                        T.C. Memo. 2002-136



                      UNITED STATES TAX COURT



         JOHN A. ROWE AND DONNA L. ROWE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 20890-93, 21346-94.     Filed May 31, 2002.


     Rodney S. Klein and William T. Wray, Jr., for petitioner

Donna L. Rowe.

     Stephen R. Takeuchi, for respondent.



                        MEMORANDUM OPINION


     RUWE, Judge:   In Rowe v. Commissioner, T.C. Memo. 2001-325

(Rowe I), we granted petitioner Donna L. Rowe (hereinafter

petitioner) relief from joint and several liability pursuant to
                               - 2 -

section 60151 with respect to certain omitted income and

erroneous deduction items giving rise to deficiencies.

Additionally, we granted petitioner relief from joint and several

liability for various penalties and additions to tax.    Petitioner

subsequently moved for an award of litigation costs pursuant to

section 7430 and Rule 231.   Neither party requested a hearing on

the matter.   Accordingly, we rule on petitioner’s motion for

litigation costs on the basis of the parties’ submissions and the

record in this case.

Background2

     For the taxable years 1987 through 1990, petitioner and her

husband, John A. Rowe (Mr. Rowe), filed joint Federal income tax

returns.   On June 25, 1993, respondent issued a notice of

deficiency to petitioner and Mr. Rowe for their taxable years

1987, 1988, and 1989.   On August 18, 1994, respondent issued a

notice of deficiency to petitioner and Mr. Rowe for their taxable

     1
      References to sec. 6015 are to that section as added to the
Internal Revenue Code by the Internal Revenue Service
Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3201,
112 Stat. 734. References to sec. 7430 are to that section as in
effect at the time the petitions were filed. Unless otherwise
indicated, all other section references are to the Internal
Revenue Code in effect for the years in issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
     2
      We incorporate herein by this reference our findings of
fact from our Memorandum Opinion in Rowe v. Commissioner, T.C.
Memo. 2001-325 (Rowe I). We provide a brief summary of those
relevant facts and set forth additional facts necessary to decide
this case.
                                     - 3 -

year 1990.       In the notices, respondent determined deficiencies in

petitioner and Mr. Rowe’s Federal income taxes, additions to tax,

and penalties as follows:3

                          Additions to Tax and Penalties
Year Deficiency Sec. 6653(b)(1)(A) Sec. 6653(b)(1)(B)    Sec. 6661
1987 $173,817        $130,363                1            $43,454

                         Sec. 6653(b)(1)       Sec. 6661
1988         53,937          $40,453            $13,484             --

                         Sec. 6651(a)(1)       Sec. 6663
1989         73,279          $13,792            $54,959             --

                            Sec. 6654         Sec. 6662(c)
1990        124,891           $8,057            $24,978             --
       1
           50 percent of the interest due on $173,817.

       Petitioner and Mr. Rowe timely filed petitions with this

Court on September 27, 1993, and November 18, 1994, respectively,

disputing all the determinations contained in the notices of

deficiency.4       No claim for relief from joint and several

liability was made in either of the petitions.           Respondent filed

corresponding answers to the petitions on November 29, 1993, and

December 27, 1994, respectively, denying the allegations

contained in the petitions.         The two cases were subsequently

consolidated for trial, briefing, and opinion.



       3
      The fraud additions to tax pursuant to sec. 6653(b) for the
taxable years 1987 and 1988 and the fraud penalty pursuant to
sec. 6663 for the taxable year 1989 related only to Mr. Rowe.
       4
      Petitioner resided in Florida at the time the petitions in
this case were filed.
                                 - 4 -

     On February 2, 1999, petitioner filed amended petitions

seeking entitlement to relief from joint and several liability

under section 6015.   In her amended petitions, petitioner did not

dispute the accuracy of the deficiencies, additions to tax, and

penalties contained in the notices of deficiency.    On March 31,

1999, respondent filed his answers to petitioner’s amended

petitions.   In his answers to the amended petitions, respondent,

on the assumption that petitioner had made a valid election with

respect to the benefits of section 6015, conceded that, pursuant

to section 6015(c), petitioner was not liable for any deficiency

associated with unreported income of $283,928, $29,924, $94,648,

and $82,053, respectively for the years 1987 through 1990.

Respondent also conceded that petitioner was entitled to relief

from joint and several liability under section 6015(c) for 1990

with respect to the following adjustments:    (1) Capital gain

income of $11,919; (2) income of $82,053 on Schedule C, Profit or

Loss From Business; and (3) all but $48.50 of interest income

which was part of a $4,847 adjustment.

     On June 6, 2000, respondent and Mr. Rowe entered into

stipulations of agreed issues.    In the stipulations, Mr. Rowe

conceded the accuracy of all the determinations respondent made

in the notices of deficiency.

