UNITED STATES TAX COURT



RAYMOND P. CORKREY AND MEGAN B. FLOM-CORKREY, Petitioners v.
        COMMISSIONER OF INTERNAL REVENUE, Respondent



  Docket No. 18760-97.                     Filed October 24, 2000.



       R received from the Social Security Administration
  (SSA) inaccurate information showing that, during 1987,
  P received certain compensation in the amount of
  $35,100 for teaching a scuba diving course. In fact, P
  received only $351 for such compensation. P did not
  file a tax return for 1987 or 1988. On the basis of
  the information from the SSA, R issued a notice of
  deficiency to P, to which notice P did not respond. R
  assessed the tax determined to be due and attached a
  lien to P's bank account. During 1996, P was unable to
  obtain a home loan because of the tax lien and
  outstanding balances due to R. P hired an accountant
  to prepare P's tax returns for 1987 and 1988. R
  received P's 1987 and 1988 tax returns on Jan. 9, 1997.
  P filed his 1987 return as married filing jointly, but
  P's ex-wife did not sign the return and refused to sign
  a declaration that P's 1987 return was true and
  accurate. R would not process the return without P's
  ex-wife's signature on the return or the declaration.
  In addition to the problems with P's 1987 return, P's
  1988 tax return contained significant errors. P
                               - 2 -

     eventually hired an attorney to assist him. On Apr.
     14, 1997, P provided R with all of the information
     needed to process P's return. On May 30, 1997, R
     issued refund checks to P for the 1987 and 1988 taxable
     years. On June 2, 1997, R abated for reasonable cause
     additions to tax for late filing and negligence that
     had been assessed for 1987 and 1988. Pursuant to sec.
     7430, I.R.C., P made an administrative claim for costs
     associated with the preparation and filing of P's 1987
     and 1988 tax returns.

          Held: Costs associated with filing and correcting
     P's tax returns were incurred in providing R with all
     the information necessary to process P's returns. P is
     not entitled to recover such costs because, until P
     provided to R all information relevant (including a
     properly signed tax return) to processing P's tax
     return, R's position was substantially justified. See
     sec. 301.7430-5(h) Example (3), Proced. & Admin. Regs.


          Held: P is not entitled to recover administrative
     costs incurred after P provided all relevant
     information to R because R processed P's return within
     a reasonable period of time after receiving such
     information.



     Phillip J. Vecchio, for petitioners.

     Robert E. Marum, for respondent.




     WELLS, Chief Judge:   The instant case involves petitioners'

claim for administrative costs of $5,377.22 pursuant to section

7430.1   Some of the facts have been stipulated and are so found.


1
     Unless otherwise indicated, all section references are to
the Internal Revenue Code as amended and in effect for the years
in issue. Sec. 7430 of the Internal Revenue Code was amended by
                                                   (continued...)
                               - 3 -

Petitioners resided in Nassau, New York, when they filed their

petition.

                         FINDINGS OF FACT

     During 1987 and 1988, petitioner Raymond P. Corkrey

(petitioner) and his former wife Gunn Corkrey (petitioner's ex-

wife) were estranged.   They divorced in 1990.   Petitioner failed

to file timely Forms 1040 for the years 1987 and 1988.

Petitioner's gross income for each of the years 1987 and 1988

exceeded the filing requirements.   On May 12, 1991, petitioner

married his present wife, Megan B. Flom-Corkrey (petitioner's

wife).

     The Andover Service Center's (Center) record of wages earned

by petitioner during 1987 showed that he earned wage income of

$35,100 from Burnt Hills-Ballston Lake Central School District

for teaching a scuba diving course.    The Center's record of

petitioner's wages was based upon information received from the

Social Security Administration (SSA).    Employers send Form W-2

information for each employee to the SSA along with copies to the

individual employee, indicating the employee's total wages,

income tax withholding, and Social Security taxes withheld for


1
 (...continued)
the Taxpayer Bill of Rights 2 (TBOR 2), Pub. L. 104-168, secs.
701-704, 110 Stat. 1452, 1463-1464 (1996), which is effective
with respect to proceedings commenced after July 30, 1996. See
TBOR 2 secs. 701(d), 702(b), 703(b), and 704(b), 110 Stat.
1463-1464. Unless otherwise indicated, all Rule references are
to the Tax Court Rules of Practice and Procedure.
                                - 4 -

the year.    The SSA extracts and uses the Form W-2, Wage and Tax

Statement, information received from the employer and then sends

the information electronically to the Internal Revenue Service

(Service).    The Service relies on the information from the SSA

when it compares information received from third parties.      The

Service used the information from the SSA to create the Automated

Substitute for Return (ASFR) Account Transcript for petitioner

for 1987.    The amount of income petitioner actually earned for

teaching the course was $351.    The Center's records also

indicated that petitioner earned $23,401 from the Minneapolis

Postal Data Center and $4,248 from the Veterans Administration.

