                        T.C. Memo. 2000-294



                      UNITED STATES TAX COURT



           TALMADGE AND REATHA SWANAGAN, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

                 TALMADGE SWANAGAN, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 10960-99, 10961-99.   Filed September 20, 2000.




     Wanda Kamphuis Zatopa, for petitioners.

     Jennifer L. Nuding, for respondent.



                        MEMORANDUM OPINION


     LARO, Judge:   Petitioners move the Court under section 7430

to award them $1,656.25 in attorney’s fees and $89.20 in court

costs.   Respondent objects thereto, arguing:   (1) Petitioners did

not exhaust their administrative remedies, (2) respondent’s
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position in this proceeding was substantially justified, (3)

petitioners generally have not established that they paid the

requested costs, and (4) some of the requested costs are

unreasonable.

     We ordered the parties to file with the Court a joint

statement setting forth the disputed and undisputed facts

relevant to the subject motion.   Following our receipt of that

statement, we now decide whether we shall grant the motion.    We

shall deny it.   Unless otherwise indicated, section references

are to the Internal Revenue Code in effect for the relevant

years, and Rule references are to the Tax Court Rules of Practice

and Procedure.

                            Background1

     Petitioners were husband and wife during the subject years,

and they resided in Maywood, Illinois, when we filed their

petitions.   They filed a 1994 Federal income tax return using the

filing status of “Married filing joint return”.   Talmadge

Swanagan (petitioner) filed a 1995 Federal income tax return

using the filing status of “Married filing separate return”.




     1
       We have found the facts set forth herein from the parties’
statement of undisputed facts. Although the parties have listed
on that statement some disputed facts, we need not resolve the
parties disagreements as to those disputed facts. The undisputed
facts set forth a sufficient foundation on which we may and do
decide petitioners’ motion.
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     Respondent, through his District Director, commenced an

audit of petitioners’ 1994 and 1995 taxable years about June

1997.   In connection therewith, the District Director requested

certain information; petitioners ultimately provided some, but

not all, of this information to the District Director.   The

District Director concluded the audit on July 2, 1998, proposing

certain upward adjustments to petitioners’ income.   On that date,

the District Director also mailed to petitioners two 30-day

letters (one for 1994 and one for 1995) listing proposed upward

adjustments of $5,675 and $12,493 to the respective years’

income.   The 30-day letter invited petitioners to request an

administrative appeals conference to discuss these proposed

adjustments, providing: “IF YOU * * * wish a conference with the

Regional Office of Appeals [Appeals], YOU MUST LET US KNOW within

30 days.” The 30-day letter explained the procedures for

requesting a conference with Appeals.

     Petitioners never requested a conference with Appeals for

either year.   Nor did they ever deliver to respondent a written

protest as to the District Director’s conclusions set forth in

the 30-day letters.

     On March 19, 1999, respondent issued the notices of

deficiency to petitioners.   As to 1994, respondent determined

that petitioners were liable for a $5,383 deficiency and a

$1,070.60 accuracy-related penalty under section 6662(a).    As to
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1995, respondent determined that petitioner was liable for a

$14,089 deficiency and a $2,817.80 accuracy-related penalty under

section 6662(a).

     Petitioners retained Ms. Zatopa on or about April 5, 1999,

to serve as their representative as to the subject years.     Two

months later, petitioners and Ms. Zatopa signed an agreement in

which petitioners agreed to pay Ms. Zatopa $50 an hour in

connection with this proceeding.   The agreement also provided:

“If Attorney [Ms. Zatopa] is successful in overturning parts or

all of the Commissioner’s decisions, Attorney will seek to

recover attorney’s fees, if and where permitted under the

Internal Revenue Code, at the rate of $110 per hour from the

Internal Revenue Service.”

     On June 15, 1999, Ms. Zatopa petitioned the Court on behalf

of petitioners to redetermine the determinations reflected in the

notices of deficiency.   Respondent transferred the case to

Appeals approximately 2 months later, and Appeals settled the

case with petitioners after receiving from them additional

information.   Respondent conceded all items for 1994 and all but

a $777 deficiency for 1995.

     Petitioner paid Ms. Zatopa $1,325 (26.5 hours times $50 an

hour) for her work on this case.
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                           Discussion

     We may grant petitioners’ motion if they meet all of the

statutory requirements for an award of litigation costs.       See

sec. 7430(b) and (c); see also Rule 232(e); Dixson Intl. Serv.

Corp. v. Commissioner, 94 T.C. 708, 714, 715 (1990); Minahan v.

Commissioner, 88 T.C. 492, 497 (1987).     The parties dispute the

four requirements noted above.

     We focus on the first of those requirements; namely, that a

taxpayer must exhaust administrative remedies available within

the Internal Revenue Service before petitioning this Court with

respect to the underlying year.    See sec. 7430(b)(1).   We

conclude that petitioners have not met this requirement.

Petitioners never requested a conference with Appeals as to

either 1994 or 1995, although such a conference was available.

Section 301.7430-1(b)(1), Proced. & Admin. Regs., provides that,

where a conference with Appeals is available, administrative

remedies are exhausted only when the taxpayer (1) participated in

a conference with Appeals before petitioning this Court, or (2)

requested such a conference (as applicable herein, by filing a

written protest with respondent) and had its request denied.

     We hold that petitioners do not qualify for an award of

litigation costs under section 7430.     Cf. Patel v. Commissioner,

T.C. Memo. 1998-306; Jacoby v. Commissioner, T.C. Memo. 1997-384;

Burke v. Commissioner, T.C. Memo. 1997-127.     In so holding, we
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reject summarily petitioners’ argument that they need not have

met the regulatory requirements of section 301.7430-1(b)(1),

Proced. & Admin. Regs., in order to recover litigation costs

because the 30-day letter was silent as to this requirement.   We

have considered all other arguments for a contrary holding and

find those arguments to be irrelevant or without merit.   To

reflect the foregoing,

                              An appropriate order will be

                         issued, and decisions will be entered in

                         accordance with the parties’ settlement.
