                         T.C. Memo. 1999-127



                       UNITED STATES TAX COURT



   MICHAEL H. JOHNSON AND PATRICIA E. JOHNSON, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 23702-96.                      Filed April 16, 1999.




     Terry B. Bates, Brian J. Seery, and Robert A. Olson, for

petitioners.

     Steven M. Roth, for respondent.



                         MEMORANDUM OPINION

     VASQUEZ, Judge:    This case is before the Court on

petitioners' motion for award of litigation and administrative

costs and attorney's fees pursuant to section 7430 and Rule 231.1

We see no reason for an evidentiary hearing on this matter.    See


     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                               - 2 -

Rule 232(a)(2).   Accordingly, we rule on petitioners' motion on

the basis of the parties' submissions and the existing record.

See Rule 232(a)(1).   The portions of our opinion on the merits in

the instant case, Johnson v. Commissioner, T.C. Memo. 1998-448

(Johnson I), that are relevant to our disposition of this motion

are incorporated herein by this reference.

     After concessions,2 the issues for decision are:   (1)

Whether petitioners are the "prevailing party" in the underlying

tax case; (2) whether petitioners unreasonably protracted the

Court's proceeding; and (3) whether the amounts of administrative

and litigation costs claimed by petitioners are reasonable.

Background

     Petitioners are husband and wife.   Mr. Johnson operated Ford

and Lincoln-Mercury motor vehicle dealerships.   The substantive

issues in Johnson I were:   (1) Whether petitioners were entitled

to defer recognition of gain on the disposition of certain

property pursuant to section 1033; (2) whether petitioners were

liable for the fraud penalty pursuant to section 6663(a), or, in

the alternative, the accuracy-related penalty pursuant to section

6662(a) for 1992; and (3) whether petitioners were liable for the

addition to tax for failure to file timely their return for 1992.

We held that (1) petitioners were entitled to defer recognition

of gain on the disposition of that property pursuant to section

1033; (2) petitioners were not liable for the fraud or accuracy-


     2
        Respondent concedes that petitioners exhausted their
administrative remedies and substantially prevailed.
                               - 3 -

related penalties; and (3) we lacked jurisdiction over the

addition to tax for failure to file timely.

Discussion

     Section 7430 provides for the award of administrative and

litigation costs to a taxpayer in an administrative or court

proceeding brought against the United States involving the

determination of any tax, interest, or penalty pursuant to the

Internal Revenue Code.   An award of administrative or litigation

costs may be made where the taxpayer (1) is the "prevailing

party", (2) exhausted available administrative remedies,3 (3) did

not unreasonably protract the administrative or judicial

proceeding, and (4) claimed reasonable administrative and

litigation costs.   See sec. 7430(a), (b)(1), (3), (c).   These

requirements are conjunctive, and failure to satisfy any one will

preclude an award of costs to petitioners.    See Minahan v.

Commissioner, 88 T.C. 492, 497 (1987).

     Prevailing Party

     To be a "prevailing party" (1) the taxpayer must

substantially prevail with respect to either the amount in

controversy or the most significant issue or set of issues

presented, and (2) at the time the petition in the case was

filed, the taxpayer must meet the net worth requirements of 28

U.S.C. sec. 2412(d)(2)(B) (1994).   See sec. 7430(c)(4)(A).    A

taxpayer, however, will not be treated as the prevailing party if


     3
        This requirement applies only to litigation costs.     See
sec. 7430(b)(1).
                                 - 4 -

the Commissioner establishes that the Commissioner's position was

substantially justified.    See sec. 7430(c)(4)(B).

     Respondent contends, inter alia, that petitioners have not

satisfied the net worth requirements.

     Net Worth Requirements

     Rule 231(b)(4) provides that a motion for litigation or

administrative costs shall contain "A statement that the moving

party meets the net worth requirements, if applicable, of Section

2412(d)(2)(B) of title 28, United States Code (as in effect on

October 22, 1986), which statement shall be supported by an

affidavit executed by the moving party and not by counsel for the

moving party".     The net worth limitation of $2 million applicable

to individuals applies separately to each taxpayer.     See Hong v.

