                  T.C. Summary Opinion 2003-60



                      UNITED STATES TAX COURT



               RICHARD SCOTT GEHRS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11349-02S.          Filed May 27, 2003.


     Richard Scott Gehrs, pro se.

     Andrew R. Moore, for respondent.



     PANUTHOS, Chief Special Trial Judge:   This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect at the time the petition was filed.    The

decision to be entered is not reviewable by any other court, and

this opinion should not be cited as authority.   All references to

section 7430 are to that section as in effect at the time the

petition was filed.   Unless otherwise indicated, all other

section references are to the Internal Revenue Code in effect for
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the year in issue, and all Rule references are to the Tax Court

Rules of Practice and Procedure.

     This case is before the Court on petitioner’s motion for

award of litigation costs pursuant to section 7430.   After

concessions,1 the issue for decision is whether petitioner is a

“prevailing party” that may be awarded a judgment for reasonable

litigation costs incurred in connection with this court

proceeding.   As explained in further detail below, we hold that

respondent’s position was substantially justified, and,

therefore, we shall deny petitioner’s motion for award of

litigation costs.

Background

     Petitioner did not file a Federal income tax return for the

1997 taxable year.

     Respondent received third-party payor information indicating

that petitioner received $18,075 of income during the 1997

taxable year in the following amounts: (1) $17,685 from sales of

stocks and bonds; (2) $377 of dividends; and (3) $13 of interest.




     1
        Respondent concedes: (1) Petitioner has substantially
prevailed with respect to the amount in controversy or has
substantially prevailed with respect to the most significant
issue or set of issues presented; (2) petitioner meets the net
worth requirements of 28 U.S.C. sec. 2412(d)(2)(B) (2000); (3)
petitioner has exhausted the administrative remedies available
within the Internal Revenue Service; and (4) the costs claimed by
petitioner are reasonable.
                               - 3 -

Respondent sent petitioner notices requesting that petitioner

file a Federal income tax return for the 1997 taxable year.

     In letters dated December 6, 1999, and September 8, 2000,

petitioner informed respondent that, pursuant to section

6012(a)(1)(A)(i) and the instructions for Form 1040, U.S.

Individual Income Tax Return, he was not required to file a tax

return for 1997 because his gross income was less than $6,800.

Specifically, petitioner claimed that his gross income for 1997

was $6,113.78.

     Respondent sent petitioner a letter dated October 5, 2000,

which stated in part:

     Your investment companies only report your sales amount
     to the IRS, we do not know what your original purchase
     amount was. I am sure your [filing of a] Form 1040 and
     Schedule D would clear your account. Thank you for
     your cooperation.

Respondent then sent petitioner a so-called 30-day letter dated

July 10, 2001, proposing an individual income tax assessment for

the 1997 taxable year.

     In a letter dated July 26, 2001, petitioner reiterated his

position that, pursuant to section 6012(a)(1)(A)(i) and the

instructions for Form 1040, he was not required to file a tax

return for 1997.   Petitioner did not include any information from

which to verify his base in the stocks and bonds sold in 1997.

     Respondent determined a deficiency in petitioner’s Federal

income tax of $1,691, an addition to tax under section 6651(a)(1)
                              - 4 -

of $380.47, and an addition to tax under section 6651(a)(2) of

$338.20 for the 1997 taxable year.

     Petitioner filed a petition on July 8, 2002.   At the time of

filing the petition, petitioner resided in Menlo Park,

California.

     Respondent’s Fresno Appeals Office issued petitioner a

letter dated November 5, 2002, explaining:

          The reason that * * * [respondent] was looking for
     a tax return was due to the brokerage reporting gross
     sales that does not include basis. It was assumed that
     without any verification that there was any basis in
     the stock, the total sales price was considered the
     gain. Based on that information, * * * [respondent] is
     required to request a tax return and if no tax return
     is provided or information showing a tax return was not
     required, then * * *[respondent] would have no other
     choice than to consider that the sales price of the
     stock was the gain. The instructions state for tax
     year 1997 state [sic] you are not required to file a
     return but you are required under Internal Revenue Code
     Section 6001 to keep your records to show to * * *
     [respondent] that you are not required to file a
     return. The instructions do not state that since you
     do not need to file a return, that you do not need to
     keep records. Usually you should keep your records for
     3 years after the due date of the tax return. So in
     the case of your 1997 tax return, you should have kept
     your records regarding that return until 4/15/01. The
     first contact by * * * [respondent] was a letter dated
     8/2/99. Providing your records to the IRS, which would
     have shown that you were not required to file a return,
     would have resolved this case long ago.

