                        T.C. Memo. 2006-28



                      UNITED STATES TAX COURT



             DANIEL R. ALLEMEIER, JR., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent*



     Docket No. 19320-03.                Filed February 16, 2006.



     Daniel R. Allemeier, Jr., pro se.

     Hans F. Famularo and Loren B. Mark, for respondent.



                 SUPPLEMENTAL MEMORANDUM OPINION


     KROUPA, Judge:   This matter is before the Court on

petitioner’s motion for litigation fees and costs pursuant to




     *
      This opinion supplements our prior Memorandum Opinion,
Allemeier v. Commissioner, T.C. Memo. 2005-207.
                                 - 2 -

section 7430 and Rule 231.1    The issue is whether petitioner is

entitled to recover $16,5222 for expenses incurred in litigating

his Federal income tax liability for 2001.    We hold that he is

not.

                              Background

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

Allemeier v. Commissioner, T.C. Memo. 2005-207 (Allemeier I).       We

summarize the factual and procedural background briefly to rule

on the instant motion.    Petitioner resided in Pacific Grove,

California, when he filed the petition.3

       On a Federal tax return for 2001, petitioner claimed

business expense deductions for a master’s degree in business

administration (MBA) and other expenses related to his work for

Selane Products (the company).    Respondent disallowed the expense

deductions in a deficiency notice dated October 1, 2003, and

determined that petitioner was liable for an accuracy-related

penalty.




       1
      All section references are to the Internal Revenue Code in
effect for the year at issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure, unless otherwise
indicated.
       2
      Petitioner alternatively claims a lower litigation expense
amount of $15,233.28, which he computed based upon the ratio of
deductions granted versus deductions denied (92.2 percent of
$16,522 equals $15,233.28).
       3
        Petitioner has resided in Las Vegas, Nev., since August
2004.
                                - 3 -

     We ruled in petitioner’s favor regarding petitioner’s MBA-

related expense deductions and the accuracy-related penalty but

denied petitioner deductions for other claimed business expenses

because petitioner failed to substantiate the expenses in

Allemeier I.    Petitioner then submitted a motion for litigation

costs, and respondent filed a response.4    Respondent agrees that

petitioner:    (1) Has not unreasonably protracted the court

proceedings; (2) has substantially prevailed with respect to the

amount in controversy and with respect to the most significant

issue presented in the court proceedings; and (3) has met the net

worth requirements as provided by law.     Respondent disputes,

however, that petitioner exhausted all administrative remedies,

that petitioner was the prevailing party, and that petitioner’s

litigation fees are reasonable.

     Neither party requested a hearing on this motion, and the

Court concludes that a hearing is not necessary to decide this

motion.   See Rule 232(a)(2).   Accordingly, the Court rules on

petitioner’s motion based on the parties’ submissions and the

record in this case.

                             Discussion

     We must determine whether petitioner is entitled to recover

reasonable litigation costs.    A taxpayer may recover reasonable


     4
      Petitioner filed a reply to respondent’s response that the
Court did not direct petitioner to file. See Rule 232(a). The
reply raised no additional issues.
                                 - 4 -

litigation costs if the taxpayer establishes that he or she is

the prevailing party, has exhausted administrative remedies, has

not unreasonably protracted the court proceedings, and has

claimed reasonable litigation costs.5     Sec. 7430(a), (b)(1), (3),

(c)(4).   A taxpayer bears the burden to prove that he or she

satisfies these requirements.    Rule 232(e); Corson v.

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

Prevailing Party

     To be a prevailing party, the taxpayer must substantially

prevail with respect to either the amount in controversy or the

most significant issue or set of issues presented, and must

satisfy the net worth requirements.      See sec. 7430(c)(4)(A); 28

U.S.C. sec. 2412(d)(2)(B)(2000).    The taxpayer will not be

treated as a prevailing party, however, if the Commissioner’s

position in the court proceeding was substantially justified.

Sec. 7430(c)(4)(B).   The Commissioner has the burden to prove

that his position was substantially justified.      See sec.

7430(c)(4)(B)(i); Rule 232(e).

     Respondent concedes that petitioner substantially prevailed

and met the net worth requirements.      See sec. 7430(b) and

(c)(4)(A).   Respondent contends, however, that petitioner is not




     5
      Respondent concedes that petitioner did not unreasonably
protract proceedings. See sec. 7430(b)(3).
                                - 5 -

treated as a prevailing party because respondent’s position in

the court proceeding was substantially justified.

Substantial Justification

     The Commissioner’s position is substantially justified if,

based on all the facts and circumstances and relevant legal

precedents, the Commissioner acted reasonably.   See Pierce v.

