- 8 -
substantially justified when respondent issued the notice of
deficiency and when respondent filed the answer in this case.
2. Whether Respondent's Position That Petitioner
Accumulated Earnings Beyond Its Reasonable Business Needs
Was Substantially Justified
a. Background
The Equal Access to Justice Act's substantially justified
standard requires that the Government's position be justified
to a degree that would satisfy a reasonable person. Pierce v.
Underwood, 487 U.S. 552, 565 (1988). That standard applies to
motions for litigation costs under section 7430. Nicholson v.
Commissioner, 60 F.3d 1020, 1026 (3d Cir. 1995), revg. T.C. Memo.
1994-280; Comer Family Equity Pure Trust v. Commissioner, 958
F.2d 136, 139-140 (6th Cir. 1992), affg. T.C. Memo. 1990-316;
Powers v. Commissioner, 100 T.C. 457, 470 (1993), affd. on this
issue and revd. in part and remanded on other issues 43 F.3d
172 (5th Cir. 1995). To be substantially justified, the
Commissioner's position must have a reasonable basis in both law
and fact.2 Pierce v. Underwood, supra; Hanover Bldg. Matls.,
Inc. v. Guiffrida, 748 F.2d 1011, 1015 (5th Cir. 1984); Powers v.
Commissioner, supra at 473. For a position to be substantially
justified, there must be "substantial evidence" to support it.
2 Respondent recognizes that this is the controlling
standard at issue in this case. On brief respondent states:
"To determine whether respondent acted reasonably, the Court
must consider whether respondent's position had a reasonable
basis both in law and fact. Pierce v. Underwood, 487 U.S. 552,
564 (1988); Powers v. Commissioner, 100 T.C. 457, 470 (1993)."
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