                      122 T.C. No. 14



                UNITED STATES TAX COURT



     VICTOR & JUDITH A. GRIGORACI, Petitioners v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 8784-01.              Filed March 25, 2004.


      Ps sought redetermination under sec. 6213, I.R.C., of
a deficiency for tax on self-employment income from a
partnership in which H was an indirect partner. Following
Grigoraci v. Commissioner, T.C. Memo. 2002-202 (Grigoraci
I), which involved a similar issue for Ps’ earlier tax year,
this Court dismissed the instant case for lack of
jurisdiction. Ps seek reasonable litigation and
administrative costs allegedly incurred in Grigoraci I as
well as in the instant proceeding. Ps also seek punitive
damages against R.

     Held: Pursuant to sec. 7430, I.R.C., we cannot in this
proceeding award Ps litigation and administrative costs
incurred in connection with the proceedings in Grigoraci I.
Held, further, Ps have failed to establish that they
incurred litigation and administrative costs in this
proceeding apart from a $60 filing fee. Held, further, this
Court lacks jurisdiction to award punitive damages against
R.
                               - 2 -

     Victor & Judith A. Grigoraci, pro sese.

     Mary Ann Waters, for respondent.


                              OPINION


     THORNTON, Judge:   This case is before us on petitioners’

motion for reasonable litigation and administrative costs

pursuant to section 7430 and Rule 231.1

                            Background

     Mr. Grigoraci is a certified public accountant and the chief

executive officer (C.E.O.) of an accounting partnership,

Grigoraci, Trainer, Wright & Paterno (GTWP).   On December 1,

1995, Mr. Grigoraci formed Victor Grigoraci CPA Accounting Corp.

as an S corporation (the S corporation) for the purpose of acting

as a partner (with two other corporations) in GTWP.   On their

1997 and 1998 joint Federal income tax returns, petitioners

reported certain distributions from the S corporation,

essentially representing passthroughs to Mr. Grigoraci of the S

corporation’s distributive shares of GTWP’s income.

     By notice of deficiency dated April 13, 2001, respondent

determined that the amounts petitioners had reported as the S

corporation’s distributions actually represented Mr. Grigoraci’s


     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code as amended, and all Rule references are
to the Tax Court Rules of Practice and Procedure. All references
to sec. 7430 are to that section as in effect when the petition
was filed.
                              - 3 -

personal service income and were subject to self-employment tax.

Petitioners duly petitioned this Court to redetermine the

determined deficiencies in their 1997 and 1998 income taxes.

     Before the scheduled trial in the instant case, this Court

issued its decision in Grigoraci v. Commissioner, T.C. Memo.

2002-202 (Grigoraci I), involving similar issues relating to

petitioners’ 1996 taxable year.2   In Grigoraci I, this Court

concluded, among other things, that the self-employment tax

determined by respondent, insofar as it was attributable to self-

employment tax on the S corporation’s distributive share of

GTWP’s income, was an “affected item” requiring a “partner-level

determination” pursuant to section 6230(a)(2).   Because the

notice of deficiency in Grigoraci I was issued before the close

of the partnership proceedings, this Court dismissed for lack of

jurisdiction so much of petitioners’ case as related to that

affected item.3   Id.


     2
       The trial in Grigoraci I took place in April 2001 before
petitioners filed their petition in the instant case, which
apparently explains why the instant case was not consolidated
with the three dockets that were consolidated in Grigoraci I.
     3
       In Grigoraci I, unlike the instant case, the deficiency
determined by respondent was also partly attributable to self-
employment tax on wages that the S corporation had reported
paying to Mr. Grigoraci. In Grigoraci I, this Court held that
this discrete portion of the deficiency was not attributable to
an “affected item” and that consequently this Court had
jurisdiction to review it pursuant to sec. 6213. This Court held


                                                    (continued...)
                                - 4 -

     On January 16, 2003, petitioners filed a motion for entry of

decision in this case on the basis of this Court’s holding in

Grigoraci I.   In their motion, petitioners asserted that in this

case, as in Grigoraci I, the related partnership-level proceeding

had not been completed.   In his response, filed February 7, 2003,

respondent stated that he had no objection to petitioners’ motion

for entry of decision.    On March 26, 2003, this Court entered an

order of dismissal for lack of jurisdiction, denying petitioners’

motion for entry of decision and dismissing this case for lack of

jurisdiction, consistent with this Court’s jurisdictional holding

in Grigoraci I.4

     On May 9, 2003, petitioners filed a motion for reasonable

litigation and administrative costs, with supporting affidavits.

