                        T.C. Memo. 2011-176



                      UNITED STATES TAX COURT



                 MICHAEL J. HOGAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14581-06L.               Filed July 25, 2011.



     Lance A. Gildner, for petitioner.

     Terry Serena, for respondent.



                        MEMORANDUM OPINION


     GOEKE, Judge:   This case is before us on petitioner’s motion

for recovery of reasonable litigation costs under Rule 231,1 to

which respondent objects.    For the reasons explained herein, we

     1
      All Rule references are to the Tax Court Rules of Practice
and Procedure, and all section references are to the Internal
Revenue Code, as amended.
                                 - 2 -

will deny petitioner’s motion.    We will begin with a full

exposition of the history of this case.

                            Background

     Michael J. Hogan was a resident of Ohio when the petition

was filed.   This is a collection case involving a proposed levy

to collect income tax liabilities for the years 1984, 1989, 1991,

and 1994 through 2000.

     Some of the years in the present collection case were the

subject of a deficiency case docketed in this Court in 2003 and

settled in June 2005--docket No. 20796-03.    An agreed decision in

docket No. 20796-03 was entered pursuant to a stipulation

executed by Mr. Hogan, who appeared pro se, and the

Commissioner’s representative.    The effect of the decision was

that deficiencies in income tax and additions to tax were decided

for 1993, 1994, and 1996, and an addition to tax under section

6663(a) was decided for 1995.    The stipulation stated that

credits for overpayments for 1989, 1990, 1991, and 1992 were

barred by the statute of limitations.

     Turning to the present collection case, a final notice of

intent to levy (final notice) was issued on March 1, 2004.      The

total liability reflected in the final notice was $473,337.52,

for the years previously referenced herein.    Mr. Hogan, acting

pro se, timely sought an administrative hearing asserting that

“Tax returns for appropriate years need to be amended.”    On
                                - 3 -

February 12, 2004, the month before the final notice, Mr. Hogan

had filed a delinquent return for 2001 showing income tax due.

The collection hearing process began, and in the course of that

process Mr. Hogan filed an amended tax return for 2001 using Form

1040X, Amended U.S. Individual Income Tax Return, and also filed

Form 1045, Application for Tentative Refund, both on April 15,

2005.   In these two forms, Mr. Hogan sought to assert a net

operating loss (NOL) for 2001 of $1,714,840, and carry that loss

back to 1998, 1999, and 2000.

     At the Appeals Office conference, Mr. Hogan offered to pay

the income taxes due plus half of the interest.   However, the

Appeals Office found no cause for allowing a reduction of the

interest charges.

     In a notice of determination issued on July 10, 2006, the

Appeals Office sustained the enforcement of the levy, finding Mr.

Hogan had neither paid the amounts due nor raised any acceptable

collection alternatives to enforced collection.

     Mr. Hogan subsequently sought and was granted an audit

reconsideration for the sole purpose of determining whether he

was entitled to an NOL for the 2001 tax year.

     On July 31, 2006, during the audit reconsideration, Mr.

Hogan timely filed a petition with this Court raising the same

contention as that made in his collection due process hearing--

that the NOL from the 2001 amended return, when applied to the
                               - 4 -

available carryback years, would generate overpayments that

“exceeded the amount of the Petitioner’s outstanding tax

liability to the Internal Revenue Service”.

     The audit reconsideration resulted in a number of

adjustments, including a determination that Mr. Hogan had an NOL

for 2001 of $1,696,840, which was reflected on Form 4549, Income

Tax Examination Changes, dated September 26, 2006.   The audit

reconsideration, however, did not determine to the satisfaction

of the Appeals Office whether, or to what extent, the loss could

be carried back to other periods.   Although Mr. Hogan did file a

Form 1045 for 2001 on April 15, 2005, it was deemed untimely for

claiming a tentative allowance.   See section 6411(d)(1)(B) and

the discussion hereinafter.

     On September 14, 2007, the parties jointly filed a motion

for remand for the sole purpose of allowing the Appeals Office to

consider Mr. Hogan’s NOL claim for 2001; the Court granted the

motion, and the case was remanded to the Appeals Office on

September 17, 2007.

     On November 30, 2007, Mr. Hogan submitted to the Appeals

Office via facsimile amended Forms 1040X claiming refunds for the

years 1996 through 2000.   The executed originals of these

documents were provided to respondent’s counsel in June 2008.

Respondent proffers that this was the first record of Mr. Hogan’s

submitting refund claims for all of the carryback years and also
                                - 5 -

the first time that Mr. Hogan provided any basis for the refunds,

notwithstanding the Form 1045 Mr. Hogan had previously submitted.

