                        T.C. Memo. 1996-268



                      UNITED STATES TAX COURT



          WILLIAM C. AND ELAINE GASKINS, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

      PASQUALE T. QUINN AND SABINA A. QUINN, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 8509-91, 8539-91.              Filed June 11, 1996.



     James J. Riley, for petitioners.

     Keith L. Gorman, for respondent.



                        MEMORANDUM OPINION


     PARKER, Judge:   This consolidated case is before the Court

on petitioners' motion for litigation costs, pursuant to section

7430 and Rules 230 through 232.   Unless otherwise indicated, all

section references are to the Internal Revenue Code in effect for
the relevant taxable years, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

     The parties submitted memoranda and affidavits in support of

their positions.   Neither party requested a hearing.   We decide

the motion based on the pleadings, petitioners' motion for

litigation costs, respondent's objection to that motion, the

supporting memoranda and affidavits, and the record in these

cases.

     The primary issues in the underlying opinion, Gaskins v.

Commissioner, T.C. Memo. 1995-511, filed October 26, 1995, were

whether petitioner Elaine Gaskins and petitioner Sabina A. Quinn

were entitled to relief as innocent spouses under section

6013(e).   We held that both petitioner wives were entitled to

such relief.   However, the path to that result was long and

winding, with unnecessary obstacles and delays along the way.

Background

     On February 8, 1991, respondent mailed notices of deficiency

to petitioners William C. and Elaine Gaskins (the Gaskins) and

Pasquale T. and Sabina A. Quinn (the Quinns), determining

deficiencies in income tax for the taxable years 1979, 1980, and

1981, and determining, against petitioner husbands, additions to

tax for fraud for those years.   On May 6, 1991, the Gaskins and

the Quinns, through their attorney, James J. Riley (Attorney

Riley), filed their respective petitions with this Court.    Those

petitions assigned as errors the determination of unreported
                                - 3 -

income and fraud on the part of the petitioner husbands for each

year.1   Rule 34(b)(4).   On July 5, 1991, respondent filed her

respective answers denying petitioners' allegations, and making

affirmative allegations in support of the fraud issues as to

which respondent had the burden of proof.

     By notice of trial setting, dated April 15, 1992, the cases

were calendared for trial during the trial session in

Philadelphia, Pennsylvania, commencing on September 21, 1992.

Attached to that notice of trial setting was the Court's Standing

Pre-Trial Order.   On August 24, 1992, respondent filed unopposed

motions for continuance to permit petitioners to have a second

opportunity to resolve their cases with respondent's Appeals

Office without the necessity of trial.    The Court granted those

motions.   Attorney Riley failed to provide the Appeals officer

with the financial information or other documents to support

petitioners' claims, including any innocent spouse claims.    The

Appeals officer made repeated and unsuccessful attempts to

contact Attorney Riley about the cases.




     1
        However, in the statement of facts in support of the
assignments of error, the petitions asserted that each petitioner
wife was an innocent spouse under section 6013(e). Rule
34(b)(5). Had the petitions clearly raised innocent spouse
claims, Attorney Riley would have had a conflict of interest in
representing both petitioner husbands and petitioner wives.
Innocent spouse status requires the alleged innocent spouse to
establish, among other things, that the understatement of tax is
attributable to grossly erroneous items of the culpable spouse.
                               - 4 -

     By notice of trial setting, dated November 18, 1992, the

cases were again calendared for trial during the trial session in

Philadelphia, Pennsylvania, commencing on April 19, 1993.     Again

the Court's Standing Pre-Trial Order was attached to the notice

of trial setting.   On March 30, 1993, Attorney Riley filed

motions to continue the trial of the cases to permit petitioners

to avail themselves of the opportunity to submit offers in

compromise.2   After confirming that petitioners had submitted to

respondent such offers in compromise, the Court granted

petitioners' motions for continuance.   On June 10, 1993,

respondent notified Attorney Riley that the offers in compromise

could not be processed due to missing information and because the

offers of $0 were unacceptable.   The letter rejecting the Quinns'

offer indicates that no documentation supporting the innocent

spouse claim had been submitted with the offer, and thus

respondent was not able to consider that claim.