     The Center sent petitioner five computer-generated notices

requesting that he file a 1987 return, which notices were sent on

August 21, 1989, October 16, 1989, February 26, 1990, April 9,

1990, and May 21, 1990.    Petitioner failed to respond to any of

the notices.    On September 19, 1990, the Center prepared a

substitute for return for petitioner for 1987.2    In the

substitute for return procedure, the Service establishes accounts

for taxpayers who fail to file a return when the Service

anticipates that additional activity will take place, such as

assessments, payments, and credits.     As to petitioner's account,



2
     When a taxpayer has not filed a return, the Substitute For
Return Unit notifies the taxpayer of any proposed deficiency in
tax based on the payor information in its possession without any
assumed deductions. See sec. 6020(b).
                               - 5 -

such activity took place; i.e., the issuance of the statutory

notice of deficiency, making of tax assessments, and application

of withholding credits.   Petitioner did not respond to the

statutory notice covering taxable year 1987.

     On May 27, 1991, the Center issued petitioner a first notice

of balance due for the 1987 taxable year.   The first notice of

balance due explained the calculations used, the income producing

the assessment, and the balance due of $31,275.28.    Normally, if

a response is not received for the first notice, the Center's

computer system subsequently issues other notices, indicating

that there is a balance due.   The Center sent petitioner three

additional notices on July 1, August 5, and September 9, 1991,

all showing a balance due for 1987 of $31,275.28.    The Center

received no response or payments from petitioner for the notices

of balance due, and on October 14 and November 18, 1991, issued

notices of intent to levy on the balance due of $31,275.28.    On

September 8 and 30, 1992, the Center received payments from

petitioner for his 1987 taxable year in the amounts of $5.23 and

$21.39, respectively.

     On November 30, 1990, the Center established an account for

petitioner for his 1988 taxable year by preparing a substitute

for return.   A statutory notice for petitioner's 1988 taxable

year was issued, and petitioner did not respond.    On September 2,

1991, the Service assessed a $2,239 deficiency in tax for
                               - 6 -

petitioner's 1988 taxable year.    Also on September 2, 1991, the

Service issued to petitioner the first notice of balance due for

his 1988 taxable year in the amount of $2,187.83.   On October 7,

and November 11, 1991, the Center sent petitioner additional

notices of balance due for his 1988 taxable year, both showing

$2,187.83 due.   On December 16, 1991, the Center sent petitioner

a notice of intent to levy for his 1988 taxable year.

     During early 1992, Revenue Officer Bonnie MacKay informed

petitioner that he needed to file returns for 1987 and 1988

within 30 days and that she would send to him the necessary

records and information as soon as possible.   One of the records

that Ms. MacKay sent petitioner was a copy of the ASFR Account

Transcript for 1987, dated April 26, 1991.   On December 11, 1996,

the Service served a levy in the amount of $1,745.88 on

petitioners’ joint bank account.   The levy was released on

December 16, 1996.

     After December 17, 1996, petitioner mailed returns to the

Service for his 1987 and 1988 taxable years because the tax liens

arising from the unpaid assessments for those years prevented him

from qualifying for a mortgage.    The Center received petitioner's

returns on January 9, 1997.   A letter from petitioner's

accountant, David M. Wojeski, dated October 24, 1996, pointing

out the error in the wage income that petitioner received from

the school for 1987 ($351 instead of $35,100), was attached to
                               - 7 -

petitioner's 1988 return.

     On March 12, 1997, Revenue Agent Anne Marie Meuse of the

Center's Substitute For Return Unit received petitioner's case

file, containing his 1987 and 1988 returns, along with

correspondence from his representative, Phillip J. Vecchio.    Upon

receiving those materials, Ms. Meuse analyzed them for

discrepancies and problems.   For the 1987 return, Ms. Meuse found

an issue concerning filing status and a discrepancy between the

Form W-2 from the school and the information received by the

Service.   The Form W-2 attached to the return indicated $351 in

wages and the payor information received through the SSA

indicated $35,100 in wages, so Ms. Meuse assumed there was a

decimal point error.   Ms. Meuse located the number for the school

on the Form W-2 to verify the information, because she wanted the

school to correct its Form W-2 information and submit the

correction to the Service, not just to the taxpayer.

