T.C. Memo. 2000-145

UNITED STATES TAX COURT

THOMAS J. MITCHELL AND JANICE M. MITCHELL, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 14056-98. Filed April 21, 2000.

Ps move the Court for litigation costs under sec.

7430, I.R.C. R had determined a deficiency in Ps’ 1994

and 1995 Federal income taxes and accuracy-related

penalties with respect thereto. R’s determination was

primarily attributable to an unclear application of a

recent statutory amendment. We rejected R’s

application of that amendment and held that Ps were not

liable for the resulting deficiencies or accuracyrelated penalties. Held: R’s position as to the

deficiencies was substantially justified; hence, Ps are

not entitled to an award of litigation costs with

respect thereto. Held, further, R’s position as to the

accuracy-related penalties was not substantially

justified; hence, we shall award litigation costs to Ps

to the extent that their claimed costs are attributable

to the accuracy-related penalties issue.
- 2 -

Arthur G. Jaros, Jr., for petitioners.

William I. Miller, for respondent.

MEMORANDUM OPINION

LARO, Judge: Petitioners move the Court under section 7430

for an award of $12,296 in litigation costs. Respondent objects

thereto and has filed with the Court a memorandum (respondent’s

memorandum) in support of his objection. We must decide whether

respondent’s positions in this proceeding were substantially

justified. We hold they were not to the extent discussed herein

and award petitioners $1,844 of litigation costs. Unless

otherwise indicated, section references are to the Internal

Revenue Code in effect for the relevant years, Rule references

are to the Tax Court Rules of Practice and Procedure, and dollar

amounts are rounded. References to petitioner are to Thomas J.

Mitchell.

Background

While residing in Lockport, Illinois, petitioners petitioned

the Court to redetermine respondent’s determination that they

were liable for Federal income tax deficiencies of $13,517 for

1994 and $14,407 for 1995 and accuracy-related penalties of

$2,703 for 1994 and $2,881 for 1995 for substantial

understatement of income tax. Respondent’s determination was
- 3 -

primarily attributable to his determination that petitioner’s tax

home was in Century City, California, rather than in Orland Park,

Illinois, as petitioners asserted. In Mitchell v. Commissioner,

T.C. Memo. 1999-283, we held that petitioner’s tax home was in

Orland Park, Illinois, and, accordingly, that petitioners were

not liable for the resulting deficiencies or accuracy-related

penalties. Petitioners filed the instant motion with the Court

shortly thereafter.

Discussion

We may grant petitioners’ motion if they meet the statutory

requirements for an award of litigation costs. See sec. 7430(b)

and (c). The parties agree that petitioners meet those

requirements if, and to the extent that, respondent's positions

in this proceeding were not substantially justified. Respondent

advanced two positions in this case, one as to the situs of

petitioner’s tax home and the other as to the applicability of

the accuracy-related penalties. We may award litigation costs to

petitioners to the extent that either of those positions was not

substantially justified; i.e., it did not have a reasonable basis

in law and fact. See Pierce v. Underwood, 487 U.S. 552, 563-565

(1988); Swanson v. Commissioner, 106 T.C. 76, 86 (1996). We test

the justification for each position independently. See Foothill

Ranch Co. Partnership v. Commissioner, 110 T.C. 94, 97 (1998);

Swanson v. Commissioner, supra at 92, 97. 
- 4 -

We begin with respondent’s determination that petitioner’s

tax home was in Century City. The thrust of respondent’s

position on this issue was that petitioner’s house was in

Illinois, and, pursuant to section 162(a), that his work in and

around Century City was considered indefinite because it occurred

in at least 5 different years. Petitioner’s tax home would have

been in the Century City area if his work there was indefinite,

as opposed to temporary. See Kroll v. Commissioner, 49 T.C. 557,

561-562 (1968), and the cases cited therein.