     By notice of trial setting, dated July 1, 1993, the cases

were again calendared for trial during the Philadelphia,

Pennsylvania, trial session, commencing December 6, 1993.     On

August 11, 1993, respondent sent a letter to Attorney Riley

suggesting a meeting on August 23, 1993; respondent followed the

letter with a telephone call on August 17, 1993.   Attorney Riley


     2
        Generally, offers in compromise presuppose liability for
the tax. Such offers deal with collectability, a matter in which
this Court has no role.
                               - 5 -

never responded to either the letter or the telephone call.    On

September 2 and 3, 1993, respondent mailed to Attorney Riley

interrogatories for the Gaskins and for the Quinns, respectively.

By letter dated September 14, 1993, respondent reminded Attorney

Riley of the outstanding interrogatories and of the attempts to

schedule a meeting.   On September 15, 1993, respondent mailed to

Attorney Riley requests for production of documents.   On

September 23, 1993, respondent filed with the Court and mailed to

Attorney Riley her first sets of requests for admissions.   On

October 21, 1993, Attorney Riley mailed the respective answers to

respondent's first sets of requests for admissions.

     Attorney Riley having failed to respond to the requests for

answers to interrogatories and production of documents,

respondent, on October 25, 1993, filed motions to compel

responses to respondent's interrogatories and to impose sanctions

and motions to compel responses to respondent's requests for

production of documents and to impose sanctions.   By orders dated

October 26 and 27, 1993, the Court granted these motions as to

the Quinns and the Gaskins, respectively.   The sanctions portions

of those motions were deferred to the trial session.

     Attorney Riley had mailed responses to respondent's

interrogatories and requests for documents on October 21, 1993.

In such responses, petitioners objected to answering most of

respondent's interrogatories designed to elicit information on

the innocent spouse claim on the ground that providing such
                               - 6 -

responses would be burdensome and oppressive.   Petitioners did

respond to interrogatories in regard to petitioners' educational

level, marital status, and responsibility for household finances;

they provided limited employment histories.   In response to

respondent's requests for documents, petitioners indicated they

possessed no records regarding bank accounts, investments,

household expenses information, and automobiles.

     On November 8, 1993, the cases were consolidated for trial,

briefing, and opinion.   By order dated November 22, 1993, the

cases were continued upon petitioners' unopposed motion based

upon a medical emergency.

     By notice of trial setting, dated January 6, 1994, the cases

were calendared for trial during the trial session in

Philadelphia, Pennsylvania commencing on June 6, 1994.   Again a

copy of the Court's Standing Pre-Trial Order was attached to the

notice.

     On February 15, 1994, and March 4, 1994, respondent's

counsel telephoned Attorney Riley's office, was unable to speak

with him, and left messages for him to return the calls.

Attorney Riley did not return such telephone calls.    On March 7,

1994, respondent's counsel wrote to Attorney Riley seeking to

discuss the cases.   Respondent received no response to this

letter.   On May 3, 1994, respondent's counsel again telephoned

Attorney Riley's office and received no return call.    On May 4,

1994, respondent's counsel wrote to Attorney Riley reminding him
                                - 7 -

of the trial date and indicating respondent would seek a default

judgment or move to dismiss for failure properly to prosecute if

Attorney Riley continued to fail to cooperate.

     On May 12, 1994, respondent mailed her trial memorandum to

the Court and to Attorney Riley.    Attorney Riley did not prepare

a trial memorandum.   On June 2, 1994, Attorney Riley contacted

respondent's counsel indicating he would be out of town until

late on June 3, 1994.    Respondent's counsel offered to meet

during the weekend of June 4 and 5, 1994, but Attorney Riley

failed to contact him.

