                       T.C. Memo. 2001-41



                     UNITED STATES TAX COURT



                 PHUONG K. NGUYEN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 16146-99.                Filed February 23, 2001.


     Bruce E. Gardner, for petitioner.

     Warren P. Simonsen and Roger W. Bracken, for respondent.



                       MEMORANDUM OPINION


     ARMEN, 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 233.1


     1
       All section references are to the Internal Revenue Code,
as amended; however, references to sec. 7430 are to such section
                                                   (continued...)
                                - 2 -

     After concessions by respondent,2 the issues for decision

are as follows:

     (1) Whether respondent's position in the administrative and

court proceedings was substantially justified.   We hold that it

was in the court proceeding but that it was not in the

administrative proceeding.

     (2) Whether petitioner unreasonably protracted the

administrative and court proceedings.   We hold that she did to

the extent provided herein.

     (3) Whether the administrative and litigation costs claimed

by petitioner are reasonable.   We hold that costs claimed by

petitioner are reasonable to the extent provided herein.

     Neither party requested an evidentiary hearing, and the

Court concludes that such a hearing is not necessary for the

proper disposition of petitioner’s motion.   See Rule 232(a)(2).

We therefore decide the matter before us based on the record that

has been developed to date.




     1
      (...continued)
in effect at the time that the petition was filed. Unless
otherwise indicated, all Rule references are to the Tax Court
Rules of Practice and Procedure.
     2
       Respondent concedes: (1) Petitioner substantially
prevailed, see sec. 7430(c)(4)(A)(i); (2) petitioner satisfied
the applicable net worth requirement, see sec. 7430(c)(4)(A)(ii);
and (3) petitioner exhausted her administrative remedies, see
sec. 7430(b)(1).
                               - 3 -

Background

     Petitioner resided in Silver Spring, Maryland, at the time

that her petition was filed with the Court.

     Petitioner timely filed a Federal income tax return for the

taxable year 1998.   On her return, petitioner listed her filing

status as head of household, and she claimed dependency

exemptions and the earned income credit.   Petitioner also claimed

a refund of tax in the amount of $2,725.

     By letter dated May 7, 1999 (the examination letter),

respondent’s Service Center in Atlanta, Georgia, informed

petitioner that “We are examining your Federal income tax return

for 1998 and find we need documentation to verify certain items.”

More specifically, respondent requested that petitioner provide

information and documents relating to: (1) Head of household

filing status; (2) dependency exemptions; and (3) the earned

income credit.

     Petitioner responded to the examination letter by mailing

various documents to respondent.   After reviewing this material,

respondent concluded that the information submitted was

insufficient to verify the items under examination.

     Thereafter, by letter dated June 10, 1999 (the proposed

adjustment letter), respondent proposed a deficiency in

petitioner’s income tax in the amount of $2,225.   The proposed

deficiency, which served to reduce the claimed overpayment from
                               - 4 -

$2,725 to $500, was predicated on (1) a change in petitioner’s

filing status from head of household to single and (2) the

disallowance of the dependency exemptions and earned income

credit as claimed on the return.   Respondent informed petitioner

that if she did not agree with the proposed deficiency, she could

submit documents or information that she wished respondent to

consider.

     In response to the proposed adjustment letter, petitioner

mailed various documents to respondent.   Respondent reviewed this

material and concluded that it was insufficient to verify the

items under examination.   By letter dated July 1, 1999 (the July

1st letter), respondent so informed petitioner.   Respondent also

informed petitioner in the July 1st letter that any further

supporting documents or information that petitioner might care to

submit would be considered if such material were received within

15 days of the date of the letter.

     Petitioner responded to the July 1st letter by mailing

various supporting documents to respondent.   This material was

received by the mailroom in respondent’s Atlanta Service Center

on July 12, 1999.   The material was routed to the examination

division, where it was received on July 13, 1999, and then routed

to the 90-day unit, where it was received on July 15, 1999.3


     3
        We understand the 90-day unit to be the office in the
examination division of the Service Center that is responsible
                                                   (continued...)
                                - 5 -

     By a notice of deficiency dated July 16, 1999 (the notice of

deficiency), respondent determined a deficiency in petitioner’s

Federal income tax for 1998 in the amount of $2,225.    The

determinations made by respondent in the notice of deficiency

mirror those made in the proposed adjustment letter; namely, the

change in petitioner’s filing status from head of household to

single and the disallowance of the dependency exemptions and the

earned income credit as claimed on the return.    The notice of

deficiency was issued by the director of respondent’s Atlanta

Service Center.