Commissioner, 100 T.C. 88 (1993); Prager v. Commissioner, T.C.

Memo. 1994-420.4    The taxpayers bear the burden of establishing

that they meet the net worth requirements.    See Rule 232(e);

Dixson Intl. Serv. Corp. v. Commissioner, 94 T.C. 708, 718

(1990).

     Petitioners' motion for costs contained a statement that

petitioners satisfied the net worth requirements.     Petitioners

submitted an affidavit that stated their net worth was less than

$4 million jointly and $2 million individually.    Petitioners also


     4
        The Taxpayer Relief Act of 1997, Pub. L. 105-34, sec.
1453(a), 111 Stat. 788, 1055 (effective with respect to
proceedings commenced after Aug. 5, 1997), amended sec. 7430 to
adopt this rule. See sec. 7430(c)(4)(D)(ii), as amended. The
petition in this case, however, was filed on Nov. 4, 1996;
therefore, this amendment is not applicable herein. Cf. Maggie
Management Co. v. Commissioner, 108 T.C. 430 (1997).
                                 - 5 -

submitted a schedule of their assets and liabilities as of the

date the petition was filed (first joint net worth schedule).

The first joint net worth schedule listed the following assets

and liabilities:

               Assets                            Value

     Savings accounts and/or certificates        $62,834
     Checking accounts                            24,000
     Annuity                                     118,615
     Investment in dealership                    734,487
     Real estate                               7,354,000
     Home furnishings                            125,000

          Total assets                         8,418,936

         Liabilities                             Value

     Unsecured bank loans                        $71,028
     Mortgages, trust deeds or
       contracts payable                       4,541,660

          Total liabilities                    4,612,688

The first joint net worth schedule listed the combined net worth

of petitioners to be $3,806,248.    The first joint net worth

schedule did not list either Mr. Johnson's or Mrs. Johnson's

individual net worth.

     Respondent filed an objection to petitioners' motion in

which respondent argues that petitioners' affidavit and first

joint net worth schedule are insufficient, and that petitioners

have failed to prove that they meet the net worth requirements.

Respondent contends that (1) petitioners did not itemize their

assets or provide their cost bases;5 (2) it is unclear whether


     5
        Although the term "net worth" is not statutorily defined,
the "acquisition cost" of the asset, rather than the fair market
value, should be used. See Swanson v. Commissioner, 106 T.C. 76,
                                                   (continued...)
                                - 6 -

the listed liabilities are personal liabilities of petitioners or

corporate liabilities (i.e., liabilities of Mr. Johnson's car

dealership); (3) if the liabilities are personal liabilities, it

is unclear whether they are joint liabilities or separate

liabilities of either Mr. Johnson or Mrs. Johnson; (4)

petitioners failed to identify which assets are community

property and which are separate property; and (5) the $2 million

net worth limitation applies separately to each taxpayer, and the

first joint net worth schedule lists the aggregate net worth of

petitioners as less than $4 million but does not establish the

net worth of each petitioner.

     Petitioners filed a reply to respondent's objection and

again submitted an affidavit that stated their net worth was less

than $4 million jointly and $2 million individually.   Petitioners

also submitted three net worth schedules:   One listing the net

worth of both petitioners as of the date the petition was filed

(second joint net worth schedule), one listing the net worth of

Mr. Johnson as of the date the petition was filed (Mr. Johnson's

net worth schedule), and one listing the net worth of Mrs.

Johnson as of the date the petition was filed (Mrs. Johnson's net

worth schedule).

