                       T.C. Memo. 2007-211



                      UNITED STATES TAX COURT



              WESTERN MANAGEMENT, INC., Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 12686-99.                 Filed August 2, 2007.


     Robert E. Kovacevich and Richard W. Kochansky, for

petitioner.

     Milton B. Blouke and Roger P. Law, for respondent.



                        MEMORANDUM OPINION


     FOLEY, Judge:   This matter is before the Court on

petitioner’s motion for award of reasonable litigation costs

pursuant to section 74301 and Rule 231.    On June 3, 2003, this


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         Unless otherwise indicated, all section references are to
                                                    (continued...)
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Court issued its Memorandum Opinion in W. Mgmt., Inc. v.

Commissioner, T.C. Memo. 2003-162, affd. in part and remanded in

part 176 Fed. Appx. 778 (9th Cir. 2006), and we incorporate

herein the facts set forth in that opinion.

                            Background

     In 1981, Robert E. Kovacevich incorporated petitioner, a

Washington C corporation.   Petitioner’s only source of income was

from the provision of Mr. Kovacevich’s legal services.    Mr.

Kovacevich did not receive predetermined wages from petitioner

but, instead, received funds from petitioner as his needs arose.

In 1994 and the first quarter of 1995, petitioner paid Mr.

Kovacevich $132,000 and $33,250, respectively.    Petitioner

classified these payments as “loans” on its corporate ledger and

did not file Forms 1099-MISC, Miscellaneous Income, relating to

the payments.

     On April 28, 1999, respondent sent petitioner a notice of

determination in which respondent determined that Mr. Kovacevich

was an employee of petitioner for Federal employment tax purposes

and petitioner was not entitled, pursuant to section 530 of the

Revenue Act of 1978, Pub. L. 95-600, 92 Stat. 2885 (Section 530),

to relief from such classification.    In addition, respondent


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      (...continued)
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
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determined that Mr. Kovacevich, in 1994 and 1995, received from

petitioner $132,000 and $33,250, respectively, in wages that were

subject to taxes pursuant to the Federal Insurance Contributions

Act (FICA) and the Federal Unemployment Tax Act (FUTA) and

petitioner failed to pay the FICA and FUTA taxes relating to

those wages.   Respondent also determined that petitioner was

liable for section 6656 and 6662(a) penalties relating to 1994

and 1995.

     On June 3, 2003, the Court issued its Memorandum Opinion.

The Court held that Mr. Kovacevich was a statutory employee of

petitioner, and, in 1994 and 1995, Mr. Kovacevich received from

petitioner $132,000 and $33,250, respectively, in wages that were

subject to FICA and FUTA taxes.    Petitioner contended that it was

entitled, pursuant to section 530, to relief from the FICA and

FUTA tax liabilities.   The Court held, however, that petitioner

did not satisfy the requirements of section 530 and thus, was

liable for FICA and FUTA taxes relating to the wages paid to Mr.

Kovacevich.    The Court also sustained respondent’s determinations

relating to the penalties.

     Petitioner appealed the Tax Court’s decision to the Court of

Appeals for the Ninth Circuit.    The Ninth Circuit “[affirmed] the

decision of the Tax Court in all respects except with regard to

its calculations of the amount of income tax withholding owed
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under 26 U.S.C. § 3402(a)” and remanded the case “for

consideration of the narrow issue of whether 26 U.S.C. § 3402(d)

provides Petitioner with any relief from the collection of those

taxes and, if so, for recalculation of the amounts owed.”     See W.

Mgmt., Inc. v. Commissioner, 176 Fed. Appx. at 782.

     On March 14, 2007, the Court filed petitioner’s motion for

litigation costs.   On April 26, 2007, the Court filed

respondent’s objection.

                            Discussion

     Petitioner may recover reasonable litigation costs if it

establishes that it is the prevailing party, meets the net worth

requirements, has exhausted administrative remedies, has not

unreasonably protracted the court proceedings, and has claimed

reasonable litigation costs. Sec. 7430(a), (b)(1), (3), (c)(4);

Corson v. Commissioner, 123 T.C. 202, 205-206 (2004).    These

requirements are conjunctive, and failure to satisfy any one will

preclude an award of costs to petitioner.   Minahan v.

Commissioner, 88 T.C. 492, 497 (1987).   Petitioner contends that

it is entitled to litigation costs because it substantially

prevailed with respect to the most significant issues.   We

disagree.

     To be a prevailing party, petitioner must establish that it

substantially prevailed with respect to either the amount in
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controversy or the most significant issues presented.       See sec.

7430(c)(4)(A).   The Court, in its 2003 opinion, upheld

respondent’s determinations relating to the penalties, Mr.

Kovacevich’s employment status, and petitioner’s failure to

withhold Mr. Kovacevich’s FICA and FUTA taxes.

     The Court of Appeals for the Ninth Circuit merely remanded

the case for the Court to recalculate the amounts owed by

petitioner after the application of section 3402(d).        W. Mgmt.,

Inc. v. Commissioner, 176 Fed. Appx. 778 (9th Cir. 2006).

Section 3402(d) provides that to the extent Mr. Kovacevich paid

income tax on the wages at issue, respondent cannot collect the

FICA and FUTA taxes from petitioner.       See id.   The Court of

Appeals, however, affirmed this Court’s determinations relating

to the substantive issues in the case (e.g., Mr. Kovacevich’s

employment status and petitioner’s failure to withhold Mr.

Kovacevich’s FICA and FUTA taxes).       Simply put, petitioner did

not substantially prevail and thus, is not entitled to litigation

costs.

     Contentions we have not addressed are irrelevant, moot, or

meritless.

     To reflect the foregoing,


                                             An appropriate order and

                                      decision will be entered.