     In order to process petitioner's 1987 return, Ms. Meuse

required petitioner's ex-wife's signature.   Petitioner had filed

the 1987 return as married filing jointly, and Ms. Meuse could

not process the return without both petitioner's and his ex-

wife's signatures.   Because of the problems with petitioner's

account, Ms. Meuse contacted the accountant having a power of

attorney on file, Mr. Wojeski, but he no longer represented

petitioner and did not want to receive or supply any information
                                - 8 -

regarding petitioner.    When Ms. Meuse checked the computer system

to see whether Mr. Vecchio had a power of attorney which would

enable her to discuss petitioner's case with him, she discovered

he had no power of attorney.    Ms. Meuse called Mr. Vecchio to let

him know that she needed a power of attorney before she could

give him any information about petitioner.    The same day that Ms.

Meuse received petitioner's 1987 return, Ms. Meuse mailed to

petitioner, for petitioner's ex-wife to sign under penalties of

perjury, a declaration that, to her knowledge, the information on

the return was true.    The declaration was mailed to petitioner

because Mr. Vecchio did not have a power of attorney on file.

     On March 12, 1997, Mr. Vecchio told Ms. Meuse that he would,

by facsimile copy, send a power of attorney later that day, but

Ms. Meuse did not receive it.    Four or five days later, she again

contacted Mr. Vecchio, saying that she needed the power of

attorney in order to give him information.    Three or four days

later, Ms. Meuse again called Mr. Vecchio, who insisted that he

had already sent a power of attorney to her.    When she did not

receive the power of attorney, she called him again and asked him

to resend the power of attorney, which she received.

     Once Ms. Meuse received Mr. Vecchio's power of attorney, she

informed him that she could not process the 1987 return without

petitioner's ex-wife's signature.    She also told him that if she

did not receive it within 10 days, she would have to change the
                                - 9 -

filing status from married filing jointly to married filing

separately.

     The problem with the 1988 return concerned the number of

dependents claimed.    Ms. Meuse's normal practice was to look at

dependents claimed on a return, and, if she found that dependents

were already claimed by another person, she disallowed the

dependents claimed by the second person.      When Ms. Meuse reviewed

petitioner's 1988 return, she discovered that two of the three

dependents had already been claimed.      Ms. Meuse disallowed the

two exemptions and adjusted the return accordingly.      On April 14,

1997, Mr. Vecchio informed Ms. Meuse that petitioner's ex-wife

would not sign the declaration.   At that point, Ms. Meuse had the

information necessary to proceed with processing petitioner's

case.   Ms. Meuse informed Mr. Vecchio that she would process the

1987 return, make the tax adjustments taking into consideration

the Form W-2 and married filing separately changes, and, for

1988, disallow the two exemptions.      Because the Service had

already made assessments, Ms. Meuse made the above tax

adjustments herself.

     Generally, it takes 3 weeks for information to post to an

account after it has been entered into the Service's system.

Refunds are issued about 4 weeks from the time the adjustments

are made.   Ms. Meuse testified that it took the normal period of

time from the time she received all the information necessary to
                              - 10 -

process petitioner's returns until the time petitioner received

his refunds.   She also testified that, if the problem with the

Form W-2 information from the school showing a discrepancy in

wages and FICA wages had been brought to an examiner's attention,

the examiner would not have abated the tax without a tax return's

having been filed.   She stated that, even if the mistake had not

been petitioner's fault, the Service would have needed an

original signed tax return, because he was still required to file

a tax return for his 1987 taxable year.

     On May 30, 1997, the Service issued to petitioner refund

checks in the amounts of $451.39 and $226.97, respectively, for

his 1987 and 1988 taxable years.3   On June 2, 1997, the Service,

in response to correspondence dated March 24, 1997, abated for

reasonable cause, on the basis of a documented medical condition,

additions to tax for late filing and negligence that had been

assessed for petitioner's 1987 and 1988 taxable years.   Pamela

Auer, a revenue agent in respondent's technical unit that

processed Congressional inquiries, including correspondence from




3
     The record indicates that the refunds arose as a consequence
of (1) respondent's application of the refunds that petitioners
were due for the taxable years 1992, 1994, and 1995, against the
liability that respondent determined for the taxable year 1987,
and (2) petitioner's earlier payment of $2,022.55 against his tax
liability for 1988.
                               - 11 -

petitioner and Mr. Vecchio to a Congressman, processed

petitioner's penalty abatement.

