s claim that his children lived

with him for more than one-half of 1998, petitioner sent to

respondent the following documents:   (1) A handwritten letter

from an administrative assistant of petitioner’s apartment

building dated June 29, 1999, addressed to whom it may concern:

“Mr. Huyn [sic] rent for the year of 1998. was 236.00.   His

family member is Viet Huyhn [sic], Thuy Huynh and Van Huynh”; (2)

three certifications of enrollment, each dated May 20, 1999,

issued by schools in Virginia for the 1998-99 school year listing

petitioner’s address as the current address of his children; (3)

report cards for each of his children for the period of September

8, 1998, to November 11, 1998; (4) letters dated May 20, 1999,

from Dr. Duc M. Ngo, a physician who practiced in Fairfax,

     3
        An eligible individual with a qualifying child is
entitled to a larger credit than is an eligible individual
without a qualifying child. See sec. 32(a) and (b).
                              - 17 -

Virginia, stating that petitioner’s children had been under his

medical care since October 1997; and (5) a document entitled

“OWNER’S CERTIFICATION OF COMPLIANCE WITH HUD’S TENANT

ELIGIBILITY AND RENT PROCEDURES”, with an effective date of

December 1, 1998, which listed petitioner and his three children

as occupants of the household.

     From the limited information in these documents, we are

satisfied that respondent had a reasonable basis for his position

that petitioner did not establish that his children lived with

him for more than one-half of 1998.

     The HUD certification document establishes that petitioner’s

children lived with him during the last month of 1998.   The

children’s report cards and certifications of enrollment indicate

that they lived with petitioner as early as September 1998.

However, none of the documents establish that his children lived

with him prior to September 1998.   The copy of the administrative

assistant’s handwritten note is wrong about the amount of rent

and inaccurate about the name of at least one of petitioner’s

children, and it is a hearsay document that we consider unworthy

of belief.   Similarly the document from the doctor is approximate

on its face and does not establish the children’s residence in

1998.

     Despite having a reasonable basis for disallowing

petitioner’s claimed earned income credit, the Appeals officer,
                               - 18 -

in an effort to settle the dispute, offered to concede the earned

income credit issue in exchange for petitioner’s concessions of

the dependency exemptions and head of household filing status

issues.   Petitioner refused the offer.   After 4 months of

correspondence and a transfer of the case to respondent’s

District Counsel office for litigation preparation, the parties

settled the dispute on the same terms that respondent had

originally offered and had continued to offer throughout the

proceedings.

     Petitioner argues that the Appeals officer’s decision to

concede the earned income credit issue at an early stage in the

litigation shows that petitioner had furnished sufficient

documentation to establish that he was entitled to the earned

income credit.

     On the contrary, the documents that petitioner submitted did

not establish that his children lived with him for more than one-

half of 1998.    The Appeals officer’s offer to concede the earned

income credit issue reflects respondent’s attempt to settle the

matter expeditiously–-not a conclusion by respondent that

petitioner had established his entitlement to the earned income

credit.   Respondent’s proposed concession was conditioned on

petitioner’s conceding the remaining issues.    We note that even

if respondent had not conditioned his concession of the earned

income credit issue on petitioner’s concession of the other
                              - 19 -

issues, the Commissioner’s concession of an issue by itself is

not determinative in the inquiry of whether his position was

substantially justified.   Swanson v. Commissioner, 106 T.C. 76,

94 (1996).

     Petitioner also contends that even if the documentation that

he submitted to respondent was insufficient to establish that his

children lived with him for more than 6 months of 1998,

respondent independently should have investigated the matter for

petitioner.4

     On the contrary, it is not unreasonable for the Commissioner

to require a taxpayer to corroborate a claim concerning

dispositive and unresolved facts.   Baker v. Commissioner, 83 T.C.

822, 830 (1984), vacated and remanded on another issue 787 F.2d

637 (D.C. Cir. 1986); see Williams v. Commissioner, T.C. Memo.

1997-541, affd. without published opinion 176 F.3d 486 (9th Cir.

1999); Simpson v. Commissioner, T.C. Memo. 1995-194.   The



     4
        In the present case petitioner never did provide evidence
to establish that his children lived with him for more than 6
months of 1998. Petitioner did not even appear at the hearing on
this matter. Petitioner’s counsel did not obtain the required
evidence or arrange for petitioner to be present at the hearing.
Under the present condition of the record, not only was
respondent’s position reasonable with respect to the issue as to
petitioner’s entitlement to the earned income credit, but that
issue well might have been decided for respondent if respondent
had not conceded it as part of the overall settlement of the
case.
                              - 20 -

Commissioner is not required to concede a case until he receives

the documentation necessary to prove a taxpayer’s contentions.

Brice v. Commissioner, T.C. Memo. 1990-355, affd. without

published opinion 940 F.2d 667 (9th Cir. 1991).

                            Conclusion

     We conclude that respondent had a reasonable basis in fact

and law for all issues raised in the notice of deficiency, and,

therefore, his position was substantially justified.   Thus,

petitioner is not a prevailing party and is not entitled to an

award of administrative or litigation costs under section 7430.

Based on the foregoing, we need not consider whether petitioner

unreasonably protracted any portion of the proceedings or whether

the amount of administrative and litigation costs claimed by

petitioner is reasonable.

     To reflect the foregoing,

                                         An appropriate order and

                                   a decision as stipulated by

                                   the parties will be entered.
