DocketNumber: Docket No. 17848-92
Citation Numbers: 1994 Tax Ct. Memo LEXIS 99, 1994 T.C. Memo. 98
Filed Date: 3/8/1994
Status: Non-Precedential
Modified Date: 11/20/2020
MEMORANDUM OPINION
GOLDBERG,
This matter is before the Court on petitioners' motion entitled Motion and Claim for Award of Litigation and Administrative Costs under Rule 231 and section 7430. On August 10, 1993, we vacated our decision entered on June 30, 1993, pursuant to petitioners' motion to vacate, for the purpose of addressing petitioners' motion for costs filed also on August 10, 1993.
The facts of the case are set forth in our
We will now address the merits of petitioners' motion for award of litigation costs. Pursuant to section 7430(a), a prevailing party in certain civil tax proceedings may be awarded a judgment for reasonable administrative and litigation costs. To be a "prevailing party" under section 7430(c)(4), the party seeking the award must: (1) Establish that the position of the United States in the proceeding was not substantially justified, sec. 7430(c)(4)(A)(i); (2) substantially prevail in the controversy, sec. 7430(c)(4)(A)(ii); and (3) establish that he or she has a net worth which does not exceed $ 2 million at the time the proceeding was commenced, sec. 7430(c)(4)(A)(iii).
A judgment for litigation costs will not be awarded under section 7430(a) unless the Court determines that the prevailing party has exhausted the administrative1994 Tax Ct. Memo LEXIS 99">*101 remedies available with the Internal Revenue Service. Sec. 7430(b)(1). No award for reasonable costs may be made with respect to any portion of the proceeding during which the prevailing party has unreasonably protracted such proceeding. Sec. 7430(b)(4). All of these requirements must be met.
The parties agree that petitioners have substantially prevailed, that petitioners exhausted their administrative remedies, and that petitioners did not unreasonably protract the proceedings. Respondent, however, contends that her position was substantially justified within the meaning of section 7430(c)(4)(A)(i). Respondent further argues that petitioners have not shown that the costs they seek are reasonable, and that petitioners have not established that they satisfy the net worth requirement of section 7430(c)(4)(A)(iii).
The remaining questions for our consideration, therefore, are (1) whether petitioners have established that respondent's position was not substantially1994 Tax Ct. Memo LEXIS 99">*102 justified, and, if so, (2) whether the costs sought by petitioners are reasonable, and (3) whether petitioners satisfy the net worth requirements of section 7430(c)(4)(A)(iii).
Taking the last issue first, we hold that petitioners have satisfied the net worth requirement. Section 7430(c)(4)(A)(iii), in defining a "prevailing party", incorporates the net worth requirements of
A party seeking litigation costs bears the burden of proving that1994 Tax Ct. Memo LEXIS 99">*103 he is entitled to them.
Petitioner has the burden of proving that respondent's position was unreasonable in view of the facts available to respondent at the relevant time.
A corporate income tax return, Form 112OS, for the year ended December 31, 1990, was filed with the name SBBS, Inc., printed by hand above the name Piedmont Diapers, and a Form 941, Employer's Quarterly Federal Tax Return, for the quarter ending September 30, 1990, was filed using the name SBBS, Inc. Other Forms 941, as well as Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, were filed in the name Piedmont Diapers, Inc., or Piedmont Diapers.
We found that the business was conducted1994 Tax Ct. Memo LEXIS 99">*105 as a partnership because the purported corporate entity involved, SBBS, Inc., was a mere corporate shell that held no assets and conducted no business. In reaching that conclusion, we noted: The ambiguity concerning petitioner's form of business organization arose because of inept handling, by petitioner and Mr. Brown, or their business entities. It is clear that when petitioner and Mr. Brown incorporated SBBS, Inc., they intended to use that entity to conduct their diaper business. They mistakenly believed that SBBS, Inc., was an S corporation. We find truth in respondent's argument that petitioner and his accountant "discovered" that the business was a partnership only after they realized they were not eligible for the benefits of an S election. We can readily understand respondent's position on the basis of the factual ambiguities of this case. [
Petitioner himself was initially mistaken about the form of his business enterprise. Such confusion is reflected in the two corporate returns filed on behalf of SBBS, Inc., by petitioner and his partner. Under these circumstances, 1994 Tax Ct. Memo LEXIS 99">*106 we hold that petitioner has failed to carry his burden of proof in establishing that respondent's position was not substantially justified. Accordingly, petitioners do not satisfy the statutory definition of "prevailing party" and are not entitled to litigation and administrative costs.
Having concluded that petitioners are not the prevailing party within the meaning of the statute, we need not decide whether the fees and costs claimed by petitioners are reasonable in amount.
Petitioners' motion for an award of litigation costs will be denied.
To reflect the foregoing,