James H. Swanson and Josephine A. Swanson - Page 1

                                   106 T.C. No. 3                                     

                               UNITED STATES TAX COURT                                

              JAMES H. SWANSON AND JOSEPHINE A. SWANSON, Petitioners v.               
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 21203-92.            Filed February 14, 1996.               

                    Ps filed a motion for reasonable litigation costs                 
               pursuant to Rule 231, Tax Court Rules of Practice and                  
               Procedure, and sec. 7430, I.R.C., claiming that R was                  
               not substantially justified in determining that:  (1)                  
               Prohibited transactions had occurred under sec. 4975,                  
               I.R.C., with respect to a domestic international sales                 
               corporation, a foreign sales corporation, and two                      
               individual retirement accounts; and (2) the sale of Ps'                
               Illinois residence to P's closely held corporation was                 
               a sham transaction.                                                    
                    1.  Held:  R was not substantially justified with                 
               respect to the first issue, but was substantially                      
               justified with respect to the second issue.                            
                    2.  Held, further, net worth, for purposes of the                 
               Equal Access to Justice Act, 28 U.S.C. sec.                            
               2412(d)(2)(B) (1994), as incorporated by sec.                          
               7430(c)(4)(A)(iii), is determined based upon the cost                  
               of acquisition rather than the fair market value of                    

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