A key question for us is whether Ms. Cooley is the "prevailing party." This may seem odd at first glance—the Commissioner did concede the case—but section 7430(c) tells us that a taxpayer is the "prevailing party" in the arcane language of the Code only if:

• she substantially prevailed with respect to the amount in controversy or the most significant issue or set of issues;

• she meets the net worth requirements of 28 U.S.C. section 2412(d)(1)(A); 2012 Tax Ct. Memo LEXIS 163">*175 ⁷ and

• the Commissioner's position in the proceeding was not substantially justified.

The Commissioner makes a number of arguments why this $2,000 case shouldn't lead him to pay 15x that amount in costs. But we'll focus on two: that Ms. Cooley did not actually "pay or incur" those costs, and that the Commissioner's position in the case was substantially justified throughout because Mr. Izen and 2012 Tax Ct. Memo LEXIS 163">*176 his wife didn't show him the back of check number 6579—and thus quickly solve the mystery—until the eve of trial.

Under section 7430(a), we can only award reasonable administrative and litigation costs that the taxpayer "incurred", and award only attorney's fees that the taxpayer "paid or incurred." Sec. 7430(c)(1)(B)(iii), (2)(B). ⁸ Since Ms. Cooley is the party claiming costs, she bears the burden of proving she incurred them. See Thompson v. Commissioner, T.C. Memo. 1996-468, 1996 WL 594106">1996 WL 594106, at *1996 WL 594106">4; see alsoRule 232(e) (moving party has to prove reasonableness of amount of costs).

Ms. Cooley doesn't dispute that she hasn't paid any of the costs she's claiming, but she does say she has incurred them. She points to her postnuptial agreement and the fact she has continued to file separate tax returns as evidence that she maintains a separate financial estate and can recover fees for Mr. Izen's services despite their marriage. She offers additional evidence in the form of her own affidavit, which states that when she 2012 Tax Ct. Memo LEXIS 163">*177 incurs a business debt she pays her own bills and that she has agreed to pay and has in fact paid Mr. Izen for his services in other tax cases.

The Commissioner has the better argument here. We have held that the word "incurred" as it is used in section 7430 has its ordinary meaning, which is "'to become liable or subject to: bring down upon oneself.'" Grigoraci v. Commissioner, 122 T.C. 272">122 T.C. 272, 122 T.C. 272">277 (2004) (quoting Frisch v. Commissioner, 87 T.C. 838">87 T.C. 838, 87 T.C. 838">846 (1986)). Applying the ordinary meaning of the word means that a taxpayer can't incur costs under section 7430 unless the taxpayer has a legal obligation to pay them. See Grigoraci, 122 T.C. 272">122 T.C. 277-78; Vasquez v. Commissioner, T.C. Memo. 2007-6, 2007 WL 63742">2007 WL 63742, at *2007 WL 63742">20, aff'd, 284 Fed. Appx. 381">284 Fed. Appx. 381 (9th Cir. 2008). Because the taxpayer must have a legal obligation to pay the costs, we have held that "[t]he mere fact that a taxpayer retained counsel who in fact represented the taxpayer in a proceeding in this Court is not sufficient to meet this 'incurred' requirement of section 7430." Vasquez, 2007 Tax Ct. Memo LEXIS 7, 2007 WL 63742, at *21 (citing Grigoraci, 122 T.C. 272">122 T.C. 278-79); see also Thompson, 1996 Tax Ct. Memo LEXIS 482, 1996 WL 594106, at *5.

