MEMORANDUM OPINION
VASQUEZ, JUDGE: This case is before the Court on petitioners' motion for award of litigation and administrative costs and attorney's fees pursuant to
After concessions, 2 the issues for decision are: (1) Whether petitioners are the "prevailing party" in the underlying tax case; (2) whether petitioners unreasonably protracted the Court's proceeding; and (3) whether the amounts of administrative and litigation costs claimed by petitioners are reasonable.
BACKGROUND
Petitioners are husband and wife. Mr. Johnson operated Ford and Lincoln-Mercury motor vehicle dealerships. The substantive issues in Johnson I were: (1) Whether petitioners were entitled to defer recognition of gain on the disposition of certain property1999 Tax Ct. Memo LEXIS 147">*150 pursuant to section 1033; (2) whether petitioners were liable for the fraud penalty pursuant to section 6663(a), or, in the alternative, the accuracy-related penalty pursuant to section 6662(a) for 1992; and (3) whether petitioners were liable for the addition to tax for failure to file timely their return for 1992. We held that (1) petitioners were entitled to defer recognition of gain on the disposition of that property pursuant to section 1033; (2) petitioners were not liable for the fraud or accuracy-related penalties; and (3) we lacked jurisdiction over the addition to tax for failure to file timely.
DISCUSSION
PREVAILING PARTY
To be a "prevailing party" (1) the taxpayer must substantially prevail with respect to either the amount in controversy or the most significant issue or set of issues presented, and (2) at the time the petition in the case was filed, the taxpayer must meet the net worth requirements of
Respondent contends, inter alia, that petitioners have not satisfied the net worth requirements.
NET WORTH REQUIREMENTS
Rule 231(b)(4) provides that 1999 Tax Ct. Memo LEXIS 147">*152 a motion for litigation or administrative costs shall contain "A statement that the moving party meets the net worth requirements, if applicable, of
1999 Tax Ct. Memo LEXIS 147">*153 Petitioners' motion for costs contained a statement that petitioners satisfied the net worth requirements. Petitioners submitted an affidavit that stated their net worth was less than $ 4 million jointly and $ 2 million individually. Petitioners also submitted a schedule of their assets and liabilities as of the date the petition was filed (first joint net worth schedule). The first joint net worth schedule listed the following assets and liabilities:
Assets Value
______ _____
Savings accounts and or certificates $ 62,834
Checking accounts 24,000
Annuity 118,615
Investment in dealership 734,487
Real estate 7,354,000
Home furnishings 125,000
Total assets 8,418,936
Liabilities Value
___________ _____
Unsecured bank loans $ 71,028
Mortgages, trust deeds or
contracts payable 4,541,660
Total liabilities 1999 Tax Ct. Memo LEXIS 147">*154 4,612,688
The first joint net worth schedule listed the combined net worth of petitioners to be $ 3,806,248. The first joint net worth schedule did not list either Mr. Johnson's or Mrs. Johnson's individual net worth.
Respondent filed an objection to petitioners' motion in which respondent argues that petitioners' affidavit and first joint net worth schedule are insufficient, and that petitioners have failed to prove that they meet the net worth requirements. Respondent contends that (1) petitioners did not itemize their assets or provide their cost bases; 5 (2) it is unclear whether the listed liabilities are personal liabilities of petitioners or corporate liabilities (i. e., liabilities of Mr. Johnson's car dealership); (3) if the liabilities are personal liabilities, it is unclear whether they are joint liabilities or separate liabilities of either Mr. Johnson or Mrs. Johnson; (4) petitioners failed to identify which assets are community property and which are separate property; and (5) the $ 2 million net worth limitation applies separately to each taxpayer, and the first joint net worth schedule lists the aggregate net worth of petitioners as less than $ 4 million 1999 Tax Ct. Memo LEXIS 147">*155 but does not establish the net worth of each petitioner.
Petitioners filed a reply to respondent's objection and again submitted an affidavit that stated their net worth was less than $ 4 million jointly and $ 2 million individually. Petitioners also submitted three net worth schedules: One listing the net worth of both petitioners as of the date the petition was filed (second joint net worth schedule), one listing the net worth of Mr. Johnson as of the date the petition was filed (Mr. Johnson's net worth schedule), and one listing the net worth of Mrs. Johnson as of the date the petition was filed (Mrs. Johnson's net worth schedule).
