Gantner v. Comm'r of Internal Revenue, Docket No. 2222-86.

CourtUnited States Tax Court
Citation92 T.C. 192,92 T.C. No. 11
Docket NumberDocket No. 2222-86.
Decision Date30 January 1989

92 T.C. 192
92 T.C. No. 11


Docket No. 2222-86.

United States Tax Court

Filed January 30, 1989.

In an earlier proceeding in this Court, Ps prevailed on one significant issue. HELD: Ps are not entitled to litigation costs. R's position does not include any administrative action prior to the involvement of District Counsel, and the Eighth Circuit's opinions in Wickert v. Commissioner, 842 F.2d 1005 (8th Cir. 1988), and Berks v. United States, 860 F.2d 841 (8th Cir. 1988), do not mandate a different conclusion. The positions taken by R subsequent to District Counsel's involvement are substantially justified, in that they were supported by a rational construction of the applicable statutory provision.

[92 T.C. 192]

Mark Arth, for the petitioners.

Genelle Forsberg, for the respondent.


This matter is before us on petitioners motion for litigation costs pursuant to Rule 231 and section

[92 T.C. 193]

7430. 1 On September 29, 1988, we issued our Opinion in Gantner v. Commissioner, 91 T.C. 713, in which we held for petitioners on one issue (the applicability of section 1091 to stock options), and for respondent in substantial or total part on the other issues. The issues before us in that opinion involved various deductions in the total amount of $61,198.74, investment credits in the total amount of $2,164.48, and the appropriateness of increased interest under section 6621 with respect to commodities straddles deductions previously conceded by petitioners. We held for petitioners on the stock option issue, allowing them a deduction in the amount of $38,909.70 for 1980. Of the other approximately $22,000 of disputed deductions, we held that petitioners were entitled to only a small portion of these deductions ($900 - $1,000 by our rough calculation). We disallowed over 90 percent of the amount of investment credits in issue, and we held against petitioners on the question of the increased rate of interest.

Respondent opposes petitioners' motion on the grounds that (1) petitioners have not proved that respondent's position in the litigation was not substantially justified, and (2) petitioners' claimed costs are not reasonable. Section 7430 authorizes us to award reasonable litigation costs to a prevailing party in a proceeding in this Court if certain conditions are met. A taxpayer may be awarded litigation costs for a proceeding commenced after December 31, 1985 (such as the instant case, wherein the petition was filed in January 1986), if (1) the taxpayer ‘has substantially prevailed‘ with respect to either the amount in controversy or the most significant issue(s) presented, and (2) the position of the Commissioner was ‘not substantially justified.‘ Sec. 7430(c)(2)(A)(i) and (ii); Egan v. Commissioner, 91 T.C. 704, 711 (1988). In that we conclude that respondent's position was substantially justified, however, we need not decide whether petitioners are the prevailing parties.

Section 7430(c)(4) defines ‘the position of the United States,‘ i.e., respondent's position in proceedings in this Court, to include ‘(A) the position taken by the United

[92 T.C. 194]

States in the civil proceeding, and (B) any administrative action or inaction BY THE DISTRICT COUNSEL of the Internal Revenue Service (and all subsequent administration action or inaction) upon which such proceeding is based.‘ (Emphasis supplied.) Section 7430(c)(4) was added to the Code in 1986 and applies to any amounts paid after September 30, 1986, in proceedings commenced after December 31, 1985. Pub. L. 99-514, sec. 1551(e), 100 Stat. 2753. It thus applies herein.

In Sher v. Commissioner, 89 T.C. 79, 86 (1987), affd. 861 F.2d 131 (5th Cir. 1988), we interpreted newly enacted section 7430(c)(4) to provide that respondent's position includes only those actions or inactions occurring at or after the point at which District Counsel becomes involved in the proceedings. We came to the same conclusion in Weiss v. Commissioner, 89 T.C. 779 (1987). On appeal, however, the Second Circuit disagreed with our conclusion in Weiss and held that the focus for determining respondent's position should be ‘on the Commissioner's final position as set forth in the statutory notice of deficiency.‘ Weiss v. Commissioner, 850 F.2d 111, 115 (2d Cir. 1988). We subsequently reconsidered our reading of section 7430(c)(4) in Egan v. Commissioner, supra, and held in a Court reviewed opinion that we would continue to follow Sher, and not follow the Second Circuit's conclusion in Weiss, except in cases appealable to the Second Circuit. See Golsen v. Commissioner, 54 T.C. 742 (1970), affd. 745 F.2d 985 (10th Cir. 1971).

In spite of Egan, however, petitioners argue that in the Eighth Circuit, to which appeal of the instant case lies, the position of the United States includes not only ‘the post-petition conduct but also * * * the pre-litigation conduct and the administrative action of the agency.‘ Petitioners base their argument on their reading of Wickert v. Commissioner, 842 F.2d 1005, 1008 (8th Cir. 1988), affg. a Memorandum Opinion of this Court. In short, petitioners assert that the Eighth Circuit's opinion in Wickert holds that courts must review the actions of the Internal Revenue Service both before and after the filing of their petition to decide whether respondent took a position that was not

[92 T.C. 195]

substantially justified, and that we are bound to follow Wickert because of the rule in Golsen.

We do not agree with petitioners' reading of Wickert. In that the petition in Wickert was filed...

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    ...attempt to extract unjustified concessions from petitioner or for any other improper purpose. See Gantner v. Commissioner [Dec. 45,452], 92 T.C. 192, 197-198 (1989), affd. [90-2 USTC ¶ 50,335] 905 F.2d 241 (8th Cir. 1990); Sher v. Commissioner [Dec. 44,035], 89 T.C. 79, 84-85 (1987), affd. ......
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