                        T.C. Memo. 2006-142



                      UNITED STATES TAX COURT



                 JAMES O. JONDAHL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13385-02.              Filed July 5, 2006.



     Jon J. Jensen, for petitioner.

     Inga C. Plucinski, for respondent.



                        MEMORANDUM OPINION


     GOEKE, Judge:   This matter is before the Court on

petitioner’s Motion Requesting For Reasonable Litigation Costs

under section 7430 and Rule 231.1   The issue is whether



     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.
                               - 2 -

petitioner is entitled to the costs of litigating his Federal tax

liability for the years 1990, 1991, 1992, and 1993 after he

conveyed a purported qualified offer in a letter to respondent

dated April 27, 2004.   We hold that the letter of April 27, 2004,

was a qualified offer and that petitioner is entitled to his

litigation costs paid or incurred after conveying this offer.

                            Background

     The underlying facts of this case are set forth in detail in

Jondahl v. Commissioner, T.C. Memo. 2005-55.     We briefly revisit

some of the factual and procedural background to rule on the

instant motion.

     Respondent determined deficiencies in petitioner’s 1990,

1991, 1992, and 1993 Federal income taxes of $25,438, $2,883,

$9,883, and $35,876, respectively.     Respondent also determined

fraud penalties under section 6663 for 1990, 1991, 1992, and 1993

of $19,078.50, $2,162.25, $7,412.25, and $26,907, respectively.

Respondent sent a notice of deficiency to petitioner on May 22,

2002.   On August 20, 2002, petitioner timely filed a petition in

this Court challenging respondent’s determinations.

     On April 27, 2004, petitioner sent respondent a letter

indicating his willingness to settle this litigation and

purporting to convey a qualified offer under section 7430(g).       In

part, petitioner wrote:

     The taxpayer, as his qualified offer, agrees to
     establish as the taxpayer’s liability (determined
                                - 3 -

     without regard to interest) by agreeing to pay to the
     United States $12,000 for tax years 1990, 1991, 1992,
     and 1993, collectively. My calculations assume that
     the additional liability would be allocated in the
     following amounts: $5,000 to the 1991 tax year; $1,000
     for the 1992 tax year; $1,000 for the 1993 tax year,
     [sic] and $5,000 to the 1994 tax year. This offer is
     in addition to the $42,873.24 paid to the United States
     on or about December 30, 1997 as restitution in the
     criminal proceedings entitled United States of America
     v. James Owen Jondahl (D.C. ND; Case No. 3:97-CR-9).

On May 10, 2004, respondent sent petitioner a letter rejecting

petitioner’s “Qualified Offer dated April 27, 2004.”    Respondent

also indicated a willingness to “discuss settlement on more

reasonable terms”.2

     On June 14, 2004, a trial was held and on March 24, 2005, we

issued Jondahl v. Commissioner, supra.    Petitioner’s liability,

including the fraud penalty, for the 1990, 1991, 1992, and 1993

tax years computed pursuant to our holding in Jondahl and Rule

155 is $39,178.50.    Petitioner now moves for the award of

litigation costs in the amount of $17,217.50, based on the

qualified offer conveyed in his April 27, 2004, letter.




     2
      After our decision in Jondahl v. Commissioner, T.C. Memo.
2005-55, petitioner sent respondent a letter requesting
litigation costs based on his qualified offer of Apr. 27, 2004.
At first, respondent informed petitioner that he was not entitled
to litigation costs because “the restitution payment plus the
additional $12,000” was less than the amount petitioner owed.
Subsequently, in a letter dated Aug. 9, 2005, respondent rejected
petitioner’s request for litigation costs because petitioner’s
Apr. 27, 2004, letter was not a qualified offer under sec.
7430(g) and sec. 301.7430-7(c)(3), Proced. & Admin. Regs.
                                 - 4 -

                              Discussion

       Section 7430(a) authorizes the award of reasonable

litigation costs paid or incurred in a court proceeding which is

brought by or against the United States in connection with the

determination, collection, or refund of any tax, interest, or

penalty under the Internal Revenue Code.     The taxpayer must

establish that he: (1) Is the prevailing party; (2) has exhausted

the available administrative remedies; (3) has not unreasonably

protracted the court proceedings; and (4) has claimed litigation

costs that are reasonable.     Sec. 7430(a) and (b)(1), (3).   The

taxpayer bears the burden of proving that these requirements are

met.    Rule 232(e).   A taxpayer is generally the prevailing party

if the taxpayer substantially prevailed with respect to either

the amount in controversy or the most significant issue or set of

issues.    Sec. 7430(c)(4)(A).   Under section 7430(c)(4)(B), even

if the taxpayer meets the requirements of a prevailing party

under section 7430(c)(4)(A), the taxpayer will not be treated as

a prevailing party if respondent’s position in the proceeding was

substantially justified.

