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most significant tax issue or issues in question, and (2)
respondent’s position was substantially justified.
OPINION
A. Background
To qualify for an award of costs incurred in connection with
an administrative proceeding at the Internal Revenue Service, a
taxpayer must, inter alia, be the prevailing party. Sec.
7430(a)(1). A taxpayer is not the prevailing party and thus is
not entitled to an award of administrative costs if the position
of the United States in the administrative proceeding was
substantially justified. Sec. 7430(c)(4)(B). The Commissioner
bears the burden of proving that the position of the United
States was substantially justified. Id. As discussed below, we
hold that respondent has made that showing.4
4 To qualify for an award of administrative costs, the
taxpayer also must establish that he or she exhausted
administrative remedies available in the Internal Revenue
Service, did not unreasonably protract the proceedings, and
satisfies certain net worth limitations. Sec. 7430(b) and
(c)(4)(A). Respondent concedes that petitioners met those
requirements.
In addition, to be a prevailing party, the taxpayer must
substantially prevail as to (1) the amount in controversy, or (2)
with respect to the most significant issue or set of issues
presented. Sec. 7430(c)(4)(A)(i). The parties dispute whether
that requirement is met. In light of our holding that
respondent’s position in the proceeding was substantially
justified, we need not decide whether petitioners substantially
prevailed.
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