     On July 29, 1997, petitioners filed a claim for

administrative costs with respect to petitioner's 1987 and 1988

taxable years.    The claimed administrative costs for petitioner's

attorney cover a period from December 12, 1996 through June 2,

1997, and for his accountant from September 30, 1996 through

April 30, 1997.   On August 11, 1997, the Service denied the claim

for administrative costs.4

                               OPINION

     Petitioners seek administrative costs pursuant to section

7430.   Originally, section 7430 only authorized the Court to

award reasonable litigation costs.      See Tax Equity & Fiscal

Responsibility Act of 1982, Pub. L. 97-248, sec. 292, 96 Stat.

324, 572-574; Gustafson v. Commissioner, 

, 87 (1991).

Congress, however, broadened the scope of section 7430 by

amending section 6239 of subtitle J (the "Omnibus Taxpayer Bill

of Rights") of the Technical and Miscellaneous Revenue Act of

1988 (TAMRA), Pub. L. 100-647, 102 Stat. 3342, 3743-3746.      In

proceedings commenced after November 10, 1988, the Court is


4
     After petitioners filed their petition with the Court,
respondent moved to dismiss petitioner Megan B. Flom-Corkrey for
lack of jurisdiction. However, respondent was subsequently
permitted to withdraw the motion to dismiss when petitioners
demonstrated that respondent had filed liens against petitioners'
joint bank accounts and applied petitioners' joint refunds
against petitioner's liabilities.
                                - 12 -

authorized to award reasonable administrative costs.      See TAMRA

sec. 6239(d), 102 Stat. 3746.    Despite the amendment, cases

arising pursuant to the pre-amended statute are persuasive in

deciding whether a taxpayer is entitled to a stand-alone claim of

administrative costs, such as the instant case.      See, e.g.,

McWilliams v. Commissioner, 

(1995); Gustafson v.

(citing cases decided under prior law).

     A decision for administrative costs incurred in connection

with an administrative proceeding may be awarded under

section 7430(a) only if a taxpayer:      (1) Is the "prevailing

party", (2) did not unreasonably protract the administrative

proceeding, and (3) claimed reasonable administrative costs.      See

sec. 7430(a), (b)(3), and (c).    A taxpayer must satisfy each of

the respective requirements in order to be entitled to an award

of administrative costs pursuant to section 7430.      See Rule

232(e).

     To be a prevailing party, the taxpayer must substantially

prevail with respect to either the amount in controversy or the

most significant issue or set of issues presented and satisfy the

applicable net worth requirement.    See sec. 7430(c)(4)(A).

A taxpayer, however, is not a prevailing party if the

Commissioner can establish that the Commissioner's position in
                              - 13 -

the administrative proceedings was substantially justified.   See

sec. 7430(c)(4)(B).

     The Commissioner's position is substantially justified if it

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

and has a "reasonable basis in both law and fact".   Pierce v.

Underwood, 

, 565 (1988) (interpreting similar

language in the Equal Access to Justice Act, 28 U.S.C. sec. 2412

(1988)); see also Maggie Management Co. v. Commissioner, 

, 443 (1997).   A position has a reasonable basis in fact if

there is relevant evidence that a reasonable mind might accept as

adequate to support a conclusion.   See Pierce v. Underwood, supra

at 564-565.   Accordingly, in deciding whether the Commissioner

acted reasonably, this Court must "consider the basis for the

Commissioner's legal position and the manner in which the

position was maintained."   Wasie v. Commissioner, 

,

969 (1986).

     The fact that the Commissioner eventually loses or concedes

the case is not conclusive as to whether the taxpayer is entitled

to an award of administrative costs.   See Sokol v. Commissioner,

, 767 (1989); Wasie v. 

at 968-969.

It remains, however, a relevant factor to consider in deciding

the degree of the Commissioner's justification.   See Estate of

Perry v. Commissioner, 

, 1046 (5th Cir. 1991);

Powers v. Commissioner, 

, 470, 472 (1993), affd. in
                             - 14 -

part and revd. in part 

(5th Cir. 1995); Dartmouth

Clubs, Inc. v. Commissioner, T.C. Memo. 2000-167.

     Petitioner seeks recovery of administrative costs associated

with the preparation of his returns by his accountant as well as

costs attributable to his attorney's attempts to correct

deficiencies in the delinquently filed returns.   However,

petitioner failed to file timely a required tax return for 1987,

even though his gross income exceeded the filing requirement.

The information the Service received from the SSA showed that

petitioner owed substantial tax.   Petitioner had not presented

all relevant information under his control to the appropriate

Service personnel prior to his filing the required return.     Even

when petitioner did file his return, he still had not presented

all relevant information to allow Ms. Meuse to process his return

because petitioner's ex-wife had not signed a declaration that

petitioner's 1987 return was true and accurate.   See sec.