However, in the interest of settling the case, Appeals Officer

James E. VanGaasbeck offered to accept, without further

substantiation, petitioner’s statements in his letter of December

6, 1999, that his gross income for 1997 was $6,113.78.    The
                               - 5 -

Appeals Officer prepared and sent petitioner a proposed

stipulation decision document indicating no deficiency and no

additions to tax for the 1997 taxable year.

     Petitioner refused to execute this decision document,

despite repeated requests by the Appeals Officer and respondent’s

counsel to do so.   Respondent’s counsel cited section 1.6001-

1(d), Income Tax Regs., to petitioner.   However, petitioner’s

refusal to execute the decision document stemmed from his desire

that the record reflect that petitioner was not required to file

a Federal income tax return for the 1997 taxable year.

     This case was set for trial at a San Francisco, California,

trial session scheduled to commence January 6, 2003.   After a

hearing, the Court entered on January 21, 2003, an Order and

Decision in which we concluded that there was no deficiency and

no additions to tax for the 1997 taxable year.   The Court also

stated in its Order and Decision:   “Accordingly, the Court

concludes that at the due date for filing the 1997 Federal income

tax return, April 15, 1998, petitioner was not required to file a

federal income tax return for the tax year 1997.”

     On February 13, 2003, petitioner filed a motion for award of

litigation costs.   Petitioner seeks an award of $92.77.   Because

of petitioner’s motion, the Court vacated and set aside on

February 13, 2003, the Order and Decision entered on January 21,

2003.
                                  - 6 -

     On April 15, 2003, respondent filed an objection to

petitioner’s motion for award of litigation costs.      Respondent

contends that petitioner is not the prevailing party within the

meaning of section 7430(c)(4)(B)(i) because respondent’s position

was substantially justified.      In addition, respondent contends

that petitioner unreasonably protracted the proceedings.

     Petitioner requests a hearing on the motion if respondent

contests the motion.    We, however, conclude that a hearing is not

necessary.    Rule 232(a)(2).   Accordingly, we decide petitioner’s

motion on the basis of the motion with affidavits and

respondent’s objection with exhibits.

Discussion

     Subject to certain limitations, the prevailing party in any

court proceeding may be awarded a judgment for reasonable

litigation costs incurred in connection with such court

proceeding.    Sec. 7430(a)(2).    The prevailing party must exhaust

the administrative remedies available to it within the Internal

Revenue Service, and the prevailing party must not have

unreasonably protracted any portion of the administrative or

court proceeding.    See sec. 7430(b)(1), (3).

     The term “prevailing party” means “any party * * * which (I)

has substantially prevailed with respect to the amount in

controversy, or (II) has substantially prevailed with respect to

the most significant issue or set of issues presented”.      Sec.
                                 - 7 -

7430(c)(4)(A)(i).    And in the case of an individual taxpayer, the

term also means any party which had a net worth that did not

exceed $2,000,000 at the time the civil tax case proceeding was

commenced.    Sec. 7430(c)(4)(A)(ii) (referring to 28 U.S.C. sec.

2412(d)(1)(B) and (2)(B)).    However, a party shall not be treated

as the prevailing party if the Commissioner establishes that his

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

     Respondent contends that petitioner is not the prevailing

party within the meaning of section 7430(c)(4) because, while

respondent conceded the case, his position was substantially

justified.2    The Commissioner’s position is substantially

justified if, based on all of the facts and circumstances and the

legal precedents relating to the case, the Commissioner acted

reasonably.     Pierce v. Underwood, 487 U.S. 552 (1988); Sher v.

Commissioner, 89 T.C. 79, 84 (1987), affd. 861 F.2d 131 (5th Cir.

1988).   In other words, to be substantially justified, the

Commissioner’s position must have a reasonable basis in both law

and fact.     Pierce v. Underwood, supra; Rickel v. Commissioner,

900 F.2d 655, 665 (3d Cir. 1990), affg. in part and revg. in part

on other grounds 92 T.C. 510 (1989).     A position is substantially

justified if the position is “justified to a degree that could



     2
        As discussed above, respondent also contends that
petitioner unreasonably protracted the proceedings. As a result
of our conclusion herein, we need not address respondent’s
additional contention.
                                 - 8 -

satisfy a reasonable person”.     Pierce v. Underwood, supra at 565

(construing similar language in the Equal Access to Justice Act,

28 U.S.C. sec. 2412 (1988)).    Thus, the Commissioner’s position

may be incorrect but nevertheless be substantially justified “‘if

a reasonable person could think it correct’”.     Maggie Mgmt. Co.

v. Commissioner, 108 T.C. 430, 443 (1997) (quoting Pierce v.

