                       T.C. Memo. 2000-341



                      UNITED STATES TAX COURT



                  INGO H. JENSEN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13005-98.            Filed November 6, 2000.




     Richard F. Battagline and Robert M. Stefancin, for

petitioner.

     John M. Tkacik, Jr., and Richard S. Bloom, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     POWELL, Special Trial Judge:   This case is before the Court

on petitioner’s motion for reasonable litigation costs pursuant
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to section 7430 and Rules 230, 231, and 232,1 filed April 14,

2000.

     Neither party requested a hearing, and the Court concludes

that a hearing is not necessary for the proper disposition of

this motion.   Although some facts appear in dispute, those facts

are essentially irrelevant to our resolution of this matter.

                         FINDINGS OF FACT

     At the time the petition was filed petitioner resided in

Macedonia, Ohio.

     Guild Mortgage Co. (Guild) issued petitioner a Form 1099-A,

Acquisition or Abandonment of Secured Property, and a Form 1099-

C, Cancellation of Debt, for petitioner’s 1996 taxable year.    The

Form 1099-C indicated cancellation of debt income of $36,865.

Petitioner did not include this amount in income on his 1996

Federal income tax return.

     Respondent mailed a CP2000 letter (commonly known as a 30-

day letter) to petitioner on January 13, 1998.   The letter

proposed to increase petitioner’s 1996 taxable income to reflect

income from the cancellation of the debt.   The proposed increase

resulted in an additional tax liability of $11,105 and the

imposition of an accuracy-related penalty under section 6662 of

$2,221.


     1
          Unless otherwise indicated, section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                - 3 -

     The letter stated that the proposed inclusion of

cancellation of debt income was the result of third-party

information, specifically referencing the Form 1099-C received

from Guild.   The letter set forth in detail the procedures for

petitioner to follow should he choose to contest the proposed

changes.    The letter also stated that petitioner’s response was

required by February 12, 1998, and that if petitioner failed to

respond by February 12, 1998, respondent would presume that the

proposed changes were correct and issue petitioner a notice of

deficiency.

     Petitioner retained the law firm of Brouse McDowell on March

27, 1998.   No response to the 30-day letter, however, was

submitted to respondent.   On April 22, 1998, respondent issued a

notice of deficiency to petitioner based on the changes proposed

in the 30–day letter.   On July 23, 1998, Jeffrey W. Leonard (Mr.

Leonard), an attorney with Brouse McDowell, filed a petition on

behalf of petitioner with this Court.    The petition alleged that

petitioner was insolvent at the time the debt was canceled and,

therefore, no income was recognized.    See sec. 108.

     Petitioner never requested an Appeals Office conference

before the filing of his petition with the Tax Court.   When Mr.

Leonard was offered a conference by Appeals Officer John Mazur

during a telephone conversation on September 17, 1998, the offer

was declined.   Instead, Mr. Leonard promised the Appeals officer
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that he would provide respondent documentation proving

petitioner’s insolvency at the time of the cancellation of the

debt.

     Despite the Appeals officer’s followup attempts to contact

Mr. Leonard by telephone on October 16, 1998, and by letter dated

October 28, 1998, Mr. Leonard failed to provide the promised

documentation relating to the alleged insolvency.   On January 20,

1999, Associate District Counsel Dennis Driscoll sent Mr. Leonard

a letter seeking to explore the possibility of settlement and

again requesting the information relating to petitioner’s

insolvency.

     On January 29, 1999, Robert M. Stefancin (Mr. Stefancin),

another attorney with Brouse McDowell, informed the Appeals

officer that Mr. Leonard was no longer with the firm.    Mr.

Stefancin requested additional time to enter an appearance so

that he could respond to the letter sent by Mr. Driscoll.      As of

February 23, 1999, Mr. Leonard remained the attorney of record,

and no other attorney had filed an entry of appearance.    The

Appeals officer never received the information or documentation

promised regarding the insolvency issue.   On February 23, 1999,

the case was transferred to the District Counsel’s Office.     A

letter was sent to Mr. Leonard informing him of this action.

     On February 24, 1999, John M. Tkacik (Mr. Tkacik), an

attorney with the Office of District Counsel, left a telephone
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message for Mr. Leonard.    On February 26, 1999, Mr. Leonard

returned Mr. Tkacik’s telephone call.    During the ensuing

conversation Mr. Leonard was informed that:    (1) Respondent was

not permitted to contact petitioner directly because of Mr.