     The trial in these consolidated cases was held on February

9, 2001.   At that time, the parties filed a stipulation of facts
                                 - 5 -

and a first supplemental stipulation of facts.     The concessions

respondent made in his answers to petitioner’s amended petitions

were contained in the stipulations.      During the trial, petitioner

did not dispute the accuracy of respondent’s determinations.

Rather, petitioner presented evidence in support of her argument

that she was not liable for the deficiencies, additions to tax,

and penalties because she was entitled to relief from joint and

several liability under section 6015.

     On May 7, 2001, respondent and petitioner filed a

stipulation of settled issues.    In the stipulation, petitioner

conceded that she was not entitled to relief from joint liability

for an $85 theft loss adjustment in 1987 and a $6,253 income

adjustment in 1990.   Petitioner also conceded that she was not

entitled to relief from joint and several liability for $48.50 of

interest income, still in dispute, which was part of a $4,847

adjustment in 1990.   Respondent conceded that petitioner was

entitled to relief from joint and several liability under section

6015(c) for a $6,282 rental income adjustment in 1990 and for

$112,979 of a $116,405 lump-sum distributions adjustment in 1990.

     On brief, the parties presented arguments as to whether

petitioner was entitled to relief from joint and several

liability pursuant to section 6015 with respect to the following

omitted income and erroneous deduction items giving rise to

deficiencies:   (1) Distribution proceeds from a retirement
                                - 6 -

account in petitioner’s name; (2) capital gain income from the

sale of jointly titled property; (3) mortgage interest deductions

on jointly titled property; (4) losses related to a farming

activity; and (5) charitable contribution deductions.

Additionally, the parties addressed whether petitioner was liable

for any additions to tax or penalties.    Petitioner did not

dispute the accuracy of respondent’s determinations aside from

her claim to relief from joint liability under section 6015.

     In Rowe I, we held that petitioner was entitled to complete

relief under section 6015(c) for the retirement account

distributions and the farming activity losses because these items

were allocable to Mr. Rowe, and petitioner did not have actual

knowledge of the items.    We found that the capital gains,

mortgage interest, and charitable contributions items were

allocable evenly between petitioner and Mr. Rowe.    We then

granted petitioner relief under section 6015(c) for the half of

these items allocable to Mr. Rowe because we found that

respondent had failed to establish that petitioner had actual

knowledge of the items.5   We held that petitioner was not

entitled to relief under section 6015(b) for the portions of the



     5
      As we noted in Rowe I, under sec. 6015(c) an individual
cannot qualify for relief for the portions of items which are
allocable to her; thus, petitioner was not entitled to relief
under sec. 6015(c) for the portions of the capital gains,
mortgage interest, and charitable contributions items allocable
to her.
                                - 7 -

capital gains, mortgage interest, and charitable contributions

items which were allocable to her because they were not erroneous

items “of” Mr. Rowe.    We then held that petitioner was entitled

to equitable relief under section 6015(f) for the portions of the

capital gains, mortgage interest, and charitable contributions

items giving rise to deficiencies which were allocable to her.

Finally, on the basis of the parties’ concessions and section

6015(f), we concluded that petitioner was not liable for any of

the remaining disputed additions to tax or penalties.

Discussion

     Section 7430(a)(2) provides that a party that has prevailed

in any court proceeding against the United States may be awarded

reasonable litigation costs incurred in connection with the court

proceeding.   To obtain such an award, the prevailing party must

establish that:    (1) She has exhausted the administrative

remedies available; (2) she has substantially prevailed in the

controversy; (3) the position of the United States in the

proceeding was not substantially justified; (4) she satisfies

certain net worth requirements; (5) she has not unreasonably

protracted the proceeding; and (6) the amount of the costs sought

is reasonable.    Sec. 7430(b) and (c).   Petitioner bears the

burden of proving that she satisfies each of these requirements.

Rule 232(e); Grant v. Commissioner, 103 F.3d 948, 952 (11th Cir.

1996), affg. per curiam T.C. Memo. 1995-374; Gantner v.
                               - 8 -

Commissioner, 92 T.C. 192, 197 (1989), affd. 905 F.2d 241 (8th

Cir. 1990).6   Respondent concedes that petitioner has exhausted

the administrative remedies available, has substantially

prevailed with respect to the amount in controversy,7 and did not

unreasonably protract the proceedings.

I.   Whether the Position of the United States Was Substantially
     Justified

     In order to obtain reasonable litigation costs in this case,

petitioner must establish that respondent’s position in the court

proceeding was not substantially justified.   We apply the “not

substantially justified” standard as of the date that the United

States takes its position in the case.   For purposes of a court

proceeding, the position of the United States is that which is

set forth in the answers to the petitions.    Grant v.

Commissioner, supra at 952; Maggie Mgmt. Co. v. Commissioner, 108

T.C. 430, 442 (1997).




