a settlement with respondent regarding his liabilities for all
taxable years.
The findings of fact underlying the substantive dispute
between the parties can be found in this Court's memorandum
opinion, Jacoby v. Commissioner, T.C. Memo. 1996-477. The issue
in the underlying case was whether petitioner qualified as an
innocent spouse.
Section 7430(a) authorizes the Court to award reasonable
litigation costs to taxpayers who prevail against the United
States in civil tax litigation. Respondent concedes that
petitioner substantially prevailed with respect to the amount in
controversy and with respect to the most significant issue. Sec.
7430(c)(2)(A)(ii). Respondent also concedes that petitioner has
not unreasonably protracted this proceeding. Sec. 7430(b)(4).
Petitioner has satisfied the so-called net worth requirement set
forth in section 7430(c)(2)(A)(iii). We must decide (1) whether
respondent's litigating position was "not substantially
justified", as that phrase is used in section 7430(c)(2)(A)(i)
(now section 7430(c)(4)(A)(i)), and (2) whether petitioner
exhausted her administrative remedies as required by section
7430(b)(1). If those questions are resolved in favor of
petitioner, then we must decide whether the amount of attorney's
fees claimed by petitioner is reasonable.
We hold that petitioner failed to exhaust her administrative
remedies.
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