Cowie v. Comm'r , 93 T.C.M. 1182 ( 2007 )

T.C. Memo. 2007-108
UNITED STATES TAX COURT
NEIL MALCOLM COWIE AND KAREN CHRISTINE SHUNK, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 1189-06. Filed April 30, 2007.
Neil Malcolm Cowie and Karen Christine Shunk, pro se.
William J. Gregg, for respondent.
MEMORANDUM OPINION
WELLS, Judge: The instant matter is before the Court on
petitioners’ motion for reasonable administrative and litigation
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costs1 pursuant to Rule 2312 and section 7430. The issues we must
decide are whether petitioners were the prevailing party within
the meaning of section 7430 and whether petitioners have
substantiated any recoverable costs. For the reasons stated
below, petitioners’ motion for reasonable costs will be denied.
Background
At the time of filing the petition, petitioners resided in
Washington, D.C. Petitioner Neil M. Cowie (Mr. Cowie) is an
attorney licensed to practice law in the Commonwealth of
Virginia. Petitioners proceeded pro se at all times relevant to
the instant motion.
Mr. Cowie and his father, Dr. James B. Cowie (Dr. Cowie),
agreed in August 1998 that Mr. Cowie would invest funds provided
by Dr. Cowie for Dr. Cowie’s benefit. To avoid paying two sets
of transaction fees and to save time, Mr. Cowie deposited funds
provided by Dr. Cowie into Mr. Cowie’s existing brokerage
account.
1
Although petitioners titled the instant motion “MOTION FOR
LITIGATION COSTS”, it appears that petitioners are seeking both
administrative and litigation costs. We will consider the
instant motion as a motion for both administrative and litigation
costs.
2
Unless otherwise indicated, all Rule references are to the
Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code, as amended.
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Mr. Cowie provided regular reports regarding the investments
to Dr. Cowie. Likewise, Mr. Cowie provided the information
necessary for Dr. Cowie to complete his annual tax returns.
Mr. Cowie and Dr. Cowie reported their respective shares of
the taxable transactions from Mr. Cowie’s brokerage account on
their tax returns. The brokerage firm, however, issued only one
Form 1099-B, Proceeds From Broker and Barter Exchange
Transactions 2003, to Mr. Cowie reporting all of the account’s
taxable activity.
On February 7, 2005, respondent sent petitioners a draft
CP2501 notice listing 75 items where a discrepancy occurred
between the amounts reported by the brokerage firm on Form
1099-B, and those reported on petitioners’ return for taxable
year 2003. On March 31, 2005, petitioners responded, stating
that the full amount of each transaction was reported by Mr.
Cowie and Dr. Cowie on their respective returns and providing
supporting information.
Petitioners received a CP2000 notice dated June 20, 2005,
stating that respondent had not received a response to the
February 7, 2005, notice. On June 22, 2005, petitioners sent
their response again. Subsequently, petitioners received a
letter dated August 22, 2005, that requested that petitioners
provide information on a completed Schedule D, Capital Gains and
Losses.
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On September 2, 2005, petitioners telephoned the Internal
Revenue Service (IRS) to determine what additional information
was needed. The IRS representative indicated that petitioners
should provide Dr. Cowie’s name, address, and Social Security
number. Petitioners allege they sent the IRS a facsimile with
Dr. Cowie’s information on September 5, 2005.
The September 5, 2005, facsimile was not in the
administrative file when respondent answered the petition.
Respondent’s counsel received this facsimile from petitioners on
March 13, 2006. Respondent’s counsel forwarded this facsimile to
the Appeals Office.
On October 17, 2005, respondent issued a statutory notice of
deficiency to petitioners. The notice determined income tax due
and an addition to tax for taxable year 2003. Respondent based
the determination on information from third-party payors which
indicated that petitioners underreported interest, dividend, and
capital gain income of $2,180, $1,016, and $287,110, respectively.
The underreported income resulted in a determined deficiency of
$98,541, plus penalties and interest of $19,708.
On January 17, 2006, petitioners filed their petition. On
October 4, 2006, the parties filed a stipulation with the Court
disposing of all of the issues raised in the notice of deficiency.
