14 6 T.C. No . 14

UNITED STAT ES TAX COURT

BRYAN S. ALTERMAN TRUST U/A/D M AY 9, 2 00 0, BRYAN S. ALTERMAN, TRUSTEE, TRANSFEREE, Peti ti on er v . COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 69 40 -1 0. Fi le d M ay 2, 2 01 6.

InAlt erm anTrus t v . Comm is si on er, T.C. Mem o. 2 01 5- 23 1, we he ldth atR fai le d t o m eethi s b ur de n o f pr oo f to est ab li sh th atP was li ab le un de r I.R.C. s ec. 6 90 1 a s a t ran sf eree forAlt erm anCo rp .’ s 20 03 in co m e ta x l iabi li ty. P, a tru stwho se cas e was co ns ol id at ed with o th er ca se s fo r pu rp os es of t ha t o pi ni on , has m ov edforanaward of adm in is tra ti ve an d l it ig at io n c os ts un de r I.R.C. s ec. 7 43 0. Gen eral ly, in di vi du al tax pa y ers see ki ng co st s m us t h av e a n etwort h of $2 m il li on or l es s atth e ti m e th e ci vi l ac ti on was fi le d, as requi red by 28 U.S.C. sec . 24 12 (d )(2 )(B) . I.R.C. se c. 74 30 (c)( 4) (A)(i i). Fo r a tru st , th atli mitap pl ie s as of t he las t d ay of t he tax ab le y ear i nv ol ve d in th e p ro ceed in g. I.R.C . sec . 74 30 (c)( 4) (D)(i )(II) . For thi s tran sf eree li ab il ity cas e, P arg ue s tha t i ts ne t wo rth sh ou ldbe de te rm in edin ei th er 2 00 9 o r 20 10 , as o f th e d at e R i ss ue d t he no ti ce o f li ab il ity or th e d at e itfil edit s p et it io n, re sp ect iv el y . The n ot ic e o f li ab il ity st at es th atth e ta xabl e y ear i nv ol ve d i n t he pro ceed in g e nd edDec. 31 , 20 03
. P co nc ed es th atit s n etwort h e xc eed ed$2 m il li on as o f th e cl os e o f 20 03
.- 2 - Held : Whenap pl y in g t he ne t wo rth requi rem en t o f 28 U.S.C. se c. 24 12 (d )(2 )(B) , I.R.C. se c. 74 30 (c)( 4) (D)(i )(II) m od ifi es th e ge ne ral rul e an d re qu ire s tha t a t ru st ’s networt h “ sh al l b e d et erm in ed as of t he las t d ay

of t he tax ab le y ear i nv ol ve d i n t he pro ceed in g.” Held , furth er, the las t d ay of t he tax ab le y ear i nv ol ve d i n t he pr oc eed in g i s Dec . 31 , 20 03 , as s ta te d i n t he no ti ce o f li ab il ity . Held , furth er, b ecau se P’s ne t wo rth ex ceed ed$2 mil li on as o f Dec. 3 1, 2 00 3, i t h as no t m etth e requi rem en ts un de r I.R.C. s ec. 7 43 0, an d i ts m ot io n fo r anawardof a dm in is tra ti ve an d l it ig at io n c os ts wil l be de ni ed
.
Je nn y L. Jo hn so n a ndGui ne ve re M. M oo re, fo r pe ti ti on er. Dav idB. Fla ss in g a ndAng el a B. Reyno ld s, fo r res po nd en t.

OPINION BUCH, Ju dg e: Pet it io ne r ha s m ov edforanawardof a dm in is tra ti ve an d li ti ga ti on co st s, cl ai m in g i t i s en ti tl edto th is awardbe cau se itwas the pre va il in g pa rty un de r se ct io n 7 43 0. Becaus e p et it io ne r do es no t m eetth e sp eci al ne t wo rth 1 requi rem en t fo r a tru st , itis no t en ti tl edto reco ve r co st s.

Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o t he Int ern al 1 Rev enue Co de (Co de ) in effe ctforth e rel ev an t t im es .- 3 - Bac kg ro un d On Dec em

be r 1, 2 01 5, we i ss ue d Al te rm anTrus t v . Comm is si on er, T.C. Mem o. 2 01 5- 23 1, an d h el d tha t p et it io ne r was no t l iabl e as a tr an sf eree of Alt erm anCo rp . forAlt erm anCo rp .’ s 2 00 3 i nc om e ta x l iabi li ty. Pet it io ne r fi le d a
m ot io n fo r awardof r eas on ab le adm in is tra ti ve an d l it ig at io n fe es an d c os ts on Decem be r 30 , 20 15 , pu rs ua ntto sec ti on 74 30 . Becau se pe ti ti on er d idno t ad dr es s th e sp eci al rul e fo r th e n etwort h re qu ire m en t fo r a tru stfou ndat s ect io n 74 30 (c)( 4) (D)(i )(II) , we ord ereditto supp le m en t o r withd raw i ts m ot io n. Th at
ru le pro vi de s tha t the ne t wo rth of atru stis de te rm in edas o f th e la stda y of t he ta xabl e y ear i nv ol ve d i n t he pro ceed in g fo r th e p ur po se of d et erm in in g wh ethe r th e trus t m eet s the ne t wo rth li mit s t o b e el ig ib le forfees an d c os ts . Peti ti on er fil eda supp le m en t t o i ts m ot io n a rg ui ng th atth ere i s n o t ax ab le y ear i nv ol ve d i n th is tra ns fere e li ab il ity

cas e. The C ou rt o rd eredth e Co m m is si on er t o re sp on d t o pe ti ti on er’s m ot io n a s s up pl em en te d, wh ic h h e d id . Peti ti on er fi le d arep ly stat in g,
am on g o th er thi ng s: “ Pet it io ne r ha s s ub se qu en tl y de te rm in edth atinth e y ear 2 00 3 it s n etwort h was gre at er tha n $ 2 m il li on .” Dis cu ss io n The so le is su e we m

us t d eci de is whet he r pe ti ti on er i s en ti tl edto adm in is tra ti ve an d l it ig at io n c os ts un de r se ct io n 7 43 0.- 4 -

I. Sect io n 7 43 0 Gen eral ly To re co ve r adm in is tra ti ve an d l it ig at io n c os ts un de r se ct io n 7 43 0( a), a ta xp ay er m

us t es tabl is h t ha t i t: (1) is th e p rev ai li ng pa rty; (2 ) ha s ex haus te d t he
av ai labl e admin is tra ti ve rem ed ie s; (3) ha s n otun reas on ab ly pro tra ct edth e pr oc eed in gs ; an d (4 ) ha s cl ai m edreas on ab le co st s. Sec . 74 30 (a), (b )(1 ), (2 ), (3 ), (c)( 4) . The Co m

m is si on er co nc ed es th atpe ti ti on er h as sat is fie d t he sec on d a nd th irdrequi rem en ts bu t co nt en ds th atitwas n otth e p rev ai li ng pa rty andth atth e co st s ar e n otreas on ab le
. II. Fai lu re To Sat is fy

th e NetW orth Requi rem en t Tax pa y ers canpro ve th atth ey are the pre va il in g p arty

intwo way s: (1) by
es tabl is hi ng th atth ey

subs ta nt ia ll y

pre va il edor ( 2) by establ is hi ng th atth ey m ad e a qua li fie d o fferan d t ha t the Co urt’s jud gm en t was equa l t o o r le ss th anth atoff er. Sec. 7 43 0( c)(4 )(A), (E), (g ); Ha as & Ass oc s. Acc ou nt an cy Co rp . v. Co m

m is si on er, 11 7 T.C. 4 8, 5 9 (2 00 1) , aff’d, 5 5 F . App ’x 47 6 (9 th Cir . 20 03 ). In e ithe r si tu at io n, ho wev er, the y

m us t es tabl is h t ha t the y

m eetth e ap pl ic ab le ne t wo rth requi rem en ts . A tax pay er wh o d oe s n otm eetth e n etwort h re qu ire m en ts can no t b e co ns id ereda pr ev ai li ng pa rty for p ur

po se s o f se ct io n 7 43 0. Se c. 74 30 (c)( 4) (A)(i i). Gen eral ly, ta xp ay ers see ki ng co st s an d fe es un de r se ct io n 7 43 0 m us t m eet th e n etwort h re qu ire m en ts fou ndin28 U.S.C. sec . 24 12 (d )(2 )(B) as o f th e- 5 -