     6
      In the Taxpayer Bill of Rights 2, Pub. L. 104-168, sec.
701(b), 110 Stat. 1452, 1463 (1996), sec. 7430(c)(4) was amended
to require the Government to establish that its position was
substantially justified. This amendment is effective for
proceedings commenced after July 30, 1996. The petitions in this
case were filed before July 30, 1996; thus, the burden remains on
petitioner. Maggie Mgmt. Co. v. Commissioner, 108 T.C. 430, 438-
441 (1997).
     7
      Although respondent concedes that petitioner has
substantially prevailed with respect to the amounts in
controversy, he disputes that petitioner has substantially
prevailed with respect to all her arguments and contentions.
                                   - 9 -

        Whether the position of the United States was “not

substantially justified” turns on an analysis of all the facts

and circumstances, as well as any relevant legal precedents.

Coastal Petroleum Refiners, Inc. v. Commissioner, 94 T.C. 685,

688 (1990); Sher v. Commissioner, 89 T.C. 79, 84 (1987), affd.

861 F.2d 131 (5th Cir. 1988).      A position is substantially

justified if it is justified to a degree that could satisfy a

reasonable person or it has a reasonable basis in both law and

fact.       Pierce v. Underwood, 487 U.S. 552, 565, 566 n.2 (1988);

Wilkes v. United States, __ F.3d __, __ (11th Cir., Apr. 22,

2002); Maggie Mgmt. Co. v. Commissioner, supra at 443; Livingston

v. Commissioner, T.C. Memo. 2000-387.      The fact that the United

States loses or concedes issues is not determinative as to

whether the taxpayer is entitled to an award of reasonable

litigation costs.       Sokol v. Commissioner, 92 T.C. 760, 767

(1989); Wasie v. Commissioner, 86 T.C. 962, 968-969 (1986).

        Petitioner generally argues that respondent’s position was

not substantially justified because no position against relief

from joint and several liability for petitioner was reasonable

under former section 6013(e)8 or section 6015, which replaced


        8
      Former sec. 6013(e) provided that a spouse could be
relieved of tax liability if the spouse proved: (1) A joint
return was filed; (2) the return contained a substantial
understatement of tax attributable to grossly erroneous items of
the other spouse; (3) in signing the return, the spouse seeking
relief did not know, and had no reason to know, of the
                                                   (continued...)
                              - 10 -

former section 6013.   Petitioner claims that the facts on which

this Court based its opinion were open and obvious and gave no

reason for respondent to refuse to grant relief.   Finally,

petitioner contends that caselaw under former section 6013(e) and

current section 6015 lead to the conclusion that relief from

joint and several liability was warranted in this case.

     In making her claim for litigation costs, petitioner does

not argue that respondent was not substantially justified in

determining the amounts of the deficiencies, additions to tax,

and penalties contained in the notices of deficiency.   Rather,

petitioner’s claim is based on respondent’s position with respect

to whether petitioner was entitled to relief from joint and

several liability for the deficiencies, additions to tax, and

penalties.9   Thus, the relevant inquiry is whether respondent’s

position regarding petitioner’s entitlement to such relief was

substantially justified.

     In their original petitions filed in 1993 and 1994,

petitioner and Mr. Rowe disputed all the determinations contained


     8
      (...continued)
substantial understatement; and (4) under the circumstances it
would be inequitable to hold the spouse seeking relief liable for
the substantial understatement.
     9
      We note that petitioner’s motion specifically addresses
only the issues argued on brief by the parties and addressed by
this Court in Rowe I. Petitioner’s motion does not specifically
allege that respondent was not substantially justified with
respect to the items for which he granted petitioner relief under
sec. 6015.
                                - 11 -

in the notices of deficiency.    The issue of petitioner’s

entitlement to relief from joint and several liability was not

raised in the petitions.    In his answers, respondent denied the

allegations contained in the petitions.    The issue of

petitioner’s entitlement to relief under section 6015 was not

formally before the Court until February 2, 1999, when the

amended petitions were filed.    Rule 34(b); Barbour v.

Commissioner, T.C. Memo. 2000-256.

     We have previously adopted an issue-by-issue approach to the

awarding of costs under section 7430, apportioning the requested

award among the issues according to whether the position of the

United States was substantially justified.    Swanson v.

Commissioner, 106 T.C. 76, 102 (1996); O’Bryon v. Commissioner,

T.C. Memo. 2000-379; see also Powers v. Commissioner, 51 F.3d 34,

35 (5th Cir. 1995).    We follow that approach here and separately

discuss whether respondent’s position was substantially justified

with respect to:    (1) The issues respondent conceded before

trial; (2) the issues respondent conceded after trial; and (3)

respondent’s denial of relief under section 6015(b), (c), and (f)

for the remaining deficiencies, additions to tax, and penalties

which were the subject of our Memorandum Opinion in Rowe I.