     After the issuance of the notice of deficiency, respondent

reviewed the documentation that petitioner had submitted in

response to respondent’s July 1st letter.   Upon reviewing this

material, respondent concluded that petitioner was entitled to

head of household filing status, as well as the dependency

exemptions and earned income credit as originally claimed on her

return.    Accordingly, by letter dated August 18, 1999 (the no-

change letter), respondent informed petitioner that respondent

had reconsidered her 1998 tax liability and had accepted her 1998

return as filed.   The no-change letter informed petitioner as

follows:




     3
      (...continued)
for issuing notices of deficiency to taxpayers.
                              - 6 -

          After reviewing the information we received on
     7/12/1999, we reconsidered your 1998 federal income tax
     liability and accepted your 1998 return as filed or as
     adjusted previously.

          Please disregard the notice of deficiency we sent
     you on 7/16/1999. You will not need to file a petition
     with the United States Tax Court.

          If you have any questions, you may write or call
     the tax examiner whose name, telephone number, and
     contact hours appear at the top right corner of this
     letter.

     The no-change letter was issued by the chief of one of the

customer service divisions in respondent’s Atlanta Service

Center.

     Notwithstanding the no-change letter, petitioner retained

Bruce E. Gardner (Mr. Gardner) to represent her.   Mr. Gardner is

an attorney who is admitted to practice before this Court, and he

is petitioner’s counsel of record in the present proceeding.

Petitioner met with Mr. Gardner on August 28, 1999.

     Consistent with the no-change letter, respondent mailed a

check to petitioner on September 13, 1999.   The amount of the

check, $2,808.67, represented the refund claimed by petitioner on

her 1998 return, i.e., $2,725, plus $83.67 of interest.

     On October 14, 1999, Mr. Gardner hand delivered a petition

to the Court, thereby commencing a case on petitioner’s behalf.

See sec. 6213(a).

     On December 13, 1999, respondent filed a motion to extend by

60 days the time within which to file an answer to the petition.
                               - 7 -

The motion was predicated on the ground that respondent’s

district counsel office had not yet received the administrative

file pertaining to petitioner’s 1998 return (the administrative

file).   On December 16, 1999, petitioner filed an Opposition to

respondent’s motion, objecting to a 60-day extension but agreeing

to a 30-day extension.   By Order dated December 20, 1999,

respondent’s motion was granted in that the time to file an

answer was extended to January 19, 2000.

     In the meantime, on December 17, 1999, respondent’s district

counsel office in Washington, D.C. (district counsel), wrote the

following letter to Mr. Gardner:

          As you are aware, the government filed a motion to
     extend time to answer the Nguyen case. As explained in
     my voice mail to you, I have yet to receive the
     administrative file in this case. A preliminary review
     of Ms. Nguyen’s account indicates that the Service
     accepted her 1998 return sometime in August 1999, and
     sent her a refund on September 13, 1999. It is unclear
     as to whether or not she was sent a letter advising her
     that her return was accepted. I would appreciate your
     notifying me if she received such a letter.

          If I find that Ms. Nguyen’s 1998 return has
     already been accepted by the Service, I will recommend
     that an answer not be filed in this case, but rather a
     decision document reflecting no deficiency due from Ms.
     Nguyen and no overpayment due to her for tax year 1998.

           If you have a question, please call me at * * * .

     The record suggests that Mr. Gardner did not notify district

counsel that petitioner had received the no-change letter.

     On January 14, 2000, district counsel received the

administrative file, confirmed the issuance of the no-change
                                - 8 -

letter, and informed Mr. Gardner that respondent wished to submit

a decision document to the Court reflecting a zero deficiency, in

lieu of filing an answer.   Mr. Gardner responded by stating that

he intended to file a motion for administrative and litigation

costs.