On August 1, 2003, respondent filed his response.   Pursuant to

this Court’s Order dated September 22, 2003, on November 6, 2003,

petitioners filed additional supporting affidavits and a reply to

respondent’s response.    On December 15, 2003, respondent filed a

response to petitioners’ last-mentioned filing.




     3
      (...continued)
in Grigoraci I that the Grigoracis properly reported this income
as wages from the S corporation and owed no self-employment tax
on it.
     4
       By Order dated May 9, 2003, we vacated our order of
dismissal for lack of jurisdiction entered Mar. 26, 2003, pending
resolution of petitioners’ motion for reasonable litigation and
administrative costs.
                                 - 5 -

      The parties agree that an evidentiary hearing is not

required.     We base our decision on the pleadings, petitioners’

motion for litigation and administrative costs, petitioners’

supporting affidavits, and the various responses and counter-

responses filed by the parties.

                              Discussion

A.   Background

      Section 7430(a) allows, in specified circumstances, for an

award of reasonable litigation and administrative costs

“incurred” in an administrative or court proceeding brought

against the United States in connection with the determination of

any tax, interest, or penalty pursuant to the Internal Revenue

Code.     This award for costs is generally available only if the

taxpayer is the “prevailing party”, did not unreasonably protract

the administrative or judicial proceedings, and exhausted

available administrative remedies.5      Sec. 7430(a); see sec.

7430(b)(1) and (3).

      Respondent concedes that petitioners are the “prevailing

party” in this matter, that they did not unreasonably protract

the proceedings, and that they exhausted all administrative

remedies.     Respondent also concedes that petitioners are entitled

to recover the $60 fee for filing their petition in this case.


      5
       We may award costs pursuant to sec. 7430 even though we
decide that the underlying case should be dismissed for lack of
jurisdiction. Weiss v. Commissioner, 88 T.C. 1036 (1987).
                                - 6 -

The only dispute is what additional amount of reasonable costs,

if any, petitioners may recover pursuant to section 7430.

      In general, petitioners bear the burden of proving that they

meet the requirements of section 7430.    Rule 232(e); Grant v.

Commissioner, 103 F.3d 948, 952 (11th Cir. 1996), affg. per

curiam T.C. Memo. 1995-374; Gantner v. Commissioner, 92 T.C. 192,

197 (1989), affd. 905 F.2d 241 (8th Cir. 1990).

B.   Petitioners’ Claimed Litigation and Administrative Costs

      Petitioners request an award for the following claimed costs

and fees:

      1.   Administrative personnel expenses of $5,395.6    These

claimed expenses consist of charges for professional services

rendered by Pamela S. Lyons, who is a secretary for GTWP, Gina

West (a.k.a. Gina Grigoraci), who is the office manager for GTWP,

and three other GTWP secretaries.    The supporting affidavits

indicate that all these GTWP employees were acting under the

“direct supervision” of petitioner Victor Grigoraci.       The

supporting affidavits also indicate that the charges were based

on the time billed by these employees, using the lowest

“customary” GTWP billing rates for the relevant time periods.7



      6
       This amount includes $240 of secretarial expenses that
petitioners allege they have incurred defending their request for
litigation and administrative costs.
      7
       The affidavits indicate that the rates increased over time
from $38 per hour to $40 per hour.
                                - 7 -

      2.   Miscellaneous expenses of $536.50.   These expenses are

itemized in Ms. Lyons’s affidavit, which describes “estimates of

various other expenses incurred” as follows:

            Copying (600 pages @ $.50 per page)      $300.00
            Postage & Federal Express Charges         125.00
            Transcript from U.S. Tax Court             36.50
            Long distance telephone calls              75.00
              Total                                   536.50

      3.   “Filing fees” of $180.   Petitioners have not further

described these fees.

C.   Costs Relating to Grigoraci I Proceedings

      As a threshold matter, we note that some of the litigation

and administrative costs that petitioners have claimed relate to

the proceedings in Grigoraci I.     In particular, the affidavits

that petitioners have submitted in support of their motion for

litigation and administrative costs specify that $3,800 of the

claimed $5,395 of administrative personnel expenses was incurred

with respect to the proceedings in Grigoraci I.     Moreover, all

but $60 of the claimed filing fees appear to relate to the

Grigoraci I proceedings.8   In addition, it appears that an




      8
       Petitioners have not itemized the $180 of “filing fees”
that they have claimed. We take judicial notice that when
petitioners filed their petition in this case on July 11, 2001,
the fee for filing a petition in this Court was $60. Petitioners
have failed to establish that they incurred more than $60 of
filing fees in this proceeding. We find as a fact that only $60
of the claimed filing fees relates to the instant proceeding.
                               - 8 -

indeterminate part of the claimed miscellaneous expenses relates

to the proceedings in Grigoraci I.9

     Petitioners contend that costs incurred in connection with

the proceedings in Grigoraci I are recoverable in the instant

proceeding because they “were vital to the defense against”

respondent’s determination in the instant proceeding.   We

disagree.

