T.C. Memo. 1995-520

UNITED STATES TAX COURT

JAMES L. BALL, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 1647-93. Filed October 31, 1995. 

P filed late returns for 1984, 1985, and 1986. R

examined P's returns and assessed: (1) The amounts

shown on them and additional amounts for 1984 and 1985,

(2) additions to tax for failure to timely file returns

and pay tax for 1984, 1985, and 1986, and (3) interest

for 1984, 1985, and 1986. 

R improperly assessed tax in amounts greater than

reported on P's 1984 and 1985 returns without issuing a

notice of deficiency. Later, R abated assessment of

the amounts in excess of the amounts reported on P's

returns for 1984 and 1985, and also additions to tax

and interest for 1984, 1985, and 1986. R's Examination

Division and P reached an agreement on P's case for

1984, 1985, and 1986. R's Office of Appeals Division

(Appeals) did not consider the case. P seeks an award

of administrative costs under sec. 7430, I.R.C.
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1 We have jurisdiction to review the Commissioner's denial

of a taxpayer's claim for reasonable administrative costs. Sec.

7430(f); Estate of Gillespie v. Commissioner, 103 T.C. 395, 396

n.5 (1994); Gustafson v. Commissioner, 97 T.C. 85, 88 (1991).

Held: P is not entitled to an award of

administrative costs under sec. 7430, I.R.C., because

R did not issue a notice of deficiency and Appeals

did not issue a notice of decision. Sec. 7430(c)(2),

I.R.C.; Estate of Gillespie v. Commissioner, 103 T.C.

395, 397 (1994).

Thomas F. Kelly, for petitioners.

John M. Altman, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

COLVIN, Judge: The sole issue for decision is whether

petitioner is entitled to an award of reasonable administrative

costs under section 7430(c) with respect to his 1984, 1985, and

1986 Federal income taxes.1 The parties submitted the case fully

stipulated under Rule 122. 

Section references are to the Internal Revenue Code of 1986

as in effect in 1990. Rule references are to the Tax Court Rules

of Practice and Procedure.

FINDINGS OF FACT

Petitioner resided in Seattle, Washington, when he filed his

petition. 
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1. Petitioner's Returns for 1984, 1985, and 1986

Petitioner's Federal income tax returns were due by

April 16, 1985, for 1984, April 15, 1986, for 1985, and April 15,

1987, for 1986. Petitioner did not file those returns before

1990. In early 1990, respondent asked petitioner to file his

returns for 1984, 1985, and 1986. Petitioner filed his Federal

income tax returns for those years on March 30, 1990. The 1984

and 1985 returns were joint returns. However, petitioner's wife

did not sign those returns when petitioner filed them. She

signed the 1984 return on May 17, 1991, and the 1985 return on

May 23, 1991. Petitioner's filing status for 1986 was single. 

2. Respondent's Examination of Petitioner's 1984, 1985, and

1986 Returns and Assessment of Tax for Those Years

Respondent examined and made adjustments to petitioner's

returns. Respondent assessed the amounts of tax shown on the

returns (assessed taxes), additional amounts of tax for 1984 and

1985 (over assessed taxes), and additions to tax and interest for

1984, 1985, and 1986.

Petitioner reported a $1,823 tax liability on his 1984

return. Respondent disallowed petitioner's claimed Schedule C

loss of $4,290 on that return. On July 16, 1990, respondent

issued a statement of account to petitioner that showed a $2,509

increase in tax for petitioner's 1984 year based on those

adjustments. Respondent assessed additions to petitioner's 1984
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tax of $27.68 for failure to timely file and $30.75 for failure

to timely pay tax, and $110.32 in interest. 

Petitioner reported a $2,257 tax liability on his 1985

return. He computed his tax using income averaging. Respondent

disallowed petitioner's claimed Schedule C loss of $3,993, moving

expenses of $5,140, and the personal exemption for petitioner's

wife. Respondent also changed petitioner's filing status to

married filing separately and computed tax without using income

averaging. On July 16, 1990, respondent assessed $8,241 in tax

against petitioner based on these adjustments. Respondent

assessed additions to petitioner's 1985 tax of $1,236.38 for

failure to timely file, $1,373.75 for failure to timely pay tax,

$393.62 for underpayment of estimated tax, and $3,721.97 in

interest. 