301.7430-5(h), Example (3), Proced. & Admin. Regs.

     Petitioners contend that the Service is not substantially

justified if the erroneous assessment is predicated upon a

disputed "information return."   Petitioners rely on Cole v.

Commissioner, T.C. Memo. 1996-375.    The taxpayer in Cole filed a

timely 1991 return reporting $2,427.25 of other income.    The

Service's information showed that she had been paid $4,147.50.

After the Service issued a 30-day letter, the taxpayer informed
                              - 15 -

the Commissioner that she disagreed with the proposed change, and

she mailed a letter outlining her position.    The Commissioner

replied to the letter but did not address her contentions.     The

taxpayer wrote again requesting that her situation be addressed.

     The Service issued a statutory notice to the taxpayer after

it received information from the third party payor supporting the

$4,147.50 figure.   After the taxpayer filed a petition in the Tax

Court and the Commissioner filed an answer, the Commissioner

obtained the correct information from the third party payor

confirming the taxpayer's assertions.    The parties filed a

stipulated decision with the Court in which the taxpayer

substantially prevailed as to this issue.    Later, the taxpayer

filed a motion for award of reasonable administrative and

litigation costs and fees.

     The Court held that the taxpayer was entitled to recover

administrative and litigation costs.    The Court concluded that

the Commissioner was not substantially justified because, at the

time the Commissioner issued the statutory notice and filed an

answer, the Commissioner had an insufficient basis in fact to

determine that the taxpayer received $4,147.50 of other income.

     The instant case is distinguishable from Cole v.

.   Petitioner did not file a timely return for

1987 or 1988, nor did he correspond with the Service or advise

the Service of a dispute prior to the issuance of the notices of
                              - 16 -

deficiency.   Petitioner failed to respond to the notices of

deficiency and to five separate requests from the Center, as well

as a request by Ms. MacKay during early 1992, that petitioner

file a return for 1987.   Moreover, during early 1992, petitioner

received from Ms. MacKay information clearly showing the

discrepancy in wage income from the school.   For nearly 4 years

thereafter petitioner took no action to remedy the situation.

     Petitioner also relies in his brief on language from

Portillo v. Commissioner, 

(5th Cir. 1993), revg. T.C.

Memo. 1992-99, which was discussed in Cole v. 

.   The instant case is distinguishable from Portillo,

however, because petitioner failed to file a Form 1040 for 1987.

See Parker v. Commissioner, 

, 786-787 (5th Cir. 1997)

(distinguishing Portillo on the ground that the taxpayer had not

filed a return).   We note that, had petitioner timely filed his

1987 return or acted promptly in response to any of the notices

sent from the Service Center, the entire matter could have been

disposed of without issuing a statutory notice.   See Uddo v.

Commissioner, T.C. Memo. 1998-276; McDaniel v. Commissioner, T.C.

Memo. 1993-148.5


5
     In McDaniel v. Commissioner, T.C. Memo. 1993-148, we stated
that whenever there is a factual determination, the Commissioner
is not obliged to concede a case until the Commissioner receives
the necessary documentation to prove the taxpayer's contentions.
We also stated that after the Commissioner receives the proper
documentation, a reasonable period of time must be given to
                                                   (continued...)
                               - 17 -

Petitioner, however, failed to file a return and failed to act

promptly.

     In the instant case, most of the expenses petitioner seeks

to recover are associated with preparing or correcting

petitioner's 1987 and 1988 tax returns.    Those costs were

incurred to provide respondent with the information necessary to

make adjustments to petitioner's accounts and to fulfill

petitioner's basic obligations as a taxpayer.    Petitioner was

required to file a tax return and until he properly filed that

return, respondent was not in a position to abate the assessments

and penalties and make the proper adjustments to his account.

Indeed, until petitioner provided such information, the Service

was substantially justified in relying upon wage information

received from the school, the Minneapolis Postal Data Center, and

the Veterans Administration.    See sec. 301.7430-5(h), Example

(3), Proced. & Admin. Regs.    Accordingly, we hold that

petitioner's costs incurred in preparing and correcting

petitioner's tax returns are not recoverable pursuant to section

7430.   The Service, moreover, took no more than a reasonable

amount of time to process petitioner's refunds after he filed his

return.   Consequently, we hold that any costs associated with

procuring a refund after petitioner provided the information



5
 (...continued)
analyze the documents and make adjustments accordingly.
                             - 18 -

necessary to process the refund are not recoverable by

petitioners.

     To reflect the foregoing,


                                      Decision will be entered

                                 for respondent.