Robert C. McKee and Valery W. McKee - Page 5

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          Petitioners now seek litigation costs of $31,078.28.1                       
                                     Discussion                                       
               Section 7430(a) authorizes the award of reasonable                     
          litigation costs to the prevailing party in court proceedings               
          brought by or against the United States in connection with the              
          determination of income tax.  In order to receive an award of               
          reasonable litigation costs, a taxpayer must exhaust                        
          administrative remedies and not unreasonably protract the court             
          proceeding, in addition to being the prevailing party.  Sec.                
          7430(b)(1), (3).  Unless the taxpayer satisfies all of the                  
          section 7430 requirements, we do not award costs.  Minahan v.               
          Commissioner, 88 T.C. 492, 497 (1987).                                      
               Respondent concedes that petitioners did not unreasonably              
          protract the court proceeding.  Respondent contends, however,               
          that respondent’s position with respect to the issues in the                
          notice was substantially justified, that petitioners did not                

               1According to one statement in their motion for reasonable             
          litigation costs, petitioners “claim litigation costs of $29,800            
          all of which were incurred after the Statutory Notice of                    
          Deficiency was issued on March 10, 2003”.  However, in their                
          prayer for relief, petitioners ask that we “determine that the              
          award of litigation costs of $31,078.28 is reasonable”.  Both the           
          supporting affidavit attached to the motion and petitioners’                
          additional affidavit filed pursuant to Rule 232(d) list costs               
          totaling $31,078.28.  After examining the detailed summary of the           
          nature and amount of each item of costs, for purposes of                    
          disposing of this motion, we conclude that the court costs and              
          “fees paid or incurred for the services of attorneys in                     
          connection with the court proceeding” totaled $31,078.28.  See              
          sec. 7430(c)(1).                                                            





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