The second joint net worth schedule listed the following assets:
Assets Value
______ 1999 Tax Ct. Memo LEXIS 147">*156 _____
Savings accounts andor certificates $ 103,337
Checking accounts 10,021
Investment in dealership 1,328,800
Real estate 2,277,476
Home furnishings 125,000
Total assets 3,844,634
______________________________________________________________________
[12] The real estate assets were broken down as follows:
______________________________________________________________________
Accu-
Acqui- mulated
Real sition Depre- Net Book
Estate Cost ciation Value Value
______________________________________________________________________
Personal residence $ 405,000 -- -- $ 405,000
Fox Field Bldg. 423,321 $ 116,775 $ 306,546 --
Fox Field equip. 72,000 45,530 26,470 --
El Monte Bldg. 793,279 187,201 606,078 --
El Monte Bldg. points 8,000 1,4671999 Tax Ct. Memo LEXIS 147">*157 6,533 --
Subtotal -- -- -- 945,627
CRV 721,000 721,000 -- -0-
WASU rental, 40,000 -0- 40,000 --
land
WASU rental, 185,000 23,825 161,175 --
rental
Subtotal -- -- -- 201,175
Ford dealership:
land 111,334 -0- 111,334 --
bldg. 684,009 69,669 614,340 --
computer 52,496 52,496 -0- --
Subtotal -- -- -- 725,674
Real estate total -- -- -- 2,277,476
[13] The second joint net worth schedule listed the following
liabilities:
Liabilities Value
___________ _____
Unsecured bank loans $ 71,028
Secured loans 471,000
Taxes payable 619,220
Real estate loans:
First Union Mortgage 1999 Tax Ct. Memo LEXIS 147">*158 401,782
CA-Jon Hangar project loan 591,140
CRV 1,712,094
Havasu rental 160,387
Antelope Valley Ford & Shuttle
Lincoln-Mercury facilities loan 3,709,959
Total liabilities 7,736,610
The second joint net worth schedule determined the combined net worth of petitioners to be ($ 3,891,976).
Mr. Johnson's net worth schedule and Mrs. Johnson's net worth schedule are identical. Mr. Johnson's net worth schedule and Mrs. Johnson's net worth schedule each listed the following assets:
Assets Value
______ _____
Savings accounts andor certificates $ 51,669
Checking accounts 5,011
Investment in dealership 664,400
Real estate 1,138,738
Home furnishings 62,500
Total assets 1,922,317
[16] The real estate assets were broken down as follows:
1999 Tax Ct. Memo LEXIS 147">*159 Accu-
Acqui- mulated
Real sition Depre- Net Book
Estate Cost ciation Value Value
______ _______ _______ ________ _____
Personal residence $ 405,000 -- -- $ 202,500
Fox Field Bldg. 423,321 $ 116,775 $ 306,546 --
Fox Field equip. 72,000 45,530 26,470 --
El Monte Bldg. 793,279 187,201 606,078 --
El Monte Bldg. 8,000 1,467 6,533 --
points
Subtotal -- -- -- 472,814
CRV 721,000 721,000 -- -0-
WASU rental, 40,000 -0- 40,000 --
land
WASU rental, 185,000 23,825 161,175 --
rental
Subtotal -- -- -- 100,588
Ford dealership:
land 111,334 -0 - 111,334 --
bldg. 684,009 69,669 614,340 --
computer 52,496 52,496 1999 Tax Ct. Memo LEXIS 147">*160 -0- --
Subtotal -- -- -- 362,837
Real estate total -- -- -- 1,138,738
[17] Mr. Johnson's net worth schedule and Mrs. Johnson's net
worth schedule each listed the following liabilities:
Liabilities Value
___________ _____
Unsecured bank loans $ 35,514
Secured loans 235,500
Taxes payable 309,610
Real estate loans:
First Union Mortgage 200,891
CA-Jon Hangar project loan 295,570
CRV 856,047
Havasu rental 80,194
Antelope Valley Ford & Shuttle
Lincoln-Mercury facilities loan 1,854,980
Total liabilities 3,868,305
Mr. Johnson's net worth schedule and Mrs. Johnson's net worth schedule determined the individual net worth of each petitioner to be ($ 1,945,988).
