                         T.C. Memo. 2004-169



                       UNITED STATES TAX COURT



         ROBERT C. MCKEE AND VALERY W. MCKEE, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent*



     Docket No. 4036-03.                 Filed July 19, 2004.


     Donald L. Feurzeig, for petitioners.

     Charlotte Mitchell, for respondent.



                   SUPPLEMENTAL MEMORANDUM OPINION


     MARVEL, Judge:    On June 3, 2004, pursuant to Rule 161,1

petitioners filed a timely motion for reconsideration of this



     *
      This opinion supplements our previously filed opinion in
McKee v. Commissioner, T.C. Memo. 2004-115.
     1
      All section references are to the Internal Revenue Code in
effect at all relevant times, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
                               - 2 -

Court’s Memorandum Opinion in McKee v. Commissioner, T.C. Memo.

2004-115 (McKee I).   In McKee I, we denied petitioners’ motion

for reasonable litigation costs because respondent’s position in

the answer was substantially justified and petitioners were not

the prevailing party.   See sec. 7430(c)(4)(B)(i).    In their

motion, petitioners allege that this Court “committed substantial

errors that were material to the decision in * * * [McKee I].”

This Supplemental Memorandum Opinion addresses petitioners’

allegations of error.

                            Background

     We adopt the findings of fact in our prior Memorandum

Opinion, McKee I.   For convenience and clarity, we repeat below

the facts necessary for the disposition of this motion.

     In a letter to respondent dated August 9, 2002, on behalf of

petitioners, Roland Potter, C.P.A., addressed certain proposed

adjustments to petitioners’ income tax.    Mr. Potter did not

enclose any documents with the letter.

     In a notice of deficiency dated March 10, 2003, respondent

determined deficiencies in petitioners’ income tax for the

taxable years 1999, 2000, and 2001.    After petitioners and

respondent filed with this Court a petition and an answer,

respectively, respondent held an Appeals Office conference with

petitioners’ representative.   According to Appeals Officer Melvin

M. Chinen, the two main issues in the case were:     (1) Whether
                               - 3 -

petitioner Robert C. McKee was a dealer in real estate whose

sales of undeveloped ranch property parcels would be taxed as

ordinary income; and (2) whether certain losses petitioners

claimed are limited under sections 1366(d), 465, and 469.     As a

result of the Appeals Office conference, the parties reached a

settlement.   In resolving the dealer in real estate issue,

pursuant to petitioners’ offer, the parties agreed to treat 50

percent of the parcel sales as sales of dealer property, subject

to ordinary income tax, and the other 50 percent as sales giving

rise to capital gains.

                            Discussion

     Reconsideration under Rule 161 is intended to correct

substantial errors of fact or law and allow the introduction of

newly discovered evidence that the moving party could not have

introduced, by the exercise of due diligence, in the prior

proceeding.   Estate of Quick v. Commissioner, 110 T.C. 440, 441

(1998).   This Court has discretion to grant a motion for

reconsideration and will not do so unless the moving party shows

unusual circumstances or substantial error.     Id.; see also Vaughn

v. Commissioner, 87 T.C. 164, 166-167 (1986).    “Reconsideration

is not the appropriate forum for rehashing previously rejected

legal arguments or tendering new legal theories to reach the end

result desired by the moving party.”     Estate of Quick v.

Commissioner, supra at 441-442.
                               - 4 -

      In their motion for reconsideration, petitioners assert

that, (1) contrary to our conclusion in McKee I, they had

provided to respondent all relevant information under their

control, and (2) our determination that respondent’s position had

a reasonable basis in both fact and law failed to consider

respondent’s position with respect to a proposed increase in tax

under section 453(l)(3).2   In response, respondent contends that

petitioners’ allegations of error are not based on new evidence

and merely restate and elaborate upon arguments petitioners made

in McKee I.

A.   Presentation of Relevant Information

      In McKee I, we stated:

      The only information petitioners had provided before
      respondent filed the answer was the information
      contained in Mr. Potter’s letter. In the letter, Mr.
      Potter set forth petitioners’ disagreements with
      respondent’s proposed adjustment but included no
      supporting documents or other proof of his assertions.
      Respondent was not required to concede the case on the
      basis of Mr. Potter’s letter alone. * * *

Petitioners allege that “the Court was in error in requiring

documents in Petitioners’ possession when Respondent possessed




      2
      Sec. 453(l) defines dealer dispositions of property for
purposes of reporting income from installment sales. Sec.
453(l)(3) provides that, for installment obligations regarding
timeshares and residential lots as described in sec.
453(l)(2)(B), the tax on payments received pursuant to the
obligations is increased by the amount of interest determined
under sec. 453(l)(3)(B). Carlson v. Commissioner, 112 T.C. 240,
242-243 (1999).
                               - 5 -

all of Athgarvan’s[3] tax returns.”    According to petitioners,

there were no other relevant supporting documents under their

control.

      Although the tax returns reported Athgarvan’s income for the

relevant taxable years, the tax returns were not indisputable

evidence of that income.   Indeed, an audit of a taxpayer’s return

is an attempt to ascertain the veracity of the statements made on

the return.   Respondent was not required to accept Athgarvan’s

tax returns as fact and concede the case on that basis.

Consequently, we find no error in our conclusion in McKee I that

petitioners failed to provide all relevant information under

their control on or before the date respondent filed the answer.

B.   Reasonableness of Respondent’s Position in the Answer

      Petitioners’ second allegation of error involves our

conclusion regarding the reasonableness of respondent’s position

on the dealer in real estate issue.     In McKee I, we observed that

“The dealer in real estate issue was a close factual issue, as

evidenced by its 50/50 settlement.”     Petitioners contend,

however, that respondent actually conceded about 88 percent of

the dealer in real estate issue because of concessions of

adjustments under section 453(l)(3).     Petitioners argue that this




      3
      Athgarvan Enterprises, Inc., was petitioners’ S
corporation.
                               - 6 -

Court ignored the conceded section 453(l)(3) adjustments in

determining the reasonableness of respondent’s position.

      To the contrary, this Court thoroughly considered

respondent’s position on the dealer in real estate issue.

Respondent’s concession of adjustments under section 453(l)(3)

flowed directly from the parties’ agreement to treat petitioner

Robert C. McKee as a dealer in real estate with respect to only

50 percent of the parcel sales.   Moreover, even if respondent

settled 88 percent of the total adjustments related to the dealer

in real estate issue in favor of petitioners, that settlement

would establish only that petitioners substantially prevailed

with respect to the dealer in real estate issue.    See Bowden v.

Commissioner, T.C. Memo. 1999-30.     Whether petitioners

substantially prevailed does not affect our determination that

respondent’s position was substantially justified.    See sec.

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

C.   Conclusion

      We have considered petitioners’ remaining arguments and, to

the extent not discussed above, find those arguments to be

irrelevant, moot, or without merit.

      Petitioners have failed to demonstrate unusual circumstances

or substantial errors of fact or law.    Accordingly, we will deny

petitioners’ motion for reconsideration.
                            - 7 -

To reflect the foregoing,


                                         An appropriate order

                                    will be issued.