Petitioner reported a $776 tax liability on his 1986 return. 

Respondent disallowed petitioner's claimed prepayment credit of

$594 and $1,052 claimed credit carryover from 1985, and

determined that petitioner underpaid his 1986 tax liability by

$182. On March 30, 1990, respondent assessed $776 in tax against

petitioner for 1986. Respondent disallowed certain tax credits

claimed by petitioner. As a result, respondent assessed

additions to petitioner's 1986 tax of $100 for failure to timely

file and $33.67 for failure to timely pay tax, and $104.14 in

interest. 
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Respondent did not issue a notice of deficiency for 1984,

1985, or 1986. Appeals did not consider petitioner's 1984, 1985,

or 1986 tax years. On September 4, 1990, petitioner asked

respondent to explain how respondent concluded that petitioner

owed more tax for 1984. 

3. Respondent's Levy of Petitioner's Tax for 1984, 1985, and

1986

On December 10, 1990, respondent issued notices of intent to

levy for 1985 and 1986 to petitioner. Petitioner retained Thomas

Kelly (Kelly) to represent him in December 1990. Petitioner

wrote a letter to respondent around January 7, 1991, inquiring

about petitioner's tax liability for 1984, 1985, and 1986. 

Respondent issued a notice of intent to levy for 1984 to

petitioner on January 21, 1991. Respondent's Seattle District

Office wrote to Kelly on February 11, 1991, in response to

petitioner's previous Freedom of Information Act request and

stated that respondent forwarded the request to the Ogden Service

Center. 

4. Abatement of the Overassessment

Kelly wrote to respondent to request a copy of the notice of

deficiency for 1984 and to explain how respondent made the 1984

assessment against petitioner. On February 13, 1991, Kelly wrote

to respondent's collection branch in Seattle, Washington, to

state that respondent improperly assessed petitioner's tax for
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1984, 1985, and 1986, and that respondent should stop collection

from petitioner. 

On April 1, 1991, respondent responded to petitioner's

letter that respondent received on January 7, 1991. Respondent

stated that petitioner owed $317.16 for 1984, $13,256.89 for

1985, and $477.94 for 1986 (including penalties and interest to

April 21, 1991). Respondent said that petitioner must pay the

tax due and claim a refund if he did not agree with the

adjustment. 

On April 17, 1991, Kelly wrote to respondent's problems

resolution officer in Seattle, Washington, to explain why he

believed respondent's position was incorrect. On April 23, 1991,

respondent assigned petitioner's case to a problems resolution

office. On May 7, 1991, respondent's quality assurance staff

wrote a memo to respondent's problems resolution office. In it,

the quality assurance staff concluded that the assessments were

invalid because respondent assessed more than the amounts shown

on the returns. Also, on May 7, 1991, respondent's problems

resolution office wrote to Kelly and said the assessments were

valid for 1986, but invalid for 1984 and 1985 because respondent

did not issue a notice of deficiency for those years. 

On June 24, 1991, respondent abated petitioner's overassessment, additions to tax, and accrued interest for 1984,

but did not abate the assessment of tax for amounts shown on
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petitioner's 1984 return. On July 15, 1991, respondent abated

petitioner's 1985 overassessment, additions to tax, and accrued

interest, but did not abate assessment of tax for amounts shown

on petitioner's 1985 return. On July 22, 1991, respondent abated

the addition to tax for failure to timely pay and interest for

petitioner's 1986 taxable year. 

5. Petitioner's Claim for an Award of Administrative Costs

On August 29, 1991, petitioner filed a claim for an award

of administrative costs with respondent. Respondent denied the

claim on October 21, 1991. Petitioner then filed the petition

for administrative costs. 

OPINION

1. Positions of the Parties

Petitioner contends that he is entitled to an award of

reasonable administrative costs under section 7430. The

Technical and Miscellaneous Revenue Act of 1988 (TAMRA), Pub. L.

