                    T.C. Summary Opinion 2001-26



                       UNITED STATES TAX COURT



 NADEEM CHOWDHURY AND BRENDA S. GARTH CHOWDHURY, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11683-99S.                       Filed March 9, 2001.


     Nadeem Chowdhury and Brenda Chowdhury, pro sese.

     Gerald L. Brantley and Silvia M. Rheinbolt, for respondent.


     PAJAK, Special Trial Judge: This case was heard pursuant to

section 7463.    Unless otherwise indicated, all section references

are to the Internal Revenue Code in effect for the year in issue,

and all Rule references are to the Tax Court Rules of Practice

and Procedure.

     This case is before the Court pursuant to petitioners'

motion for litigation costs under section 7430 and Rules 230

through 233.    Petitioner claimed $3,920 of litigation costs based
                                - 2 -

upon the following expenses: $60.00 for the filing fee and $3,860

for attorney's fees.    An objection to petitioner's motion by

respondent was filed.

     Neither party requested a hearing on petitioners' motion.

Rule 232(a).   Accordingly, we rule on petitioners' motion on the

basis of the parties' submissions and the record in this case.

The underlying issues raised in the petition were settled by a

stipulation of settlement.    At the time the petition was filed,

petitioners resided in San Antonio, Texas.

     By notice of deficiency, respondent determined deficiencies

in petitioners' Federal income taxes of $7,182, $3,290, and

$3,378 for the taxable years 1995, 1996, and 1997, respectively.

     Under section 7430, a taxpayer may be awarded a judgment for

reasonable litigation costs if the taxpayer establishes certain

criteria and if respondent’s position was not substantially

justified.   Respondent concedes that petitioner substantially

prevailed for purposes of section 7430(c)(4)(A)(i).    However,

respondent maintains that his position was substantially

justified, that petitioners did not exhaust their administrative

remedies, that petitioners unreasonably protracted the Court

proceeding, and that the costs claimed are not reasonable.

Because of our disposition of this issue, we need only address

whether respondent's position was substantially justified.

     In deciding the merits of a motion for litigation costs, the
                                   - 3 -

Court generally considers the reasonableness of respondent’s

position from the date the answer was filed.       Huffman v.

Commissioner, 978 F.2d 1139, 1148 (9th Cir. 1992), affg. in part,

revg. in part, and remanding T.C. Memo. 1991-144.      No answer was

required in this case which was tried under the small tax case

procedures.     Rule 175(b).   Accordingly, respondent’s position for

the purpose of the motion is the position maintained by

respondent during the pendency of this case.      There is nothing in

the record that suggests that respondent’s position changed from

that taken in the notice of deficiency, so these positions are,

in effect, the same.

     Whether respondent's position was substantially justified

turns on a finding of reasonableness, based upon all the facts

and circumstances, as well as the legal precedents relating to

the case.   Pierce v. Underwood, 487 U.S. 552, 565 (1988); Swanson

v. Commissioner, 106 T.C. 76, 86 (1996).      A position is

substantially justified if the position is "justified to a degree

that could satisfy a reasonable person."       Pierce v. Underwood,

supra at 565.    The Court must "consider the basis for

respondent's legal position and the manner in which the position

was maintained."     Wasie v. Commissioner, 86 T.C. 962, 969 (1986).

The reasonableness of respondent's position and conduct

necessarily requires considering the facts available to

respondent at that time.       Coastal Petroleum Refiners, Inc. v.
                                - 4 -

Commissioner, 94 T.C. 685, 689 (1990); DeVenney v. Commissioner,

85 T.C. 927, 930 (1985).    The fact that respondent eventually

loses or concedes the case does not establish an unreasonable

position.   Sokol v. Commissioner, 92 T.C. 760, 767 (1989).

     In this case, respondent disallowed petitioners' Schedule C

deductions for their mail order activity.    Petitioners started

the mail order activity in 1992.    Thereafter, petitioners

reported 6 consecutive years of losses on their Schedules C.

     The information petitioners initially provided to the

revenue agent showed that petitioners ran one advertising

campaign per year in the first 4 years and none in the next 2

years, that petitioners spent 10 to 15 hours per week on the

activity, and that they had never modified their original

business plan.   Based on this limited information, respondent

concluded that the mail order activity was not entered into for

profit under section 183.

     Petitioners provided the same limited information to the

Appeals officer.   Because petitioners did not provide any

additional information, the Appeals Division issued the statutory

notice of deficiency.   The notice of deficiency stated that

petitioners had not established that the activity was entered

into for profit, that the claimed Schedule C expenses were

ordinary and necessary as required under section 162, or that the

expenses were not personal in nature.
                                - 5 -

     Respondent sent a “Branerton” letter to petitioners on

December 3, 1999.    In response, petitioners sent respondent items

such as telephone bills, an invoice for a 1995 advertisement,

miscellaneous invoices for cost of goods sold, and letters from

credit card companies stating how much petitioners owed in

principal and interest.

     Less than 72 hours before the calendar call for this case to

go to trial, petitioners provided respondent with additional

substantiating documentation.   This documentation established

that petitioners did have an advertising campaign.    There were

also records of 180 clients’ names, the orders the clients

placed, follow-up letters, and thank-you letters.    During the

week of the trial calendar, petitioners provided records that

established that they incurred substantial debts in the early

years of their activity to finance inventory and advertising

costs.   These debts were in the form of credit card purchases and

cash advances.   Other newly provided information demonstrated

that the interest and commission expenses were related to

business purposes.   The Schedule C deductions disallowed by

respondent consisted mainly of the interest and commission

expenses.   After receiving and reviewing the newly furnished

information, respondent settled the case in a period of 6 days.

Respondent conceded the issues to the extent that they were

properly substantiated.   Respondent and petitioners agreed that
                               - 6 -

petitioners had deficiencies of $1,428, $1,246, and $1,011 for

1995, 1996, and 1997, respectively.

     Whenever there is a factual determination, respondent is not

obliged to concede a case until respondent receives the necessary

documentation which proves the taxpayer's contentions.      Brice v.

Commissioner, T.C. Memo. 1990-355, affd. without published

opinion 940 F.2d 667 (9th Cir. 1991); Currie v. Commissioner,

T.C. Memo. 1989-23.   Moreover, after respondent receives

documentation, respondent is provided a reasonable period in

which to analyze the documentation and modify its position

accordingly.   Sokol v. Commissioner, supra at 765-766.

     In this case, petitioners had not established that they had

a profit motive in their mail order activity, nor had they

substantiated the majority of their claimed expenses, until they

provided the relevant information to respondent 3 days prior to

the calendar call and during the first 3 days of the week of the

trial calendar.   After receiving the substantiating

documentation, respondent promptly conceded the case to the

extent the expenses were substantiated.   Based on the record, we
                              - 7 -

find that respondent's position was substantially justified.

Consequently, petitioners' motion will be denied.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                        An appropriate order and

                                   decision will be entered.