     On March 3, 2008, Mr. Hogan faxed a copy of Form 872,

Consent to Extend the Time to Assess Tax, to respondent with

respect to the tax year 2001.   The Form 872 had previously been

executed, but was not found by respondent during the negotiations

to resolve this case in early 2008.     This extension allowed until

December 31, 2008, for the submission of a claim for credit or

refund.

     On March 17, 2008, a supplemental notice of determination

was issued to Mr. Hogan allowing the NOL for 2001 to be carried

back to the tax years 1996 through 2000.2    However, in the

supplemental notice of determination, the Appeals Office limited

the refund amount to $2,672, asserting that any remaining

overpayments were barred by the statute of limitations under

section 6511(c), and sustained the levy action.    Following the

supplemental notice of determination, respondent determined that

Mr. Hogan’s refund claims should not be limited under section

6511(c).   As a result, respondent abated $387,230 in tax and

interest on May 5 and 12, 2008, for the years 1996 through 2000,

thus creating overpayments for these years.




     2
      Under sec. 172(b)(1)(H), the carryback period for 2001 and
2002 was 5 years. Job Creation and Worker Assistance Act of
2002, Pub. L. 107-147, sec. 102(a), 116 Stat. 25.
                               - 6 -

     On December 31, 2008, Mr. Hogan and respondent stipulated

that Mr. Hogan was entitled to a credit or refund of $1,755.13,

plus interest from January 1, 2001.    Respondent transferred that

amount to Mr. Hogan’s account for the tax year 1984.   On April

23, 2009, respondent refunded $271,216.33 to Mr. Hogan.    During

this same time respondent also released one or more Federal tax

liens and abated additional tax, interest, and penalties for the

years at issue in this case.

                            Discussion

I.   Statutory Framework

     Section 7430(a) provides that the prevailing party in any

administrative or court proceeding may be awarded a judgment for

(1) reasonable administrative costs incurred in connection with

such an administrative proceeding within the Internal Revenue

Service, and (2) reasonable litigation costs incurred in

connection with such a court proceeding.    Corson v. Commissioner,

123 T.C. 202, 205 (2004); Maggie Mgmt. Co. v. Commissioner, 108

T.C. 430, 436 (1997).   In addition to being the prevailing party,

to receive an award of reasonable litigation costs a taxpayer

must have exhausted all administrative remedies and must not have

unreasonably protracted the administrative or court proceeding.

Sec. 7430(b)(1), (3); Corson v. Commissioner, supra at 205.     We

do not award costs unless a taxpayer satisfies all of the section
                                - 7 -

7430 requirements.    Corson v. Commissioner, supra at 205-206;

Minahan v. Commissioner, 88 T.C. 492, 497 (1987).

       A taxpayer is the prevailing party if:   (1) The taxpayer

substantially prevailed with respect to the amount in controversy

or the most significant issue or set of issues; (2) the taxpayer

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

and (3) the Commissioner’s position in the court proceeding was

not substantially justified.    Sec. 7430(c)(4)(A) and (B)(i); see

also sec. 301.7430-5(a), Proced. & Admin. Regs.     The Commissioner

bears the burden of proving that his position was substantially

justified.    Sec. 7430(c)(4)(B)(i); Corson v. Commissioner, supra

at 206.

       Respondent concedes that Mr. Hogan exhausted all his

administrative remedies with the Appeals Office.     Respondent also

concedes that Mr. Hogan has substantially prevailed under section

7430(c)(4)(A)(i) but asserts that Mr. Hogan is not the prevailing

party because respondent’s positions were substantially

justified.    To prove substantial justification, respondent must

establish that his positions had a reasonable basis in fact and

law.    Before considering respondent’s position we consider

whether Mr. Hogan unreasonably protracted this litigation.
                               - 8 -

II.   Did Mr. Hogan Unreasonably Protract This Proceeding or
      Justify the Delays in Resolution by Delinquent Filing?

      The Supreme Court has stated succinctly that “Bad things

happen if you fail to pay federal income taxes when due.”      Hinck

v. United States, 550 U.S. 501, 502 (2007).   In this case, bad

things happened when Mr. Hogan did not pay pre-2001 liabilities,

filed his 2001 Federal income tax return late, and filed his 2001

amended Federal income tax return claim for carryback refunds

even later.   Mr. Hogan ultimately avoided the “bad things”

related to his failure to pay income taxes due for years before

2000 when his delinquent 2001 return was accepted and his related

claim for refunds resulting from carryback losses was also

accepted.   Mr. Hogan asserts, however, that this process took too

long and he should receive reimbursement for legal fees from the

time he filed the amended 2001 return on April 15, 2005.    The

2001 return was due in 2002, which raises the question of whether

if Mr. Hogan had filed a correct 2001 return and claim for net

operating loss carryback on time, the proposed collection action

would have been avoided.