     At the calendar call of the trial session on June 6, 1994,

there were no stipulations of fact by the parties, no exchanges

of documents, and no trial memorandum from petitioners.    The

Court's Standing Pre-Trial Order requires the parties to meet and

to stipulate under Rule 91 "to the maximum extent possible".     The

Standing Pre-Trial Order also requires the parties to exchange

trial memoranda (including their witness lists and copies of all

documents to be offered at trial that have not been stipulated

to) 15 days before the calendar call of the trial session.

Respondent's counsel had complied to the extent that he could do

so unilaterally.   Attorney Riley appeared at the calendar call

but had not complied with the Court's Standing Pre-Trial Order.

Instead, Attorney Riley filed a motion for continuance which the
                                 - 8 -

Court denied.3    Also on June 6, 1994, respondent filed a motion

to dismiss for failure properly to prosecute as to all issues

upon which petitioners had the burden of proof.     The Court orally

granted respondent's motion on that date and set the case for

trial on June 13, 1994, on the fraud issues as to which

respondent had the burden of proof.      On June 10, 1994, Attorney

Riley filed a motion to set aside the default.     In an affidavit

attached to the memorandum in support of this motion, Attorney

Riley stated that his representation of petitioners was on a pro

bono basis, and that he had not billed the petitioners nor did he

intend to be compensated by them for his time or expenses in

connection with these cases.

         During a recess of the oral argument on petitioners' motion

to set aside the default, the parties met privately and agreed to

a partial settlement.    Petitioner husbands conceded the

deficiencies in income tax for all years at issue and the

additions to tax for fraud for 1979 and 1980.     Respondent

conceded the fraud additions for 1981.     These concessions left

only the innocent spouse issues remaining and also resolved

Attorney Riley's conflict of interest so that he could represent

petitioner wives on their innocent spouse claims.     See supra note

1.   Attorney Riley agreed to provide documents in regard to the


     3
        Actually Attorney Riley had mailed the motion for
continuance to the Clerk's Office in Washington, D.C., where it
was received on the morning of June 6, 1994.
                                - 9 -

innocent spouse issues and a trial memorandum to respondent by

June 24, 1994.   The parties agreed to file status reports with

the Court by July 11, 1994.   The Court accepted the parties'

settlement.    After the settlement and Attorney Riley's agreement

to cooperate in the trial preparations, the Court vacated its

oral direction granting respondent's motion to partially dismiss

and deemed both respondent's motion to dismiss and petitioners'

motion to set aside the default to be moot.    The Court issued an

order dated June 10, 1994, requiring petitioners to provide the

documents relating to the innocent spouse issues and trial

memorandum to respondent, and for the parties to file status

reports with the Court as agreed.   That order expressly provided

that "all documents relating to the innocent spouse issues in

this case must be furnished to counsel for respondent by

petitioners on or before June 24, 1994."   Respondent's motion to

compel production of documents, including those documents on the

innocent spouse issues, had been granted by the Court in October

of 1993, and petitioners still had not complied with the Court's

1993 orders.

     On or about June 24, 1994, Attorney Riley provided

respondent with copies of various documents.   Many of the copies

were illegible and many were items that petitioners previously

had denied possessing.   Respondent ascertained that Attorney

Riley had other documents in his possession that had not been

provided, documents that petitioners had earlier denied
                               - 10 -

possessing.   Attorney Riley agreed to produce the additional

documents by July 15, 1994.    Respondent also wished to review the

original documents from which the illegible copies had been made.

     On July 11 and 12, 1994, the parties filed their status

reports with the Court, indicating they had not resolved the

innocent spouse issues.   By order dated July 12, 1994, the Court

officially calendared the cases for trial during a special trial

session of the Court in Philadelphia, Pennsylvania, beginning on

August 22, 1994, and ordered that all exhibits not stipulated to

be exchanged on or before August 8, 1994.

