                      T.C. Memo. 2007-54



                  UNITED STATES TAX COURT



         ESTATE OF DAPHNE BAYNHAM WHITE, DECEASED,
     KEMBLE WHITE, INDEPENDENT EXECUTOR, Petitioner v.
        COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 518-05.              Filed March 7, 2007.



     Kemble White, for petitioner.

     Valerie L. Makarewicz, for respondent.



                      MEMORANDUM OPINION


     WHALEN, Judge:   This case is before the Court to

decide a motion filed on behalf of the Estate of Daphne

Baynham White (hereinafter the estate), entitled

“Petitioner’s Motion for Costs and Attorney’s Fees”, in

which the estate seeks “litigation costs” in the amount of
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$3,935.   The estate’s motion is governed by section 7430

of the Internal Revenue Code (hereinafter all section

references are to such Code, unless stated otherwise) and

by Rules 230-233 of the Tax Court Rules of Practice and

Procedure (hereinafter all Rule references are to such

Rules).   The estate’s motion was filed at the same time the

parties filed a stipulation of settled issues in which they

dispose of all of the other issues in the case.     See Rule

231(c).   The stipulation of settled issues is further

discussed below.   Neither party requested an evidentiary

hearing, and we decide the estate’s motion without one.

See Rule 232(a)(2).

                         Background

     The petition in this case asks the Court to

redetermine the income tax deficiency and additions to tax

determined by the Commissioner in the 2001 income tax of

Ms. Daphne Baynham White.   Ms. White died on November 30,

1999.   At that time, she was a resident of Ojai,

California.   She is referred to herein as Ms. White.    The

executor of her estate also resided in Ojai, California, at

the time the instant petition was filed.

     Respondent determined the subject tax deficiency after

receiving reports from various payors of payments made to
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Ms. White.   The following is a list of the payors and the

income they reported paying to Ms. White during 2001:

     Payor                Type of Income       Amount

Thorn Partnership           Interest             $153
Thorn Partnership           Real estate            67
Thorn Building              Interest                2
Thorn Building              Real estate           587
Branch Banking              Dividends           1,439
The Phoenix Group LLC       Rental             31,773
                                               34,021

    Based upon these reports, respondent determined a tax

deficiency in Ms. White’s 2001 income tax of $3,985, an

addition to tax for failure to file under section

6651(a)(1) of $896.62, an addition to tax for failure to

pay under section 6651(a)(2) of $597.75, and an addition to

tax for failure to pay estimated income tax under section

6654(a) of $157.68.

    After the estate’s petition for redetermination was

filed in this Court, respondent filed a motion to extend

the time within which to answer the petition on the ground

that additional time was needed to locate respondent’s

administrative files.   The Court granted respondent’s

motion over the estate’s objection.

    Soon thereafter, respondent filed a second motion to

extend the time within which to answer (hereinafter

referred to as second motion).   The estate did not object

to the second motion because respondent advised the Court
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in that motion that the parties had agreed that there is no

deficiency due from Ms. White for taxable year 2001, and

that respondent conceded the additions to tax determined in

the notice of deficiency.    Respondent’s second motion also

stated that the parties had entered into a stipulation of

settled issues that would resolve all issues raised in the

notice of deficiency.    Respondent’s second motion stated

that the stipulation of settled issues would be filed,

pursuant to Rule 231(c), at the time the estate’s motion

for litigation costs was filed.      Respondent’s second motion

was filed approximately 92 days after the petition was

filed.    Respondent never filed an answer in this case.

    Shortly thereafter, the Court received the stipulation

of settled issues mentioned in respondent’s second motion.

In that document, the parties agreed that Ms. White was not

required to file an income tax return for taxable year

2001.    They also agreed that the income reported by the

payors, who are listed above, had been reported on income

tax returns filed on behalf of the estate.      In that

document, respondent again conceded that there is no

deficiency in income tax due from Ms. White for 2001, and

that the additions to tax determined in the notice of

deficiency are not due from Ms. White.
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                The Positions of the Parties

    The Estate’s Position:    The estate’s motion for costs

and attorney’s fees asserts that the estate is entitled to

an award of reasonable litigation costs pursuant to section

7430(a)(2).   In support thereof, the executor of the estate

argues that “the purpose of section 7340 [sic] is to

compensate taxpayers who are put to unnecessary expense by

having to resist unreasonable positions taken by the

Government in administrative or judicial proceedings.”    The

executor argues that “the attorney’s fees and costs claimed

in this [sic] were caused by the Respondent’s failure to

follow normal administrative procedures.    In light of this

conduct, Respondent should not be heard to say that his

position was reasonable.”    (Emphasis supplied.)