      This litigation began with the issuance of a notice of

determination on July 10, 2006.   At that time, respondent had not

completed consideration of Mr. Hogan’s 2001 amended return, and

Mr. Hogan had yet to file amended returns for 1996 through 2000

based on the 2001 amended return.   In September 2007 the parties

filed a joint motion to remand the case to the Appeals Office to
                               - 9 -

consider the impact of the 2001 year on the prior years, and over

2 months later Mr. Hogan faxed a copy of the amended returns for

years 1996 to 2000 to the Appeals Office.

     It is noteworthy that Mr. Hogan’s original Form 1040, U.S.

Individual Income Tax Return, for 2001 reported income tax due

and his amended return filed in April 2005 reported an NOL of

over $1.7 million.   The disparity between the two 2001 returns

merited an audit and careful scrutiny by respondent.    The audit

reconsideration was completed in September 2006 and found that

Mr. Hogan’s NOL for 2001 was actually $1,696,840.   This audit did

not resolve whether the NOL was available to be carried back to

the earlier years.

     Respondent alleges the actual executed refund claims (Forms

1040X) for the earlier years were first given to respondent’s

counsel in June 2008, and Mr. Hogan does not deny this allegation

but argues respondent was aware of the NOLs as early as April

2005.   Mr. Hogan may be correct regarding the awareness of

respondent’s personnel, but the earlier Form 1045 filed in April

2005 did not result in an actionable claim to carry the loss from

2001 back to the earlier years, because under section

6411(d)(1)(B) such a tentative claim for refund had to be filed

within a year of the last day of 2001.   Mr. Hogan had the

obligation to file the appropriate forms to seek the refunds and

resolve this matter expeditiously, and Mr. Hogan was far from
                              - 10 -

prompt in this regard.   Mr. Hogan maintains Appeals should have

resolved his refund requests more quickly after the Forms 1040X

were faxed on November 30, 2007.   Mr. Hogan maintains this should

have been accomplished in March, but Appeals did not know a Form

872 had been executed.   Appeals approved the abatement requested

in early May 2008 after Mr. Hogan had furnished a copy of the

extension form.   Regardless, the resolution of the refunds is not

a basis for attorney’s fees in this case because the current

litigation does not provide this Court jurisdiction to determine

refunds.   See Greene-Thapedi v. Commissioner, 126 T.C. 1 (2006).

The parties considered the refund claims in connection with

preparing a stipulation of settlement at Mr. Hogan’s insistence,

but the present case was subject to resolution in March 2008 on

the merits of the collection determinations Appeals had made.

The 2-month delay in correctly reporting the refunds was only

tangential to the merits of the present case.   Regarding the

settlement of the collection issues, Mr. Hogan first provided an

executed copy of the refund forms to respondent’s counsel only in

June 2008.   Therefore, Mr. Hogan’s delay in submitting the

original claim forms to counsel and Mr. Hogan’s decision to tie

agreement on the refund amounts to resolution of the collection

matter prevents any relief through June 2008 at the earliest.   We

now turn to whether respondent’s subsequent actions were

substantially justified.
                              - 11 -

III. Were Respondent’s Actions After June 2008 Substantially
     Justified?

     By June 2008 respondent had abated tax and interest for 1996

through 2000, and the parties then drafted the stipulation which

settled this case.   Any legal fees would relate to whether the

delay in submitting the stipulation which resolved the matter was

substantially justified.   As stated previously, the refunds in

the earlier years are not within the jurisdiction of this Court

in a collection action, and delay in providing those refunds is

not part of this case.

     The period from June until December 2008 was a reasonable

delay in documenting this case in a stipulation given that such

action was not respondent’s unilateral responsibility.   We find

respondent’s actions over this period to be substantially

justified.

IV. Conclusion

     Mr. Hogan’s position is largely akin to a complaint about

not winning the lottery after failing to buy a ticket.   Mr. Hogan

owed taxes and additions to tax which were subject to collection

action.   Mr. Hogan subsequently had a loss year but filed the

delinquent return for that year incorrectly, then filed an

amended return and then was slow in filing the returns required

to carry the loss back to the collection years.   All this

reasonably delayed respondent’s efforts to reach the correct

result for the collection year.   At every step respondent was
                             - 12 -

attempting to balance the collection of the prior delinquent

taxes with the correct resolution of the carryback year.   Mr.

Hogan’s dilatory behavior was very much a factor in the time it

has taken to accomplish those goals.

     We find that given the timing of Mr. Hogan’s filings of the

required documents in this case, Mr. Hogan’s actions delayed the

administrative processing of this collection matter and

respondent’s actions in the final months before the stipulation

of settlement was filed were substantially justified.   Therefore,

Mr. Hogan’s motion will be denied.

     To reflect the foregoing,


                                          An appropriate order and

                                     decision will be entered.
