                              T.C. Memo. 2012-202



                        UNITED STATES TAX COURT



            ARTHUR ROSE AND PHYLLIS ROSE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 605-11.                         Filed July 18, 2012.



      Steven M. Kwartin, for petitioners.

      Brandon S. Cline, Kenneth Allan Hochman, and John T. Lortie, for

respondent.



                           MEMORANDUM OPINION


      HALPERN, Judge: Petitioners have moved for reasonable litigation costs

(motion). Respondent objects (objection). We will deny the motion.
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      All section references are to the Internal Revenue Code of 1986, as amended,

and all Rule references are to the Tax Court Rules of Practice and Procedure.

Dollar amounts have been rounded to the nearest dollar. We draw the facts under

the heading Background principally from the motion and the objection. We believe

that those facts are not in controversy.

                                      Background

      Respondent determined a deficiency in, and an accuracy-related penalty with

respect to, petitioners' 2007 Federal income tax. Petitioners assigned error to all of

the adjustments giving rise to the deficiency and to the accuracy-related penalty.

The parties filed a stipulation of settled issues (stipulation) addressing all of the

adjustments and the penalty. There remains for resolution only the motion.

      The circumstances giving rise to the motion are as follows. After petitioners

commenced this case by filing the petition (and after respondent answered),

respondent, on February 7, 2011, prematurely assessed petitioners' 2007 tax. See

sec. 6213(a). On February 14, 2011, Kathi Hill, one of respondent's Appeals

officers, who had on that day received the case from respondent's counsel for

reconsideration, noticed the premature assessment and took steps to have it

reversed. On March 1, 2011, Ms. Hill learned from petitioners' counsel that an

overpayment from another year had been applied to petitioners' 2007 tax. On
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March 22, 2011, Ms. Hill informed petitioners' counsel that an adjustment had been

input to reverse the premature assessment and that she would call him when the

refund of the overpayment had posted. On March 28, 2011, petitioners moved to

restrain collection and to order a refund of amount collected (motion to restrain).

On April 15, 2011, respondent filed a response to the motion to restrain in which he

stated that, on April 11, 2011, the premature assessment had been abated; he also

stated that he was taking steps to refund the subsequent-year overpayment applied

to 2007. He argued that, because of the abatement, the motion to restrain was moot

and should therefore be denied. In response, we ordered that respondent report

when the refund had been made. On April 26, 2011, respondent reported that, on

April 14, 2011, he had made the refund. On May 17, 2011, we denied the motion to

restrain as moot.

      Petitioners seek reimbursement of $3,160 for their attorney's fees and costs.

They state: "the sole issue for which they are seeking * * * costs * * * is with

respect to the respondent's clearly improper and illegal assessment of a tax liability

for 2007".
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                                      Discussion

I.    Introduction

      Section 7430 provides that a taxpayer may recover reasonable costs,

including attorney's fees, incurred in connection with any tax proceeding

(administrative or judicial) against the United States if the taxpayer is the prevailing

party in the proceeding. To recover costs, the taxpayer must establish: (1) he is the

prevailing party, (2) he has exhausted the administrative remedies available to him,

(3) he did not unreasonably protract the proceedings, and (4) the amount of the costs

requested is reasonable. See sec. 7430(a), (b), and (c). The requirements are

conjunctive, and the failure to satisfy any one of them will preclude an award of

costs. See Minahan v. Commissioner, 88 T.C. 492, 497 (1987); Polz v.

Commissioner, T.C. Memo. 2011-117. The taxpayer bears the burden of proving

that he satisfies those requirements. Rule 232(e). He will not be treated as a

prevailing party if the Commissioner establishes that his position in the proceeding

was substantially justified. Sec. 7430(c)(4)(B)(i).

      Respondent objects to the motion on the grounds that (1) petitioners are not

the prevailing party and (2) their claimed litigation costs are unreasonable.1 We

      1
       Respondent concedes that petitioners (1) have exhausted the administrative
remedies available to them and (2) have not unreasonably protracted this
proceeding.
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need not reach respondent's second ground because we believe that he succeeds on

the first.

II.    Prevailing Party

       A.    Introduction

       The term "prevailing party" is for purposes of section 7430 a term of art. See

sec. 7430(c)(4)(A). For petitioners to qualify as the prevailing party, they would,

first, have to show that they "substantially prevailed" with respect to either the

amount in controversy or the most significant issue or set of issues presented.2 See

sec. 7430(c)(4)(A)(i). Even if they could show one or the other, they would not be

treated as the prevailing party if respondent can show that his position ("the position

of the United States") in the proceeding was substantially justified. See sec.

