                            131 T.C. No. 11



                      UNITED STATES TAX COURT



         DENNIS L. AND MARGARET J. KNUDSEN, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent*



     Docket No. 18246-04.               Filed November 12, 2008.



          Ps filed a motion for reconsideration of our
     Memorandum Opinion in Knudsen v. Commissioner, T.C.
     Memo. 2007-340 (Knudsen I). In Knudsen I we held that
     petitioners were not engaged in their animal breeding
     activity for profit within the meaning of sec. 183,
     I.R.C. We concluded that we did not need to decide
     whether Ps met the requirements under sec. 7491(a),
     I.R.C., to shift the burden of proof to R because the
     outcome was based on a preponderance of the evidence.
     In their motion Ps argue that this Court erred in so
     concluding. Ps also argue for the first time that each
     factor under sec. 1.183-2(b), Income Tax Regs., is a
     separate “factual issue” to which sec. 7491(a), I.R.C.,
     applies.
          Held: Ps’ motion for reconsideration will be denied.
     This Court did not err by concluding that the Court did


     *
      This Opinion supplements our previously filed opinion in
Knudsen v. Commissioner, T.C. Memo. 2007-340.
                                 - 2 -

     not need to decide whether the burden of proof shifted
     to respondent under sec. 7491(a), I.R.C.



     Jack D. Flesher and Brian A. Turney, for petitioners.

     Ann L. Darnold, for respondent.



                         SUPPLEMENTAL OPINION


     MARVEL, Judge:     On December 19, 2007, pursuant to Rule 161,1

petitioners filed a timely motion for reconsideration of this

Court’s Memorandum Opinion in Knudsen v. Commissioner, T.C. Memo.

2007-340 (Knudsen I).     In Knudsen I we held that petitioners’

exotic animal breeding activity was not an activity engaged in

for profit within the meaning of section 183.     Petitioners

request that we reconsider whether they satisfied the

requirements under section 7491(a) to shift the burden of proof

to respondent.

     Reconsideration under Rule 161 is intended to correct

substantial errors of fact or law and allow the introduction of

newly discovered evidence that the moving party could not have

introduced by the exercise of due diligence in the prior

proceeding.   Estate of Quick v. Commissioner, 110 T.C. 440, 441

(1998).   This Court has discretion to grant a motion for


     1
      All Rule references are to the Tax Court Rules of Practice
and Procedure, and all section references are to the Internal
Revenue Code in effect at all relevant times.
                              - 3 -

reconsideration but will not do so unless the moving party shows

unusual circumstances or substantial error.     Id.; see also Vaughn

v. Commissioner, 87 T.C. 164, 166-167 (1986).    “Reconsideration

is not the appropriate forum for rehashing previously rejected

legal arguments or tendering new legal theories to reach the end

result desired by the moving party.”   Estate of Quick v.

Commissioner, supra at 441-442.

     Section 7491(a)(1) provides that, subject to certain

limitations, where a taxpayer introduces credible evidence with

respect to a factual issue relevant to ascertaining the

taxpayer’s tax liability, the burden of proof shifts to the

Commissioner with respect to such issue.   Section 7491(a)(1)

applies with respect to a factual issue only if the requirements

of section 7491(a)(2) are satisfied.   Under section 7491(a)(2), a

taxpayer must have maintained all records required by the

Internal Revenue Code and cooperated with reasonable requests by

the Secretary for witnesses, information, documents, meetings,

and interviews.