ap pr op ria te da te . Ind iv idua ls , forex am pl e, m us t h av e a n etwort h n otinex ces s o f $2 m il li on at t he ti m e th e p et it io n i s fi le d. Id . The Co de ha s a s pe ci al rul e fo r ap pl y in g t hi s n etwort h l im itto tru st s. Sec ti on 74 30 (c)( 4) (D)(i )(II) m od ifi es th e ge ne ral rul e an d p ro vi de s tha t the tru st ’s networt h “ sh al l b e d et erm in edas o f th e la stda y of t he tax ab le y ear i nv ol ve d i n t he pro ceed in g” . See Est at e o f Kun ze v . Co m m is si on er, T.C. Mem o. 1 99 9- 34 4, s li p o p. at10 -1 1 (i nt erp ret in g t he sp eci al
ru le forap pl y in g t he ne t wo rth li m itfou ndinsec ti on 74 30 (c)( 4) (D)(i )(I) f or es ta te s an d e xp la in in g t ha t the “ le gi sl at iv e h is to ry rev eal s tha t s ect io n 74 30 (c)( 4) (D) was alwa y s i nt en de d t o m od ify sect io n 7 43 0( c)(4 )(A)(i i)” ), aff’d, 23 3 F .3d94 8 (7 thCir . 20 00 ). Co ng res s en act edth is sp eci al rul e to pro vi de cle ar gu id an ce o n t he ne t wo rthli m it s fo r trus ts an d e st at es . 2 Pet it io ne r arg ue s wi th ou t s up po rt t ha t i ts ne t wo rth sh ou ldbe de te rm in edas of on e o f th ree p os si bl e d at es : (1 ) th e d at e th e p et it io n was fil ed , Marc h 2 2, 2 01 0; (2 ) th e adm in is tra ti ve pro ceed in g d at e whe n t he Co m m is si on er i ss ue d t he no ti ce o f
Sec. 7 43 0( c)(4 )(D) was en act edas p artof t he Taxp ay er Re li ef Actof 1 99 7, 2 Pub. L. No. 1 05 -3 4, s ec. 1 45 3, 1 11 Sta t. at10 55 . H.R. Rept . No. 1 05 -1 48 at 6 38
- 63 9 (1 99 7) , 19 97 -4 C.B. (Vo l. 1 ) 31 9, 9 60 -9 61 , exp la in edth e rea so n fo r th e ad di ti on of s ect io n 7 43 0( c)(4 )(D): “Altho ug h t he ne t wo rth requi rem en ts are ex pl ic itforin di vi du al s, co rp or at io ns , andpa rtn ers hi ps , itis no t cl ear wh ic h n et worthrequi rem en t i s t o app ly to o th er p ot en ti al li ti ga nt s. * * * The b il l p ro vi de s th atth e n etwort h l im it at io ns curren tl y ap pl ic ab le to in di vi du al s al so ap pl y to es ta te s an d t ru st s.”- 6 -

li ab il ity , Decem

be r 22 , 20 09 ; o r (3 ) th e la stda y of t he tax ab le y ear wh enth e Co m m is si on er i ss ue d p et it io ne r th e n ot ic e o f li ab il ity , Decem be r 31 , 20 09
. Pet it io ne r fi rs t ar gu es th atth ere was no tax ab le y ear i nv ol ve d i n t hi s p ro ceed in g
an d c on cl ud es th atth e v al ua ti on da te sh ou ldbe Marc h 2 2, 2 01 0, the da te itfil ed it s p et it io n. Pe ti ti on er ex pl ai ns th at“ [b ]ecaus e th ere i s n o t ax ab le y ear i nv ol ve d i n th is pro ceed in g, the ‘ sp eci al rul es ’ in §7 43 0( c)(4 )(D)(i )(II) do no t ap pl y , andth e ge ne ral rul e o f §7 43 0( c)(4 )(A)(i i) app li es .” Alt ern at iv el y , pet it io ne r’s se co ndan d th irdrel at edarg um en ts po si t tha t i f th ere i s i n fa cta ta xabl e y ear i nv ol ve d, the
on ly tax ab le y ear i nv ol ve d i s 2 00 9. Pe ti ti on er ex pl ai ns th at20 09 is th e ta xabl e y ear b ecau se th atwas wh enth e Co m m is si on er as se rte d t ha t p et it io ne r was li ab le
as a tr an sf