     On January 19, 2000, respondent filed an answer to the

petition.    In the answer, respondent conceded that there was no

deficiency in income tax due from petitioner for the taxable year

1998.    Respondent attached a copy of the no-change letter as an

exhibit to the answer.

     Also on January 19, 2000, district counsel sent Mr. Gardner

a letter enclosing a form of decision and stipulation (the form

of decision) reflecting no deficiency in, and no overpayment of,

petitioner’s income tax for 1998.   The form of decision included

a stipulation that petitioner is not entitled to attorney’s fees

under section 7430.    That same day, district counsel received a

letter from Mr. Gardner stating, in part, as follows:

     This letter concerns your message that you are in the
     process of preparing decision documents reflecting no
     tax deficiency is due.

     We are delighted that this case can be expeditiously
     resolved on the merits. Based upon you message it
     appears that the notice of deficiency should have never
     been mailed to the taxpayer. Or if the Service
     subsequently changed its position on this case, it did
     not legally withdraw the notice of deficiency by
     executing the proper forms. In either case, the
     taxpayer incurred unnecessary legal expenses and costs
     related to the defense of the deficiency notice in the
     amount of $1,022.50 for which she should be compensated.
                               - 9 -

     A fair and equitable resolution of this case should put
     the taxpayer in the position she would have been if the
     deficiency notice had not been mailed. Accordingly, we
     submit costs and attorney fees in the amount $1,022.50
     should be paid by the Service to make the taxpayer
     whole and that amount should be reflected in the
     decision documents you are in the process of repairing.

     On March 13, 2000, district counsel received from Mr.

Gardner executed copies of the form of decision, which had been

revised to eliminate the stipulation regarding attorney’s fees.

Respondent in turn executed the form of decision, as revised, and

submitted it to the Court. On March 30, 2000, the Court executed

the document and entered decision (the Decision) pursuant to the

parties’ apparent agreement.

     On April 27, 2000, petitioner filed a Motion For An Award Of

Reasonable Administrative & Litigation Costs (petitioner’s motion

for costs), requesting an award in the amount of $2,039.25.    The

Court then vacated the Decision and filed it instead as a

stipulation of settlement between the parties.   See Rules 231(c)

and 232(f).

     On June 19, 2000, respondent filed a Response to

petitioner’s motion for costs (respondent’s Response).   In the

Response, respondent alleges that his position in the proceedings

was reasonable and disputes petitioner’s allegations that (1)

petitioner did not unreasonably protract the proceedings and (2)

the amount of costs requested was reasonable.
                              - 10 -

     On June 23, 2000, petitioner filed an Additional Affidavit

pursuant to Rule 232(d).   In the Additional Affidavit, petitioner

requests an award of costs in the amount of $3,312.19.

     On July 24, 2000, petitioner filed a Motion In Limine.

Relying principally on Fed. R. Evid. 408 (relating to compromise

and offers to compromise), petitioner’s motion sought to exclude

from evidence various statements made in, and various exhibits

attached to, respondent’s Response.4   On August 14, 2000,

respondent filed a Response objecting to petitioner’s Motion in

Limine.   On August 18, 2000, the Court denied petitioner’s

motion.

     On August 31, 2000, petitioner filed a Reply to respondent’s

Response pursuant to an Order of the Court.    In her reply,

petitioner requests an award of costs in the amount of $6,724.69.

Thereafter, on September 25, 2000, respondent filed a Reply to

petitioner’s Reply filed August 31, 2000.

     On January 19, 2001, the Court initiated a telephone

conference with the parties for the purpose of encouraging a

settlement regarding the award of costs.    On January 26, 2001,



     4
        For example, petitioner sought to exclude the fact that
on Sept. 13, 1999, respondent mailed to petitioner a check for
$2,808.67, which amount constituted the overpayment claimed by
petitioner on her 1998 return, plus interest. Suffice it to say
that petitioner’s Motion in Limine sought to emasculate the
factual and legal basis for respondent’s defense against
petitioner’s motion for an award of costs and, if granted, would
have precluded the Court from rationally deciding petitioner’s
motion for costs.
                              - 11 -

the parties advised the Court that their negotiations in this

regard had not been successful.