     A.   Respondent’s Concessions in Answers to Amended
          Petitions

     Respondent’s answers to the amended petitions were filed on

March 31, 1999.    In his answers, respondent conceded that
                              - 12 -

petitioner was entitled to substantial relief under section

6015(c) for various income items.    These concessions were

subsequently agreed to in the stipulation of facts and the first

supplemental stipulation of facts.     Respondent’s concessions as

to these income items within 2 months of the filing of the

amended petitions were reasonable in light of the fact that

current section 6015 was a new statute raising interpretive

issues.   See, e.g., White v. United States, 740 F.2d 836, 842

(11th Cir. 1984) (Government’s concession of issue 3 months after

issue raised was reasonable); Sokol v. Commissioner, supra at 765

n.10 (citing cases discussing reasonable amount of time within

which to investigate claims and concede issues); Livingston v.

Commissioner, supra (Commissioner entitled to take reasonable

amount of time after claim for relief from joint and several

liability to verify whether facts established that taxpayer was

entitled to such relief).

     B.    Respondent’s Concessions in Stipulation of Settled
           Issues

     On May 7, 2001, the parties filed a stipulation of settled

issues in which both respondent and petitioner conceded certain

issues related to petitioner’s entitlement to relief from joint

and several liability.   Petitioner has not alleged specific facts

to establish why the delay in granting relief from the time the

petitions were filed until the date the stipulation of settled

issues was filed was not substantially justified.    Indeed, the
                                - 13 -

parties’ arguments on brief did not address these settled issues,

which leads us to the conclusion that those issues were settled

well before the actual filing of the stipulation.     Accordingly,

petitioner has failed to establish that respondent’s position

with respect to these conceded issues was not substantially

justified.    See, e.g., Lozon v. Commissioner, T.C. Memo. 1997-

537.

       C.    Respondent’s Denial of Relief Under Section 6015

       Petitioner made valid elections for relief from joint and

several liability under section 6015(b), (c), and (f).     Before

and after trial, respondent conceded that petitioner was entitled

to partial relief under section 6015.     We have already held that

respondent’s position with respect to these concessions was

substantially justified.     Respondent denied petitioner relief

under section 6015(b), (c), and (f) with respect to the remaining

deficiencies, additions to tax, and penalties.     In Rowe I, we

relied on section 6015(c) and (f) and held that petitioner was

entitled to relief from joint and several liability for the

remaining portions of the disputed deficiencies, additions to

tax, and penalties.     Petitioner argues that respondent was not

substantially justified in denying her relief under section

6015(b), (c), and (f) with respect to the issues we decided in

her favor.
                               - 14 -

            1.   Section 6015(b)

     Section 6015(b) provides relief from joint and several

liability where:    (1) A joint return has been made for a taxable

year; (2) on such return there is an understatement of tax

attributable to erroneous items of one individual filing the

joint return; (3) the other individual filing the joint return

establishes that in signing the return he or she did not know,

and had no reason to know, that there was such an understatement;

(4) taking into account all the facts and circumstances, it is

inequitable to hold the other individual liable for the

deficiency in tax for the taxable year attributable to the

understatement; and (5) the other individual makes a valid

election.    Section 6015(b)(1) is similar to former section

6013(e)(1), and we may look at cases interpreting that section

for guidance when analyzing section 6015(b)(1).    Butler v.

Commissioner, 114 T.C. 276, 283 (2000); Braden v. Commissioner,

T.C. Memo. 2001-69.

     In Rowe I, we held that petitioner was not entitled to

relief under section 6015(b) for the portions of the capital

gains, mortgage interest, and charitable contributions allocable

to her because these were not items “of” Mr. Rowe as required by

section 6015(b)(1)(B).    We found it unnecessary to decide whether

petitioner was entitled to relief under section 6015(b) for the

IRA distributions, the farming activity losses, and the portions
                                - 15 -

of the capital gains, mortgage interest, and charitable

contributions allocable to Mr. Rowe.     Thus, petitioner did not

prevail on the issue of whether she was entitled to relief under

section 6015(b) for these items, and we find that respondent’s

position was substantially justified.10

           2.     Section 6015(c)

     Section 6015(c) provides relief from joint liability for

spouses either no longer married, legally separated, or living

apart.    Generally, this avenue of relief allows a spouse to elect

to be treated, for purposes of determining tax liability, as if

separate returns had been filed.      The electing spouse must first

establish the portion of any deficiency allocable to her.     Sec.

6015(c)(2).     The electing spouse cannot qualify for relief under

section 6015(c) for the portion which is allocable to her.     The

electing spouse may be entitled to relief under section 6015(c)

for the portion which is not allocable to her unless the

Commissioner can demonstrate that she had “actual knowledge”, at

the time she signed the return, of the item giving rise to the

deficiency.     Sec. 6015(c)(3)(C).