     In their motion for reconsideration, petitioners assert that

(1) this Court erred in concluding that we did not need to decide

whether petitioners met the requirements under section 7491(a) to

shift the burden of proof to respondent, and (2) each factor

under section 1.183-2(b), Income Tax Regs., is a separate

“factual issue” within the meaning of section 7491(a).
                               - 4 -

I.   Section 7491(a) Burden of Proof Shift

     In Knudsen I we stated:

          We do not need to decide whether petitioners have
     met all of the requirements under section 7491 to shift
     the burden of proof to respondent. The outcome of this
     case is based on a preponderance of the evidence and
     thus is unaffected by section 7491. * * *

Petitioners contend that “Congress did not intend income tax

cases to be ‘unaffected’ by section 7491” and that we must

determine whether petitioners met the requirements under section

7491(a) to shift the burden of proof to respondent.   Although

this case is appealable, absent a stipulation to the contrary, to

the Court of Appeals for the Tenth Circuit, see sec. 7482(b),

petitioners rely on Griffin v. Commissioner, 315 F.3d 1017 (8th

Cir. 2003) (Griffin II), vacating and remanding T.C. Memo. 2002-6

(Griffin I), in support of their argument.

     Petitioners argue that the Court of Appeals for the Eighth

Circuit in Griffin II correctly concluded that section 7491(a)

should be applied in all cases.   Petitioners’ argument applies

Griffin II too broadly and fails to acknowledge that Griffin II

is distinguishable from this case.

     In Griffin v. Commissioner, supra at 1020, the taxpayers

appealed an unfavorable Tax Court decision and argued that the

Tax Court erred in holding that the taxpayers failed to present

sufficient evidence to shift the burden of proof to the

Commissioner under section 7491(a).    The Tax Court in Griffin I
                               - 5 -

had concluded that the taxpayers did not introduce credible

evidence and thus the burden of proof remained with the

taxpayers.   Griffin v. Commissioner, T.C. Memo. 2002-6.2   The

Court of Appeals disagreed.   It concluded that the taxpayers did

produce sufficient credible evidence and stated:   “It is not

sufficient to summarily conclude that the outcome is the same

regardless of who bears the burden of proof; if that were the

case, § 7491(a) would have no meaning.”   Griffin v. Commissioner,

315 F.3d at 1021-1022.

     On remand this Court shifted the burden of proof to the

Commissioner in accordance with the decision of the Court of

Appeals and revisited the trial record.   This Court concluded

that the taxpayers were entitled to certain deductions because

the Commissioner had not offered sufficient contrary evidence to

overcome the taxpayers’ evidence, which the Court of Appeals had

concluded was credible.   See Griffin v. Commissioner, T.C. Memo.

2004-64.

     The Court of Appeals in Griffin II disagreed with this

Court’s finding regarding the credibility of the taxpayers’

evidence, and its opinion is properly read in that context.       It



     2
      In a footnote in its opinion, the Tax Court also stated
that “Even if the burden of proof were placed on * * * [the
Commissioner], we would decide the issue in his favor based on
the preponderance of the evidence.” Griffin v. Commissioner,
T.C. Memo. 2002-6, vacated and remanded 315 F.3d 1017 (8th Cir.
2003).
                                - 6 -

is also apparent that once the issue of the credibility of the

taxpayers’ evidence was resolved, the burden shift did affect the

result, as this Court on remand allowed the deductions that it

had not allowed in its earlier opinion on the basis of the

Commissioner’s failure to carry his burden of proof.

     Petitioners’ argument in their motion for reconsideration

reads Griffin II too broadly.   Griffin II does not stand for the

proposition that a trial court must decide whether the burden of

proof shifts to the Government in all cases where the issue of a

burden shift is raised, nor does it stand for the proposition

that a trial court’s failure to decide a burden shift issue is

always reversible error.   The Court of Appeals said as much in

Polack v. Commissioner, 366 F.3d 608 (8th Cir. 2004), affg. T.C.

