                          T.C. Memo. 1999-110



                      UNITED STATES TAX COURT



          SIDNEY DISHAL AND ANNA DISHAL, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 687-97.                         Filed April 2, 1999.



     Dan L. Shehi, for petitioners.

     Jeremy L. McPherson, for respondent.



                          MEMORANDUM OPINION


     PARR, Judge:   This matter is before the Court on

petitioners' motion for award of reasonable litigation costs

pursuant to section 74301 and Rule 231.

     1
      All section references are to the Internal Revenue Code as
amended and in effect, and all Rule references are to the Tax
Court Rules of Practice and Procedure, unless otherwise
                                                   (continued...)
                                - 2 -


     Petitioners moved the Court for an award of litigation costs

only.    Accordingly, all costs claimed by petitioners are in

connection with the filing of the petition and thereafter.

     Neither party requested a hearing.      The relevant facts are

taken from the record.    See Rule 232(a).

                         General Background

     The petition in the underlying case was filed on January 13,

1997.    Respondent's answer was filed on March 4, 1997.   A trial

was held on February 11, 1998, in San Francisco, California.      The

sole issue at trial was whether petitioners engaged in their

horse breeding and horse racing activities with the objective of

making a profit within the meaning of section 183.     We filed our

Memorandum Findings of Fact and Opinion on November 10, 1998,

holding that decision would be entered for petitioners.     See

Dishal v. Commissioner, T.C. Memo. 1998-397.

     Respondent concedes that petitioners filed a timely motion

for award of reasonable litigation costs, substantially prevailed

with respect both to the amount in controversy and to the most

significant issue presented in the proceeding, met the net worth

requirements, and have not unreasonably protracted the Court

proceedings.

                             Discussion


     1
      (...continued)
indicated.
                                - 3 -


     Section 7430 provides for the award of reasonable

administrative and litigation costs to a taxpayer in an

administrative or court proceeding brought against the United

States involving the determination of any tax, interest, or

penalty pursuant to the Internal Revenue Code.   An award of

administrative or litigation costs may be made where the

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

administrative remedies,2 and (3) did not unreasonably protract

the administrative or judicial proceeding.   See sec. 7430(a) and

(b)(1), (3).

Prevailing Party

     To be a "prevailing party", a taxpayer must (1)

substantially prevail with respect to either the amount in

controversy or the most significant issue or set of issues

presented, and (2) meet the net worth requirements of 28 U.S.C.

sec. 2412(d)(2)(B) (1984).   See sec. 7430(c)(4)(A)(i) and (ii).

A taxpayer will not be treated as a prevailing party, however, if

the United States establishes that its position was substantially

justified.   See sec. 7430(c)(4)(B).

     As we stated earlier, respondent concedes that petitioners

substantially prevailed and met the net worth requirements.    The




     2
      This requirement does not apply to an award for reasonable
administrative costs. See sec. 7430(b)(1).
                                 - 4 -


parties primarily dispute, however, whether respondent's position

in the judicial proceeding was substantially justified.

     Petitioners contend that respondent's position in the

judicial proceeding was not substantially justified.       Respondent

asserts that it was reasonable to argue that petitioners did not

engage in their horse breeding and horse racing activities for

profit.   We agree with respondent.      For the reasons set forth

below, we shall deny petitioners' motion for award of reasonable

litigation costs.

     Position of the United States

     The position taken by the United States, for purposes of

litigation costs, is the position of the United States in a

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

position in the judicial proceeding herein on the date

respondent's answer was filed--March 4, 1997.       See Huffman v.

Commissioner, 978 F.2d 1139, 1148 (9th Cir. 1992), affg. in part

and revg. in part T.C. Memo. 1991-144.

     Substantial Justification

     The Commissioner's position is substantially justified if

that position 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); Swanson v. Commissioner, 106 T.C. 76,

86 (1996).   We examine the facts known to the Commissioner at the

time the position was taken.   See Coastal Petroleum Refiners,
                               - 5 -


Inc. v. Commissioner, 94 T.C. 685, 689 (1990).     The fact that the

Commissioner eventually loses or concedes a case is not

determinative of whether a taxpayer is entitled to reasonable

litigation and administrative costs.   See Sokol v. Commissioner,

92 T.C. 760, 767 (1989).

Judicial Proceeding

     We now consider whether respondent's position in the

judicial proceeding was substantially justified.    The sole issue

involved in the judicial proceeding was whether petitioners

engaged in their horse breeding and horse racing activities for

profit within the meaning of section 183.   Respondent's position

in the judicial proceeding was that petitioners did not engage in

their horse breeding and horse racing activities with the primary

purpose of making a profit.