Ms. Cooley has shown us no evidence that she was 2012 Tax Ct. Memo LEXIS 163">*178 legally obligated to pay her husband for his work on her case. There is no retainer agreement or other contractual arrangement with Mr. Izen making her legally obligated to pay him or his firm for services or other costs. ⁹See Vasquez, 2007 Tax Ct. Memo LEXIS 7, 2007 WL 63742, at *21 ("[w]e are not willing to assume that petitioner and [her attorney] entered into an enforceable agreement"). Ms. Cooley also hasn't provided any evidence that Mr. Izen ever billed her for the claimed fees and expenses or that he ever planned to bill her for them. See Grigoraci, 122 T.C. 272">122 T.C. 278-79 (taxpayers cannot recover invoiced amounts they were never expected to pay); Swanson v. Commissioner, 106 T.C. 76">106 T.C. 76, 106 T.C. 76">101 (1996) (taxpayer cannot recover fees not billed). The single billing statement that we have is dated only days before Mr. Izen filed his motion. We find, as a result, that he prepared it solely for the purpose of the motion and that it does not reflect any obligation by Ms. Cooley to pay Mr. Izen $20,000 or $30,000 for this $2,000 dispute—an obligation we would be hardpressed without very persuasive evidence to think any but the unusually innumerate or incorrigibly stubborn would assume. See Vasquez, 2007 Tax Ct. Memo LEXIS 7, 2007 WL 63742, at *21. 2012 Tax Ct. Memo LEXIS 163">*179 The fact that Ms. Cooley and Mr. Izen entered into a postnuptial agreement and that she says she has paid him for legal services in the past is just not enough to prove she has a legal obligation to pay him in this case.

Ms. Cooley points us to Bennett v. Smith, 2002 WL 169323">2002 WL 169323, 2002 U.S. Dist. LEXIS 1557">2002 U.S. Dist. LEXIS 1557 (N.D. Ill. Feb. 1, 2002). In 2002 U.S. Dist. LEXIS 1557">Bennett, 2002 U.S. Dist. LEXIS 1557, 2002 WL 169323, at *7, the court held that a prevailing civil—rights plaintiff could recover fees and expenses under title VII of the Civil Rights Act of 1964, 42 U.S.C. sec. 2000e-5(k) (2006), 2012 Tax Ct. Memo LEXIS 163">*180 for work performed by her attorney-husband. The court in Bennett noted that under the statute, civil-rights plaintiffs should ordinarily be able to recover attorney's fees unless special circumstances exist. 2002 U.S. Dist. LEXIS 1557">Bennett, 2002 U.S. Dist. LEXIS 1557, 2002 WL 169323, at *2. Since the plaintiff in Bennett had signed a retainer agreement just as any other client of her husband's would, and since her husband had co-counsel to ensure he exercised independent judgment, the court found nothing to preclude an award in her case.2002 U.S. Dist. LEXIS 1557">Id.

There's nothing like that agreement and co-counsel arrangement here. And, in any event, Congress made section 7430 narrower than the fee-shifting provisions common in civil-rights law. Section 7430 requires costs to actually be "incurred" to be recoverable. Thompson, 1996 Tax Ct. Memo LEXIS 482, 1996 WL 594106, at *5. The statute at issue in 2002 U.S. Dist. LEXIS 1557">Bennett is not so narrow: It provides that in a proceeding under the Civil Rights Act of 1964 the court may allow the prevailing party "a reasonable attorney's fee * * * as part of the costs." 42 U.S.C. sec. 2000e-5(k). It doesn't contain the same word "incurred." Bennett is therefore not a persuasive precedent for us here. ^{102012 Tax Ct. Memo LEXIS 163">*181}

We therefore find Ms. Cooley has failed to prove she paid or incurred the attorney's fees, legal assistant fees, and costs she claims in her motion.

The Commissioner also argues that his position in these proceedings was substantially justified, which means Ms. Cooley isn't a prevailing party. Positions shift during litigation, and surely shifted in this litigation, but there are rules to tell us when exactly to gauge what the Commissioner's position is to then decide whether it was substantially 2012 Tax Ct. Memo LEXIS 163">*182 justified. Those rules tell us to look to the Commissioner's "position" in the proceedings as of the separate dates he took positions—first in the administrative proceeding and then in the court proceeding. Sec. 7430(c)(7)(A) and (B); Maggie Mgmt. Co. v. Commissioner, 108 T.C. 430">108 T.C. 430, 108 T.C. 430">442 (1997). In this case, the Commissioner first took a position in the administrative proceeding when Ms. Cooley received the notice of determination. Seesec. 7430(c)(7)(B) (position taken in administrative proceeding is the earlier of the date of the receipt by the taxpayer of the decision of the IRS Office of Appeals, or the date of the notice of deficiency); Dalton v. Commissioner, T.C. Memo 2011-136, 2011 WL 2451177">2011 WL 2451177, at *2011 WL 2451177">4. He first took a position in the court proceeding when he filed an answer to Ms. Cooley's petition. See Corson v. Commissioner, 123 T.C. 202">123 T.C. 202, 123 T.C. 202">206 (2004); Maggie Mgmt., 108 T.C. 430">108 T.C. 442.

