                         T.C. Memo. 2015-92



                   UNITED STATES TAX COURT



             BONNIE J. ANGLE, Petitioner v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket Nos. 29418-11, 435-12L.             Filed May 11, 2015.



William E. Taggart, Jr., for petitioner.

Audra M. Dineen, for respondent.
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[*2]                          MEMORANDUM OPINION


       LARO, Judge: Currently before the Court is petitioner’s motion for

reasonable litigation costs pursuant to section 74301 and Rule 231. Petitioner

resided in California at the time she filed her petition.

                                     Background

       On April 15, 1996, petitioner and her now deceased husband, Cloyd Angle,

filed a joint Federal income tax return for 1995. Petitioner’s 1995 tax liability has

given rise to no fewer than four cases, three of which we describe in turn.2

I.     Deficiency Case

       On September 26, 2001, respondent issued to petitioner and Mr. Angle a

notice of deficiency for 1995. On December 6, 2001, petitioner and Mr. Angle




       1
       Unless otherwise indicated, section references are to the Internal Revenue
Code in effect at all relevant times, and Rule references are to the Tax Court Rules
of Practice and Procedure.
       2
        The fourth case pertained to respondent’s collection efforts for petitioner
and Mr. Angle’s excise tax liability under sec. 1491 for 1995. On August 13,
2012, petitioner filed a petition in this Court seeking review of respondent’s
collection activities, which was assigned docket No. 20240-12L. On September
12, 2013, the Court entered a stipulated decision setting forth the parties’
agreement that respondent’s determinations regarding the collection of petitioner’s
excise tax liability would not be sustained.
                                         -3-

[*3] filed a petition with this Court, which was assigned docket No. 13718-01

(deficiency case).

      Mr. Angle died in May 2004, and petitioner became the administrator of his

estate. On June 28, 2005, the parties entered into a stipulation of settled issues in

the deficiency case in which petitioner agreed to all of the adjustments in the

notice of deficiency, with the exception of a capital gain adjustment for the sale of

certain stock. During that case petitioner also attempted to argue for relief from

joint and several liability under section 6015. However, because petitioner did not

formally raise her section 6015 claim until trial, the Court denied her motion to

amend the petition to raise that claim. On June 23, 2005, the capital gain issue

was tried before Judge Holmes. On October 5, 2009, Judge Holmes issued an

opinion finding that petitioner and Mr. Angle recognized gain from their sale of

stock. Estate of Angle v. Commissioner, T.C. Memo. 2009-227. On February 18,

2010, the Court entered a decision against petitioner and Mr. Angle for a

deficiency of $2,805,619 and a penalty under section 6662 of $561,123.80. On

July 8, 2010, respondent assessed the amounts set forth in the decision.

II.   Innocent Spouse Case

      On June 18, 2010, following the entry of decision in the deficiency case,

petitioner filed Form 8857, Request for Innocent Spouse Relief, requesting relief
                                         -4-

[*4] from her 1995 tax liability pursuant to section 6015 and claiming that she

signed the return under duress. On November 5, 2010, the Internal Revenue

Service (IRS) Cincinnati Centralized Innocent Spouse Operations (CCISO)

preliminarily denied petitioner relief determining that she had materially

participated in the deficiency case and citing res judicata. Petitioner filed a

statement of disagreement on December 15, 2010. On January 11, 2011, petitioner

sent the IRS Office of Appeals (Appeals) a letter offering to settle the innocent

spouse case for $1,000. On October 6, 2011, Appeals issued a final determination

sustaining CCISO’s preliminary determination.

      On December 23, 2011, petitioner filed a petition in this Court for review of

Appeals’ final determination. The petition was assigned docket No. 29418-11

(innocent spouse case), which is one of the two cases currently before the Court.

Although respondent initially asserted res judicata as an affirmative defense,

respondent later conceded it and sent the case back to CCISO for consideration of

the merits of petitioner’s claim. On July 31, 2012, CCISO determined that the

1995 return was a valid joint return and that petitioner was not eligible for

innocent spouse relief because she had actual knowledge of the deficiency under

section 6015(c) and because she did not satisfy the requirements under section
                                         -5-

[*5] 6015(b) or (f). On October 10, 2012, respondent filed a status report with the

Court, informing the Court of CCISO’s determination.

III.   Collection Due Process Case

       Meanwhile, on February 10, 2011, following the entry of decision in the

deficiency case, respondent issued a final notice of intent to levy to collect

petitioner’s 1995 tax liability. Petitioner timely requested a collection due process

(CDP) hearing in response to the levy notice. On February 22, 2011, petitioner

received a notice of Federal tax lien with respect to her tax liability for 1995.