    The executor argues that respondent was put on notice

of Ms. White’s death when the estate applied for an

employer identification number, and when the estate filed

income tax returns using that employer identification

number.   The executor complains that when respondent

received Forms 1099 in the name of Ms. White, respondent

did not run “a matching program on 1099 [sic] data” and did

not attempt to reconcile the discrepancies by sending

explanation requests to the taxpayer.    The executor further

complains that respondent did not issue a 30-day letter, or
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follow “normal administrative procedures” that “would have

resulted in an explanation that would have ended the case.”

    The executor asserts that “Respondent’s performance

did not improve after a petition was filed.”   According to

the executor, respondent lost the administrative file and

made “numerous requests for extension to file an answer.”

The executor also asserts that after all relevant tax

returns were sent to respondent’s counsel, the estate “was

advised that the items could not be reconciled, that the

case would need to be referred to Appeals, and that it

would take a year to get the case resolved.”   The estate

argues that “this caused Petitioner to waste a lot of time

preparing a Motion for Summary Judgment.”   We note that no

motion for summary judgment was filed on behalf of the

estate.

    The executor acknowledges that there are court

opinions holding that, for purposes of deciding claims for

litigation costs, the position of the United States is

determined in the Government’s answer.   The executor argues

that “the Commissioner should [not] be given a free pass

because the position of the United States is that taken in

an Answer.”   The executor also argues that those cases are

distinguishable from this case because, in those cases,

“the judicial proceedings were preceded by administrative
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proceedings in which the taxpayers failed to come forward

with the evidence needed to resolve the contested issues.”

The executor does not specify the cases to which he refers.

According to the executor, in this case, the estate “was

denied any administrative appeal and the opportunity to end

the case with a letter because Respondent failed to work

the case in a timely manner.”    The executor also argues

that “the Government’s litigating position includes pre-

litigation proceedings” and cites Estate of Cervin v.

Commissioner, 111 F.3d 1252 (5th Cir. 1997), revg. T.C.

Memo. 1994-550.

    Respondent’s Position:    Respondent concedes that the

estate substantially prevailed with respect to the amount

in controversy, and with respect to the most significant

issue presented, as required by section 7430(c)(4)(A)(i) to

qualify as a prevailing party.    Respondent also concedes

that the estate meets the net worth requirement of 28

U.S.C. section 2412(d)(2)(B), as required by section

7430(c)(4)(A)(ii).

    Respondent argues that the estate is not the

“prevailing party” and is not eligible for an award of

litigation costs under section 7430(a) because the position

of the United States in this proceeding was “substantially

justified” within the meaning of the exception to the
                            - 8 -
definition of prevailing party, set forth in section

7430(c)(4)(B)(i).   In support of that position, respondent

asserts that the position of the United States was

substantially justified both “at the time the notice of

deficiency was issued” and “at the time he conceded the

case.”

    Respondent also asserts that no answer was filed in

this case, and, therefore, “respondent did not take a

position in the court proceeding that was adverse to

petitioner.”   According to respondent, this means that the

estate cannot qualify as the prevailing party for the

reasons explained in Fla. Country Clubs, Inc. v.

Commissioner, 122 T.C. 73 (2004), affd. 404 F.3d 1291 (11th

Cir. 2005), or it means that respondent’s position was

substantially justified.

    Finally, respondent argues that the attorney’s fees

requested by the estate exceed the amount specified as

reasonable by section 7430(c)(1)(B)(iii).   The estate’s

motion for attorney’s fees seeks an award of $3,875 in fees

for 15.9 hours of attorney’s time.   That total is composed

of 12.9 hours at $250 per hour ($3,225) and 3 hours at

$216.67 per hour ($650).   The motion does not explain why

different rates are used in computing the fees.    Respondent

points out that an award of attorney’s fees incurred during
                            - 9 -
2005 is limited under section 7430(c)(1)(B)(iii) to $150

per hour.   See Rev. Proc. 2004-71, 2004-2 C.B. 970, 976.

Respondent notes that the estate has not shown that any of

the special factors enumerated in section

7430(c)(1)(B)(iii) apply in this case.

                         Discussion

    Under the exception set forth in section

7430(c)(4)(B)(i), a party is not treated as the prevailing

party if the United States establishes that its position in

the proceeding was “substantially justified”.    See sec.

7430(c)(4)(B)(i).   The Commissioner's position is

substantially justified if it has a reasonable basis in

both fact and law and is justified to a degree that could

satisfy a reasonable person.   See Huffman v. Commissioner,

978 F.2d 1139, 1147 n.8 (9th Cir. 1992) (citing Pierce v.

Underwood, 487 U.S. 552, 565 (1988) (defining

“substantially justified” in the context of the Equal

Access to Justice Act, 28 U.S.C. sec. 2412(d) (1994))),

affg. in part, revg. in part and remanding T.C. Memo.

