86 T.C. 962">*963 OPINION

This case is before the Court solely upon petitioner's motion for litigation costs pursuant to section 7430. ¹ The issues for consideration are (1) whether respondent's position in the civil proceeding was unreasonable, and (2) whether pre-litigation conduct of respondent should be considered in determining reasonableness and, if so, whether pre- and/or post-litigation costs should be awarded.

The record in this case1986 U.S. Tax Ct. LEXIS 109">*113 consists of the parties' pleadings, motions, memoranda of authorities, documents attached to the above, and oral argument offered at a September 18, 1985, hearing on petitioner's motion at Minneapolis, Minnesota.

Respondent, in a statutory notice of deficiency dated May 9, 1984, determined first tier excise tax deficiencies totaling $ 49,810.83 and second tier excise tax deficiencies totaling $ 30,000 against petitioner, a foundation manager, for the 86 T.C. 962">*964 taxable years 1980, 1981, and 1982 pursuant to section 4941. The determination was based upon petitioner's participation, as a foundation manager, in an act of self-dealing between the Wasie Foundation (Foundation) and Murphy Motor Freight Lines, Inc. (Murphy).

In June 1980, Murphy purchased 438,680 shares of its own common stock from Foundation by a 25-percent cash payment and 75 percent in subordinated 7-year debentures bearing 8 1/4-percent interest for a certain period of time. During the period that the 8 1/4-percent debentures were outstanding, the prime rate ranged between 15 percent and 20 percent.

Murphy may be considered a "self-dealer" because of a donation to Foundation of less than $ 10,000 several years before. 1986 U.S. Tax Ct. LEXIS 109">*114 The section 4941(a)(1) (5-percent) initial excise tax on a self-dealer would have approximated $ 118,000 and the section 4941(b)(1) (200-percent additional) excise tax would have approximated $ 2,600,000 for the 3-year period. The section 4941(b)(1) additional tax can be avoided by correction of the act of self-dealing, which in this setting would have been payment of the excess of the fair market value of the use of money over the amount actually paid. Murphy might have had to pay over one-half million dollars to Foundation to correct the difference between the market rate and 8 1/4-percent rate on the debentures.

Petitioner argues that respondent took no action with regard to Murphy and instead permitted Murphy to obtain special legislation to alleviate any section 4941 burden concerning the purchase of the 438,680 shares of common stock. Petitioner goes a step further and accuses respondent of conspiring with Murphy to facilitate the statutory change which provided relief to Murphy. The explanation of section 312 of the Deficit Reduction Act of 1984, Pub. L. 98-369 (July 18, 1984), prepared by the staff of the Joint Committee on Taxation, did specifically mention Murphy, and1986 U.S. Tax Ct. LEXIS 109">*115 the provisions clearly provide relief for petitioner's predicament. ²

1986 U.S. Tax Ct. LEXIS 109">*116 86 T.C. 962">*965 Petitioner and Foundation were averse to the statutory relief and at all times wished respondent to assert section 4941 excise tax against Murphy. If respondent had issued a statutory notice to both Murphy and petitioner, Foundation would have benefited from Murphy's correction of the self-dealing by payment of about one-half million dollars to Foundation, and petitioner would have been responsible for 86 T.C. 962">*966 only the first tier tax of about $ 50,000. Apparently, in anticipation of the legislation, respondent did not issue a statutory notice to Murphy and requested petitioner to execute a waiver as to the statute of limitations on assessment. Petitioner refused and respondent issued a statutory notice to petitioner, without first issuing a notice to Murphy.

Petitioner contends that respondent is not permitted to issue a statutory notice to a foundation manager without first issuing a statutory notice to the self-dealer. Sections 4941(a)(2) and 4941(b)(2) provide, "In any case in which a tax [or an additional tax] is imposed by paragraph (1), [there is imposed on the foundation manager]." "[Paragraph] (1)" concerns the tax on self-dealers. 1986 U.S. Tax Ct. LEXIS 109">*117 Petitioner argues that the statutory use of the word "imposed" would require respondent to issue a statutory notice to the self-dealer before a statutory notice may be issued to the foundation manager. Although petitioner's argument infers that respondent did not have statutory authority to issue a statutory notice to her, petitioner did not file a motion to dismiss for lack of jurisdiction to summarily dispense with respondent's determination. Instead, petitioner filed a petition invoking the jurisdiction of the Court and alleging that respondent's notice was defective and that the second tier tax (sec. 4941(b)(2)) should not be imposed on petitioner because it is not within her control to correct the act of self-dealing. Furthermore, petitioner did not seek summary judgment or any other abbreviated method of case resolution.

