1 Unless otherwise indicated, all section references are to

the Internal Revenue Code. All Rule references are to the Tax

(continued...)

 T.C. Memo. 1995-527

UNITED STATES TAX COURT

BARBARA KAHN-LANGER, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 18238-94. Filed November 7, 1995.

Barbara Kahn-Langer, pro se.

Patricia Montero, for respondent.

MEMORANDUM OPINION

PANUTHOS, Chief Special Trial Judge: This matter is before

the Court on petitioner's Motion for Litigation and

Administrative Costs, pursuant to section 7430 and Rule 231.1
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1(...continued)

Court Rules of Practice and Procedure.

At the time of filing the petition herein, petitioner

resided in Scotts Valley, California.

The underlying claim which gave rise to the present dispute

involved the classification of certain payments received by

petitioner during 1990 from her former husband, Lloyd Leichter

(Leichter), pursuant to a stipulated judgment of divorce. An

attachment to the judgment was signed by the judge on June 4,

1990, and filed by the Superior Court of California, County of

Santa Clara, on June 11, 1990. This four-page document includes

the amounts Leichter agreed to pay to petitioner. Specifically,

it reads:

The previous spousal support award of

$1,600.00/month shall remain in force until and unless

further court order. Additionally, [Leichter] shall

pay to [petitioner] $1,000.00/month in child support

until Tia graduates from high school or July 1, 1989,

whichever occurs last. The amount of [petitioner's]

spousal support shall increase by $1,000.00/month for a

period of twelve years (144 months). This increase

shall not be modifiable nor shall such payment by

[Leichter], or receipt by [petitioner] be used by

[Leichter] as grounds for reduction of spousal support,

nor shall said $1,000.00 amount be includable as income

on any future request for response to modify the amount

of spousal support. The court shall reserve

jurisdiction over the issue of spousal support payable

to the parties.

Attached to the document is a promissory note which obligates

Leichter to pay $108,000 to petitioner in order to equalize their

community property interests "in the form of additional spousal
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support beginning on or about July 1, 1989, and continuing to

each month thereafter for a period of twelve years at the rate of

$1,000.00 a month." The promissory note is not referenced in the

stipulated judgment or attachment thereto. The original note

attached to the judgment was not signed by Leichter. The terms

of the note require payment in full on the earlier of July 1,

2001, or within 60 days from notice of the death of petitioner. 

The note also indicates that petitioner "is willing to absorb and

incur the tax liability, if any, associated with spousal support

payments." 

Petitioner reported alimony received from her former husband

in the amount of $12,300 on her 1990 Federal income tax return. 

Leichter claimed a deduction for alimony paid to petitioner on

his 1990 Federal income tax return in the amount of $24,472.

An initial examination of the divorce decree at the Superior

Court of California revealed that the note attached to the

divorce decree was unsigned. When Leichter was questioned about

the unsigned note, he indicated that he did not recall signing

the note, nor did he believe it to be part of the divorce decree. 

Leichter apparently contends that the payments were alimony and

the note was not part of the divorce decree.

At a later date, respondent was presented with a copy of the

promissory note bearing what purports to be Leichter's signature. 

The date next to the signature is June 29, 1990. It is not clear

from the record when respondent actually received this
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2 Initially this document was entered as a stipulated

decision on Mar. 31, 1995. By order dated June 9, 1995, the

Court vacated the decision and filed said document as a

Stipulation of Settlement in order to permit the filing of

petitioner's motion for litigation and administrative costs.

information. Attached to petitioner's motion for litigation and

administrative costs is a letter dated April 23, 1994, addressed

to respondent's representative. The letter reflects that a

facsimile was sent to respondent on April 22, 1994, which

included a copy of the promissory note and the judgment of

divorce.