Underwood, 487 U.S. 552, 565 (1988); Sher v. Commissioner, 89

T.C. 79, 84 (1987), affd. 861 F.2d 131 (5th Cir. 1988).   The

Commissioner’s position may be incorrect yet substantially

justified if the Commissioner’s position had a reasonable basis

in law and fact.    See Pierce v. Underwood, supra at 566 n.2;

Huffman v. Commissioner, 978 F.2d 1139, 1147 n.8 (9th Cir. 1992),

affg. in part, revg. in part and remanding T.C. Memo. 1991-144;

sec. 301.7430-5(c)(1), Proced. & Admin. Regs.    A position has a

reasonable basis in fact if there is relevant evidence that a

reasonable mind might accept as adequate to support a conclusion.

Pierce v. Underwood, supra at 564-565; Huffman v. Commissioner,

supra.

     That respondent loses on an issue is not determinative of

the reasonableness of respondent’s position.    See Wasie v.

Commissioner, 86 T.C. 962, 968-969 (1986); DeVenney v.

Commissioner, 85 T.C. 927 (1985).   It remains a factor, however,

to be considered.    Estate of Perry v. Commissioner, 931 F.2d

1044, 1046 (5th Cir. 1991); Powers v. Commissioner, 100 T.C. 457,
                               - 6 -

471 (1993), affd. in part, revd. in part and remanded on another

issue 43 F.3d 172 (5th Cir. 1995).

     The Court looks to whether the Commissioner’s position was

reasonable given the available facts and circumstances at the

time the Commissioner took his position.   See Maggie Mgmt. Co. v.

Commissioner, 108 T.C. 430, 442-443 (1997); DeVenney v.

Commissioner, supra at 930.   The Commissioner’s position in a

judicial proceeding is generally the position the Commissioner

took in the answer to the petition.    Sec. 7430(c)(7)(A); Huffman

v. Commissioner, supra at 1144-1147; Maggie Mgmt. Co. v.

Commissioner, supra at 443; Grant v. Commissioner, 103 F.3d 948,

952 (1996), affg. T.C. Memo. 1995-374; Sher v. Commissioner,

supra at 86.

Whether Respondent’s Position Was Substantially Justified

     In Allemeier I, respondent’s position was that petitioner

was not entitled to an MBA-related expense deduction on two

bases.   Respondent argued, first, that petitioner’s enrollment in

the MBA program constituted a “minimum educational requirement”

to continue his employment at the company.   See sec. 1.162-

5(b)(2), Income Tax Regs.   Respondent argued, second, that

petitioner’s MBA qualified him for a new trade or business.    See

sec. 1.162-5(b)(3), Income Tax Regs.

     Although we found that petitioner was encouraged rather than

required to obtain the MBA, we find that respondent was
                               - 7 -

substantially justified in arguing that the MBA program

constituted a minimum educational requirement.     See Allemeier v.

Commissioner, T.C. Memo. 2005-207.     Similarly, although we found

that petitioner’s MBA “enhanced” his preexisting skills rather

than qualified him to perform “significantly” different tasks and

activities, we find that respondent was substantially justified

in arguing that petitioner’s course of study qualified him for a

new trade or business.   Id.

     Accordingly, we find that respondent’s position was

substantially justified.6   Petitioner is therefore not the

prevailing party and may not recover any litigation costs.    See

sec. 7430(c)(4)(B).   In light of this holding, we need not decide

whether petitioner exhausted administrative remedies or whether

the legal costs petitioner claimed are reasonable.7    See, e.g.,

Kean v. Commissioner, T.C. Memo. 2003-275, affd. 407 F.3d 186 (3d

Cir. 2005); Gutierrez v. Commissioner, T.C. Memo. 1995-569 (where



     6
      For similar reasons, we also conclude that respondent’s
position regarding the accuracy-related penalty was substantially
justified. See Uddo v. Commissioner, T.C. Memo. 1998-276.
     7
      We note that petitioner submitted a $15,553 billing
statement for litigation costs from his father, a non-tax
attorney who entered no appearance in this proceeding and is
ineligible to practice before the Court, but petitioner made no
showing that he actually paid or was legally obligated to pay the
fees to his father. See sec. 7430(a)(2), (c)(1)(B)(iii); Frisch
v. Commissioner, 87 T.C. 838, 846 (1986) (taxpayer not eligible
to recover fees when taxpayer had no liability for the fees);
Republic Plaza Props. Pship. v. Commissioner, T.C. Memo. 1997-
239.
                                 - 8 -

Commissioner substantially justified, no need to address whether

taxpayer satisfied the other requirements of section 7430).

     To reflect the foregoing,

                                             An appropriate order

                                         and decision will be entered.