Discussion

     We apply section 7430 as most recently amended by Congress

in the Internal Revenue Service Restructuring and Reform Act of

1998 (RRA 1998), Pub. L. 105-206, sec. 1301, 112 Stat. 685, 727.

However, certain of the amendments made by RRA 1998 to section

7430 (regarding the reasonableness of costs, the type of

recoverable costs, and other provisions that are not in issue

herein) apply only to costs incurred after January 18, 1999.

     A. Requirements For a Judgment Under Section 7430

     Under section 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) has

exhausted his or her administrative remedies within the IRS, and

(3) did not unreasonably protract the court proceeding.    See sec.

7430(a) and (b)(1), (3).   Similarly, a judgment for

administrative costs incurred in connection with an

administrative proceeding may be awarded under section 7430(a)

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

unreasonably protract the administrative proceeding.   See sec.

7430(a) and (b)(3).

     A taxpayer must satisfy each of the respective requirements

in order to be entitled to an award of litigation or
                                - 12 -

administrative costs under section 7430.       See Rule 232(e).   Upon

satisfaction of these requirements, a taxpayer may be entitled to

reasonable costs incurred in connection with the administrative

or court proceeding.    See sec. 7430(a)(1) and (2), (c)(1) and

(2).

       To be a “prevailing party”, the taxpayer must substantially

prevail with respect to either the amount in controversy or the

most significant issue or set of issues presented and satisfy the

applicable net worth requirement.       Sec. 7430(c)(4)(A).

Respondent concedes that petitioner has satisfied the

requirements of section 7430(c)(4)(A).       Petitioner will

nevertheless fail to qualify as the prevailing party if

respondent can establish that respondent’s position in the court

and administrative proceedings was substantially justified.       See

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

       B.   Substantial Justification

       The Commissioner's position is substantially justified if,

based on all of the facts and circumstances and the legal

precedents relating to the case, the Commissioner acted

reasonably.     See Pierce v. Underwood, 487 U.S. 552 (1988); Sher

v. Commissioner, 89 T.C. 79, 84 (1987), affd. 861 F.2d 131 (5th

Cir. 1988).     In other words, to be substantially justified, the

Commissioner's position must have a reasonable basis in both law

and fact.     See Pierce v. Underwood, supra; Rickel v.
                                - 13 -

Commissioner, 900 F.2d 655, 665 (3d Cir. 1990), affg. in part and

revg. in part on other grounds 92 T.C. 510 (1989).    A position is

substantially justified if the position is "justified to a degree

that could satisfy a reasonable person".     Pierce v. Underwood,

supra at 565 (construing similar language in the Equal Access to

Justice Act).    Thus, the Commissioner's position may be incorrect

but nevertheless be substantially justified "'if a reasonable

person could think it correct'".     Maggie Management Co. v.

Commissioner, 108 T.C. 430, 443 (1997) (quoting Pierce v.

Underwood, supra at 566 n.2).

     The relevant inquiry is "whether * * * [the Commissioner]

knew or should have known that * * * [his] position was invalid

at onset".    Nalle v. Commissioner, 55 F.3d 189, 191 (5th Cir.

1995), affg. T.C. Memo. 1994-182.    We look to whether the

Commissioner's position was reasonable given the available facts

and circumstances at the time that the Commissioner took his

position.     See Maggie Management Co. v. Commissioner, supra at

443; DeVenney v. Commissioner, 85 T.C. 927, 930 (1985).

     The fact that the Commissioner eventually concedes, or even

loses, a case does not establish that his position was

unreasonable.    See Estate of Perry v. Commissioner, 931 F.2d

1044, 1046 (5th Cir. 1991); Sokol v. Commissioner, 92 T.C. 760,

767 (1989).    However, the Commissioner's concession does remain a

factor to be considered.    See Powers v. Commissioner, 100 T.C.
                               - 14 -

457, 471 (1993), affd. in part, revd. in part and remanded on

another issue 43 F.3d 172 (5th Cir. 1995).

