TAX COURT OPINION

Case: William & Lisa Brunsell
Docket Number: 11763-06
Judge: Kroupa
Opinion Type: memo
Filed: 11/03/2008
Pages: 7

T .C . Memo . 008-24 8 UNITED STATE S TAX COUR T WILLIAM AND LISA BRUNSELL, Petitioners v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 11763-06 . Filed November 3 . 2008 . . Jeffrey D . Moffatt , for petitioner . Scott B . Burkholder , fot respondent . MEMO NDUM OPINIO N KROUPA, Judge : This case is )efore the Court o n petitioners' motion for liti ation costs including attorney's fees pursuant to section 743 ' and Rule 231 . 'All section references ire to the Internal Revenue Code, and all Rule references are o the Tax Court Rules of Practice and Procedure, unless otherw'se(cid:127)indicated . SERVED NOV - .3 2008 -2- We are asked to decide whether petitioners are entitled t o recover litigation costs . We hold that they are not . Background Petitioners. reside in California . Respondent issue d petitioners a Letter 566-B EZ (30-day letter), notifyin g petitioners that respondent was examining their income tax retur n for 2004, specifically with respect to the claimed dependency exemptions and child tax credit .2 The 30-day letter requested documentation to support petitioners' claiming exemptions and credits for three children listed on the return for .2004 and informed petitioners that respondent would issue a deficiency notice if petitioners failed to provide the necessar y documentation . Petitioners timely submitted additional documentation , including school records for the children showing the'children's address as petitioners' address, the entry of judgment finalizing petitioner wife's divorce from her ex-husband, and the marital settlement agreement giving sole physical custody . of the thre e children to petitioner wife . Respondent mailed petitioners .a Letter 692 on March 6, 2006 , stating that even though respondent had received petitioners ' earlier mailing, petitioners still needed to provide additiona l 2Petitioners still mistakenly believe that respondent's deficiency notice denied the earned income credit (EIC) . Petitioners did . not seek the EIC for 2004 . -3- information to claim the three dep ndency exemptions and the child tax credit . Respondent gave petitioners 15 days to submit this additional information . The , etter also advised petitioner s that they could appeal the propos e changes to the Appeals Offic e and included a copy=of Publicatio n F Process, which explained how to appeal respondent's propose d determination . Petitioners neither pr o ore information within the 15-day period nor made an ap ea l protest to the Appeal s Office . Respondent issued a defic ency .notice on April 17, 2006 , disallowing the three depend ncy e emptions and the child ta x credit . Petitioners did notlrequ e t an Appeals Office conference or file a protest before the defic ency notice was mailed, nor did they participate in an A peal s Office conference befor e filing the petition with thi Cou r Respondent conceded, of er .pe itioners filed the petition with this Court,. that petitioners wed no deficiency . Petitioners filed a motion for rea onable litigation costs seeking $4,916 in fees paid to th e r attorney, $60 in court costs, and an additional $10,084 ir k fees that they have not ye t paid their attorney but whic they seek from the Court . 3 3Petitioners did not fill an additional affidavit containin g detailed information regarding fee arrangements, hours spent, etc ., as required by Rule 232(d) . Respondent objects to this motilon . Neither party requested a -4- hearing. . Dis'bussion We .now address whether petitioners may recover any of th e $15,060 in litigation costs . The prevailing party may be awarde d reasonable litigation costs in~any court proceeding by or agains t the United States . Sec . 7430(a)(2) . If the Government establishes that its position was substantially justified, the moving party will not be treated as having prevailed . Sec . 743.0(c)(4)(B) .- A prevailing party mustestablish,_to obtain such an award, that (1) the party has exhausted the administrative remedies available ; (2) the party has substantially prevailed i n the controversy ; (3) the party satisfies certain net wort h requirements ; (4) the party has not unreasonably protracted the proceedings ; and (5) the amount of costs is reasonable .' Sec . 7430(b) and (c) . The requirements of section 7430 are conjunctive, and the failure to satisfy any one of the requirements precludes an award of costs . See sec . 7430(b) and (c) ; see also Rule 232(e) ; Swanagan v . Commissioner , T .C . Memo . 2000-294 . 4Respondent contends that' petitioners' evidence of the costs they incurred is inadequate to satisfy this requirement . It is not necessary, however, to reach this issue because petitioners do not satisfy the threshold requirement of exhausting their administrative remedies . -5- A threshold requirement exis t s for the recovery of litigations costs . The taxpayer ust have exhausted th e available administrative remedie s before filing a petition . Sec . 7430(b)(1) ; Burke v . Commissioner , T .C . Memo . 1997-127 ; sec . 6s . A taxpayer exhausts his o r Appeals Office conference i s available only if the taxpayer participated in such a conferenc e before filing a petition . B rk e 301 .7430-1(b)(1), (g), Exam Petitioners did not request nAppeals Office conference or fil e a protest before the deficie cy participate in an Appeals Of ice conference before filing the petition with this Court . N ne of the limited exceptions applies to relieve petitioners of th requirement that they participate in an Appeals Office conference to be treated as .having exhauste d available administrative remedies . See Shaw v . Commissioner , T .C . Memo . 2005-106 . The Appeals Office's mi sio n is to resolve ta x controversies, without litigation ." 4 Administration, Internal Revenue Manual (CCH), pt . 8 . 1 .1 .1( ), at 27,003-(Oct . 23, 2007) . The Internal Revenue Service is-se king facts during the Appeals phase to decide whether it siould etermine a deficiency an d thereby force a taxpayer to 'ncur 1 itigation costs or pay th e tax . See, e .g ., Shaw v . CoDn issionler , supra . This Court has -6- previously warned taxpayers and their counsel that-waiving the opportunity for an Appeals Office conference does not comply with the exhaustion-of-administrative-remedies . requirement or preserve a right to recover litigation costs . Haas & Associate s Accountancy Corp . v . Commissioner , 117 T .C . 48, 62 (2001), affd . 55 Fed . Appx . 476 (9th Cir . 2003) . This Court seeks to preserve the role that the administrative appeal-process plays i n it resolving tax disputes by requiring taxpayers to participate in an Appeals Office conference before litigation . See Burke v . Commissioner , supra (citing H . .Rept . 97-404, at 13 (1981) an d Senate Comm . on Finance, Technical Explanation of Committee Amendment, 127 Cong . Rec . 32070 (Dec . 16, 1981)) . We have considered all the arguments of the parties, and, to the'extent we have not addressed them, we find them to be irrelevant,.. moot, or meritless . We hold that petitioners did not exhaust their administrative remedies by participating in a n Appeals Office conference, and, therefore, petitioners are not entitled to an award of litigation costs . Accordingly, we need not, nor do we, address whether petitioners satisfied any of the remaining requirements of section 7430 . I To reflect the foregoin An order will be issue d denving Petitioners' motion or litigation costs, an d lecision will be entered for petitioners .