We often assess each position separately, but if the Commissioner maintains the same position in the notice of determination and his answer, we may consider the Commissioner's administrative and litigation positions together. See Maggie Mgmt., 108 T.C. 430">108 T.C. 442-43; Dalton, 2011 Tax Ct. Memo LEXIS 135, 2011 WL 2451177, at *4. The 2012 Tax Ct. Memo LEXIS 163">*183 Commissioner concedes here that the position he took in his answer is the same as the position he took in the notice of determination. That position was that Ms. Cooley had a balance due for 2006; specifically, he found that the total amounts of payments applied to tax years 2005 and 2006 were less than the total taxes owed for those years because check number 6579 was applied to 2004, which resulted in shortfalls in later years. We now know this was mistaken, but we need to figure out if it was "substantially justified."

A position is substantially justified if it has a reasonable basis in both fact and law and is justified to a degree that could satisfy a reasonable person. See Pierce v. Underwood, 487 U.S. 552">487 U.S. 552, 487 U.S. 552">565, 108 S. Ct. 2541">108 S. Ct. 2541, 101 L. Ed. 2d 490">101 L. Ed. 2d 490 (1988); see also Sher v. Commissioner, 89 T.C. 79">89 T.C. 79, 89 T.C. 79">84 (1987), aff'd, 861 F.2d 131">861 F.2d 131 (5th Cir. 1988); sec. 301.7430-5(c)(1), Proced. & Admin. Regs. The reasonableness of the Commissioner's position turns on whether he knew or should have known, based on the available facts and circumstances and the legal precedents relating to the case, that his position was invalid when he adopted it. See Nalle v. Commissioner, 55 F.3d 189">55 F.3d 189, 55 F.3d 189">191 (5th Cir. 1995), aff'gT.C. Memo. 1994-182; 2012 Tax Ct. Memo LEXIS 163">*184 see also Maggie Mgmt., 108 T.C. 430">108 T.C. 443. A significant factor in making this determination is whether the taxpayer presented all relevant information under her control. Corson v. Commissioner, 123 T.C. 202">123 T.C. 206-07; sec. 301.7430-5(c)(1), Proced. & Admin. Regs.

Even if the Commissioner's position is incorrect, it may still be substantially justified "if a reasonable person could think it correct." Maggie Mgmt., 108 T.C. 430">108 T.C. 443. The fact that the Commissioner eventually concedes a case doesn't mean that his position wasn't substantially justified. Id. (citing Estate of Perry v. Commissioner, 931 F.2d 1044">931 F.2d 1044, 931 F.2d 1044">1046 (5th Cir. 1991)). The Commissioner's concession, however, is a factor we can consider in making this determination. Id.

On this motion, the Commissioner argues his position was substantially justified because it had a reasonable basis in the facts and the law. The Commissioner is correct. Ms. Cooley's slow reveal of the backside of check number 6579 is a textbook example of not presenting all relevant information under her control. Ms. Cooley disagrees, arguing that she didn't withhold any relevant information and her failure to produce the back of check number 6579 doesn't matter 2012 Tax Ct. Memo LEXIS 163">*185 because the Appeals officer determined that the Service applied check number 6579 to tax year 2004 without that information. That's true—but without the check, the Appeals officer was left to make the best guess she could for why a liability kept showing up in IRS records. Mr. Izen never pointed out the mistaken Social Security number on the payment voucher that Ms. Cooley did show the IRS early on; but we can hardly fault the Appeals officer for not noticing it herself, and then reasoning that the same mistake must be visible on the back of a check that Mr. Izen hadn't given her.

The Commissioner is also correct in his argument that it was reasonable to think the IRS applied check number 6579 to a year other than 2005 because nothing on the face of the check precluded the Service from treating it as an undesignated voluntary payment and applying it as it saw fit.

Ms. Cooley argues in reply that the Service was required to apply check number 6579 as a 2005 estimated tax payment because she enclosed it with her 2005 estimated tax return, "which clearly identifies not only the 2005 tax year to which the enclosed payment must be applied but, also [her] proper social security number."