     On July 15, 1994, Attorney Riley's law clerk (the law clerk)

arrived at respondent's office with six boxes of records for

respondent's review.   Respondent's counsel was able to review

only three boxes in the time the law clerk made himself

available.    The law clerk declined to leave the remaining

documents with respondent's counsel, but agreed to return on

August 5, 1994.   On August 2, 1994, Attorney Riley sent a letter

to respondent's counsel indicating the documents would be

available for review only in his office, a 2-hour drive from

respondent's office in Philadelphia.    In a conference call on

August 3, 1994, the Court directed Attorney Riley to have the

remaining boxes delivered to Philadelphia for respondent's

review; this delivery occurred on August 5, 1994.    On August 19,

1994, Attorney Riley provided respondent with documents relating
                              - 11 -

to Mr. Gaskins' Social Security and worker's compensation payments.

     The trial took place on August 24 and 25, 1994.    Late in the

day on the first day of trial, Attorney Riley produced an

additional box of documents that had not previously been

furnished to respondent's counsel.     This box contained items that

respondent had requested in September of 1993, and that

petitioners had denied having.    The trial was recessed until 1:00

p.m. the following day to permit respondent's counsel to review

these documents.   These financial records were particularly

important in the Court's ultimate finding that the Quinns'

substantial accumulated savings came from petitioner wife's

frugality and careful management of her earnings rather than from

any unreported income of her husband.

     During the trial, Attorney Riley attempted to introduce

copies of certain of the Quinns' tax returns, which the Court

declined to receive.   The Court kept the record of the trial open

until September 26, 1994, so that copies of the original returns

as filed could be obtained and filed with the Court.    On

September 26, 1994, Attorney Riley filed a motion to extend time

to keep the record open.   The Court granted this motion,

extending the time until October 25, 1994.    On November 16, 1994,

the Court, having received no further documents, closed the

evidentiary record in the case.
                              - 12 -

Discussion

     Generally, a taxpayer who has substantially prevailed in a

Tax Court proceeding may be awarded reasonable litigation costs

incurred in connection with such court proceeding.   Sec. 7430(a).

To be entitled to an award of reasonable litigation costs, the

moving party must establish all of the following:    (1) That the

party exhausted the administrative remedies (sec. 7430(b)(1));

(2) that the party did not protract the proceeding unreasonably

(sec. 7430(b)(4)); (3) that the position of the United States in

the proceeding was not substantially justified (sec.

7430(c)(4)(A)(i)); (4) that the party substantially prevailed

with respect to the amount in controversy, or with respect to the

most significant issue or set of issues presented (sec.

7430(c)(4)(A)(ii)); (5) that the party met the net worth

requirements of 28 U.S.C. sec. 2412(d)(2)(B) (1988) (sec.

7430(c)(4)(A)(iii)); and (6) that the costs are reasonable as

defined in section 7430(c)(1).

     The parties agree that administrative remedies have been

exhausted, that petitioner wives substantially prevailed as to

the innocent spouse issues, and that petitioner wives meet the

net worth requirements.   The parties disagree as to whether

petitioner wives unreasonably protracted the proceedings, whether

respondent's position was substantially justified, and whether

the costs requested are reasonable.
                               - 13 -

     Unreasonable Protraction of Proceedings

     When this consolidated case was called from the calendar for

trial on June 6, 1994, that was the fourth time the case had been

noticed for trial.    Attorney Riley's failure to comply with this

Court's Standing Pre-Trial Order and to prepare these cases for

trial for that June 6, 1994 trial session is detailed above.

Respondent's motion to dismiss all issues as to which petitioners

had the burden of proof for failure properly to prosecute was

granted because of such failure.    The Court set the case for

trial on June 13, 1994, on the fraud issues as to which

respondent had the burden of proof.     Attorney Riley then filed a

motion to set aside the default which was heard on June 10, 1994.

In the course of oral argument on that motion, the parties met

during a recess and settled the deficiency and fraud issues

involving petitioner husbands, leaving only the innocent spouse

issues remaining.    The Court accepted the parties' settlement,

vacated the prior dismissal, and set a schedule looking to the

trial of the innocent spouse issues.