Underwood, supra at 566 n.2).

     The relevant inquiry is “whether * * * [the Commissioner]

knew or should have known that * * * [his] position was invalid

at the onset”.     Nalle v. Commissioner, 55 F.3d 189, 191 (5th Cir.

1995), affg. T.C. Memo. 1994-182.    We look to whether the

Commissioner’s position was reasonable, in light of and subject

to the available facts and circumstances at the time that the

Commissioner took his position.     Maggie Mgmt. Co. v.

Commissioner, supra at 443; DeVenney v. Commissioner, 85 T.C.

927, 930 (1985).

     The fact that the Commissioner eventually concedes, or even

loses, a case does not establish that his position was

unreasonable.    Estate of Perry v. Commissioner, 931 F.2d 1044,

1046 (5th Cir. 1991); Sokol v. Commissioner, 92 T.C. 760, 767

(1989).   However, the Commissioner’s concession remains a factor

to be considered.     Powers v. Commissioner, 100 T.C. 457, 471

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

issue 43 F.3d 172 (5th Cir. 1995).
                                - 9 -

     As relevant herein, the position of the United States that

must be examined against the substantial justification standard

with respect to the recovery of litigation costs is the position

taken by the Commissioner in the answer to the petition.   Sher v.

Commissioner, 861 F.2d 131, 134-135 (5th Cir. 1988); see sec.

7430(c)(7)(A).   In the present case, respondent did not file an

answer after the petition was filed July 8, 2002,3 but we note

that respondent’s position was the same until November 5, 2002,

the date of respondent’s Fresno Appeals Office letter to

petitioner.   More specifically, respondent’s position was that

petitioner was required to file a Federal income tax return for

the 1997 taxable year because third-party payor information

indicated petitioner received $17,685 from sales of stocks and

bonds during that year.

     Considering all the facts and circumstances, respondent did

not know and could not have known that his position was invalid

after the petition was filed.   Respondent did not know what the

original purchase prices were with respect to the stocks and

bonds sold in 1997.   He knew only that the petitioner realized

$17,685 from the sale of such stocks and bonds.   At no time did

petitioner provide respondent with any information from which to

verify his base in the stocks and bonds sold.



     3
        Rule 175(b) provides generally that no answer is required
where a petition is filed pursuant to sec. 7463.
                              - 10 -

     Petitioner nevertheless contends that section

6012(a)(1)(A)(i) and the instructions for Form 1040 insulate him

from having to file a tax return for 1997.4    Even if true,

petitioner’s contention does not account for section 6001, which

provides in part:

     Whenever in the judgment of the Secretary it is
     necessary, he may require any person, by notice served
     upon such person or by regulations, to make such
     returns, render such statements, or keep such records,
     as the Secretary deems sufficient to show whether or
     not such person is liable for tax under this title.

The term “make” as used in section 6001 encompasses the entire

process of completing and filing the required return.        Aldrich v.

Commissioner, T.C. Memo. 1993-290.     Respondent notified

petitioner of section 6001 on numerous occasions, including but

not limited to the letter dated November 5, 2002, from



     4
         Sec. 6012(a)(1)(A)(i) provides:

     SEC. 6012(a). General Rule.--Returns with respect to
     income taxes * * * shall be made by * * *

          (1)(A)Every individual having for the taxable year
     gross income which equals or exceeds the exemption
     amount, except that a return shall not be required of
     an individual--

                (i)who is not married (determined by
           applying section 7703), is not a surviving
           spouse (as defined in section 2(a)), is not a
           head of household (as defined in section
           2(b)), and for the taxable year has gross
           income of less than the sum of the exemption
           amount plus the basic standard deduction
           applicable to such an individual.
                              - 11 -

respondent’s Fresno Appeals Office.5   In short, section 6001

provides respondent with a reasonable basis in law to require

petitioner to file a tax return for 1997.

     We hold that petitioner is not entitled to an award for

litigation costs because respondent’s position was substantially

justified.   In so holding, we have carefully considered the

remaining arguments made by the parties, and, to the extent not

discussed above, we consider those arguments to be without merit.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     In order to reflect the foregoing,



                                          An appropriate order and

                                    decision will be entered.




     5
        Respondent’s letter dated Oct. 5, 2000, to petitioner did
not make clear reference to sec. 6001. However, the letter was
consistent with respondent’s other correspondence in informing
petitioner that respondent did not know what the original
purchase price was with respect to the stocks and bonds sold in
1997.
