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Example (1). Taxpayer A receives a notice of proposed
deficiency (30-day letter). A files a request for and
is granted an Appeals office conference. At the
conference no agreement is reached on the tax matters
at issue. The Internal Revenue Service then issues a
notice of deficiency. Upon receiving the notice of
deficiency, A discontinues A's administrative efforts
and files a petition with the Tax Court. A's costs
incurred in connection with the preparation and filing
of a petition with the Tax Court are litigation costs
and not reasonable administrative costs. * * *
Example (2). Assume the same facts as in Example 1
except that after A receives the notice of deficiency,
A recontacts Appeals. Again, A's costs incurred before
the administrative proceeding date, the date of the
notice of deficiency as set forth in �
301.7430-3(c)(3), are not reasonable administrative
costs. A's costs incurred in recontacting and working
with Appeals after the issuance of the notice of
deficiency, and up to and including the time of filing
of the petition, are reasonable administrative costs.
A's costs incurred in connection with the filing of a
petition with the Tax Court are not reasonable
administrative costs because those costs are litigation
costs. * * *
It appears the October 2002 fees were not in connection with
this Court proceeding. However, petitioner’s counsel’s review of
the notice of determination was in connection with this
proceeding since petitioner had to draft its petition in response
to the conclusions contained therein. See sec. 301.7430-
4(c)(3)(i), (4), Example (1), Proced. & Admin. Regs.
Stated differently, we believe that petitioner discontinued
its administrative appeal efforts upon receipt of the notice of
determination. The examining agent made it clear that she would
not forward this matter to the Appeals Office until petitioner
submitted a formal written protest. Petitioner did not file a
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