     That did not, however, end the delays.    Attorney Riley's

delays in furnishing documents continued right up to and even

during the trial itself.    On or about June 24, 1994, Attorney

Riley began to provide the relevant documents, and his production

of documents continued intermittently up to and even during trial

itself.   The Court's intervention was required to effectuate this
                              - 14 -

exchange of documents.   The trial in August of 1994 had to be

recessed because of his delays in producing documents, many of

which he and petitioners had earlier denied possessing.   We find

that petitioners and Attorney Riley unreasonably protracted this

proceeding.

     Respondent's Position

     The position of the United States for purposes of litigation

costs refers to the position of the United States in a judicial

proceeding.   Sec. 7430(c)(7)(A).   A judicial proceeding in this

Court is commenced with the filing of a petition.   Rule 20(a).

Generally, respondent initially takes a position on the date she

files her answer in response to the petition.    Huffman v.

Commissioner, 978 F.2d 1139, 1148 (9th Cir. 1992), affg. in part

and revg. in part T.C. Memo. 1991-144.

     Whether respondent's position is substantially justified

turns on a finding of reasonableness, based upon all the facts

and circumstances as well as legal precedents relating to the

cases.   See Pierce v. Underwood, 487 U.S. 552 (1988) (construing

similar language in the Equal Access to Justice Act, 28 U.S.C.

sec. 2412 (1988)); Rickel v. Commissioner, 900 F.2d 655, 665 (3d

Cir. 1990), affg. in part and revg. in part on other grounds 92

T.C. 510 (1989);   Huffman v. Commissioner, supra at 1147.    The

fact that the Commissioner eventually loses or concedes the case

does not in itself establish that a position is unreasonable.
                                - 15 -

Wilfong v. United States, 991 F.2d 359, 364 (7th Cir. 1993);

Sokol v. Commissioner, 92 T.C. 760, 765 (1989); Wasie v.

Commissioner, 86 T.C. 962, 968-969 (1986).    The reasonableness of

respondent's position necessarily requires considering what

respondent knew at the time she took the position and the events

that occurred afterwards.   See Rutana v. Commissioner, 88 T.C.

1329, 1334 (1987); Don Casey Co. v. Commissioner, 87 T.C. 847,

862 (1986); DeVenney v. Commissioner, 85 T.C. 927, 930 (1985).

     To establish eligibility for innocent spouse relief, a

taxpayer must establish that:    (1) A joint Federal income tax

return was filed; (2) there is a substantial understatement of

tax attributable to grossly erroneous items of the other spouse;

(3) in signing the return, the alleged innocent spouse did not

know, and had no reason to know, of the substantial

understatement; and (4) taking into account all the facts and

circumstances, it would be inequitable to hold the alleged

innocent spouse liable for the deficiency attributable to such

substantial understatement.   Sec. 6013(e)(1).   At issue in these

cases were items (3) and (4) above.

     Factors to be considered in determining whether the spouse

had reason to know are:   the alleged innocent spouse's level of

education; the spouse's involvement in the family's business and

financial affairs; the presence of expenditures that appear

lavish or unusual when compared to the family's past levels of
                              - 16 -

income, standard of living, and spending patterns; and the

culpable spouse's evasiveness and deceit concerning the couple's

finances.   Stevens v. Commissioner, 872 F.2d 1499, 1505 (11th

Cir. 1989), affg. T.C. Memo. 1988-63; Flynn v. Commissioner, 93

T.C. 355, 365-366 (1989).   Factors to consider in determining

whether it would be inequitable to hold the taxpayer liable

include: (1) Whether the taxpayer seeking relief significantly

benefited from the erroneous items (Purificato v. Commissioner, 9

F.3d 290, 296 (3d Cir. 1993), affg. T.C. Memo. 1992-580; Estate

of Krock v. Commissioner, 93 T.C. 672, 677 (1989)); (2) whether

the spouse seeking relief had been deserted by, or divorced or

separated from the culpable spouse (sec. 1.6013-5(b), Income Tax

Regs.); and (3) whether probable future hardships would be

visited upon the innocent spouse if she is not relieved of

liability (Sanders v. United States, 509 F.2d 162, 171 n.16 (5th

Cir. 1975)).

