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administrative costs. On March 15, 2001, the Court filed
petitioners’ motion for sanctions.
On May 24, 2001, the Court issued an order and decision
denying all of petitioners’ motions. Petitioners, on July 20,
2001, filed a notice of appeal from the decisions of this Court.
On May 8, 2002, the Court of Appeals for the Ninth Circuit
vacated this Court’s May 24, 2001, order and decision and
remanded such order for further explanation.
Discussion
The prevailing party in a Tax Court proceeding may recover
litigation costs. Sec. 7430(a); Rule 231. Petitioners will not
be treated as the prevailing party if respondent’s position was
substantially justified (i.e., had a reasonable basis in law and
fact). Sec. 7430(c)(4)(B); see Pierce v. Underwood, 487 U.S.
552, 565 (1988). For the following reasons, we conclude that
respondent’s position relating to the section 6663 fraud penalty
was substantially justified.
Evidence of fraud may include substantial understatement of
income, failure to maintain adequate books and records, dealing
in cash, failure to cooperate with tax authorities, and
implausible or inconsistent explanations of behavior. See, e.g.,
Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992). The
record established that petitioners underreported income for 2
years, deposited business funds in their personal bank accounts,
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