     Section 7430(a) provides in relevant part that “In any

administrative or court proceeding” the prevailing party may be

awarded a judgment for reasonable administrative costs incurred

“in connection with such administrative proceeding” and for

reasonable litigation costs incurred “in connection with such

court proceeding”.   (Emphasis added.)   Under the plain language

of the statute, then, we may award only such administrative or

litigation costs as were incurred in connection with the instant

proceeding.   We cannot in this proceeding award litigation and

administrative costs incurred in connection with the proceedings




     9
       Ms. Lyons’s affidavit, which itemizes the estimated
miscellaneous expenses, specifically allocates her hours of
secretarial services between the proceedings in Grigoraci I and
the instant case, but does not similarly allocate the estimated
miscellaneous expenses, from which we infer that the estimated
miscellaneous expenses relate to both the instant case and the
proceedings in Grigoraci I. This inference is supported by the
fact that the estimated miscellaneous expenses include a $36.50
item for “Transcript from U.S. Tax Court”. The instant
proceeding, unlike the proceedings in Grigoraci I, has involved
no hearing for which a transcript has been produced.
                              - 9 -

in Grigoraci I, whether or not those costs ultimately might have

helped petitioners prevail in this proceeding.10

     Accordingly, we cannot award petitioners the $3,800 of

claimed administrative personnel expenses that they acknowledge

relate to the proceedings in Grigoraci I or filing fees beyond

the $60 fee for filing the petition in this case.   In addition,

petitioners have not shown what part, if any, of the estimated

miscellaneous expenses relate to the instant proceeding.     If this

were the only problem with petitioners’ claim for miscellaneous

expenses, we might attempt to make a reasonable allocation of

these expenses to the instant proceeding.   Cf. Malamed v.

Commissioner, T.C. Memo. 1993-1.   Such an allocation would serve

no purpose, however, for as discussed more fully below,

petitioners have not established that they “incurred” these

miscellaneous expenses (or any of the administrative personnel

expenses) within the meaning of section 7430.




     10
       Moreover, petitioners do not explain why they failed to
file a timely motion for reasonable litigation and administrative
costs as part of the proceedings in Grigoraci I. Under Rule
231(a)(2), a taxpayer claiming litigation and administrative
costs must file a motion with the Tax Court within 30 days after
the service of a written opinion determining the issues in the
case. If we were to award petitioners costs incurred in
connection with the proceedings in Grigoraci I, we would
effectively permit petitioners to avoid the 30-day requirement of
Rule 231(a)(2).
                              - 10 -

D.   Meaning of “Incurred”

      Awards of costs and fees under section 7430(a) are limited

to administrative costs “incurred” and reasonable litigation

costs “incurred”.   In this context, the word “incur” carries its

ordinary meaning:   “to become liable or subject to:   bring down

upon oneself.”   Frisch v. Commissioner, 87 T.C. 838, 846 (1986)

(holding that an attorney acting pro se was ineligible to receive

attorney’s fees because he “did not become liable to another

person for attorney fees nor did he bring down upon himself any

debt”); see also Corrigan v. United States, 27 F.3d 436, 438-439

(9th Cir. 1994); United States v. McPherson, 840 F.2d 244 (4th

Cir. 1988); Andary-Stern v. Commissioner, T.C. Memo. 2002-212;

Austin v. Commissioner, T.C. Memo. 1997-157.   “Fees and expenses

are incurred when there is a legal obligation to pay them.”

Republic Plaza Props. Pship. v. Commissioner, T.C. Memo. 1997-239

(holding that the petitioning tax matters partner had failed to

establish a legal obligation to pay any of the litigation costs

at issue); see also Kruse v. Commissioner, T.C. Memo. 1999-157

(holding that the taxpayers had not incurred liabilities for

fees and costs for which they were contingently liable).

      All the costs for which petitioners seek an award (except

for the filing fees) represent charges for professional services

provided by GTWP administrative personnel and for estimated

miscellaneous expenses associated with those services.
                               - 11 -

Supporting affidavits submitted by petitioners indicate that the

administrative services rendered date as far back as August 2000.