A taxpayer 2012 Tax Ct. Memo LEXIS 163">*186 who makes a voluntary payment can direct how he or she wants the Commissioner to apply the payment, and the Commissioner must follow the taxpayer's designation. Wood v. United States, 808 F.2d 411">808 F.2d 411, 808 F.2d 411">416 (5th Cir. 1987); see alsoRev. Proc. 2002-26, sec. 3, 2002-1 C.B. 746, 746. But if the taxpayer doesn't provide any direction, the IRS can apply the payment to any of the taxpayer's outstanding liabilities. Wood, 808 F.2d 411">808 F.2d at 416. Revenue Procedure 2002-26, sec. 3.02, says that when the taxpayer does not provide specific written directions with a voluntary payment of tax, "the Service will apply the payment to periods in the order of priority that the Service determines will serve its best interest. The payment will be applied to satisfy the liability for successive periods in descending order of priority until the payment is absorbed." See also Kohn v. Commissioner, T.C. Memo 2009-117, aff'd, 377 Fed. Appx. 578">377 Fed. Appx. 578 (8th Cir. 2010). All of Ms. Cooley's payments in this case were voluntary, so her designations, if any, will control.

When the Commissioner took his position in this case, Ms. Cooley had provided him with a copy of only the front of check number 6579 together with Mr. Izen's promise 2012 Tax Ct. Memo LEXIS 163">*187 back in January 2009 to give the Appeals officer a copy of the actual check shortly. "Shortly" then turned into one month before trial. And it was only when the Commissioner received a copy of the front and back of the canceled check number 6579 that he was able to tell exactly what had happened using the data input on the back of that check. At that point he conceded Ms. Cooley didn't owe a balance for tax year 2006.

The record also shows that Ms. Cooley didn't provide a copy of check number 6578—her other payment dated April 15, 2005—until that time. Ms. Cooley even admitted in her petition that she had not provided proof of all of her payments for tax year 2004. The only hint of this other April 15, 2005 payment was on the schedule that Mr. Izen attached to the letter which he sent shortly before the Commissioner issued the notice of determination.

With only this information, the Commissioner's position that the Service had applied check number 6579 to tax year 2004 was reasonable. The Service's own records showed that a payment dated April 15, 2005 had been applied to Ms. Cooley's 2004 tax year. Since the Commissioner had only a copy of the front of one check dated April 15, 2005 2012 Tax Ct. Memo LEXIS 163">*188 (and no copy of check number 6578), he concluded that check number 6579 was the April 15, 2005 payment applied to tax year 2004. Before he got a copy of the back of check number 6579, the Commissioner had no reasonable way of knowing his position wasn't correct.

The Commissioner could also reasonably conclude that Ms. Cooley had not specifically instructed the Service in writing how to apply check number 6579. The memo line on that check contained only the words "April 1/4 payment," but not the year she wanted the Service to apply the payment to or her Social Security number. ^{112012 Tax Ct. Memo LEXIS 163">*189} Ms. Cooley argues that she submitted check number 6579 with a 2005 Form 1040-ES, Estimated Tax for Individuals, but that alone doesn't seem to satisfy Revenue Procedure 2002-26's requirement that the taxpayer specifically direct in writing how the Service should apply a payment. ¹² The Commissioner was therefore reasonable in concluding that the Service could've applied check number 6579 to a tax year other than 2005.

We find the Commissioner's position—that Ms. Cooley had a balance due for tax year 2006—had a reasonable basis in both law and fact and was substantially justified.

It is true that a position that was reasonable when the Commissioner first took it can become unreasonable when circumstances change, as they did here at the pretrial meeting when Mr. Izen showed the Commissioner's lawyer a complete copy of the mystery check. See Dalton, 2011 Tax Ct. Memo LEXIS 135, 2011 WL 2451177, at *5. But that lawyer responded professionally and honorably by immediately checking IRS records and conceding the case.

Because we find that Ms. Cooley did not incur the costs she claims and that the Commissioner's position was substantially justified, we conclude she cannot recover the astonishing costs she requests. We need not address the parties' other arguments.

An 2012 Tax Ct. Memo LEXIS 163">*190 appropriate order and decision will be entered.