     10
      In her motion, petitioner also claims that she would have
been entitled to relief for all items under former sec. 6013(e).
However, former sec. 6013(e) also predicated relief on a finding
that the understatement was attributable to an erroneous item
“of” the nonelecting spouse. Former sec. 6013(e)(1)(B); Bokum v.
Commissioner, 94 T.C. 126, 140 (1990), affd. 992 F.2d 1132 (11th
Cir. 1993).
                             - 16 -

     In Rowe I, we granted petitioner relief under section

6015(c) for the IRA distributions, farming activity losses, and

the half of the capital gains, mortgage interest, and charitable

contributions allocable to Mr. Rowe.    As previously mentioned,

relief is not available under section 6015(c) for the portion of

the deficiency allocable to the electing spouse; thus, petitioner

was not entitled to relief under section 6015(c) for the halves

of the capital gains, mortgage interest, and charitable

contributions that were allocable to her.

               a.   IRA Distributions

     In 1990, distributions were made from an IRA in petitioner’s

name and the taxable amount of the distributions was not reported

on petitioner and Mr. Rowe’s 1990 return.    Petitioner testified

that she usually picked up the mail and that she opened the

letters that were addressed to her.    Relying in large part on

petitioner’s credible testimony that she was unaware of the IRA

or any distributions therefrom, we found that this item was

allocable to Mr. Rowe and that petitioner did not have an actual

and clear awareness of the omitted income.

     Respondent’s position was that petitioner was not entitled

to relief under section 6015(c) for the IRA distributions because

this item was allocable solely to her and she had actual

knowledge of the IRA and the distributions.    Respondent based his

position on the facts that the account was opened in her name,
                                - 17 -

periodic financial statements in her name were sent to her

address, and petitioner herself testified that she usually picked

up the mail and opened the letters addressed to her.

       Section 6015(d)(3)(A) provides that, generally, an item

giving rise to a deficiency on a joint return is allocated

between the electing spouse and the former spouse in the same

manner as it would have been allocated if they had filed separate

returns for the taxable year.    Additionally, the legislative

history of section 6015(c) indicates that this type of income

item is expected generally to be allocated on the basis of the

source of the income and the ownership of the item giving rise to

the income.    S. Rept. 105-174, at 56 (1998), 1998-3 C.B. 537,

592.    Petitioner bore the burden of establishing the allocation

of this item under section 6015(c), and, largely on the basis of

her testimony at trial, we found that petitioner established that

the item was allocable to Mr. Rowe.      However, on the basis of the

facts known to respondent and the relevant legal precedent, we

believe that respondent had a reasonable basis in both law and

fact for arguing that this item was allocable to petitioner and

she was not entitled to relief under section 6015(c).

                 b.   Capital Gains

       In 1987 and 1988, properties that were jointly titled in

petitioner’s and Mr. Rowe’s names were sold.     The checks

representing the proceeds of the sales were issued payable to
                                - 18 -

petitioner and Mr. Rowe.   Petitioner admitted signing the

settlement statement for one of the properties and endorsing one

of the checks.   Petitioner’s name was signed on the settlement

statement for the other property and on the other check; however,

petitioner disputed at trial that she had made these signatures.

The capital gains from the sales of the properties were not

reported on petitioner and Mr. Rowe’s 1987 and 1988 returns.

     We agreed with respondent that the capital gains were

allocable evenly between petitioner and Mr. Rowe.    However, we

rejected respondent’s argument that petitioner had actual

knowledge of the omitted income.    We did so largely on the basis

of our finding that Mr. Rowe refused to allow petitioner to

review most of their tax return information and that,

consequently, she did not know of the sale of one of the

properties, the amounts of the gain on the sales, or that any

gains were made on the sales.    We held that petitioner was

entitled to relief under section 6015(c) for the half of the

capital gains allocable to Mr. Rowe.

     Respondent’s position that petitioner had actual knowledge

of the capital gains from the sales was based on the facts that

she was a joint owner of the properties and her signature was on

the settlement statements and the checks representing the

proceeds of the sales.   On the basis of these facts and the

relevant legal precedent, we find that respondent had a
                               - 19 -

reasonable basis for arguing that petitioner had actual knowledge

of the capital gains and, therefore, was not entitled to relief

under section 6015(c) for the portion allocable to Mr. Rowe.

                c.    Mortgage Interest

     In 1987, 1988, and 1990, petitioner and Mr. Rowe overstated

their mortgage interest deductions.     The mortgages related to

properties which were in the joint names of petitioner and Mr.

Rowe.   At trial, petitioner testified that she was aware that the

residences were jointly titled and that loans were acquired on

these properties.    Petitioner acknowledged signing the loan and

deed documents for the properties.      Additionally, the evidence in

the record demonstrated that petitioner wrote the checks for the

mortgage payments in 1987 and 1988.

     We agreed with respondent that the mortgage interest

deduction items were allocable equally to petitioner and Mr.