1991-144; Norgaard v. Commissioner, 939 F.2d 874, 881 (9th

Cir. 1991), affg. in part and revg. in part T.C. Memo.

1989-390; Swanson v. Commissioner, 106 T.C. 76, 86 (1996);

Rosario v. Commissioner, T.C. Memo. 2002-247; sec.

301.7430-5(c)(1), Proced. & Admin. Regs.    The determination
                           - 10 -
of the reasonableness of the Commissioner’s position is

based upon the available facts that formed the basis for

the position, as well as any controlling legal precedent.

See Maggie Mgmt. Co. v. Commissioner, 108 T.C. 430, 442

(1997); Coastal Petroleum Refiners, Inc. v. Commissioner,

94 T.C. 685, 688 (1990).

    The phrase “position of the United States” is defined

by section 7430(c)(7), as the position taken by the United

States in a judicial proceeding, see sec. 7430(c)(7)(A),

and the position taken in an administrative proceeding as

of the earlier of (1) the date on which the taxpayer

receives the notice of the decision of the Internal Revenue

Service Office of Appeals, or (2) the date of the notice of

deficiency, see sec. 7430(c)(7)(B).   Based upon the plain

language of this definition, we held in Huffman v.

Commissioner, T.C. Memo. 1991-144, that the position of the

United States in the administrative proceedings was

unjustified, whereas the position of the United States in

the judicial proceeding was “not substantially

unjustified”.   In effect, we held that the United States

can take two positions in a particular case, one position

in the prelitigation administrative proceedings and another

position in the judicial proceedings, and each position

must be evaluated separately to determine whether it was
                             - 11 -
“substantially justified”.    This is the so-called

bifurcated approach used in determining whether the

position of the United States is substantially justified

for purposes of section 7430(c)(4)(B).    See, e.g., Kenney

v. United States, 458 F.3d 1025, 1033 (9th Cir. 2006);

Huffman v. Commissioner, 978 F.2d at 1144-1148; Maggie

Mgmt. Co. v. Commissioner, supra; Swanson v. Commissioner,

supra.

    The estate’s motion seeks only litigation costs.

Therefore, we need examine only respondent’s position in

this judicial proceeding.    See sec. 7430(c)(7)(A).   In most

cases, the position of the United States in a deficiency

proceeding in this Court is the position set forth in the

Commissioner’s answer to the petition.    See, e.g., Huffman

v. Commissioner, supra; Sher v. Commissioner, 861 F.2d 131,

134-135 (5th Cir. 1988), affg. 89 T.C. 79 (1987); Maggie

Mgmt. Co. v. Commissioner, supra; Goertler v. Commissioner,

T.C. Memo. 2003-136; Rosario v. Commissioner, supra.

    In this case, respondent never filed an answer.     The

position of the United States was established in

respondent’s second motion to extend time within which to

answer.   In that motion, respondent made a full concession

of the tax deficiency and additions to tax determined in

the notice of deficiency.    As mentioned above, the second
                          - 12 -
motion was filed approximately 92 days after the petition.

We agree with respondent that this was reasonable.    Cf.

Harrison v. Commissioner, 854 F.2d 263 (7th Cir. 1988),

affg. T.C. Memo. 1987-52 (concession some 6 months after

answer filed, after respondent had an opportunity to verify

information, held reasonable); Wickert v. Commissioner, 842

F.2d 1005 (8th Cir. 1988), affg. T.C. Memo. 1986-277

(concession 10 days after filing of answer, although it

took several months to draft the stipulation of settlement,

held reasonable); Ashburn v. United States, 740 F.2d 843

(11th Cir. 1984) (11-month delay in conceding case not

unreasonable); White v. United States, 740 F.2d 836, 842

(11th Cir. 1984) (Government's concession of issue 3 months

after issue raised held reasonable); Sokol v. Commissioner,

92 T.C. 760 (1989); Goertler v. Commissioner, supra

(Commissioner’s concession approximately 90 days after

receiving documentation sufficient to substantiate the

deduction in question held reasonable); St. John v. United

States, 84 AFTR 2d 99-5867 (W.D. Mich. 1999) (an award of

attorney’s fees not warranted where the Government conceded

the issues in Count I of a refund suit “within a relatively

short period after being served with the complaint, and

prior to answering it” and the taxpayer conceded the issues

in Count II, but months passed before the concessions were
                            - 13 -
memorialized in a stipulation); W&S Distrib., Inc. v.