On January 12, 2007, petitioners filed the instant motion.
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Discussion
The prevailing party in a Tax Court proceeding may be
entitled to recover administrative and litigation costs. See sec.
7430(a); Rule 231. However, a taxpayer will not be treated as the
prevailing party if the Commissioner’s position was substantially
justified. Sec. 7430(c)(4)(B); see Pierce v. Underwood, 487 U.S.
552, 565 (1988). The fact that the Commissioner concedes is not
determinative of the reasonableness of the Commissioner’s
position. Wasie v. Commissioner, 86 T.C. 962, 969 (1986). The
taxpayer bears the burden of proving he meets the requirements in
section 7430 for an award of costs, except that the taxpayer will
not be treated as the prevailing party if the Commissioner
establishes that the position of the Commissioner was
substantially justified. See Rule 232(e).
The Court determines the reasonableness of respondent’s
position as of the time respondent took the position. Sec.
7430(c)(7). Respondent took a position in the administrative
proceeding as of the date of the notice of deficiency. Sec.
7430(c)(7)(B). In the judicial proceeding, respondent took a
position when respondent filed the answer. Sec. 7430(c)(7)(A);
Huffman v. Commissioner, 978 F.2d 1139, 1144-1147 (9th Cir. 1992),
affg. in part, revg. in part on other grounds and remanding T.C.
Memo. 1991-144. Respondent’s administrative and litigation
positions are substantially justified if they have a reasonable
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basis in both law and fact. See Maggie Mgmt. Co. v. Commissioner,
108 T.C. 430, 443 (1997). Respondent is entitled to a reasonable
amount of time to evaluate information before changing his
position or conceding an issue. See Sokol v. Commissioner, 92
T.C. 760, 766-768 (1989).
We conclude that respondent’s position was reasonable and
substantially justified in both the administrative and litigation
proceedings. A significant factor in determining whether the
Commissioner’s position is substantially justified as of a given
date is whether the taxpayer has presented all relevant
information under the taxpayer’s control to the appropriate IRS
personnel. Sec. 301.7430-5(c)(1), Proced. & Admin. Regs.
Petitioners failed to provide the requisite information about Dr.
Cowie for respondent to verify that all the income from the
brokerage account had been reported before September 5, 2005.
Petitioners allege that on that date they sent to respondent a
facsimile containing that information, but respondent’s counsel
did not have that information until after the answer was filed.
Once respondent’s counsel sent the requisite information to the
Appeals Office, respondent conceded the instant case.
Accordingly, we hold that respondent’s position in the
administrative and litigation proceedings was substantially
justified, and that petitioners are not entitled to recover their
administrative or litigation costs.
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Petitioners bear the burden of proving the reasonableness of
the costs claimed. See Rule 232(e); Powers v. Commissioner, 100
T.C. 457, 491 (1993), affd., in part, revd. in part and remanded
43 F.3d 172 (5th Cir. 1995). Petitioners proceeded pro se. A pro
se litigant, even though an attorney, is not entitled to an award
of attorney’s fees under section 7430. Frisch v. Commissioner, 87
T.C. 838 (1986). Congress intended section 7430 as a fee shifting
statute. Id. at 840. However, petitioners “did not pay or incur
fees for legal services”. Id. at 846.
Additionally, petitioners did not specify an award amount.
The motion lists only “at least 15 hours on the telephone”, “at
least twenty five hours generating the Petition”, “at least ten
hours generating this motion”, and “many additional hours
marshalling and copying paperwork”. The recitation of time spent
does not include dates or descriptions of the work done.
Petitioners argue that Mr. Cowie’s time is worth at least
$125 per hour.3
3
$125, as increased by a cost-of-living adjustment, is the
maximum hourly rate provided in sec. 7430(c)(1)(B)(iii), absent
special circumstances.
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We have considered all of petitioners’ contentions, and, to
the extent they are not addressed herein, they are irrelevant,
moot, or without merit.
To reflect the foregoing,
An appropriate order and
decision will be entered.