eree an d i ss ue d t he no ti ce o f li ab il ity on Decem

be r 22 , 20 09
. Acco rd in gl y , pet it io ne r arg ue s ei th er the no ti ce d at e, Decem be r 22 , 20 09 , or the la stda y of 2 00 9 i s the pro pe r va lu at io n d at e. Each of t he se arg um en ts fai ls be cau se th ere i s a t ax ab le y ear i nv ol ve d i n t hi s pr oc eed in g, an d i t i s 2 00 3. Th e st atut e is cle ar, an d i t re qu ire s the ne t wo rth of t he tru st“ sh al l b e d et erm in edas o f th e la stda y of t he tax ab le y ear i nv ol ve d i n t he pr oc eed in g”
. Sec. 7 43 0( c)(4 )(D)(i )(II) . The n ot ic e o f li ab il ity an d i ts 3 One caneas il y

po si t a r at io na le for

th is rul e. Ofte nt im es , a tru st ’s ass et s 3 caneas il y be de pl et ed , th us en ab li ng a trus t t o m an ip ul at e whe th er i t m eet s the ne t (co nt in ue d...)- 7 -

acco m panyin g d oc um en ts all id en ti fy Decem be r 31 , 20 03 , as the en d o f th e ta xabl e y ear i nv ol ve d i n t he pro ceed in g. Th e n ot ic e o f li ab il ity is ex pl ic itth atth e li ab il ity is “ fo r th e ta xabl e y ear e nd edDecem be r 31 , 20 03 ”. The a cco m pa nyin g waiv er o f res tri ct io ns on ass es sm en t i de nt ifi es th e “ Taxy ear e nd ed ” as Decem be r 31 , 20 03 . The n ot ic e o f li ab il ity st at em en t s ta te s tha t i t i s fo r th e “ Tax Liab il ity for th e ta xabl e y ear e nd edDecem be r 31 , 20 03 ”. The s ta tu te requi res th atwe lo okto th e n etwort h o f th e trus t as of t he las t d ay of t he tax ab le y ear i nv ol ve d i n t he pr oc eed in g. An d the re i s n o s up po rt f orth e arg um en t tha t the re i s n o t ax ab le y ear in vo lv edinth e p ro ceed in g. Pet it io ne r co nc ed es th atit s n etwort h a s o f th e cl os e o f 20 03 , th e ta xabl e y ear i nv ol ve d i n t he pro ceed in g, ex ceed ed$2 mil li on , th e st atut ory li m itto be el ig ib le forfees an d c os ts . Accor di ng ly, itha s n otsat is fie d t hi s re qu ire m en t u nd er se ct io n 7 43 0. Th is ba si s al on e is en ou gh for us to de ny pet it io ne r’s m ot io n.

(...co nt inue d) 3 worthrequi rem en ts by the ti m e a n ot ic e is is su edat t he en d o f a p ro tra ct ed pr oc eed in g. By loo ki ng retro sp ect iv el y to th e ta xabl e y ear i nv ol ve d i n t he pr oc eed in g, the st atut e li m it s o r el im in at es ga m es m an sh ip th atm ig htbe us edto fit withi n t he ne t wo rthrequi rem en ts . There is no ev id en ce o f an y su ch ga m es m an sh ip inth is cas e.- 8 - Co nc lu si on Pet it io ne r can no t re co ve r it s co st s b ecau se itfai le d t o e st ab li sh th atitm et th e ap pl ic ab le ne t wo rth requi rem en t. Bec au se pe ti ti on er i s n oten ti tl edto rel ie f fo r th is reas on alo ne , we do no t ad dr es s the pa rti es ’ othe r arg um en ts . To re fle ctth e fo reg oi ng , An ap pr op ria te ord er wi ll be is su ed de nyin g p et it io ne r’s m ot io n, an d d eci si on wil l b e en te redforpe ti ti on er.