17
position was taken; that is, after the notice of deficiency was
issued. For example, respondent argues that: (1) Respondent was
substantially justified because respondent promptly settled the
accumulated earnings tax issue soon after petitioner told
respondent about petitioner's error, and (2) respondent's
position had a basis in fact because petitioner's section 534(c)
statement was insufficient to shift the burden of proof to
respondent.
We disagree. Respondent must have a basis in fact when
respondent issues the notice of deficiency. Powers v.
Commissioner, 100 T.C. at 473, 477-478; Kingston v. Commissioner,
T.C. Memo. 1998-119; Grimland v. Commissioner, T.C. Memo. 1993-
367; see Pierce v. Underwood, 487 U.S. at 564-565. We do not
consider events occurring after respondent's position was
adopted, such as respondent's prompt concession or petitioner's
failure to allege specific facts in its section 534(c) statement,
in deciding whether that position was substantially justified.
Powers v. Commissioner, supra at 477.
3. Conclusion
Respondent has not shown that respondent had a basis in fact
for the position that petitioner unreasonably accumulated
earnings for FY 1992, 1993, and 1994 when respondent sent the
notice of deficiency or filed the answer.
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