In a statutory notice of deficiency, dated September 30,

1994, respondent determined that petitioner failed to report

alimony income in the amount of $12,152. Respondent also

determined a penalty pursuant to section 6662(a) in the amount of

$359.20. Petitioner filed a petition with the Court seeking a

redetermination of the deficiency on October 6, 1994. Respondent

filed her answer on November 30, 1994. The parties, on June 9,

1995, filed a Stipulation of Settlement which reflected their

agreement to all issues in the case. The document reflects no

deficiency or "addition to tax" pursuant to "section 6662" for

1990.2 Petitioner requests this Court to award her reasonable

administrative and litigation costs in the amount of $2,626.

In general, section 7430(a) allows a taxpayer who is a

prevailing party in a civil tax proceeding to recover reasonable

administrative and litigation costs incurred in such proceeding. 
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Petitioner bears the burden of proving that she is entitled to

the claimed costs. Rule 232(e); Rutana v. Commissioner, 88 T.C.

1329, 1332 (1987). To achieve this end, petitioner must

demonstrate (1) that she has exhausted the administrative

remedies available to her within the Internal Revenue Service

(IRS), sec. 7430(b)(1), (2) that she is the prevailing party,

sec. 7430(a), and (3) that she did not unreasonably protract the

proceedings, sec. 7430(b)(4). Respondent concedes that

petitioner exhausted her administrative remedies and did not

unreasonably protract the proceedings. Therefore, to be awarded

reasonable administrative and litigation costs, petitioner must

prove that she is the prevailing party.

A prevailing party is one who (1) establishes that

respondent's position was not substantially justified; (2)

substantially prevailed with respect to the amount in controversy, or with respect to the most significant issue or set of

issues presented; and (3) has a net worth which does not exceed

$2 million at the time the civil tax proceeding commences. Sec.

7430(c)(4).

Respondent argues that petitioner has not demonstrated that

she is a prevailing party within the meaning of section

7430(c)(4)(A). Specifically, respondent contends that petitioner

has not satisfied the net worth requirements pursuant to Rule

231, nor has she demonstrated that respondent's position was not
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3 Respondent concedes that petitioner substantially

prevailed in the litigation.

substantially justified.3 Petitioner argues that respondent's

position was not substantially justified because the payments she

received were not alimony within the meaning of section 71. 

Petitioner asserts that the payments were not alimony because

they were made in accordance with the terms of a promissory note

which provided that the payments would continue after her death.

First we must determine whether petitioner has met her

burden of proving that respondent's position in the civil

proceeding was not substantially justified. For purposes of

administrative costs, respondent's position is measured as of the

earlier of the date of the taxpayer's receipt of the IRS Office

of Appeals notice of decision or the date of the notice of

deficiency. Sec. 7430(c)(7)(B). Since there was no notice of

decision from the IRS Office of Appeals, we must look to the date

of the notice of deficiency. Id. The notice of deficiency in

this case is dated September 30, 1994. Thus, we will consider

respondent's position as of this date in determining whether we

will award petitioner administrative costs.

For purposes of litigation costs in a judicial proceeding,

"the Commissioner initially takes a position on the date she

files her answer in response to the petition." Lockett v.

Commissioner, T.C. Memo. 1994-144 (citing Huffman v.

Commissioner, 978 F.2d 1139, 1148 (9th Cir. 1992), affg. in part,
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revg. in part on other grounds and remanding T.C. Memo. 1991-

144); Han v. Commissioner, T.C. Memo 1993-386. Respondent filed

her answer on November 30, 1994. Thus, we will consider

respondent's position as of this date in determining whether to

award petitioner litigation costs. Respondent's position, namely

that petitioner failed to recognize certain payments received

from her former husband as alimony, did not change between

September 30 and November 30, 1994.

In determining whether respondent's position was

substantially justified on each of these dates, we will consider

the basis of respondent's position and the manner in which

respondent maintained that position. Wasie v. Commissioner, 86

T.C. 962, 969 (1986). Factors which may be considered include:

(1) whether the government used the costs and expenses

of litigation against its position to extract

concessions from the taxpayer that were not justified

under the circumstances of the case, (2) whether the

government pursued the litigation against the taxpayer

for purposes of harassment or embarrassment, or out of

political motivation, and (3) such other factors as the

Court finds relevant. [Sher v. Commissioner, 89 T.C.