100-647, sec. 6239(a), 102 Stat. 3342, 3743-3746, amended section

7430 to allow the recovery of costs incurred in administrative

proceedings. See also H. Conf. Rept. 100-1104, at 224-226

(1988), 1988-3 C.B. 473, 714-716. Section 7430 provides in

pertinent part:
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SEC. 7430. AWARDING OF COSTS AND CERTAIN FEES. 

(a) In General.--In any administrative or court

proceeding which is brought by or against the United

States in connection with the determination,

collection, or refund of any tax, interest, or penalty

under this title, the prevailing party may be awarded a

judgment or a settlement for--

(1) reasonable administrative costs incurred

in connection with such administrative proceeding

within the Internal Revenue Service, and 

(2) reasonable litigation costs incurred in

connection with such court proceeding.

 * * * * * * *

(c) Definitions.--For purposes of this section--

 * * * * * * *

(2) Reasonable administrative costs.--

 * * * * * * *

Such term [reasonable administrative costs] shall

only include costs incurred on or after the

earlier of (i) the date of the receipt by the

taxpayer of the notice of the decision of the

Internal Revenue Service Office of Appeals or (ii)

the date of the notice of deficiency.

Respondent contends that the quoted flush language from

section 7430(c)(2) bars an award of administrative costs here

because neither of the two specified events has occurred. 

Petitioner agrees that neither event has occurred. However,

petitioner argues that it is unfair to apply that language

literally because respondent failed to issue a notice of

deficiency. Petitioner argues that it is unfair to allow

respondent to benefit from respondent's erroneous failure to

issue a notice of deficiency, and that we should treat the
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2 Sec. 6213(a) provides in pertinent part:

Except as otherwise provided in section 6851, 6852, or

6861 no assessment of a deficiency in respect of any

tax * * * and no levy or proceeding in court for its

collection shall be made, begun, or prosecuted until

such notice has been mailed to the taxpayer, nor until

the expiration of such 90-day or 150-day period, as the

case may be, nor, if a petition has been filed with the

Tax Court, until the decision of the Tax Court has

become final. * * *

notices of intent to levy as notices of deficiency for purposes

of section 7430(c). Respondent concedes that it was an error not

to issue a notice of deficiency for amounts in excess of

the amounts shown on petitioner's 1984 and 1985 returns.2 

The parties agree that respondent was not required to issue

a notice of deficiency for 1986 because the amount of tax

assessed was equal to the amount of tax liability shown on

petitioner's 1986 return. Secs. 6213(a), 6211(a). 

2. Discussion

Section 7430(c)(2) is unambiguous: Reasonable

administrative costs include only costs that occur after

respondent issues a notice of deficiency or Appeals issues a

notice of decision. Sec. 7430(c)(2). Petitioner is not entitled

to an award of administrative costs under section 7430(c) because

neither event has occurred. Congressional intent can be shown

by comparing the Senate and conference versions of the TAMRA

provision which defined "position of the United States". To
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determine when the position of the United States was established,

the Senate amendment provides as follows: 

(7) Position of United States.--The term

"position of the United States" means the position

taken by the United States in the proceeding to which

subsection (a) applies as of the later of --

(A) the date of the first letter of proposed

deficiency which allows the taxpayer an

opportunity for administrative review in the

Internal Revenue Service Office of Appeals (or if

earlier, the date of the notice of deficiency), or 

(B) the date by which the taxpayer has

presented the relevant evidence within the control

of the taxpayer and legal arguments with respect

to such proceeding to examination or service

center personnel of the Internal Revenue Service. 

134 Cong. Rec. 24221 (Sept. 16, 1988). The TAMRA conference

report describes the Senate provision as follows:

In determining whether the position of the United

States was substantially justified, the position of the

United States is determined as of the later of (1) the

date of the first letter of proposed deficiency

(generally the 30-day letter) that allows the taxpayer

an opportunity for administrative review in the IRS

Appeals Office (or, if no letter of proposed deficiency

is sent, the date of the notice of deficiency described

in section 6212 of the Code), or (2) the date by which

the relevant evidence under the control of the

taxpayer, as well as relevant legal arguments, with

respect to such action have been presented by the

taxpayer to IRS examination or Service Center

personnel.