     As relevant herein, the position of the United States that

must be examined against the substantial justification standard

with respect to the recovery of administrative costs is the

position taken by the Commissioner as of the date of the notice

of deficiency.   See sec. 7430(c)(7)(B).   The position of the

United States that must be examined against the substantial

justification standard with respect to the recovery of litigation

costs is the position taken by the Commissioner in the answer to

the petition.    See Bertolino v. Commissioner, 930 F.2d 759, 761

(9th Cir. 1991), affg. an unpublished decision of this Court;

Sher v. Commissioner, supra at 134-135.    Ordinarily, we consider

the reasonableness of each of these positions separately.    See

Huffman v. Commissioner, 978 F.2d 1139, 1144-1147 (9th Cir.

1992), affg. in part, revg. in part and remanding on other issues

T.C. Memo. 1991-144.    We necessarily follow this approach here

because respondent’s positions were different in the

administrative and litigation proceedings.

      We begin with the position taken by respondent in the

notice of deficiency.

     Respondent contends that the notice of deficiency was issued

“because petitioner failed to provide sufficient documentary

substantiation of her entitlement to the disallowed dependency
                              - 15 -

exemptions, earned income credit and head of household filing

status, in sufficient time for such documentation to be reviewed

by respondent prior to issuance of the notice of deficiency.”

However, the record belies this contention.

     In the July 1st letter, respondent informed petitioner that

the documentation submitted by petitioner in response to the

proposed adjustment letter was insufficient to verify the items

under examination, but that respondent would consider any further

documentation that petitioner might care to submit if such

documentation were received by July 16, 1999.    Petitioner

promptly responded to this invitation by mailing documentation,

which was received by the mailroom in respondent’s Atlanta

Service Center on July 12, 1999, the examination division on July

13, 1999, and the 90-day unit on July 15, 1999.    Nevertheless,

without first evaluating petitioner’s documentation, respondent

mailed the notice of deficiency to petitioner on July 16, 1999.

After evaluating petitioner’s documentation, however, respondent

concluded that such documentation was sufficient to verify the

items under examination.

     The documentation submitted by petitioner in response to the

July 1st letter was solicited by respondent.    Having solicited

that documentation, respondent was obliged to evaluate it before

issuing a notice of deficiency.5   Respondent, however, did not do


     5
         We might take a contrary view if expiration of the period
                                                    (continued...)
                              - 16 -

so.   Such failure led respondent to take a position in the notice

of deficiency that was not supported by information already in

respondent’s possession.   In other words, respondent’s position

in the notice of deficiency was contrary to fact and law and

therefore not substantially justified within the meaning of

section 7430(c)(4)(B).   See Pierce v. Underwood, 287 U.S. 552

(1988).

      Respondent relies on Harrison v. Commissioner, 854 F.2d 263

(7th Cir. 1988), affg. T.C. Memo. 1987-52, for the proposition

that the Commissioner should not be liable for a taxpayer’s costs

for the period of time that it may reasonably take to review

documentation submitted by the taxpayer.   However, that case is

clearly distinguishable.   There, the Commissioner issued a notice

of deficiency before the examination was completed in order to

toll the running of the period of limitations.   Because the

Commissioner had not received the taxpayers’ consent to extend

the period of limitations, the Court of Appeals concluded that

the issuance of the notice was reasonable, notwithstanding the

fact that the Commissioner ultimately conceded the case.

      In the present case, the statute of limitations was of no

legitimate concern to respondent at the time that the notice of



      5
      (...continued)
of limitations were imminent. However, in the present case, the
year under examination was 1998; accordingly, the statute of
limitations on assessment was of no legitimate concern to
respondent in July 1999. See sec. 6501(a).
                               - 17 -

deficiency was issued.    See supra note 5.   Accordingly, Harrison

v. Commissioner, supra, offers no solace to respondent.

     We recognize, of course, that it is reasonable for the

Commissioner to refuse to concede an audit adjustment until after

he receives from the taxpayer, and has had an opportunity to

verify, adequate substantiation for such adjustment.    E.g.,

O’Bryon v. Commissioner, T.C. Memo. 2000-379.    However, we have

not so held in the context of a case in which expiration of the

period of limitations is not imminent and the Commissioner, while

in possession of all relevant facts and documents, neglects to

review such facts and documents and instead issues a notice of

deficiency to the taxpayer.

