                               T.C. Memo. 2014-259



                         UNITED STATES TAX COURT



                  PATRICIA MILLIGAN, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 21550-12.                         Filed December 30, 2014.



      Patricia Milligan, pro se.

      Luanne S. DiMauro, for respondent.



                           MEMORANDUM OPINION


      MARVEL, Judge: This is an action for the recovery of administrative costs

under section 7430(f)(2).1 The sole issue for decision is whether the position of



      1
       Unless otherwise indicated, all section references are to the Internal
Revenue Code as amended and in effect during the relevant period, and all Rule
references are to the Tax Court Rules of Practice and Procedure. Some monetary
amounts have been rounded to the nearest dollar.
                                          -2-

[*2] the United States in the administrative proceeding was substantially justified

under section 7430(c)(4)(B)(i) and (7).

                                    Background

      This case was submitted fully stipulated under Rule 122. The stipulation of

facts and the accompanying exhibits are incorporated herein by this reference.

Petitioner resided in New York when she petitioned this Court.

      On the basis of information reported to it by a third party the Internal

Revenue Service (IRS) issued a CP 2000 notice to petitioner for 2004. On

October 30, 2006, petitioner signed the response to the CP 2000 notice, and

respondent subsequently assessed additional Federal income tax of $16,384, a

penalty of $3,277, and interest of $2,146 for 2004.

      Petitioner paid the assessed tax, penalty, and interest in full and filed a

timely claim for refund. On August 7, 2008, the IRS service center in Holtsville,

New York, issued a Letter 105C, Claim Disallowance Letter, to petitioner,

denying the claim for refund. The Letter 105C stated: “Your claim is frivolous

and has no legal basis. Federal courts consistently rule against these arguments.”

      Petitioner requested a conference with the IRS Appeals Office. The IRS

service center filed petitioner’s conference request instead of sending it to the

Appeals Office. In October 2009, after the Taxpayer Advocate Service
                                           -3-

[*3] intervened, the appeal was finally assigned to an Appeals officer. In a notice

of decision dated May 17, 2010, the IRS Appeals Office determined that petitioner

was entitled to a Federal income tax refund of $14,644 and penalty abatement in

full.2

         Petitioner timely filed a claim for the recovery of administrative costs of

$18,651 with the IRS Appeals Office. The IRS Appeals Office denied the claim

because the IRS did not take a position contrary to the position of petitioner in the

administrative proceeding.

         Petitioner filed a petition and an amended petition. In her amended petition

petitioner claims administrative costs of $60,968.

                                       Discussion

         Section 7430(a)(1) permits a taxpayer to recover reasonable administrative

costs incurred in an administrative proceeding in connection with the

determination, collection, or refund of any tax, interest, or penalty. Section

7430(c)(2) defines reasonable administrative costs to be any administrative fees or

similar charges imposed by the IRS as well as certain expenses, costs, and fees

incurred on or after the earliest of the following: (1) the date on which the

         2
       The difference between the refund claim amount and the amount allowed
by the IRS Appeals Office relates to certain dividends that were inadvertently
included in petitioner’s claim for refund.
                                         -4-

[*4] taxpayer receives from the IRS Appeals Office a notice of decision;3 (2) the

date of the notice of deficiency;4 or (3) the date on which the IRS mails a first

letter of proposed deficiency giving the taxpayer a right to protest the proposed

deficiency to the IRS Appeals Office (commonly referred to as a 30-day letter).5

      An award of administrative costs may be made where (1) the taxpayer is the

“prevailing party”; (2) the taxpayer did not unreasonably protract the

administrative proceedings; (3) the amount of costs requested is reasonable; and


      3
          A notice of decision is

      the final written document, mailed or delivered to the taxpayer, that is
      signed by an individual in the Office of Appeals who has been
      delegated the authority to settle the dispute on behalf of the
      Commissioner, and states or indicates that the notice is the final
      determination of the entire case. A notice of claim disallowance
      issued by the Office of Appeals is a notice of the decision of the * * *
      [IRS] Office of Appeals. * * *