The sequence of events is instructive in this case. The statutory notice was mailed on May 9, 1984, after petitioner's refusal to extend the statutory period of limitation on assessment. The "relief provision" (sec. 312) was enacted into law on July 18, 1984. The petition was filed on August 6, 1984, and respondent's answer conceding the section 49411986 U.S. Tax Ct. LEXIS 109">*118 issues was filed on October 17, 1984. Six months later (on April 18, 1985) this case was noticed for trial on September 9, 1985. On September 9, 1985, the parties filed a stipulation of settled issues which disposed of all issues in the statutory notice in petitioner's favor, leaving for our 86 T.C. 962">*967 consideration petitioner's motion under section 7430 for costs and fees.

Petitioner contends that respondent's actions, both before and after the issuance of the statutory notice, were unreasonable within the meaning of section 7430(c)(2)(A)(i). Respondent agrees ³ that petitioner "substantially prevailed with respect to the amount in controversy," but that respondent's position was not unreasonable and, even if it were, petitioner would be limited to recovery of costs and fees incurred in "litigation" (from the time of filing a petition with this Court).

1986 U.S. Tax Ct. LEXIS 109">*119 This Court held that any fees or costs awarded under section 7430 are to be measured by looking at the reasonableness of respondent's position from the time of the filing of a petition. Baker v. Commissioner, 83 T.C. 822">83 T.C. 822, 83 T.C. 822">827 (1984), vacated and remanded 787 F.2d 637">787 F.2d 637 ( D.C. Cir. 1986, 57 AFTR2d 86-1106, 86-1 USTC par. 9311).

The District of Columbia Circuit in its opinion vacating and remanding Baker, specifically supported this Court's interpretation of section 7430, as follows:

Our view of this case accords with that of the Tax Court a good part of the way. We agree that section 7430 and its legislative history are both literally and sensibly read to cover only costs incurred once litigation commences, and that the relevant position of the United States is the one taken in the civil proceeding. * * * [787 F.2d at -- (57 AFTR2d 86-1106, at 86-1109, 86-1 USTC par. 9311, at 83,630). Emphasis supplied.]

This matter was remanded for a factual determination concerning the specific facts. The Court of Appeals' Baker holding regarding1986 U.S. Tax Ct. LEXIS 109">*120 costs incurred once litigation commences is in accord with another Circuit Court and several District Courts, including petitioner's Minnesota district. United States v. Balanced Financial Management, Inc., 769 F.2d 1440">769 F.2d 1440 (10th Cir. 1985); Zielinski v. United States, an unreported case ( D. Minn. 1984, 54 AFTR 2d 84-5132, 84-1 USTC par. 9514); Walsh v. United States, an unreported case ( D. Minn. 1985, 56 AFTR 2d 85-5370, 85-1 USTC par. 86 T.C. 962">*968 9411); Contini v. United States, an unreported case ( N.D. Cal. 1984, 55 AFTR 2d 85-419, 84-2 USTC par. 9969); Eidson v. United States, an unreported case ( N.D. Ala. 1984, 53 AFTR 2d 84-841, 84-1 USTC par. 9182); Brazil v. United States, an unreported case ( D. Ore. 1984, 54 AFTR 2d 84-5707, 84-2 USTC par. 9596). One circuit and several districts have held that fees and costs and the measure of the reasonableness of the Government's position under section 7430 extends to the administrative1986 U.S. Tax Ct. LEXIS 109">*121 level. Kaufman v. Egger, 758 F.2d 1">758 F.2d 1 (1st Cir. 1985); Roggeman v. United States, an unreported case ( N.D. Ill. 1985, 56 AFTR 2d 85-5676, 85-2 USTC par. 9473); Rosenbaum v. Internal Revenue Service, 615 F. Supp. 23">615 F. Supp. 23 (N.D. Ohio 1985); Sharpe v. United States, 607 F. Supp. 4">607 F. Supp. 4 (E.D. Va. 1984); Hallam v. Murphy, 586 F. Supp. 1">586 F. Supp. 1 (N.D. Ga. 1983); Penner v. United States, 584 F. Supp. 1582">584 F. Supp. 1582 (S.D. Fla. 1984).

Since this Court's holding in 83 T.C. 822">Baker v. Commissioner, supra, there has been a relatively equal split in the holdings of other courts. In Minnesota, however, two District Court opinions are adverse to petitioner and the Eighth Circuit has not yet addressed the issue. Petitioner contends that there is a trend among the courts, irrespective of their holdings, to look at the totality of circumstances surrounding the cases. Petitioner would include this Court's Baker opinion in this "trend," but we disagree with petitioner's observation in general and more specifically1986 U.S. Tax Ct. LEXIS 109">*122 in connection with this Court's Baker holding. Although facts occurring prior to the petition may be discussed, they were in no way used to determine reasonableness in this Court's Baker opinion.