     In view of the foregoing, we hold that the position taken by

respondent in the notice of deficiency was unreasonable.

     We turn now to the position taken by respondent in the

answer to the petition.    The latter position reflected

respondent’s concession, as evidenced by the no-change letter and

followup refund, of the deficiency, and such position was

substantially justified.

     C. Unreasonable Protraction of the Proceedings

     Pursuant to section 7430(b)(3), “No award for reasonable

litigation and administrative costs may be made * * * with

respect to any portion of the administrative or court proceeding

during which the prevailing party has unreasonably protracted
                              - 18 -

such proceeding.”

     After issuing the notice of deficiency, respondent sent

petitioner the no-change letter, informing her that her return

had been accepted as filed and that she could disregard the

notice of deficiency.   However, petitioner did not disregard the

notice of deficiency, but rather retained Mr. Gardner, who

subsequently filed a petition on her behalf.

     Respondent contends that petitioner unreasonably protracted

the proceedings by pursuing this case after respondent had

conceded it; i.e., after respondent had mailed petitioner the no-

change letter and issued the refund check.

     Section 6213(c) provides as follows: “If the taxpayer does

not file a petition with the Tax Court within the time prescribed

in subsection (a) [of section 6213], the deficiency, notice of

which has been mailed to the taxpayer, shall be assessed, and

shall be paid upon notice and demand from the Secretary.”

(Emphasis added.)   See also sec. 301.6213-1(c), Proced. & Admin.

Regs., which similarly provides that if the taxpayer fails to

file a timely petition, the district director or the director of

the regional Service Center shall assess the amount determined as

the deficiency.6


     6
          The notice of deficiency that was sent to petitioner
included the following paragraph, which essentially paraphrased
sec. 6213(c):

          If you decide not to file a petition with the Tax
                                                   (continued...)
                              - 19 -

     There is no statutory basis for a no-change letter, cf. sec.

7121 (authorizing closing agreements that are generally final and

conclusive), and we are aware of no case holding that a no-change

letter is binding on the Commissioner.   Under the circumstances,

we think it was appropriate for petitioner to protect herself

from the possibility that the no-change letter might not have

represented respondent’s final position, e.g., that the no-change

letter might have been issued before internal review was

completed.7   The commencement of an action in this Court offered

such protection.

     Respondent contends that petitioner had a duty to mitigate

costs and that she should have requested that the notice of

deficiency be rescinded.   See sec. 6212(d); Hanashiro v.

Commissioner, T.C. Memo. 1999-78; Powell v. Commissioner, T.C.

Memo. 1998-108; see also Hesse v. Commissioner, T.C. Memo. 1997-




     6
      (...continued)
     Court, we would appreciate it if you would sign and
     return the enclosed waiver form. This will permit us
     to assess the deficiency quickly and will limit the
     accumulation of interest. The enclosed envelope is for
     your convenience. If you decide not to sign and return
     the statement and you do not timely petition the Tax
     Court, the law requires us to assess and bill you for
     the deficiency after 90 days from the above mailing
     date of this letter (150 if this letter is addressed to
     you outside the United States). [Emphasis added.]
     7
        We note that the notice of deficiency was issued by the
director of respondent’s Atlanta Service Center, whereas the no-
change letter was issued by one of the director’s subordinates.
                             - 20 -

333; Slattery v. Commissioner, T.C. Memo. 1995-274.8

     The no-change letter stated, in effect, that the notice of

deficiency was inaccurate and could be disregarded and that the

filing a petition with the Tax Court was unnecessary.   But the

no-change letter did not mention the possibility of rescinding

the notice as permitted by section 6212(d).   The case law cited

in the previous paragraph, specifically including Powell v.

Commissioner, supra, generally requires that a rescission be

committed to a writing reflecting the parties’ mutual consent.

Accordingly, respondent does not contend that the no-change

letter itself effected a rescission of the notice of deficiency.