Petitioner timely requested a CDP hearing in response to the lien notice. Appeals

Officer Alan Owyang conducted petitioner’s CDP hearing by telephone on

November 30, 2011. On December 8, 2011, respondent issued a notice of

determination sustaining respondent’s collection actions with respect to both the

lien and the levy. On January 5, 2012, petitioner filed a petition in this Court

seeking review of respondent’s notice of determination. That case was assigned

docket No. 435-12L (CDP case), which is the second case currently before the

Court. On April 18, 2012, petitioner filed a motion to consolidate the innocent

spouse and CDP cases, which the Court granted on May 21, 2012.
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[*6] IV.      Resolution of Innocent Spouse and CDP Cases

       The innocent spouse and CDP cases were scheduled for trial on October 21,

2013. Meanwhile, on July 16, 2013, respondent deposed petitioner regarding her

knowledge of the deficiency items and her duress claim. After the deposition,

respondent requested additional information, which petitioner provided on August

11 and 20, 2013. On the basis of the deposition and the new information,

respondent determined that the 1995 return was a valid joint return but petitioner

was entitled to relief under section 6015(c). On September 27, 2013, respondent

informed petitioner of this determination and faxed draft decision documents

reflecting a settlement. On September 28, 2013, petitioner acknowledged receipt

of the decision documents but refused to sign them because they did not provide

for litigation costs.

       On October 21, 2013, when these cases were called for trial, the parties

informed the Court that all underlying issues had been settled and that only the

issue of litigation costs remained.3 The Court continued the case until November

18, 2013, to give the parties an opportunity to resolve the litigation cost issue. On

November 18, 2013, the parties informed the Court that a resolution could not be


       3
        Respondent conceded at trial that the granting of sec. 6015 relief rendered
the collection action moot.
                                        -7-

[*7] reached. That same day, the Court issued an order directing petitioner to file

a motion for costs under section 7430 by January 17, 2014.

                                     Discussion

      Currently before the Court is petitioner’s motion for litigation costs

pursuant to section 7430. Under section 7430(a), a prevailing taxpayer in a court

proceeding against the United States may be awarded “reasonable litigation costs

incurred in connection with such court proceeding.” The decision whether to

award attorney’s fees under section 7430 is within a trial court’s sound discretion.

See Pac. Fisheries, Inc. v. United States, 484 F.3d 1103, 1106 n.2 (9th Cir. 2007);

Huffman v. Commissioner, 978 F.2d 1139, 1143 (9th Cir. 1992), aff’g in part,

rev’g in part T.C. Memo. 1991-144.

I.    Legal Standard

      In order for this Court to award reasonable litigation costs under section

7430, certain requirements must be met. The record must show the following.

      (1) The moving party filed a timely motion for reasonable litigation costs.

Rule 231(a). In an order dated November 18, 2013, the Court ordered petitioner to

file a motion for costs by January 17, 2014. While petitioner’s motion was dated

January 17, 2014, it was not filed with the Court until January 21, 2014, the next

business day. We excuse petitioner’s delay, however, because it was minimal.
                                        -8-

[*8] (2) The moving party did not unreasonably protract the court proceedings.

Sec. 7430(b)(3). Respondent concedes that petitioner did not unreasonably

protract the proceedings.

      (3) The moving party exhausted any administrative remedies available to

him or her within the IRS. Sec. 7430(b)(1). Respondent concedes that petitioner

has exhausted the administrative remedies available to her.

      (4) The moving party has a net worth that did not exceed $2 million at the

time the petition was filed in the case. Sec. 7430(c)(4)(A)(ii). Respondent

contends that petitioner has not established that she meets the net worth

requirement because the only proof she submitted was “her own self-serving

statements” in her affidavit. On the basis of our holding below that petitioner is

not a prevailing party, however, we need not resolve this fact-intensive issue.

      (5) The moving party is a prevailing party in the Court proceeding. Sec.

7430(a), (c)(4)(A), (B), (E). Respondent disputes that petitioner is a “prevailing

party”. For the reasons set forth below, we agree with respondent.

      (6) The amount of costs claimed is reasonable. Sec. 7430(a), (c)(1).

Respondent challenges the reasonableness of petitioner’s claimed costs. On the
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[*9] basis of our holding that petitioner is not a prevailing party, however, we

need not decide this issue.