Essentially, petitioners split the amounts contained on the second joint net worth schedule in1999 Tax Ct. Memo LEXIS 147">*161 half, attributing one-half to Mr. Johnson and the other half to Mrs. Johnson.
Petitioners argue that to satisfy the net worth requirements they only need to submit a statement, supported by an affidavit executed by the moving party, that they meet the net worth requirements. We disagree.
Petitioners were put on notice that respondent was specifically objecting to an award of administrative and litigation costs because petitioners failed to prove they meet the net worth requirements. After a taxpayer is put on notice that the Commissioner is specifically objecting to an award of administrative and/ or litigation costs because of the taxpayer's failure to prove his net worth, the taxpayer must provide supporting information (i. e., evidence) to establish his net worth. See
Petitioners submitted no evidence supporting the amounts listed in the various net worth schedules or the statements in their original motion and supporting affidavits1999 Tax Ct. Memo LEXIS 147">*162 that they meet the net worth requirements. Furthermore, respondent submitted evidence that the land upon which Mr. Johnson's motor vehicle dealerships are located is Mr. Johnson's sole and separate property. Petitioners, in their reply, failed to address whether this or any other property listed on the various net worth schedules was separate or community property. Additionally, petitioners included half the value of each property in both Mr. Johnson's net worth schedule and Mrs. Johnson's net worth schedule.
The various net worth schedules submitted by petitioners leave doubt as to their veracity. The first joint net worth schedule and the second joint net worth schedule are almost $ 8 million apart as to petitioners' joint net worth as of the date the petition was filed. The amounts listed on the second joint net worth schedule changed by tens of thousands of dollars for petitioners' checking and savings accounts, changed by hundreds of thousands of dollars for their investment in the dealership, and changed by millions of dollars for their real estate from the amounts listed on the first joint net worth schedule. Petitioners' liabilities also increased by over $ 3 million from 1999 Tax Ct. Memo LEXIS 147">*163 the first joint net worth schedule to the second joint net worth schedule.
Additionally, petitioners included an annuity as an asset in the first joint net worth schedule but did not list this asset in the second joint net worth schedule or in their individual net worth schedules. The second joint net worth schedule also included over $ 600,000 in taxes that was not listed on the first joint net worth schedule. Petitioners did not explain any of these discrepancies.
Petitioners supplied no explanation why their calculations of their net worth as of the time the petition in the case was filed changed so drastically in the less than 2 months between the submission of their original motion (which contained the first joint net worth schedule) and their reply to respondent's objection (which contained the second joint net worth schedule and the individual net worth schedules).
Under the circumstances present in this case, we do not feel compelled to accept petitioners' unsubstantiated, conclusory, and self-serving assertion that they meet the net worth requirements. 6 See
In light of our holding that petitioners failed to prove they meet the net worth requirements, we need not address whether (1) respondent's position was substantially justified; (2) petitioners unreasonably protracted the Court's proceeding; or (3) the amounts of administrative1999 Tax Ct. Memo LEXIS 147">*165 and litigation costs claimed by petitioners are reasonable.
Accordingly, we hold that petitioners are not entitled to an award of administrative or litigation costs.
To reflect the foregoing,
An appropriate order be issued.
1. Unless otherwise indicated, all section references are to the Internal Revenue Code, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. Respondent concedes that petitioners exhausted their administrative remedies and substantially prevailed.↩
3. This requirement applies only to litigation costs. See
4. The Taxpayer Relief Act of 1997, Pub. L. 105-34, sec. 1453(a), 111 Stat. 788, 1055 (effective with respect to proceedings commenced after Aug. 5, 1997), amended
5. Although the term "net worth" is not statutorily defined, the "acquisition cost" of the asset, rather than the fair market value, should be used. See
6. On Apr. 12, 1999, petitioners filed a "Statement of Errata" in which they state that their joint net worth schedules contained several errors due to "misunderstandings" and "miscommunications". Petitioners attached a third joint net worth schedule that listed their combined net worth as $ 1,097,312. Petitioners submitted no evidence supporting the amounts listed in this schedule. We believe that this submission further supports our conclusions in this case.↩