Memo. 2002-145.3

     In Polack v. Commissioner, supra at 613, the taxpayer

appealed a Tax Court decision arguing, among other things, that

the Tax Court erred in not shifting the burden of proof to the

Commissioner after the Commissioner abandoned his initial

valuation theory in favor of an expert’s valuation.    The Tax

Court had concluded that it did not need to decide whether the

burden of proof shifted to the Commissioner because the outcome


     3
      The taxpayer in Polack v. Commissioner, 366 F.3d 608 (8th
Cir. 2004), affg. T.C. Memo. 2002-145, did not argue for a shift
of the burden of proof under sec. 7491(a)(1). Rather, the
taxpayer relied on general principles governing shifting the
burden of proof.
                               - 7 -

was based on a preponderance of the evidence.   Id.    The Court of

Appeals agreed with the Tax Court and explained that “‘The

shifting of an evidentiary burden of preponderance is of

practical consequence only in the rare event of an evidentiary

tie’”.   Id. (quoting Cigaran v. Heston, 159 F.3d 355, 357 (8th

Cir. 1998)).   The Court of Appeals did not mention its earlier

decision in Griffin II.

     In 2005, approximately 8 months after it issued its decision

in Polack, the Court of Appeals for the Eighth Circuit further

clarified its position in Blodgett v. Commissioner, 394 F.3d

1030, 1039 (8th Cir. 2005), affg. T.C. Memo. 2003-212.    The Court

of Appeals revisited whether the Tax Court’s failure to shift the

burden of proof to the Commissioner under section 7491(a) was

reversible error and held that, on the record before it, the Tax

Court did not commit reversible error by declining to decide the

issue.   The Court of Appeals explained its holding:

     In a situation in which both parties have satisfied
     their burden of production by offering some evidence,
     then the party supported by the weight of the evidence
     will prevail regardless of which party bore the burden
     of persuasion, proof or preponderance. * * *
     Therefore, a shift in the burden of preponderance has
     real significance only in the rare event of an
     evidentiary tie. * * * Here, the record is clear, if
     the tax court did err in failing to shift the burden of
     proof, any error was harmless because the weight of the
     evidence supported a decision for the Commissioner.
     [Id.]

At least two other Courts of Appeals have also held that the

burden of proof shift under section 7491(a) is relevant only when
                                 - 8 -

there is an evidentiary tie.     See Geiger v. Commissioner, 279

Fed. Appx. 834, 835 (11th Cir. 2008) (“any error committed by the

tax court by failing to shift the burden was harmless, because

the burden of proof is of practical consequence only in the rare

event of an evidentiary tie”), affg. T.C. Memo. 2006-271; FRGC

Inv., LLC v. Commissioner, 89 Fed. Appx. 656 (9th Cir. 2004) (the

Court was not required to determine who had the burden of proof

under section 7491(a) when the preponderance of the evidence

favored the Commissioner), affg. T.C. Memo. 2002-276.

     Petitioners argue that Griffin II is correct and Polack and

Blodgett are wrong.   However, the Court of Appeals for the Eighth

Circuit in Blodgett, upon revisiting Griffin II, held that an

allocation of the burden of proof is relevant only when there is

equal evidence on both sides.    We agree with the analysis of the

Court of Appeals in Blodgett.4    In a case where the standard of

proof is preponderance of the evidence and the preponderance of

the evidence favors one party, we may decide the case on the

weight of the evidence and not on an allocation of the burden of

proof.5


     4
      The Court has often cited Blodgett v. Commissioner, 394
F.3d 1030, 1039 (8th Cir. 2005), affg. T.C. Memo. 2003-212, for
this position. See e.g., Estate of Christiansen v. Commissioner,
130 T.C. 1, 8 n.7 (2008); Grossman v. Commissioner, T.C. Memo.
2005-164; Levine v. Commissioner, T.C. Memo. 2005-86.
     5
      Petitioners also argue that the reliance of the Court of
Appeals for the Eighth Circuit on Polack is questionable because
                                                   (continued...)
                               - 9 -

      In Knudsen I the weight of the evidence favored respondent,

and consequently, we did not need to decide the allocation of the

burden of proof under section 7491(a) with respect to the section

183 issue.   We hold, therefore, that in Knudsen I we did not err

in declining to allocate the burden of proof under section

7491(a).