      These six requirements are in the conjunctive; each requirement must be

met before this Court may order an award of litigation costs to a taxpayer under

section 7430. See Beecroft v. Commissioner, T.C. Memo. 1997-23 (citing

Minahan v. Commissioner, 88 T.C. 492, 497 (1987)). Because she is not a

prevailing party, we decline to award petitioner litigation costs.

II.   Prevailing Party Under the Qualified Offer Rule

      Petitioner argues that she is entitled to recover litigation costs under the

qualified offer rule, see sec. 7430(c)(4)(E) and (g), because her January 11, 2011,

letter was a qualified offer.4 Petitioner bears the burden of proving that she meets

the qualified offer requirements. See Rule 232(e).

      Section 7430(c)(4)(E)(i) provides:

      A party to a court proceeding * * * shall be treated as the prevailing
      party if the liability of the taxpayer pursuant to the judgment in the
      proceeding (determined without regard to interest) is equal to or less
      than the liability of the taxpayer which would have been so
      determined if the United States had accepted a qualified offer of the
      party [as defined] under subsection (g).

      4
       Petitioner does not argue on brief that she is a prevailing party under sec.
7430(c)(4)(A). We therefore deem any such argument to be conceded. See
Mendes v. Commissioner, 121 T.C. 308, 313-314 (2003) (holding that arguments
not addressed in brief may be considered abandoned).
                                          - 10 -

[*10] Under the qualified offer rule of section 7430(c)(4)(E) and (g), a taxpayer

may be deemed to be a prevailing party regardless of whether the taxpayer

substantially prevailed in the proceeding or of whether the Commissioner’s

position in the proceeding was substantially justified. Haas & Assocs.

Accountancy Corp. v. Commissioner, 117 T.C. 48, 59 (2001), aff’d, 55 Fed. Appx.

476 (9th Cir. 2003).

      A.     No Qualified Offer in the CDP Case

      Section 7430(g) defines a “qualified offer” as a written offer which: (1) is

made by the taxpayer to the United States during the qualified offer period--i.e.,

the period between the date the first letter of proposed deficiency is sent and 30

days before the date the case is first set for trial; (2) specifies the offered amount

of the taxpayer’s liability (determined without regard to interest); (3) is designated

at the time it is made as a qualified offer for purposes of this section; and (4)

remains open during the period beginning on the date it is made and ending on the

earliest of the date the offer is rejected, the date the trial begins, or the 90th day

after the date the offer is made.

      Respondent concedes that petitioner’s January 11, 2011, letter was a

qualified offer as defined by section 7430(g) with respect to the innocent spouse

case. However, respondent argues that petitioner’s January 11, 2011, letter was
                                        - 11 -

[*11] not a qualified offer with respect to the CDP case for two reasons. First, the

January 11, 2011, letter did not refer to any CDP case or collection action.

Second, respondent sent the first collection notice in connection with the CDP

case on February 10, 2011, approximately a month after petitioner’s January 11,

2011, letter. We find that petitioner’s offer was not made during the qualified

offer period with respect to the CDP case because it was made before the first

letter that respondent sent in connection with the CDP case. Accordingly, we

conclude that the January 11, 2011, letter is not a qualified offer with respect to

the CDP case.

      Since petitioner’s January 11, 2011, letter is a qualified offer with respect to

the innocent spouse case, however, she may be entitled to reasonable litigation

costs incurred in connection with the innocent spouse case if all other qualified

offer requirements are satisfied.

      B.     Settlement Exception to the Qualified Offer Rule

      Even where the taxpayer makes a qualified offer under section 7430(g), the

qualified offer rule does not apply to “any judgment issued pursuant to a

settlement”. Sec. 7430(c)(4)(E)(ii)(I); see also sec. 301.7430-7(a), Proced. &

Admin. Regs. (“An award of reasonable administrative and litigation costs under

the qualified offer rule only includes those costs * * * attributable to the
                                        - 12 -

[*12] adjustments * * * that were included in the court’s judgment other than by

reason of settlement.”).

      In Knudsen v. Commissioner, T.C. Memo. 2013-87, at *16-*17, we

explained that recovery under the qualified offer rule is limited to issues actually

decided by the court:

      The regulations also define the word “judgment” for purposes of the
      qualified offer rule to mean “the cumulative determinations of the
      court concerning the adjustments at issue and litigated to a
      determination in the court proceeding”, sec. 301.7430-7(a), Proced. &
      Admin. Regs., and set forth by example that an issue that a taxpayer
      disputes in court but ultimately concedes or settles is outside the
      meaning of the word “judgment” because the issue “was not
      determined by the court, but rather by concession or settlement”, sec.
      301.7430-7(e), Example (1), Proced. & Admin. Regs.