       Under section 7430(c)(4)(E), a party shall also be treated

as the prevailing party if “the liability of the taxpayer

pursuant to the judgment in the proceeding (determined without

regard to interest) is equal to or less than the liability of the

taxpayer which would have been so determined if the United States
                                - 5 -

had accepted a qualified offer of the party under subsection

(g).”    The qualified offer provision of section 7430(c)(4)(E)

applies without regard to whether respondent’s position in the

matter is substantially justified.      See Haas & Associates

Accountancy Corp. v. Commissioner, 117 T.C. 48, 59 (2001), affd.

55 Fed. Appx. 476 (9th Cir. 2003); McGowan v. Commissioner, T.C.

Memo. 2005-80.

     Respondent concedes that petitioner has exhausted the

available administrative remedies, did not unreasonably protract

the proceedings, and claims litigation costs that are reasonable.

Respondent instead argues that petitioner cannot be considered a

prevailing party under section 7430(c)(4)(E) because the offer

submitted by petitioner was not a valid qualified offer under

section 7430(g).    Respondent argues that the offer was not made

with respect to all of the adjustments at issue and only those

adjustments, did not clearly specify the amount offered, and, if

accepted, would not have fully resolved petitioner’s liability

for the taxable years at issue.3



     3
       Respondent also argues that petitioner’s motion should be
denied because petitioner did not include an affidavit
demonstrating that he met the net worth requirements set forth in
the Equal Access to Justice Act, 28 U.S.C. sec. 2412(d)(2)(B)
(2000) at the time his petition was filed. Sec.
7430(c)(4)(A)(ii); Rule 231. Petitioner has since filed an
affidavit with supporting exhibits that show his net worth was
$17,221 at the time his petition was filed. We find that
petitioner meets the net worth requirements of sec.
7430(c)(4)(A)(ii).
                               - 6 -

     A qualified offer is defined in section 7430(g)(1) as a

written offer which:

          (A) is made by the taxpayer to the United States
     during the qualified offer period;

          (B) specifies the offered amount of the taxpayer’s
     liability (determined without regard to interest);

          (C) is designated at the time it is made as a
     qualified offer for purposes of this section; and

          (D) remains open during the period beginning on
     the date it is made and ending on the earliest of the
     date the offer is rejected, the date the trial begins,
     or the 90th day after the date the offer is made.

Section 301.7430-7(c)(3), Proced. & Admin. Regs., provides that a

qualified offer “specifies the offered amount if it clearly

specifies the amount for the liability of the taxpayer * * * .

The offer may be a specific dollar amount of the total liability

or a percentage of the adjustments at issue in the proceeding at

the time the offer is made.”   Additionally, “This amount must be

with respect to all of the adjustments at issue in the

administrative or court proceeding at the time the offer is made

and only those adjustments.”   Id.     Finally, the specified amount

“must be an amount, the acceptance of which by the United States

will fully resolve the taxpayer’s liability, and only that

liability * * * for the type or types of tax and the taxable year

or years at issue in the proceeding.”      Id.

     Respondent argues that petitioner’s offer does not clearly

specify the offered amount for petitioner’s liability because it
                                - 7 -

fails to add together the amounts petitioner claims were offered

in the letter.   Respondent argues in the alternative that, to the

extent the offer does clearly specify an amount, the amount is

only $12,000.

     We find petitioner’s letter of April 27, 2004, to be clear

in its offer to establish petitioner’s liability, including fraud

penalties, for the 1990, 1991, 1992, and 1993 tax years as

$54,873.24.   In his letter, petitioner writes “The taxpayer, as

his qualified offer, agrees to establish as the taxpayer’s

liability (determined without regard to interest) by agreeing to

pay to the United States $12,000 for the tax years 1990, 1991,

1992 and 1993, collectively.”   In attempting to allocate this

amount in the next sentence, petitioner refers to this $12,000 as

“the additional liability”.   In the very next sentence,

petitioner explains that “This offer is in addition to the

$42,873.24 paid to the United States on or about December 30,

1997 as restitution in the criminal proceedings entitled United

States of America v. James Owen Jondahl (D.C. ND; Case No. 3:97-

CR-9).”   The suggestion that this offer lacks clarity by virtue

of the fact that petitioner did not explicitly perform for

respondent the simple calculation of adding the $12,000 to the

$42,873.24 is unpersuasive.