II.   Section 1.183-2(b), Income Tax Regs.

      Petitioners argue that the Court should have applied section

7491(a) to each factor under section 1.183-2(b), Income Tax

Regs.,6 to determine whether petitioners were engaged in an

activity for profit under section 183.   In other words,

petitioners contend that each factor is a “separate factual



      5
      (...continued)
Polack did not involve any argument for a shift of the burden of
proof under sec. 7491(a). However, the Court of Appeals in
Blodgett recognized that its reasoning in Polack regarding the
shifting of the burden of proof in a case decided on the basis of
the preponderance of the evidence was equally applicable to the
analysis required by sec. 7491(a). Blodgett v. Commissioner,
supra at 1039.
      6
      Sec. 1.183-2(b), Income Tax Regs., provides a list of nine
factors used to determine whether a taxpayer is engaged in an
activity for profit under sec. 183. The factors are: (1) The
manner in which the taxpayer carries on the activity; (2) the
expertise of the taxpayer or his advisers; (3) the time and
effort expended by the taxpayer in carrying on the activity; (4)
the expectation that assets used in the activity may appreciate
in value; (5) the success of the taxpayer in carrying on other
similar or dissimilar activities; (6) the taxpayer’s history of
income or loss with respect to the activity; (7) the amount of
occasional profits, if any, which are earned; (8) the financial
status of the taxpayer; and (9) elements of personal pleasure or
recreation.
                              - 10 -

issue” to which section 7491(a) applies and that we must analyze

each factor to determine whether petitioners satisfied the

requirements of section 7491(a) to shift the burden of proof to

respondent with respect to that factor.

     Petitioners raise this argument for the first time in their

motion for reconsideration.   Petitioners never argued at trial or

on brief that each factor under section 1.183-2(b), Income Tax

Regs., is a “separate factual issue” to which we must apply

section 7491(a).   Rather, petitioners argued on brief that they

satisfied the requirements under section 7491(a) to shift the

burden of proof to respondent with respect to the issue of

whether their animal breeding operation was an activity engaged

in for profit.   In their brief petitioners stated:

          In this case, Petitioners have introduced a
     considerable amount of credible evidence concerning the
     profit motive of Petitioners with respect to their
     exotic animal breeding operation. * * * Since
     Petitioners have met the requirements of IRC Section
     7491(a), the burden of proof with respect to Issue I is
     on the Commissioner/Respondent. [Emphasis added.]

Issue I of petitioners’ brief is titled “Whether Petitioners’

Exotic Animal Operations Constituted an ‘Activity Not Engaged in

for Profit’, Within the Meaning of Code Section 183”.

     Because petitioners never raised at trial or on brief the

issue of whether each factor under section 1.183-2(b), Income Tax

Regs., is a “separate factual issue” to which section 7491(a)

applies, we decline to address petitioners’ argument asserted for
                              - 11 -

the first time in petitioners’ motion for reconsideration.      See

Stoody v. Commissioner, 67 T.C. 643, 644 (1977).   As stated

above, reconsideration is not the appropriate forum for

petitioners to advance new legal theories to reach their desired

result.7   Accordingly, we shall deny petitioners’ motion for

reconsideration.


                                         An appropriate order and

                                    decision will be entered.




     7
      Even if we were to address the application of sec. 7491(a)
on a factor-by-factor basis in this case, we would still conclude
that the allocation of the burden of proof would not change the
result. Petitioners did not introduce evidence on a factor-by-
factor basis to show that the requirements of sec. 7491(a) were
satisfied with respect to each factor. In fact, if we analyzed
each of the factors to decide whether the sec. 7491(a)
requirements were met, we would conclude that petitioners did not
satisfy the requirements of sec. 7491(a) for the reasons that we
identified in Knudsen I. Of the six negative factors, five
factors (manner in which petitioners conducted their activity,
the expertise of petitioners and/or their advisers, expectation
that assets would appreciate, the amount of occasional profits,
and petitioner’s history of income or loss) were negative, at
least in part, because petitioners did not introduce credible
evidence to establish that the factor weighed in their favor.
See sec. 7491(a)(1).