Rowe.   However, we rejected respondent’s argument that petitioner

had actual knowledge of the overstated deductions.     Our findings

were based in large part on the trial testimony of both

petitioner and Mr. Rowe that petitioner was given only the first

two pages of the tax return when signing the return, and she was

not afforded the opportunity to see or review any attachments,

schedules, or other documents pertaining to the return.     We held

that petitioner was entitled to relief under section 6015(c) for

the half of the items allocable to Mr. Rowe.
                              - 20 -

     Respondent’s position that petitioner had actual knowledge

of the overstated interest was based on the facts that the

mortgages related to properties for which petitioner was aware

she was listed as a joint owner, petitioner knew that loans were

acquired on these properties because she acknowledged signing the

loan and deed documents for the properties, and petitioner wrote

the checks for the mortgage payments in 1987 and 1988.    On the

basis of these facts and the relevant legal precedent, we find

that respondent had a reasonable basis for arguing that

petitioner had actual knowledge of the overstated interest and,

therefore, was not entitled to relief under section 6015(c) for

the portion allocable to Mr. Rowe.

                d.   Farming Activity Losses

     For the years 1987 through 1990, petitioner and Mr. Rowe

reported substantial losses related to a farming activity.

Respondent disallowed these losses on the ground that the

activity was not engaged in for profit within the meaning of

section 183.   Respondent’s position with respect to petitioner’s

claim for relief under section 6015(c) was that the activity was

allocable evenly between petitioner and Mr. Rowe, and relief was

not available because petitioner had actual knowledge of the

activity.   Respondent’s position was based on the facts that

petitioner and Mr. Rowe were listed on the tax returns for 1987,

1988, and 1989 as the proprietors of the farming activity,
                               - 21 -

petitioner attended some horse shows, and petitioner testified

that the horse activity was a fun thing for Mr. Rowe to do with

his son on the weekends.

     We found that the farming activity was allocable to Mr. Rowe

because petitioner had little or no involvement in the activity,

and she did not know that her name was listed on the tax returns

as a proprietor of the activity.    With respect to whether

petitioner had actual knowledge of this item, we relied on our

recent decision in King v. Commissioner, 116 T.C. 198 (2001), for

the proposition that respondent was required to show that

petitioner knew or believed that Mr. Rowe was not engaged in the

farming activity for profit.    Because respondent failed to

establish that petitioner knew or believed that Mr. Rowe was not

engaged in the farming activity for profit, we held that

petitioner was entitled to relief for the farming activity

losses.

     As we noted in our previous opinion, the legislative history

of section 6015(c) indicates that the allocation of business

deductions is expected to follow the ownership of the business,

and personal deduction items are expected to be allocated equally

between spouses, unless the evidence shows that a different

allocation is appropriate.    S. Rept. 105-174, at 56-57 (1998),

1998-3 C.B. 537, 592-593.    In the instant case, petitioner was

listed on the joint tax returns as a proprietor of the farming
                              - 22 -

activity for 3 out of the 4 years in issue.    Again, petitioner

bore the burden of proving the appropriate allocation, and our

finding that this item was allocable to Mr. Rowe was based in

large part on petitioner’s testimony that she did not know that

she was listed as a proprietor of the activity.    On the basis of

the facts known to him and the relevant law, we believe that

respondent was substantially justified in his position that half

of this item was allocable to petitioner.

     In King v. Commissioner, supra, we decided for the first

time that the Commissioner must show that the electing spouse had

“actual knowledge of the factual circumstances which made the

item unallowable as a deduction” in order for the electing spouse

to be denied relief under section 6015(c) for an item (or portion

thereof) which is not allocable to her.     Id. at 204.   In that

case, we applied this standard where the Commissioner disallowed

deductions on the basis of the determination that a horse

activity was not engaged in for profit within the meaning of

section 183.   We required that the Commissioner show that the

electing spouse knew or believed that the other spouse was not

engaged in the horse activity for profit.     Id. at 205.   King was

filed on April 10, 2001, after the trial was held in this case.

     Although we disagreed with respondent’s argument that

petitioner had actual knowledge under section 6015(c), we believe

that respondent had a reasonable basis in both law and fact for
                                 - 23 -

making this argument.      King, which set forth for the first time

the actual knowledge standard under section 6015(c) for

deductions, as well as for situations involving section 183, was

decided after the trial was held and during the briefing process

of this case.    The contemporaneous decision in that case, coupled

with petitioner’s representation that she thought the horse

activity was a fun thing for Mr. Rowe to do with his son on the

weekends, lead us to conclude that respondent’s position on this

issue was substantially justified.

                 e.     Charitable Contributions

     Petitioner and Mr. Rowe claimed charitable contribution

deductions on their 1987, 1988, and 1989 returns for payments to

the church they attended.     Respondent allowed the deduction for

1987 but disallowed the deductions for 1988 and 1989 on the

ground that it was not shown that the contributions were made.

Petitioner wrote the checks for the charitable contributions for

1987.