We do not believe that respondent’s position on this issue

was unreasonable in either fact or law. As respondent points out

in respondent’s memorandum, our Memorandum Opinion in this case,

Mitchell v. Commissioner, T.C. Memo. 1999-283, was the first to

apply a 1992 amendment to section 162(a) to the case of an

independent contractor such as petitioner. In accordance with

that amendment, a taxpayer “shall not be treated as being

temporarily away from home during any period of employment if

such period exceeds one year". We agree with respondent that it

was not unreasonable for him to have interpreted this amendment

adversely to petitioners under the facts herein. See Estate of

Wall v. Commissioner, 102 T.C. 391 (1994).

As to respondent’s position on the applicability of the

accuracy-related penalties, we conclude differently. Respondent

sets forth in respondent’s memorandum no legitimate justification
- 5 -

for his position on this issue, asserting, in part, that the fact

“that there was no prior case authority under the facts of this

case * * * would appear to defeat petitioners’ argument that

respondent’s position [on this issue] was unreasonable.” We

disagree. We do not believe it reasonable for respondent to

assert an accuracy-related penalty under section 6662(a) in a

case of first impression involving the unclear application of an

amendment to the Internal Revenue Code. See Bunney v.

Commissioner, 114 T.C. (2000); Lemishow v. Commissioner, 110

T.C. 110, 114 (1998); Hitchins v. Commissioner, 103 T.C. 711, 720

(1994); see also Everson v. United States, 108 F.3d 234, 237-238

(9th Cir. 1997). Given the lack of any precedent disfavoring

petitioners or favoring respondent, it was unreasonable for

respondent to have prosecuted his determination that petitioners

had not with substantial authority or in good faith taken a

position that petitioner’s tax home was in Orland Park, Illinois. 

The accuracy-related penalty provisions do not apply to a nontax

shelter case to the extent that a taxpayer has substantial

authority for a position, see sec. 6662(d)(2)(B) and (C), and

substantial authority exists when the weight of authorities

supporting that position is substantial vis-a-vis the weight of

authorities supporting a contrary position, see sec.

1.6662-4(d)(3)(i), Income Tax Regs. Petitioners acted reasonably

and in good faith in taking their position. Subject to a narrow
- 6 -

exception that is not pertinent here, the accuracy-related

penalty under section 6662(a) is inapplicable “with respect to

any portion of an underpayment if it is shown that there was a

reasonable cause for such portion and that the taxpayer acted in

good faith with respect to such portion.” Sec. 6664(c)(1); see

also sec. 6664(c)(2). Respondent’s position as to the accuracyrelated penalties was unreasonable in both fact and law.

We turn to apportion petitioner’s litigation costs to the

accuracy-related penalties issue. Respondent does not contest

the reasonableness of petitioners’ costs for the entire

litigation, and neither do we. We do not believe, however, that

many of those costs are attributable to petitioners’ defense of

respondent’s determination of the accuracy-related penalties. 

Petitioners’ itemized statement of litigation costs does not set

forth with any specificity the amount of those costs that is

attributable to the accuracy-related penalties issue; thus, we

proceed to determine that apportioned amount on the basis of the

record. See Ragan v. Commissioner, 135 F.3d 329, 335 (5th Cir.

1998), affg. T.C. Memo. 1995-184, and the cases cited therein;

see also Dixon v. Commissioner, T.C. Memo. 2000-116; Lozon v.

Commissioner, T.C. Memo. 1997-537. 

Petitioners devoted little time at trial to the accuracyrelated penalties issue, and they spent even less time on that

issue on brief. They did, however, devote much of the instant
- 7 -

motion to the recovery of litigation costs due to respondent’s

determination of the accuracy-related penalties. We bear in mind

the fact that section 7430 allows taxpayers to recover litigation

costs incurred in the preparation and prosecution of a motion

requesting such costs, see Han v. Commissioner, T.C. Memo. 1993-

386, and we apportion 15 percent of petitioners’ requested costs

to the accuracy-related penalties issue. We award petitioners

$1,844 in litigation costs.

We have considered all arguments in this case and, to the

extent not discussed above, find them to be irrelevant or without

merit. To reflect the foregoing,

An appropriate order will be

issued, and decision will be entered

under Rule 155.