     Respondent further argues that if petitioner intended his

offer to be $54,873.24 then he should have allocated that amount
                                 - 8 -

over the tax years at issue.     Instead, according to respondent,

petitioner attempted to allocate only the additional $12,000

(which we discuss in greater detail below).     The $42,873.24 was

paid by petitioner in restitution as part of the resolution of

the criminal tax charges for which he was convicted.     In the pre-

sentence investigation report prepared by the U.S. Department of

Probation, upon which petitioner was ordered to pay restitution

to the Internal Revenue Service (IRS), petitioner’s additional

income and resulting Federal income tax liabilities for each of

the 1990, 1991, 1992, and 1993 tax years were detailed with

specificity.4    That petitioner did not reproduce the pre-sentence

report as part of his offer letter does not make the offer any

less clear.     We find petitioner’s offer to be clear as to the

amount offered as petitioner’s liability--$54,873.24.

     Respondent next argues that petitioner’s offer was not valid

because it was not with respect to all of the adjustments at

issue and only those adjustments as required by section 301.7430-

7(c)(3), Proced. & Admin. Regs.     Respondent argues because the

$42,873.24 was paid in restitution more than 6 years ago pursuant

to a criminal judgment entered against petitioner, it was not an

adjustment at issue in this case.     As discussed above, the


     4
      The pre-sentence report was specific enough to include
additional income such as petitioner’s receipt of a stereo in
lieu of payment from a client which he then gave to his
girlfriend discussed in Jondahl v. Commissioner, T.C. Memo. 2005-
55 (slip op. at 40).
                               - 9 -

$42,873.24 was paid by petitioner in restitution to the IRS as

part of the resolution of his criminal case.   A review of the

pre-sentence investigation report shows that the amounts for

which petitioner was required to pay restitution are the very

same adjustments at issue in this case, including, for instance,

the commissions relating to petitioner’s sale of real estate,

payments by Taxman for petitioner’s furniture, and the sale of

petitioner’s crop hail insurance business.   Accordingly, we

reject respondent’s contention that the $42,873.24 represents an

adjustment not at issue.

     Finally, respondent argues that petitioner’s offer fails

because it would not fully resolve petitioner’s liability, and

only that liability, for the type or types of taxes and the

taxable year or years in the proceeding required by section

301.7430-7(c)(3), Proced. & Admin. Regs.   In the offer letter,

petitioner’s counsel writes of the $12,000 amount that “the

additional liability would be allocated in the following amounts:

$5,000 to the 1991 tax year; $1,000 for the 1992 tax year; $1,000

for the 1993 tax year, and $5,000 to the 1994 tax year.”   The

problem with this attempted allocation is that the 1994 tax year

was not at issue.   However, looking at this allocation in its

context, we find that the inclusion of the 1994 tax year was

nothing more than a typographical error of petitioner’s counsel.

The preceding sentence clearly indicates that the $12,000 was to
                                - 10 -

establish petitioner’s liability for the “tax years 1990, 1991,

1992 and 1993”.   We do not believe petitioner intended to include

the 1994 tax year in attempting to resolve the matter, nor do we

find that respondent understood petitioner’s offer as attempting

to include the 1994 tax year.    Thus, we find the inadvertent

inclusion of 1994 did little to lessen the import of petitioner’s

offer to establish his tax liability (determined without regard

to interest) for tax years 1990, 1991, 1992, and 1993 by agreeing

to pay $12,000 in addition to the $42,873.24 he had already paid

in restitution.

     Accordingly, we find that the offer conveyed by petitioner

meets the requirements of a qualified offer under section 7430(g)

and section 301.7430-7(c)(3), Proced. & Admin. Regs.    Petitioner

offered to establish his liability, including fraud penalties and

without regard to interest, for the 1990, 1991, 1992, and 1993

tax years as $54,873.24.   Because this amount is greater than the

amount of petitioner’s liability as determined by this Court in

Jondahl v. Commissioner, T.C. Memo. 2005-55 and computed pursuant

to Rule 155, petitioner is entitled to his litigation costs of

$17,217.50 incurred after communicating his qualified offer on

April 27, 2004.



                                          An appropriate order will

                                     be issued.