     We agreed with respondent that these items were allocable

equally to petitioner and Mr. Rowe because personal deduction

items are generally to be allocated equally between spouses, and

petitioner had failed to establish that a different allocation

was appropriate.      However, we rejected respondent’s argument that

petitioner had actual knowledge that the charitable contributions

were not made.    We found that Mr. Rowe was in charge of the
                               - 24 -

financial and business affairs, and we accepted petitioner’s

testimony that the amount tithed to the church was Mr. Rowe’s

decision.    We held that petitioner was entitled to relief under

section 6015(c) for the half of the charitable contributions

allocable to Mr. Rowe.

     Respondent’s position that petitioner had actual knowledge

that charitable contributions for 1988 and 1989 were not made was

based on the fact that petitioner wrote the checks for the 1987

contributions, but no checks were presented to establish payments

to the church in 1988 and 1989.    Additionally, petitioner

testified that she regularly attended the church and was very

involved in church activities.     Petitioner further testified that

she was “told when to write checks to the church”, and she wrote

checks only when directed by Mr. Rowe.    Under these

circumstances, we believe that respondent had a reasonable basis

to argue that petitioner had actual knowledge that the charitable

contributions were not made in 1988 and 1989.

            3.   Section 6015(f)

     Section 6015(f) permits the Secretary to relieve a spouse of

liability if, taking into account all the facts and

circumstances, it is inequitable to hold the spouse liable for

any unpaid tax or deficiency (or any portion of either) and

relief is not otherwise available under section 6015(b) or (c).

Sec. 6015(f); Cheshire v. Commissioner, 115 T.C. 183, 197 (2000),
                               - 25 -

affd. 282 F.3d 326 (5th Cir. 2002).     Respondent’s denial of

equitable relief is reviewed under an abuse of discretion

standard.   Cheshire v. Commissioner, supra at 198; Butler v.

Commissioner, 114 T.C. at 292.

     In Rowe I, we held that respondent abused his discretion in

denying petitioner relief under section 6015(f) for the portions

of the capital gains, mortgage interest, and charitable

contributions that were allocable to her.     Additionally, we held

that respondent abused his discretion in denying equitable relief

for the remaining disputed additions to tax and penalties.

                a.   Items Allocable to Petitioner

     In deciding whether petitioner was entitled to relief under

section 6015(f) for the portions of the capital gains, mortgage

interest, and charitable contributions allocable to her, we

reviewed the factors listed in Rev. Proc. 2000-15, 2000-5 I.R.B.

447, the Internal Revenue Service’s published guidelines on when

equitable relief should be granted.     We discussed various

factors, including petitioner’s knowledge of the items giving

rise to the deficiencies and of respondent’s examination, the

circumstances surrounding her role in the tax reporting process,

her past and current financial situation, and the extent to which

she benefited from the items giving rise to the deficiencies.    We

found that compelling reasons existed for respondent to grant

petitioner equitable relief.   Consequently, we held that
                              - 26 -

respondent abused his discretion in denying petitioner’s claim

for relief under section 6015(f) for the portions of the capital

gains, mortgage interest, and charitable contributions items

allocable to petitioner.

     Petitioner emphasizes the fact that we found that respondent

abused his discretion in denying equitable relief.   Petitioner

claims that the facts upon which we based this finding were open

and obvious and gave no reason for respondent to refuse to grant

equitable relief.

     A finding that the Commissioner abused his discretion does

not necessarily mean that his litigating position was not

substantially justified.   Mid-Del Therapeutic Ctr., Inc. v.

Commissioner, T.C. Memo. 2000-383, affd. 30 Fed. Appx. 889 (10th

Cir. 2002); Mauerman v. Commissioner, T.C. Memo. 1995-237.

Rather, the determination of whether the Commissioner’s position

was not substantially justified where he is found to have abused

his discretion is based on the facts and circumstances of the

particular case, including the evidence in the record.     Mid-Del

Therapeutic Ctr., Inc. v. Commissioner, supra; Mauerman v.

Commissioner, supra.

     Respondent claims that this is a case of first impression

regarding this Court’s review of the factors listed in Rev. Proc.

2000-15, supra, and his application of these factors was

reasonable in light of the lack of contrary precedent. Respondent
                               - 27 -

contends that section 6015 and its legislative history contain no

guidance or references indicating that a spouse may obtain relief

for her own erroneous items.   Additionally, respondent maintains

that cases decided under former section 6013(e) and section 6015

have not allowed relief for a spouse’s own items.