We, therefore, limit our inquiry concerning reasonableness of respondent's position to the post-petition period of this case. ⁴The standards for reasonableness are to be based upon all the facts and circumstances surrounding the 86 T.C. 962">*969 litigation (post-petition), and the fact that the Government eventually loses or concedes is not necessarily determinative. Broad Ave. Laundry & Tailoring v. United States, 693 F.2d 1387">693 F.2d 1387, 693 F.2d 1387">1391-1392 (Fed. Cir. 1982); Baker v. Commissioner, 83 T.C. 822">83 T.C. 828-829.

1986 U.S. Tax Ct. LEXIS 109">*123 Our determination as to whether respondent acted reasonably in this case must, of necessity, focus upon two factors: (1) Whether respondent can issue a statutory notice of deficiency to a "foundation manager," without first issuing one to the "self-dealer;" and (2) once the notice was issued, whether respondent's handling of the case to its conclusion was reasonable. Essentially, we consider the basis for respondent's legal position and the manner in which the position was maintained.

Respondent, following petitioner's refusal to extend the statute of limitation on assessment, on May 9, 1984, issued a statutory notice to petitioner and also sent a 30-day letter to Murphy (the "self-dealer") during May 1984. ⁵ The legislation became law on July 18, 1984, which retroactively eliminated the incidence of section 4941 liability on Murphy and petitioner in connection with the transaction in question. Respondent's issuance of a statutory notice where a taxpayer refuses to extend the statutory period for assessment does not, per se, render the notice arbitrary or invalid. Chaum v. Commissioner, 69 T.C. 156">69 T.C. 156, 69 T.C. 156">161 (1977); Luhring v. Glotzbach, 304 F.2d 560">304 F.2d 560, 304 F.2d 560">565 (4th Cir. 1962).1986 U.S. Tax Ct. LEXIS 109">*124 We must in this case evaluate the legal position or basis for respondent's determination. Petitioner contends that respondent may not determine a tax under section 4941(a)(2) or 4941(b)(2) without first determining a tax under section 4941(a)(1) and 4941(b)(1), respectively. Petitioner points to the use of the phrase "in which a tax [or additional tax] is imposed by paragraph (1)" as a prerequisite to the "imposition" of a tax under section 4941(a)(2) and 4941(b)(2). Petitioner argues that the word "imposed" means determined by means of a statutory notice. Respondent argues that the word "imposed" does not mean that respondent must take affirmative steps to determine, assess, or collect 86 T.C. 962">*970 the tax. We agree with respondent. The use of "imposed" in section 4941 is no different from its use in section 3 or 11. The imposition of the tax by Congress merely establishes its existence thereby facilitating its determination, assessment, collection, overpayment, etc., within the context of the internal revenue laws. Accordingly, in that context, it is not necessary that the tax under section 4941(a)(1) and 4941(b)(1) be determined or enforced, but only that it has been congressionally1986 U.S. Tax Ct. LEXIS 109">*125 imposed and it may be determined or enforced by respondent.

Petitioner also complains that she is without means to correct the act of self-dealing by payment of the approximate one-half million dollars of interest attributable to the difference between the debentures and the prime rate of interest. Petitioner's complaint ignores respondent's answer, filed October 17, 1984, which alleges --

under the provisions of section 312 Murphy Motor Freight Line, Inc. is not liable for excise taxes under I.R.C. § 4941(a)(1) and (b)(1) with respect to the transaction in issue and therefore no excise tax under I.R.C. § 4941(a)(2) or (b)(2) can be imposed on the petitioner as a foundation manager with 1986 U.S. Tax Ct. LEXIS 109">*126 respect to such transaction.

In spite of this concession and respondent's execution of a stipulation of settled issues reflecting no deficiencies or overpayment, petitioner continues to seek a result which is no longer statutorily possible or necessary.

At each step of the litigation, respondent did not take an unreasonable position and was generally on the defensive regarding petitioner's attempts to force Murphy to take "corrective action" or instigate the momentum for respondent to be a catalyst in the corrective action by issuing a statutory notice to Murphy. Following July 18, 1984, the issuance of a statutory notice to Murphy would have been a useless act. Further, the issuance of a statutory notice to petitioner was merely a protective act on respondent's part to protect himself from the running of the statute of limitations on assessment should the legislation have failed to be enacted into law.

Under the circumstances of this case, we find that petitioner has "substantially prevailed" but that respondent's position in the civil proceeding was reasonable and 86 T.C. 962">*971 that petitioner is not entitled to costs or fees under section 7430.

To reflect the foregoing,

An appropriate1986 U.S. Tax Ct. LEXIS 109">*127 order and decision will be entered.