Sec. 301.7430-3(c)(2), Proced. & Admin. Regs.
      4
      “A notice of deficiency is a notice described in section 6212(a)”. Sec.
301.7430-3(c)(3), Proced. & Admin. Regs.
      5
        In proposed regulations the Secretary has taken the position that a first
letter of proposed deficiency giving the taxpayer a right to protest the proposed
deficiency to the IRS Appeals Office is generally “the first letter issued to the
taxpayer that describes the proposed adjustments and advises the taxpayer of the
opportunity to contact the Office of Appeals. It also may be a claim disallowance
or the first letter of determination that allows the taxpayer an opportunity for
administrative review in the Office of Appeals.” Sec. 301.7430-3(c)(4), Proposed
Proced. & Admin. Regs., 74 Fed. Reg. 61592 (Nov. 25, 2009).
                                          -5-

[*5] (4) all administrative remedies available to the taxpayer have been exhausted.

See sec. 7430(a), (b)(1), (3), (c); Purciello v. Commissioner, T.C. Memo. 2014-50,

at *8-*9. Petitioner has the burden of establishing that she satisfied each

requirement of section 7430. See Rule 232(e).

      To be a prevailing party a taxpayer must (1) substantially prevail with

respect to the amount in controversy or the most significant issue or set of issues

presented, see sec. 7430(c)(4)(A); and (2) meet the timing and net worth

requirements of the first sentence of 28 U.S.C. sec. 2412(d)(1)(B), see sec.

7430(c)(4)(A)(ii). However, a taxpayer will not be treated as the prevailing party

if the Commissioner establishes that the “position of the United States” was

substantially justified. See sec. 7430(c)(4)(B)(i); Rule 232(e). Section

7430(c)(7)(B) provides that, for purposes of section 7430(a), the “position of the

United States” in an administrative proceeding is the position that the IRS takes as

of the earlier of (i) the date of the receipt by the taxpayer of a notice of decision of

the IRS Appeals Office or (ii) the date of a notice of deficiency. See also Fla.

Country Clubs, Inc. v. Commissioner, 122 T.C. 73, 87 (2004) (holding that the

United States does not take a position within the meaning of section 7430(c)(4)(B)

by issuing a 30-day letter), aff’d, 404 F.3d 1291 (11th Cir. 2005).
                                         -6-

[*6] Respondent concedes that petitioner (1) substantially prevailed with respect

to the amount in controversy and the most significant issue presented in the

administrative proceeding, see sec. 7430(c)(4)(A); (2) meets the net worth

requirements, see sec. 7430(c)(4)(A)(ii); (3) exhausted any administrative

remedies available to her, see sec. 7430(b)(1); and (4) did not unreasonably

protract the administrative proceeding, see sec. 7430(b)(3). However, respondent

contends that the position of the United States was substantially justified because

the IRS Appeals Office conceded the case. We agree with respondent.

      The CP 2000 notice and the Letter 105C that respondent issued to petitioner

are neither notices of deficiency nor notices of decision of the IRS Appeals Office.

See sec. 301.7430-3(c)(2) and (3), Proced. & Admin. Regs. When the IRS

Appeals Office finally took a position with respect to petitioner’s refund claim, it

allowed that claim. The position of the United States in this case was therefore

substantially justified. See sec. 7430(c)(4)(B)(i), (7); Fla. Country Clubs, Inc. v.

Commissioner, 122 T.C. at 87. Accordingly, although we recognize that some of

respondent’s administrative actions unjustifiably caused petitioner to incur some
                                          -7-

[*7] cost and stress, section 7430 does not permit her to recover any administrative

costs.6

          We have considered the parties’ remaining arguments, and to the extent not

discussed above, conclude those arguments are irrelevant, moot, or without merit.

          To reflect the foregoing,


                                                Decision will be entered for

                                         respondent.




          6
        Because we conclude that petitioner is not entitled to recover any
administrative costs, we do not address respondent’s alternative contention that
petitioner failed to substantiate the additional administrative costs that she claimed
in her amended petition.