     Respondent's 1993 interrogatories and requests for documents

were designed to elicit information concerning these factors.     In

petitioners' October 21, 1993, answers to respondent's

interrogatories, petitioners provided information on petitioners'

educational levels and marital status, and that petitioner wives

handled the household finances.   Petitioners declined to answer

respondent's interrogatories regarding their assets and

expenditures.   In their responses to respondent's requests for
                              - 17 -

documents, petitioners denied possessing most of the documents

requested, items that were necessary to determine petitioners'

previous levels of income, their lifestyles, and whether

petitioner wives benefited from the understatements.   Petitioner

wives produced these same documents over the period June 24,

1994, up to the date of, and during, the trial on August 24,

1994.   At the end of the first day of trial, the trial had to be

recessed until 1:00 p.m. the following day to afford respondent's

counsel an opportunity to review a full box of documents that had

not been produced prior to that time.   At trial, petitioners

provided testimony regarding petitioner wives' knowledge and

involvement with petitioner husbands' business and petitioners'

spending habits.

     Based on this testimony and a review of the multitude of

documents belatedly submitted, the Court concluded that

petitioner wives were entitled to innocent spouse relief.     The

source of the Quinns' substantial accumulated savings was a

critical item, particularly in view of Mrs. Quinn's obvious

astuteness in financial matters.   Similarly, Mrs. Gaskins'

involvement in her husband's business affairs raised credibility

issues not all of which were resolved by the Court in her favor.

Prior to the exposition of these matters at the trial, the

Court's analysis of all the facts and circumstances of the case,

and the Court's resolution of credibility issues, it would not
                               - 18 -

have been unreasonable to conclude that petitioner wives were not

eligible for such relief.   Respondent was not required to concede

this case before she received the documentation necessary to

prove petitioner wives' contentions, particularly when there were

credibility issues to be resolved.      See Brice v. Commissioner,

T.C. Memo. 1990-355, affd. without published opinion 940 F.2d 667

(9th Cir. 1991).   We hold that respondent's position was

substantially justified at the time the answers were filed and up

through the trial and the Court's final adjudication of the

matter.

     Reasonable Costs

     Section 7430 allows recovery for "reasonable litigation

costs incurred in connection with such court proceeding."     Sec.

7430(a)(2).   Reasonable litigation costs include:

     reasonable fees paid or incurred for the services of
     attorneys in connection with the court proceeding,
     except that such fees shall not be in excess of $75 per
     hour unless the court determines that an increase in
     the cost of living or a special factor, such as the
     limited availability of qualified attorneys for such
     proceeding, justifies a higher rate. [Emphasis added.]

Sec. 7430(c)(1)(B)(iii).    Respondent argues that petitioners have

not "paid or incurred" attorney fees because Attorney Riley's

representation was pro bono and, in the alternative, that the

requested amounts are in excess of those allowable.     Based on our

findings that petitioner wives and Attorney Riley unreasonably

protracted the proceeding and that respondent's position was
                             - 19 -

substantially justified at all times throughout the proceeding,

it is not necessary for us to address these arguments.4

     In keeping with the above,

                                        Appropriate orders and

                                   decisions will be entered.




     4
        The question of awarding attorney's fees under sec. 7430
where taxpayer's counsel has agreed to provide representation pro
bono seems to be one of first impression. Pro se taxpayers are
not entitled to an award for the value of their services, since
no fee is paid or incurred. Corrigan v. United States, 27 F.3d
436 (9th Cir. 1994); United States v. McPherson, 840 F.2d 244
(4th Cir. 1988); Frisch v. Commissioner, 87 T.C. 838 (1986).