7430(c)(4)(B)(i).

       B.    Substantially Prevailed

             1.     Amount in Controversy

       Petitioners make no claim that they substantially prevailed with respect to

the amount in controversy. Nevertheless, respondent argues that they did not

because they were unsuccessful as to the greater part of the combined deficiency


       2
       Respondent concedes that petitioners meet the net worth requirements of 28
U.S.C. sec. 2412(d)(2)(B). See sec. 7430(c)(4)(A)(ii).
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and penalty. The deficiency respondent determined with respect to petitioners' 2007

Federal income tax is $10,438 and the accuracy-related penalty he determined is

$2,088. Pursuant to the stipulation, there is due from petitioners a deficiency of

$5,950 and a penalty of $1,190. Respondent argues that, because petitioners were

therefore unsuccessful as to 57% of the combined deficiency and penalty, they did

not substantially prevail as to the amount in controversy. We need not decide

whether petitioners substantially prevailed with respect to the amount in controversy

because we treat their failure to argue the point in the affirmative as a concession

that they did not. Cf. Rule 151(e)(4) and (5); Petzoldt v. Commissioner, 92 T.C.

661, 683 (1989).

             2.     Most Significant Issue or Set of Issues Presented

      Nor do petitioners claim that they substantially prevailed with respect to the

adjustments giving rise to the deficiency in tax or with respect to the accuracy-

related penalty. That they did not so prevail is borne out by the stipulation, which

shows that they prevailed only as to respondent's disallowance of their claimed

medical expenses. The disallowed medical expenses were one of three

adjustments (the other two involving charitable contribution and miscellaneous

itemized deductions), all of which appear to have been made for lack of

substantiation. The disallowed medical expenses had the smallest impact
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($11,999) on petitioners' taxable income, as computed by respondent in determining

the deficiency in tax. The impact of the disallowed charitable contribution and

miscellaneous itemized deductions was $13,831 and $18,594, respectively.

      Petitioners claim their prevailing party status with respect to the subject of the

motion to restrain; i.e., "Respondent's clearly improper and illegal assessment of a

tax liability for 2007". They elaborate: "Petitioners are the 'prevailing party' insofar

as the Respondent admitted the illegality of the assessment made, the improper

seizure and application of the Petitioners' 2010 refund against such assessment, and

ultimately reversed and abated such assessment against the Petitioners, and released

their 2010 income tax refund." Petitioners certainly did prevail in the sense they

describe; however, that is not a sufficient showing for us to find that they are the

prevailing party in this proceeding. For us to so find, we would have to find, among

other things, that respondent's improper action in prematurely assessing their 2007

tax liability and applying the overpayment against that liability (the premature

assessment issue) was the most significant issue presented. See sec.

7430(c)(4)(A)(i)(II). Petitioners have proposed no such finding, nor do we think

that the record would support that finding. The premature assessment issue was not

the primary issue in this case. See Huckaby v. U.S. Dept. of Treasury, 804 F.2d
                                          -8-

297, 300 (5th Cir. 1986) (holding an issue most significant because it was the

"primary issue"). The primary issues in the case were the adjustments giving rise to

the deficiency in tax and the accuracy-related penalty. Petitioners mostly failed with

respect to those issues. They prevailed with respect to the premature assessment

issue, but that success was mostly won before they made the motion to restrain.

Complete success was gained only days thereafter, with both respondent's Appeals

officer and his counsel in this case agreeing with petitioners from the outset that the

assessment was premature and thus improper. We are not convinced that, absent

the filing of the motion to restrain, petitioners would not, with a little more patience,

have as quickly succeeded with respect to the premature assessment issue. We

consider the weight of their successes against the weight of their failures in

determining the most significant issue (or set of issues) presented. See Goettee v.

Commissioner, 124 T.C. 286, 292 (2005), aff'd, 192 Fed. Appx. 212, 222-223 (4th

Cir. 2006). The premature assessment issue was not the most significant issue

presented.

      Petitioners have failed to show that they prevailed with respect to the most

significant issue (or set of issues) presented. See sec. 7430(c)(4)(A)(i)(II). They

thus cannot, within the meaning of section 7430(c)(4)(A), be the prevailing party in

this proceeding. We therefore need not address whether, with respect to the
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premature assessment issue, respondent's position was substantially justified. See

sec. 7430(c)(4)(B).

III.   Conclusion

       Because petitioners are not the prevailing party in this proceeding, they are

not entitled to an award of reasonable litigation costs.


                                                An appropriate order and decision

                                        will be entered.