     The Commissioner generally is not subject to an award of

litigation costs under section 7430 where the underlying issue is

one of first impression.   TKB Intl., Inc. v. United States, 995

F.2d 1460, 1468 (9th Cir. 1993); Estate of Wall v. Commissioner,

102 T.C. 391, 394 (1994); Mid-Del Therapeutic Ctr., Inc. v.

Commissioner, supra; see also Wilkes v. United States, __ F.3d at

__ (citing Nalle v. Commissioner, 55 F.3d 189, 193 (5th Cir.

1995), affg. T.C. Memo. 1994-182, for the proposition that there

is no per se rule that an award of costs under section 7430 can

never be appropriate in the context of an issue of first

impression).   In Rowe I, we analyzed various factors listed in

Rev. Proc. 2000-15, supra, in deciding whether respondent abused

his discretion in denying equitable relief.   At that time, there

was little guidance on the application of the factors listed in

the Commissioner’s Revenue Procedure and on determining whether

the Commissioner abused his discretion in denying relief under

section 6015(f).   Additionally, section 6015(f) and the

legislative history do not specifically discuss whether an

electing spouse is entitled to equitable relief if partial relief
                                - 28 -

has been granted under section 6015(b) and (c), and we are

unaware of caselaw discussing this issue.     Indeed, our holding in

Rowe I represents the first instance where an electing spouse has

been granted relief under section 6015(b) or (c) for a portion of

a deficiency attributable to an item, and then granted equitable

relief under section 6015(f) for the remaining portion of the

deficiency attributable to the same item.

     This was a complex case involving detailed findings of fact

and the application of relatively new legal principles to these

facts.     Respondent’s position was not contrary to existing

caselaw and the language in the statute providing relief if

“taking into account all the facts and circumstances, it is

inequitable to hold the individual liable” requires a decision by

the Commissioner on the basis of the particular facts of each

case.     Accordingly, we find that respondent’s litigating position

with respect to section 6015(f), although ultimately incorrect,

was substantially justified.

                  b.   Additions to Tax and Penalties

        Respondent initially denied petitioner equitable relief for

the additions to tax and penalties determined in the notices of

deficiencies.     On brief, the parties conceded some of the

determinations.     We note that petitioner has not presented

specific arguments as to why respondent was not substantially

justified in denying, or delaying in the granting of, relief for
                              - 29 -

the additions to tax and penalties.    Petitioner does reference

our finding that respondent’s denial of equitable relief with

respect to the penalties was an abuse of discretion.    In any

event, we believe that respondent’s position with respect to the

additions to tax and penalties had a reasonable basis in both law

and fact.

     The first case applying section 6015(f) to additions to tax

and penalties was Cheshire v. Commissioner, 115 T.C. 183 (2000).

In that case, we provided the following guidance in determining

whether the Commissioner has abused his discretion in denying

equitable relief in situations involving additions to tax or

penalties:

     In our opinion, it is an abuse of discretion to deny
     relief under section 6015(f) in an addition to tax or
     penalty situation when on an individual basis the
     putative innocent spouse meets the statutory standard
     generally applied to all taxpayers that shows the
     addition to tax or penalty is inapplicable. [Id. at
     199.]

The Cheshire case was not filed until August 30, 2000, less than

8 months before the trial was held in this case.    The Court of

Appeals for the Fifth Circuit recently affirmed our decision, on

February 8, 2002.   Cheshire v. Commissioner, 282 F.3d 326 (5th

Cir. 2002).

     We have already found that respondent’s position with

respect to the issue of petitioner’s entitlement to relief under

section 6015 for the deficiency determinations contained in the
                              - 30 -

notices of deficiency was substantially justified.   We also

believe that the factual circumstances of this case, the newness

of the statute, and the relevant legal precedents all support a

finding that respondent had a reasonable basis for his position

and was substantially justified in not granting petitioner

equitable relief for the additions to tax and penalties.

II.   Conclusion

      The underlying case, Rowe I, involved the application of

section 6015, a new statute with complex and novel interpretive

issues.   See Livingston v. Commissioner, T.C. Memo. 2000-387.

During the period the parties were engaged in this litigation,

relatively few cases had been decided under section 6015, and the

caselaw in this area is still developing.   In deciding the

underlying case, we were forced to examine the legislative

history of the new statute and the limited caselaw in the area.

In some instances, we were faced with issues which this Court had

not squarely addressed.   We also note that our holdings that

petitioner was entitled to relief from joint and several

liability for the remaining omitted income and erroneous

deduction items, penalties, and additions to tax were based in

large part on the testimony of petitioner, which we found to be

credible.   The determination of credibility was vital to

petitioner’s being granted relief under section 6015, and
                             - 31 -

petitioner’s testimony was necessary to resolve the matter in her

favor.

     In conclusion, although we disagreed with respondent’s

position in Rowe I, we hold that his litigation position that

petitioner was not entitled to relief from joint and several

liability was substantially justified because the position was

reasonable given the facts and circumstances of petitioner’s case

and the relevant legal precedents.    Accordingly, we hold that

petitioner is not entitled to recover litigation costs.    As a

result of our disposition, it is unnecessary to decide whether

petitioner meets the net worth requirement and has shown that the

amount of costs sought is reasonable.


                                          An appropriate order will

                                     be issued denying petitioner’s

                                     motion for litigation costs.