United States, 78 AFTR 2d 96-6013, 96-2 USTC par. 50,491

(E.D. Mich. 1996) (Government’s concession of refund suit

for employment taxes approximately 154 days after the

complaint and before answering held reasonable, even though

“the government’s pre-litigation position was

unreasonable”); Donlon I Dev. Corp. v. United States, 830

F. Supp. 1315, 1318 (C.D. Cal. 1993) (“If the Government

concedes the petitioner’s case in its answer, its conduct

is reasonable.”    (Fn. ref. omitted.))

    Furthermore, we are not persuaded, by the arguments

advanced on behalf of the estate, that the position of the

United States was not “substantially justified”.    Sec.

7430(c)(4)(B).    The estate’s first argument, as mentioned

above, is that respondent “failed to follow normal

administrative procedures”.    According to the estate,

respondent was put on notice of Ms. White’s death when the

estate applied for and was assigned “an EI number”, and

when it used that number on income tax returns, signed by

the executor.    The estate complains that, when respondent

received a Form 1099 in the name of Ms. White, respondent

failed to follow normal administrative procedures which

would have resolved any discrepancies and ended the case

with a letter.
                           - 14 -
    In effect, the estate is asking the Court to take into

account respondent’s actions during the prelitigation

administrative proceedings in determining whether the

position of the United States was substantially justified

in this judicial proceeding.   This would be contrary to the

bifurcated approach described above.   Under that approach,

the analysis of the reasonableness of the Government’s

position is bifurcated into an analysis of the position of

the United States in the administrative proceedings, and a

separate analysis of its position in the judicial

proceedings.   See Kenney v. United States, supra at 1033;

Huffman v. Commissioner, 978 F.2d at 1144-1148; Maggie

Mgmt. Co. v. Commissioner, 108 T.C. 430 (1997); Swanson v.

Commissioner, 106 T.C. 76 (1996); see also Church of

Scientology W. United States v. United States, 995 F.2d 230

(9th Cir. 1993) (unpublished opinion) (“Thus, while conduct

prior to the initiation of litigation may color a court’s

determination as to whether the position of the United

States was substantially justified, * * * the government’s

position in the judicial proceeding must be determined with

reference only to actions taken after a complaint or

petition has been filed.”).
                            - 15 -
    According to the estate, Estate of Cervin v.

Commissioner, 111 F.3d 1252 (5th Cir. 1997), revg. T.C.

Memo. 1994-550, on remand T.C. Memo. 1998-176, affd. 200

F.3d 351 (5th Cir. 2000), “holds that the Government’s

litigating position includes pre-litigation proceedings”.

Our reading of Estate of Cervin v. Commissioner, supra,

does not reveal any such holding.    In any event, even if

Estate of Cervin v. Commissioner, supra, could be so read,

we believe that under the decisions of the court to which

an appeal of this case would be taken, the United States

Court of Appeals for the Ninth Circuit, as under our own

decisions, section 7430 requires a bifurcated approach in

determining whether the position of the United States in a

judicial proceeding is substantially justified for purposes

of section 7430(c)(4)(B).   See, e.g., Kenney v. United

States, supra; Huffman v. Commissioner, supra; Maggie Mgmt.

Co. v. Commissioner, supra; Swanson v. Commissioner, supra.

    Furthermore, we cannot distinguish the cases utilizing

the bifurcated approach on the ground that “In each of

those cases the judicial proceedings were preceded by

administrative proceedings in which the taxpayers failed to

come forward with the evidence needed to resolve the

contested issues.”   The bifurcated approach was formulated

because of the language of the statute, particularly, the
                           - 16 -
definition of “position of the United States” set forth in

section 7430(c)(7).   Taken as a whole, section 7430 refers

to administrative proceedings separately from judicial

proceedings, and it provides for the possibility that the

United States can take two positions, one in the

administrative proceedings and another in the judicial

proceedings, each of which must be separately evaluated.

See Huffman v. Commissioner, supra.   We do not dispense

with the bifurcated approach required by section 7430 based

upon the facts of the case.   See Kenney v. United States,

supra; Huffman v. Commissioner, supra.

    The estate also argues that respondent’s performance

did not improve after a petition was filed.   According to

the estate, respondent lost the administrative file and

made “numerous” requests for extension to file an answer.

As we see it, respondent made one extension request and

made a full concession, before filing an answer, in a

second extension request filed 92 days after the petition.

As stated above, we believe that respondent’s position in

these judicial proceedings was reasonable.

    For the foregoing reasons,


                               Petitioner’s motion for

                          litigation costs will be denied.