H. Rept. 100-1104, supra at 225-226, 1988-3 C.B. at 715-716. The

TAMRA conference report states:

The conference agreement follows the Senate amendment,

with the modification that the position of the United

States is determined as of the earlier of (1) the date

of the receipt by the taxpayer of the notice of the

decision of the IRS Office of Appeals, or (2) the date
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of the notice of deficiency. If neither is applicable,

the position of the United States is that taken in the

litigation.

H. Rept. 100-1104, supra at 226, 1988-3 C.B. at 716. Section

7430(c)(7), as enacted, provides:

(7) Position of United States.--The term

"position of the United States" means--

(A) the position taken by the United States

in a judicial proceeding to which subsection (a)

applies, and 

(B) the position taken in an administrative

proceeding to which subsection (a) applies as of

the earlier of--

(i) the date of the receipt by the

taxpayer of the notice of the decision of the

Internal Revenue Service Office of Appeals,

or

(ii) the date of the notice of

deficiency.

The conference committee modified the rule establishing when

the United States has taken a position for purposes of deciding

if its position is substantially justified. First, the

conference committee deleted the Senate bill language which

limited an award of administrative costs to costs incurred after

the taxpayer submits relevant evidence and legal arguments. 

Second, the language approved by the conference committee does

not allow an award of administrative costs for a position

respondent takes before the respondent issues the notice of

deficiency or Appeals issues a notice of decision. The effect

of this change is to protect the Commissioner from claims by

taxpayers that positions taken by, for example, the Examination
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or Collections Division personnel, before issuance of a notice

of deficiency or of the decision of Appeals, are not

substantially justified.

Petitioner contends that the Commissioner, by improperly

failing to issue a notice of deficiency before assessing tax in

excess of the amount shown on the 1984 and 1985 returns, became

liable for an award of administrative costs when the first

collection notice was sent to petitioner. We disagree. There

is no authority in section 7430(c) to award administrative costs

resulting from improper conduct by respondent before one of the

two events stated in section 7430(c)(2) occurs. The United

States is immune from suit except to the extent that it consents

to be sued. United States v. Sherwood, 312 U.S. 584, 586 (1941).

Petitioner relies on Huffman v. Commissioner, 978 F.2d 1139,

1148-1149 (9th Cir. 1992), affg. in part, revg. in part and

remanding T.C. Memo. 1991-144 and Han v. Commissioner, T.C. Memo.

1993-386. These cases are distinguishable from the instant case

because the Commissioner issued a notice of deficiency in both of

those cases.

Petitioner's argument is similar to that made by the

taxpayer in Estate of Gillespie v. Commissioner, 103 T.C. 395,

396-397 (1994). In Estate of Gillespie, respondent issued a 30-

day letter but did not issue a notice of deficiency or notice of

decision by Appeals. We held that a 30-day letter is not a
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notice of deficiency for purposes of section 7430(c)(2). Estate

of Gillespie v. Commissioner, supra at 397; see also Nunn v.

Commissioner, T.C. Memo. 1992-301 (taxpayer not entitled to an

award of administrative costs for expenses to obtain refund of a

wrongful levy if a notice of deficiency was not issued and the

taxpayer has not received the notice of decision of Appeals).

While the result to petitioner may seem harsh, we cannot

ignore the plain language of the statue and, in effect, rewrite

the statute to achieve what might be an equitable result. 

Hildebrand v. Commissioner, 683 F.2d 57, 58 (3d Cir. 1982), affg.

T.C. Memo. 1980-532.

Because of our holding on this issue, we need not reach

respondent's alternative contentions that collection actions are

not administrative proceedings under section 7430(c)(5) and

section 301.7430-3(a)(4), Proced. & Admin. Regs., or petitioner's

contention that section 301.7430-3(a)(4), Proced. & Admin. Regs.,

is invalid because it is contrary to the plain meaning and

unambiguous wording of the statute. 

Decision will be

entered for respondent.