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Sokol v. Commissioner, 92 T.C. 760, 765-766 n.10 (1989); Sher v.
Commissioner, 89 T.C. 79, 87 (1989); DeVenney v. Commissioner, 85
T.C. 927 (1985); see also Johnson v. Commissioner, T.C. Memo.
1991-447; Spirtis v. Commissioner, T.C. Memo. 1985-44.
The fact that respondent's counsel ultimately decided to
concede the case may reflect a consideration of a variety of
factors--including litigation risks--which earlier were not
considered or which were not weighed as heavily by respondent.
Furthermore, the record shows that the parties were actively
engaged in negotiations throughout the litigation process, and
that respondent did not unreasonably delay acting upon any
information which he received from petitioners.
Accordingly, we find respondent's position denying Schedule
E loss deductions for the tax years 1992 through 1994 reasonable
and substantially justified.
Deductions for Losses Arising From Diplomat Associates
The parties disagreed as to whether petitioners were
entitled to claim a deduction for section 1231 loss resulting
from an unsuccessful operation of Diplomat Associates, an
accrual-method partnership that Phillip and his associates formed
in 1986 in order to engage in an apartment rental business.
Diplomat Associates purchased an apartment building for
approximately $1.4 million, the cost of which was financed in
large part by a mortgage made to the partnership.
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