T.C. Memo. 2000-186

UNITED STATES TAX COURT

VIRGINIA M. MARTEN, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

DAVID E. AND DONNA P. LANE, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 3401-97, 16223-97. Filed June 27, 2000.

Woodford G. Rowland, for petitioner in docket No. 3401-97.

John E. Cassinat, for petitioners in docket No. 16223-97.

Christian A. Speck, for respondent.

MEMORANDUM OPINION

VASQUEZ, Judge: This case is before the Court on

petitioners David E. and Donna P. Lane's (petitioners) motion for
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1 Unless otherwise indicated, all section references are to

the Internal Revenue Code as amended, and all Rule references are

to the Tax Court Rules of Practice and Procedure.

2 In respondent's objection to petitioners' motion for

costs and fees, respondent concedes that: (1) Petitioners

substantially prevailed with respect to the amount in controversy

and to the most significant issue presented in the Court

proceeding, (2) petitioners have not unreasonably protracted the

litigation, and (3) petitioners exhausted their administrative

remedies available within the Internal Revenue Service. 

costs and fees pursuant to section 7430 and Rule 231.1

Petitioners do not request a hearing on this matter, and we see

no reason for a hearing. See 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). We

incorporate by reference portions of Marten v. Commissioner, T.C.

Memo. 1999-340 (Marten I), our opinion on the merits in the

instant case, that are relevant to the disposition of the motion

before us.

After concessions,2 the issue for decision is whether

petitioners are a “prevailing party” in the underlying tax

case. Subsumed within this issue is the question of whether

respondent's position in the underlying tax case was

substantially justified. 

Background

In 1953, David E. Lane (Mr. Lane) and Virginia M. Marten

(Ms. Marten) married. After legally separating in 1979, Mr. Lane

purchased a $750,000 life insurance policy on his own life and
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3 This requirement applies only to litigation costs. See

sec. 7430(b)(1).

named Ms. Marten the owner and beneficiary of the policy. In

Marten I, the issue was whether Mr. Lane's payments of the life

insurance premiums were alimony includable by Ms. Marten in gross

income and deductible by Mr. Lane. We held that under section

71, before amendment by the Deficit Reduction Act of 1984

(DEFRA), Pub. L. 98-369, sec. 422(a), 98 Stat. 795 (pre-DEFRA

section 71), the premium payments were alimony and includable in

Ms. Marten's gross income and deductible by Mr. Lane.

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. Sec. 7430(a), (b)(1), (3), and (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).
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4 Respondent, alternatively, argues that petitioners have

not proven that (1) they meet the net worth requirement of sec.

7430(c)(4)(A)(iii), and (2) all litigation costs and fees claimed

were reasonable. Because we find that respondent's position was

substantially justified, we need not reach respondent's

alternative arguments.

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 is filed,

the taxpayer must meet the net worth requirements of 28 U.S.C.

sec. 2412(d)(2)(B) (1994). Sec. 7430(c)(4)(A). A taxpayer,

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

Commissioner establishes that his position was substantially

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

Respondent contends that petitioners are not a prevailing

party because his position was substantially justified.4

Petitioners argue that respondent's position was not

substantially justified because (1) respondent erroneously relied

on section 71(b) after the amendments made by DEFRA (post-DEFRA

section 71), to assess liability against petitioners, and (2)

respondent took inconsistent positions against Ms. Marten and

petitioners where respondent knew that only one petitioner could

be liable for the deficiency.
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At trial and in their posttrial briefs in Marten I, all

parties, including petitioners, relied on post-DEFRA section 71. 

We held in Marten I that pre-DEFRA section 71 applied. On

November 5, 1999, Ms. Marten filed a motion for reconsideration

of our opinion in Marten I in which she argued that Marten I,

pursuant to Q&A-26 of section 1.71-1T(e), Temporary Income Tax

Regs., 49 Fed. Reg. 34458 (Aug. 31, 1984) (hereinafter Q&A-26),

should have been decided under post-DEFRA section 71. Respondent

filed a response to the motion for reconsideration in which

respondent agreed with Ms. Marten. In an order dated April 20,

2000, we granted the motion for reconsideration and considered

whether Q&A-26 dictated that post-DEFRA section 71 should apply. 

There was no definitive case law directly on point, and the

legislative history behind DEFRA was not illuminating. We

interpreted Q&A-26 in light of the effective date language in

DEFRA and decided that, under Q&A-26 and DEFRA itself, pre-DEFRA

section 71 applied to the instant case. Given the difficulty of

the issue and lack of case law on point, respondent was

substantially justified in taking the position, as petitioners

did in Marten I, that post-DEFRA section 71 applied.

Petitioners also complain that respondent took inconsistent

positions in regards to petitioners and Ms. Marten and thus could

not have been substantially justified. We have held that the

Commissioner is entitled to take inconsistent positions against
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former spouses in the alimony context. See Doggett v.

Commissioner, 66 T.C. 101, 103 (1976); Ryan v. Commissioner, T.C.

Memo. 1999-109; see also Maggie Management Co. v. Commissioner,

108 T.C. 430, 446 (1997); Sherbo v. Commissioner, T.C. Memo.

1999-367. In the present case, respondent was in a classic

“whipsaw” situation because petitioners deducted the premium

payments as alimony, and Ms. Marten failed to include the premium

payments in income. In such a case, the Commissioner is

substantially justified in taking inconsistent positions to

protect the revenue. We therefore conclude that petitioners are

not a prevailing party within the meaning of section 7430.

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 denying the 

motion for costs, and 

decisions will be entered.