     The second joint net worth schedule listed the following

assets:




     5
      (...continued)
96 (1996).
                                           - 7 -

                      Assets                                        Value

         Savings accounts and/or certificates                  $103,337
         Checking accounts                                       10,021
         Investment in dealership                             1,328,800
         Real estate                                          2,277,476
         Home furnishings                                       125,000

                Total assets                                  3,844,634

The real estate assets were broken down as follows:
      Real Estate     Acquisition Cost   Accumulated Depreciation    Net Book Value     Value

Personal residence        $405,000                 --                     --           $405,000
Fox Field Bldg.            423,321              $116,775               $306,546           --
Fox Field equip.            72,000                45,530                 26,470           --
El Monte Bldg.             793,279               187,201                606,078           --
El Monte Bldg.               8,000                 1,467                  6,533           --
  points
     Subtotal                 --                    --                      --          945,627

CRV                        721,000               721,000                    --            -0-

WASU rental,                40,000                  -0-                  40,000           --
  land
WASU rental,               185,000                 23,825               161,175           --
  rental
     Subtotal                 --                    --                      --          201,175

Ford dealership:
  land                     111,334                  -0-                 111,334           --
  bldg.                    684,009                 69,669               614,340           --
  computer                  52,496                 52,496                 -0-             --
     Subtotal                 --                    --                    --            725,674

        Real estate
          total               --                    --                      --        2,277,476

The second joint net worth schedule listed the following

liabilities:

              Liabilities                                            Value

         Unsecured bank loans                                       $71,028
         Secured loans                                              471,000
         Taxes payable                                              619,220
         Real estate loans:
          First Union Mortgage                                  401,782
          CA-Jon Hangar project loan                            591,140
          CRV                                                 1,712,094
          Havasu rental                                         160,387
          Antelope Valley Ford & Shuttle
           Lincoln-Mercury facilities loan                    3,709,959

                Total liabilities                             7,736,610
                                           - 8 -

The second joint net worth schedule determined the combined net

worth of petitioners to be ($3,891,976).

         Mr. Johnson's net worth schedule and Mrs. Johnson's net

worth schedule are identical.               Mr. Johnson's net worth schedule

and Mrs. Johnson's net worth schedule each listed the following

assets:

                      Assets                                        Value

         Savings accounts and/or certificates                   $51,669
         Checking accounts                                        5,011
         Investment in dealership                               664,400
         Real estate                                          1,138,738
         Home furnishings                                        62,500

                Total assets                                  1,922,317

The real estate assets were broken down as follows:
      Real Estate     Acquisition Cost   Accumulated Depreciation    Net Book Value     Value

Personal residence       $405,000                 --                      --           $202,500
Fox Field Bldg.           423,321              $116,775                 $306,546          --
Fox Field equip.           72,000                45,530                   26,470          --
El Monte Bldg.            793,279               187,201                  606,078          --
El Monte Bldg.              8,000                 1,467                    6,533          --
  points
     Subtotal                --                    --                       --          472,814

CRV                       721,000               721,000                     --            -0-

WASU rental,               40,000                  -0-                      40,000        --
  land
WASU rental,              185,000                23,825                  161,175          --
  rental
     Subtotal                --                    --                       --          100,588

Ford dealership:
  land                    111,334                  -0-                   111,334          --
  bldg.                   684,009                69,669                  614,340          --
  computer                 52,496                52,496                   -0-             --
     Subtotal                --                    --                     --            362,837

        Real estate
          total              --                    --                       --        1,138,738

Mr. Johnson's net worth schedule and Mrs. Johnson's net worth

schedule each listed the following liabilities:
                                 - 9 -

           Liabilities                             Value

     Unsecured bank loans                         $35,514
     Secured loans                                235,500
     Taxes payable                                309,610
     Real estate loans:
      First Union Mortgage                        200,891
      CA-Jon Hangar project loan                  295,570
      CRV                                         856,047
      Havasu rental                                80,194
      Antelope Valley Ford & Shuttle
       Lincoln-Mercury facilities loan          1,854,980

         Total liabilities                      3,868,305

Mr. Johnson's net worth schedule and Mrs. Johnson's net worth

schedule determined the individual net worth of each petitioner

to be ($1,945,988).

     Essentially, petitioners split the amounts contained on the

second joint net worth schedule in half, attributing one-half to

Mr. Johnson and the other half to Mrs. Johnson.