See also T.D. 9106, 2004-1 C.B. 384, 385 (stating that a commentator had

recommended that the final regulations permit the recovery of fees attributable to

adjustments that were settled, but the final regulations declined to adopt his

comment). Moreover, a contrary rule would run afoul of the spirit of the qualified

offer rule. “The qualified offer rule was enacted to encourage settlements.

Requiring the government to pay administrative and litigation costs with respect to

issues resolved exclusively pursuant to a settlement would be contrary to that

goal.” Id.
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[*13] During the pendency of the innocent spouse and CDP cases, respondent

conceded both cases. On September 27, 2013, respondent sent petitioner draft

decision documents offering her full relief from her 1995 income tax liability

under section 6015(c). Moreover, on October 21, 2013, petitioner’s counsel

represented to the Court that the sole issue remaining was the issue of attorney’s

fees.

        In Knudsen, we held a concession to be a “settlement” within the meaning

of section 7430. Knudsen v. Commissioner, at *12-*16 (“The [qualified offer]

regulations draw no distinction between a settlement and a concession[.]”).5

Whether a concession constitutes a settlement under section 7430(c)(4)(E)(ii)(I)

does not rest entirely on the timing of the Commissioner’s concession but instead

depends on all the facts and circumstances. Knudsen v. Commissioner, at *13.

Moreover, “the parties’ failure to communicate the concession in a formalized


        5
       In Estate of Lippitz v. Commissioner, T.C. Memo. 2007-293, we held that a
concession was not a settlement where the Commissioner continued to oppose the
taxpayer wife’s claim for innocent spouse relief after receiving CCISO’s
recommendation in favor of relief and where the Commissioner did not concede
his position until a dispositive motion was pending. Both parties argue that Estate
of Lippitz is distinguishable from the current cases, and we agree. In these cases,
CCISO recommended denying relief after considering the merits of petitioner’s
claim. In addition, respondent conceded these cases after receiving additional
information that petitioner had submitted and not as a tactical litigation ploy.
Therefore, Estate of Lippitz does not control our analysis.
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[*14] stipulation of settled issues carries little weight in our analysis because the

filing of a written agreement is not necessary to the finding of a settlement.” Id. at

*15 (citing Johnston v. Commissioner, 122 T.C. 124, 129, aff’d, 461 F.3d 1162

(9th Cir. 2006)).

      Under the facts and circumstances, we find that respondent’s concessions in

the innocent spouse and CDP cases constitute settlements under section

7430(c)(4)(E)(ii)(I). The parties did not submit any issue to the Court for its

determination on the merits. Moreover, petitioner’s acceptance of respondent’s

concession is evidenced by her counsel’s statement to the Court that all

outstanding issues had been resolved.6 Because these cases were settled, the




      6
        In Dorchester Indus. Inc. v. Commissioner, 108 T.C. 320, 330 (1997), aff’d
without published opinion, 208 F.3d 205 (3d Cir. 2000), we held: “A settlement is
a contract and, consequently, general principles of contract law determine whether
a settlement has been reached.” A contract requires “an objective manifestation of
mutual assent to its essential terms”, and mutual assent is typically established
through an offer and an acceptance. Id. “The parties to a contract need not
manifest their mutual assent explicitly but may do so implicitly through their
actions or inactions as viewed in the light of the surrounding facts and
circumstances.” Knudsen v. Commissioner, T.C. Memo. 2013-87, at *14.
Moreover, “‘[a]ssent to the terms of a settlement agreement can be implied from
the circumstances, and conduct inconsistent with a refusal of the terms raises a
presumption of assent upon which others may rely.’” Ahern v. Cent. Pac. Freight
Lines, 846 F.2d 47, 49 (9th Cir. 1988) (quoting Wong v. Bailey, 752 F.2d 619,
621 (11th Cir. 1985)).
                                        - 15 -

[*15] qualified offer rule does not apply, and petitioner is not a prevailing party.

See sec. 7430(c)(4)(E)(ii)(I).

         In reaching our holdings, we have considered all arguments made, and to

the extent not mentioned above, we conclude they are moot, irrelevant, or without

merit.

         To reflect the foregoing,


                                                       An appropriate order and

                                                 decision will be entered in docket

                                                 No. 29418-11.

                                                       An appropriate order and

                                                 order of dismissal will be entered in

                                                 docket No. 435-12L.