The affidavits also show, however, that GTWP did not bill

petitioners for any of these services or for any of the

miscellaneous expenses before October 31, 2003, some 6 months

after petitioners filed their motion for reasonable litigation

and administrative costs and shortly after this Court ordered

petitioners to provide additional support for their claimed

costs.11   Ms. West’s affidavit states:   “These invoices have been

incurred but not yet been paid by Victor and Judith A.

Grigoraci.”

     Petitioners have not persuaded us that they were legally

obligated, or were even expected, to pay the invoiced amounts.

Indeed, petitioners represent that “any fees and expenses paid by

the Internal Revenue Service to the Petitioners will promptly be

paid to Grigoraci, Trainer, Wright & Paterno.”    From this

statement, and absent any suggestion to the contrary, we infer

that petitioners will not pay any expenses to GTWP unless and

until this Court awards costs under section 7430.12    In these


     11
       Ms. West’s affidavit states that on Oct. 31, 2003, she
prepared invoices from GTWP to petitioners for the administrative
personnel expenses and miscellaneous costs at issue and that on
Nov. 3, 2003, she prepared an invoice of $240 for the costs of
preparing petitioners’ reply to respondent’s response.
     12
       In fact, the record does not suggest that the
administrative services performed on petitioners’ behalf by GTWP
                                                   (continued...)
                               - 12 -

circumstances, we cannot award costs.    See Swanson v.

Commissioner, 106 T.C. 76, 101 (1996).

     Petitioners contend that they “have incurred these

reasonable fees to Grigoraci, Trainer, Wright & Paterno and both

Pamela S. Lyons and Gina West should qualify as a representative

and, if not, surely these are reasonable expenses for the

Petitioners to incur as pro se.”    Respondent concedes that Ms.

Lyons and Ms. West have Centralized Authorization File numbers,

which might allow those individuals to represent taxpayers before

the IRS.    Nonetheless, nothing in petitioners’ supporting

materials or affidavits suggests that either Ms. Lyons or Ms.

West performed services for petitioners in a representative

capacity.    On the contrary, their services appear to have been



     12
      (...continued)
employees resulted in any incremental cost to either GTWP or
petitioners. Given that the employees who rendered these
services worked under Mr. Grigoraci’s direct supervision and that
he was C.E.O. of GTWP, it might reasonably be inferred that these
services were rendered as an accommodation to him in that
capacity. In these circumstances, we are unpersuaded that
petitioners are entitled to shift to respondent a portion of what
appears to be GTWP’s fixed overhead. Moreover, we note that Ms.
West’s affidavit states that the invoiced amounts were based on
the lowest “customary” GTWP billing rates used for the named
employees during the relevant time periods. Presumably, the
customary GTWP billing rates include a profit margin that would
accrue partly to the benefit of Mr. Grigoraci, as an indirect
partner in GTWP. At least to that extent, the invoiced amounts
represent a lost opportunity cost, which petitioners are not
entitled to recover under sec. 7430. See Corrigan v. United
States, 27 F.3d 436, 439 (9th Cir. 1994); United States v.
McPherson, 840 F.2d 244, 245 (4th Cir. 1988); Frisch v.
Commissioner, 87 T.C. 838, 845-846 (1986).
                                - 13 -

clerical in nature.     More fundamentally, even if we were to

assume, for sake of argument, that Ms. Lyons and Ms. West acted

as petitioners’ representatives, this circumstance would be

insufficient to meet the section 7430 requirement that the cost

of their services be “incurred”.     See Kruse v. Commissioner,

supra; Thompson v. Commissioner, T.C. Memo. 1996-468.

      In conclusion, petitioners have failed to show that they

“incurred” the claimed administrative personnel expenses or the

associated miscellaneous expenses.       Moreover, they have

acknowledged that most of the claimed administrative personnel

expenses relate to the Grigoraci I proceedings and have failed to

establish how much of the claimed miscellaneous expenses relates

to this proceeding.     We have found that only $60 of the claimed

filing fees relates to the instant proceedings.       Giving effect to

respondent’s concession, we hold that petitioners are entitled to

an award of $60 for these filing fees.

E.   Punitive Damages

      Petitioners also request that we award punitive damages

against respondent.     There is no statutory authority for this

Court to consider petitioners’ claim for punitive damages against

the Internal Revenue Service; consequently, we have no
                              - 14 -

jurisdiction to do so.   See Petito v. Commissioner, T.C. Memo.

2002-271.


                                         An order and order of

                                         dismissal for lack of

                                         jurisdiction will be

                                         entered.