     Petitioners argue that to satisfy the net worth requirements

they only need to submit a statement, supported by an affidavit

executed by the moving party, that they meet the net worth

requirements.    We disagree.

     Petitioners were put on notice that respondent was

specifically objecting to an award of administrative and

litigation costs because petitioners failed to prove they meet

the net worth requirements.     After a taxpayer is put on notice

that the Commissioner is specifically objecting to an award of

administrative and/or litigation costs because of the taxpayer's

failure to prove his net worth, the taxpayer must provide

supporting information (i.e., evidence) to establish his net

worth.    See Estate of Hubberd v. Commissioner, 99 T.C. 335, 341
                              - 10 -

(1992); Dixson Intl. Serv. Corp. v. Commissioner, 94 T.C. at 719;

see also McCoy v. Commissioner, T.C. Memo. 1992-423.

     Petitioners submitted no evidence supporting the amounts

listed in the various net worth schedules or the statements in

their original motion and supporting affidavits that they meet

the net worth requirements.   Furthermore, respondent submitted

evidence that the land upon which Mr. Johnson's motor vehicle

dealerships are located is Mr. Johnson's sole and separate

property.   Petitioners, in their reply, failed to address whether

this or any other property listed on the various net worth

schedules was separate or community property.   Additionally,

petitioners included half the value of each property in both Mr.

Johnson's net worth schedule and Mrs. Johnson's net worth

schedule.

     The various net worth schedules submitted by petitioners

leave doubt as to their veracity.   The first joint net worth

schedule and the second joint net worth schedule are almost $8

million apart as to petitioners' joint net worth as of the date

the petition was filed.   The amounts listed on the second joint

net worth schedule changed by tens of thousands of dollars for

petitioners' checking and savings accounts, changed by hundreds

of thousands of dollars for their investment in the dealership,

and changed by millions of dollars for their real estate from the

amounts listed on the first joint net worth schedule.

Petitioners' liabilities also increased by over $3 million from
                              - 11 -

the first joint net worth schedule to the second joint net worth

schedule.

     Additionally, petitioners included an annuity as an asset in

the first joint net worth schedule but did not list this asset in

the second joint net worth schedule or in their individual net

worth schedules.   The second joint net worth schedule also

included over $600,000 in taxes that was not listed on the first

joint net worth schedule.   Petitioners did not explain any of

these discrepancies.

     Petitioners supplied no explanation why their calculations

of their net worth as of the time the petition in the case was

filed changed so drastically in the less than 2 months between

the submission of their original motion (which contained the

first joint net worth schedule) and their reply to respondent's

objection (which contained the second joint net worth schedule

and the individual net worth schedules).

     Under the circumstances present in this case, we do not feel

compelled to accept petitioners' unsubstantiated, conclusory, and

self-serving assertion that they meet the net worth

requirements.6   See Estate of Hubberd v. Commissioner, supra;

Dixson Intl. Serv. Corp. v. Commissioner, supra; see also McCoy



     6
        On Apr. 12, 1999, petitioners filed a "Statement of
Errata" in which they state that their joint net worth schedules
contained several errors due to "misunderstandings" and
"miscommunications". Petitioners attached a third joint net
worth schedule that listed their combined net worth as
$1,097,312. Petitioners submitted no evidence supporting the
amounts listed in this schedule. We believe that this submission
further supports our conclusions in this case.
                              - 12 -

v. Commissioner, supra; cf. Tokarski v. Commissioner, 87 T.C. 74,

77 (1986).   We conclude that petitioners have failed to prove

they meet the net worth requirements necessary to be a

"prevailing party" under section 7430(c)(4).

     In light of our holding that petitioners failed to prove

they meet the net worth requirements, we need not address whether

(1) respondent's position was substantially justified; (2)

petitioners unreasonably protracted the Court's proceeding; or

(3) the amounts of administrative and litigation costs claimed by

petitioners are reasonable.

     Accordingly, we hold that petitioners are not entitled to an

award of administrative or litigation costs.

     To reflect the foregoing,

                                               An appropriate order

                                         will be issued.