Leonard’s entry of appearance, (2) the case was calendared for

the Tax Court trial session in Cleveland, Ohio, commencing on

April 26, 1999, and (3) a conference should be scheduled to

comply with the Branerton2 requirements.   Mr. Leonard stated that

he would discuss the matter with his client and with Mr.

Stefancin, and indicated that he might withdraw as attorney of

record.

     On March 1, 1999, Mr. Leonard called Mr. Tkacik to inform

him that the necessary documents for his withdrawal as attorney

of record as well as the necessary documents for substitution of

counsel would be prepared and filed.    To date, no withdrawal as

attorney of record by Mr. Leonard has been received by the Tax

Court.    Richard F. Battagline (Mr. Battagline), another attorney

at Brouse McDowell, entered an appearance in this case on March

8, 1999.

     During a telephone conference between Messrs. Tkacik and

Battagline on March 19, 1999, Mr. Battagline raised the issue



     2
          See Branerton Corp. v. Commissioner, 61 T.C. 691
(1974), requiring that parties make reasonable informal efforts
to obtain needed information voluntarily before resorting to
formal discovery.
                               - 6 -

whether an erroneous Form 1099-C had been issued because the debt

discharged was nonrecourse (the erroneous Form 1099-C issue).

Mr. Tkacik requested information to support this argument as well

as reiterated respondent’s request for documentation regarding

the insolvency issue.   Some documentation was forwarded to Mr.

Tkacik on March 31, 1999.   Mr. Tkacik found the documentation

failed to prove petitioner’s insolvency and did not address the

erroneous Form 1099-C issue.   Additional documentation was

received by Mr. Tkacik on April 13, 1999.   Mr. Tkacik found that

this additional documentation again failed to substantiate the

insolvency claim and failed to address the erroneous Form 1099-C

issue.

     Finally, in a conference call conducted on April 16, 1999,

Mr. Battagline set forth arguments of law and facts sufficient to

set the basis for determining that the Form 1099-C was erroneous.

On April 22, 1999, Mr. Battagline filed a motion for leave to

amend petition and motion for continuance of trial, which the

Court granted.

     Correspondence resumed between the parties beginning July

14, 1999.   Mr. Battagline provided Mr. Tkacik with legal

arguments establishing that the canceled debt was nonrecourse.

Mr. Tkacik reached the same conclusion and, on September 8, 1999,

informed Mr. Battagline.
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     The final issue involved petitioner’s treatment of the

canceled nonrecourse debt.   On September 8, 1999, Mr. Tkacik

informed Mr. Battagline that respondent was now treating the

matter as a taxable exchange under section 1001 and that

respondent therefore needed documentation regarding petitioner’s

basis in the property.   On November 29, 1999, Mr. Battagline

contacted Mr. Tkacik, stating that the required documentation

would be furnished.   Mr. Tkacik received the documentation on

January 6, 2000.   After an initial disagreement over the tax

treatment of the exchange and on the basis of additional

information received by respondent on February 18, 2000,

respondent conceded the case on February 24, 2000.   On April 14,

2000, the parties filed a stipulation of settlement.   On the same

date, petitioner’s motion for litigation costs of $15,778.29 was

filed.

                              OPINION

     Section 7430 provides that, in any court proceeding brought

by or against the United States, the “prevailing party” may be

awarded reasonable litigation costs if the “prevailing party”

establishes that he exhausted the administrative remedies

available within the Internal Revenue Service and did not

unreasonably protract the proceedings.   See sec. 7430(b)(1), (3).

For petitioner to qualify as a “prevailing party” for purposes of

section 7430, it must be established that:   (1) The position of
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the United States in the proceeding was not substantially

justified; (2) petitioner substantially prevailed with respect to

either the amount in controversy or with respect to the most

significant issue presented; and (3) petitioner met the net worth

requirements of 28 U.S.C. section 2412(d)(2)(B) (1994) at the

time the petition was filed.   Sec. 7430(c)(4).   Respondent has

the burden of proving that the position of the United States was

substantially justified, and petitioner bears the burden of proof

with respect to all other requirements.   See sec. 7430(c)(4)(B);

Rule 232(e); Maggie Management Co. v. Commissioner, 108 T.C. 430,

437 (1997).