Thus, under the circumstances, we do not agree with respondent

that petitioner unreasonably protracted the proceedings when she

filed the Tax Court petition, which protected her rights as

explained above.9

     However, petitioner did protract the court proceeding by:

(1) Requiring respondent’s district counsel to file an answer (by

not furnishing a copy of the no-change letter, which would have

permitted the immediate filing of a settlement stipulation


     8
        See also Rev. Proc. 88-17, 1988-1 C.B. 692, regarding the
procedure to be followed, and Form 8626 (Agreement to Rescind
Notice of Deficiency), regarding the IRS form to be utilized.
     9
        We also note that the commencement of a case in this
Court pursuant to a notice of deficiency generally precludes the
Commissioner from issuing any further notice of deficiency for
the same taxable year, see sec. 6212(c), whereas the rescission
of a notice of deficiency pursuant to sec. 6212(d) has no such
effect.
                              - 21 -

pursuant to respondent’s offer to do so); (2) executing the form

of decision (containing the stipulation against an award of

costs, which required the Decision to be subsequently vacated);

and (3) filing the Motion in Limine (which was not meritorious).

We therefore hold that petitioner is not entitled to an award of

costs with respect to the portion of the court proceeding that

was protracted because of these matters.     See sec. 7430(b)(3).

     D. The Amount of Reasonable Costs

     Mr. Gardner submitted various statements detailing costs and

expenses with respect to representing petitioner in both the

administrative and court proceedings.     Those statements indicate

that Mr. Gardner’s hourly rate was $175.

     Absent special factors, an award relating to attorney’s fees

incurred in calendar year 1999 after January 18 of that year is

$130 per hour and incurred in calendar years 2000 and 2001 is

$140 per hour.   See sec. 7430(c)(1)(B)(iii); O’Bryon v.

Commissioner, T.C. Memo. 2000-379; Rev. Proc. 2001-13, 2001-3

I.R.B. 337, 341; Rev. Proc. 99-42, 1999-2 C.B. 568, 572; Rev.

Proc. 98-61, 1998-2 C.B. 811, 816.     In view of the noncomplex

nature of the substantive issues presented by the notice of

deficiency (i.e., filing status, dependency exemptions, earned

income credit), and further in view of the fact that those issues

were conceded by respondent in the no-change letter before Mr.

Gardner was even retained, we find that no special factor
                              - 22 -

justifies an award of attorney’s fees at a rate greater than the

statutory limit.

     Regarding the time devoted by Mr. Gardner to this case, we

find that the 4.5 hours spent by him in 1999 in meeting with

petitioner, reviewing the notice of deficiency and related

documentation, and preparing the petition for filing is

reasonable.

     We also find that 1.0 hour of Mr. Gardner’s time (0.5 hour

in 1999 and 0.5 hour in 2000) was reasonably devoted to the

period between the filing of the petition and the filing of the

motion for costs.   This total consists of the reasonable time

spent in reading respondent’s answer (which conceded the

deficiency), reading and responding to respondent’s

correspondence, and finalizing the form of decision, as revised.

     In addition, we find that 9.5 hours of Mr. Gardner’s time

were reasonably devoted to prosecuting petitioner’s motion for

costs in 2000 and 2001.   This total consists of the reasonable

time spent in preparing the motion, evaluating respondent’s

Response, preparing the Additional Affidavit pursuant to Rule

232(d), preparing the Reply to respondent’s Response as directed

by the Court, evaluating respondent’s Reply, and participating in

the Court-initiated telephone conference and related negotiations

in January 2001.

     Finally, we find that petitioner is entitled to recover the
                             - 23 -

$60 court cost incurred in filing her petition.   See sec.

7430(c)(1)(A); Rule 20(b).

     D. Conclusion

     In conclusion, we hold that petitioner is entitled to an

award of administrative and litigation costs in the amount of

$2,110 (i.e., 5.0 hrs. @ $130/hr. + 10.0 hrs. @ 140/hr. + $60).

In so holding, we have carefully considered remaining arguments

made by the parties for a result contrary to that expressed

herein and, to the extent not discussed above, we consider those

arguments to be without merit.

     In order to reflect the foregoing,



                                          An appropriate order and

                                   decision will be entered.