79, 85 (1987) (quoting H. Rept. 97-404, at 12 (1981)),

affd. 861 F.2d 131 (5th Cir. 1988).]

A position is substantially justified if the position is

"justified to a degree that could satisfy a reasonable person". 

Pierce v. Underwood, 487 U.S. 552, 565 (1988). Additionally, the

position must have a reasonable basis both in law and in fact. 

Id.
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4 Sec. 215 provides as follows:

SEC. 215(a). General Rule.--In the case of an

individual, there shall be allowed as a deduction an

amount equal to the alimony or separate maintenance

payments paid during such individual's taxable year.

(b) Alimony or Separate Maintenance Payments

Defined.--For purposes of this section, the term

"alimony or separate maintenance payment" means any

alimony or separate maintenance payment (as defined in

section 71(b)) which is includible in the gross income

of the recipient under section 71.

We first examine the basis for respondent's position in the

instant case. Respondent based the deficiency on several

grounds: (1) Inconsistent positions were taken on petitioner's

and Leichter's Federal income tax returns with respect to the

same payments; (2) the promissory note which extended payments

beyond the death of petitioner was not incorporated into the

divorce decree; and (3) the original promissory note which is

part of the records of the Superior Court of California was not

signed.

In general, section 71 mandates the inclusion of alimony in

the recipient's gross income, and section 215 allows the payor to

deduct the same from gross income. Secs. 71(a), 215(a),

62(a)(10). Section 215(b) defines an "alimony or separate

maintenance payment" as a payment defined in section 71(b)

includable in the gross income of the recipient under section

71.4 Sec. 215(b). Generally, alimony includes payments between

spouses or former spouses, pursuant to a written instrument or
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decree of divorce, that cease after the death of the payee

spouse. Sec. 71(b).

Petitioner argues that, because the note obligates Leichter

to make payments beyond the death of petitioner, it is clear that

these payments were not alimony. Petitioner concludes,

therefore, that respondent's position was unreasonable. 

Respondent contends that her position was reasonable under the

circumstances.

In this case, respondent acted reasonably in raising the

issue of whether the parties intended the payments to be alimony. 

The fact that the attachment to the judgment of divorce did not

incorporate the promissory note by reference, coupled with

respondent's uncontested assertion that the original note was

unsigned, and that the parties had taken inconsistent positions

on their returns, reasonably led respondent to question the

nature of the payments.

 Petitioner cites Cunningham v. Commissioner, T.C. Memo.

1994-474, and Stokes v. Commissioner, T.C. Memo. 1994-456, for

the proposition that payments made to a former spouse that extend

beyond the former spouse's death are not alimony payments, and,

thus, are not deductible under section 215. Section 71(b)(1)(D)

provides that an alimony payment is--

any payment in cash if * * * there is no liability to

make any such payment for any period after the death of

the payee spouse and there is no liability to make any

payment (in cash or property) as a substitute for such

payments after the death of the payee spouse.
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Although petitioner is correct that payments which continue after

the recipient's death are not alimony, she does not address the

reasonableness of respondent's position considering these facts

and circumstances.

Petitioner has not demonstrated that respondent's position

was not substantially justified. Petitioner has not proved that

respondent's position lacked a reasonable basis in fact or law at

the time the notice of deficiency was issued or the answer was

filed, in light of the information then available to respondent.

In fact, the record fails to detail the events that occurred

which led to respondent's eventual concession of this case.

Consequently, petitioner is not a prevailing party as

defined in section 7430(c)(4). As a result of this holding, we

need not address the question of whether petitioner has satisfied

the other requirements of section 7430. Petitioner is not

entitled to an award for reasonable administrative and litigation

costs.

To reflect the foregoing,

 An appropriate order and

 decision will be entered.