     Respondent concedes that petitioner substantially prevailed

with respect to the amount in controversy, and that petitioner

met the net worth requirements.   Respondent maintains, however,

that respondent’s position was substantially justified, that

petitioner failed to exhaust his administrative remedies, and

that petitioner unreasonably protracted the proceedings.    The

requirements of section 7430 are conjunctive; therefore, failure

to meet any one of the requirements will preclude an award of

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

While we have great difficulty with petitioner’s argument that

respondent’s position was not substantially justified, we do not

believe that it is necessary to reach that question.    In our
                               - 9 -

view, petitioner did not exhaust his administrative remedies, and

we find no reason to delve into the other requirements.

     Petitioner never requested an Appeals conference with

respondent although such a conference was available.      Section

301.7430-1(b)(1), Proced. & Admin. Regs., provides that, where an

Appeals conference is available, administrative remedies are

exhausted only when the taxpayer (1) participates in an Appeals

conference before petitioning this Court, or (2) requested such a

conference (as applicable herein by filing a written protest with

respondent) and had his request denied.    See Lloyd v.

Commissioner, T.C. Memo. 2000-299; see also Swanagan v.

Commissioner, T.C. Memo. 2000-294.     Additionally, after filing

the petition, petitioner was contacted by the Appeals officer and

offered a post-petition Appeals conference.    Petitioner declined

the opportunity to participate in the offered Appeals conference.

     Petitioner asserts that he would have provided documentation

to respondent sufficient to satisfy the exhaustion of

administrative remedies requirement if only respondent had not

been hasty in issuing a notice of deficiency, and then, after the

petition had been filed, had respondent not quickly transferred

the case to the District Counsel’s Office.    We find this argument

meritless.   The fact is that petitioner and his attorney ignored

the 30-day letter.   That letter set forth a clear deadline for

responding to the proposed changes.    Petitioner failed to even
                                - 10 -

retain counsel until a month after this deadline had passed.

Then, after retaining counsel, petitioner continued to ignore the

30-day letter.    It was not until respondent mailed the notice of

deficiency, more than 2 months after the deadline set forth in

the 30-day letter and more than a month after petitioner had

retained counsel, that petitioner made any attempt to contact

respondent.

       Petitioner argues that pursuing the Appeals remedy would

have been futile.    See Phillips v. Commissioner, 88 T.C. 529

(1987), affd. in part and revd. in part on other grounds 851 F.2d

1492 (D.C. Cir. 1988).    In Phillips the taxpayer was unaware of

the issue until after his case was docketed in the Tax Court.

Furthermore, we found that the Commissioner’s insistence on

pursuing the matter through litigation and the refusal to

consider the effect of his own revenue rulings “demonstrate[d]

that any discussion of this issue that petitioner attempted was

futile.”    Id. at 533.   But there is no suggestion here that

respondent’s mind was closed and that development of the case

through the administrative Appeals process would have been

unproductive.    The fact is that petitioner never attempted to get

the matter settled before the case was calendared for trial.

       Petitioner also cites Cole v. Commissioner, T.C. Memo. 1996-

375.    In Cole we found that the taxpayer had satisfied the
                              - 11 -

exhaustion of administrative remedies requirement of section 7430

despite not having requested an Appeals conference.

The taxpayer responded in writing to the Commissioner’s 30-day

letter setting forth her arguments and providing substantiation.

She kept up a continuous dialog with the Commissioner in an

attempt to settle the matter and filed a petition with the Tax

Court only after the Commissioner failed to cooperate.    We found

that the taxpayer had exhausted her administrative remedies

because of her ongoing dialog with the Commissioner, the

Commissioner’s failure to respond to several of her letters, the

Commissioner’s filing of a notice of deficiency in the middle of

the negotiations process, and her lack of reason to believe that

the negotiations had reached an impasse.    See id.

     The facts in Cole are distinguishable from those in this

case.   Petitioner ignored the 30-day letter, delayed providing

requested documentation, and rejected respondent’s offer of a

post-petition Appeals conference.    Meanwhile, respondent stood

by, ready, willing, and able to proceed with settlement

discussions.   If petitioner had acted promptly, this matter could

have been resolved shortly after petitioner received the 30-day

letter.   This is not conduct that we condone.   See Uddo v.

Commissioner, T.C. Memo. 1998-276.
                        - 12 -

Accordingly, petitioner’s motion will be denied.

                              An appropriate order and

                         decision will be entered.