     Whether a taxpayer is engaged in an activity with the

requisite profit objective is determined from all the facts and

circumstances.   E.g., Hulter v. Commissioner, 91 T.C. 371, 393

(1988); Taube v. Commissioner, 88 T.C. 464, 480 (1987); Golanty

v. Commissioner, 72 T.C. 411, 426 (1979), affd. without published

opinion 647 F.2d 170 (9th Cir. 1981); sec. 1.183-2(a) and (b),

Income Tax Regs.   More weight is given to objective facts than to

the taxpayer's mere statement of his or her intent.    E.g.,

Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), affd. without
                               - 6 -


opinion 702 F.2d 1205 (D.C. Cir. 1983); sec. 1.183-2(a), Income

Tax Regs.

     The regulations promulgated under section 183 list the

following nine factors that should normally be taken into account

in determining whether an activity is engaged in for profit:

(1) The manner in which the taxpayer carried on the activity,

(2) the expertise of the taxpayer or his advisers, (3) the time

and effort expended by the taxpayer in carrying on the activity,

(4) the expectation that assets used in the activity may

appreciate in value, (5) the success of the taxpayer in carrying

on other similar or dissimilar activities, (6) the taxpayer's

history of income or loss with respect to the activity, (7) the

amount of occasional profits, if any, which are earned, (8) the

financial status of the taxpayer, and (9) the extent to which

elements of personal pleasure or recreation are involved.   See

sec. 1.183-2(b), Income Tax Regs.   The list of factors in the

regulations is not exclusive, and other factors may be considered

in determining whether an activity is engaged in for profit.

These factors are not merely a counting device where the number

of factors for or against the taxpayer is determinative, but

rather all facts and circumstances must be taken into account,

and more weight may be given to some factors than others.   Cf.

Dunn v. Commissioner 70 T.C. 715 (1978), affd. on another issue

615 F.2d 578 (2d Cir. 1980).   Not all factors are applicable in
                                - 7 -


every case, and no one factor is controlling.   See Abramson v.

Commissioner, 86 T.C. 360, 371 (1986); Allen v. Commissioner, 72

T.C. 28, 34 (1979); sec. 1.183-2(b), Income Tax Regs.

     Petitioners state that at the time the notice of deficiency

was issued,3 "there was no reasonable factual basis to support

[respondent's] determination that petitioners did not engage in

the business of horse racing and breeding with an intent to make

a profit."   We disagree.   Cases involving section 183 are almost

entirely factual in nature and require a weighing of factors, all

of which may be reasonably interpreted differently.   See Brennan

v. Commissioner, T.C. Memo. 1997-60; Eldridge v. Commissioner,

T.C. Memo. 1996-44; Harrison v. Commissioner, T.C. Memo. 1995-

295; Leaphart v. Commissioner, T.C. Memo. 1993-502, affd. without

published opinion 31 F.3d 1172 (3d Cir. 1994); Jasienski v.

Commissioner, T.C. Memo. 1993-449.

     In the underlying case, we were required to weigh carefully

all the facts and circumstances and consider each of the factors

listed in the regulations promulgated under section 183.

Although we agreed with petitioners in the underlying case, there

were certain factors present that were indicative of an activity

not engaged in for profit.   Notwithstanding our conclusion that

petitioners did have the requisite profit objective, the presence

     3
      Respondent's position in the administrative proceeding was
the same as in the judicial proceeding. This is immaterial,
however, since petitioners do not seek administrative costs.
                               - 8 -


of these factors leads us to decide that respondent's position

had a reasonable basis in both law and fact.     See Pierce v.

Underwood, 487 U.S. at 565.   Accordingly, we hold that

respondent's position was substantially justified and that

petitioners are not entitled to litigation costs under section

7430.   Based on this holding, we need not consider respondent's

alternative arguments that petitioners did not exhaust their

administrative remedies and that the amount of the costs claimed

is not reasonable.   Petitioners' motion will therefore be denied.



                                            An appropriate order and

                                       decision will be entered.
