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In order to qualify as the "prevailing party", a taxpayer
must establish that: (1) The position of the United States in the
proceeding was not substantially justified; (2) the taxpayer has
substantially prevailed with respect to the amount in controversy
or the most significant issue or set of issues presented; and (3)
the taxpayer satisfies the applicable net worth requirements.
Sec. 7430(c)(4)(A). We understand respondent to concede that
petitioner has satisfied the applicable net worth requirements
and that petitioner has not unreasonably protracted the judicial
proceeding.
Finally, if a taxpayer qualifies as the prevailing party,
only administrative and litigation costs that are reasonable may
be awarded. Sec. 7430(a), (c)(1) and (2).
We begin with whether respondent's position was
substantially justified. Petitioner bears the burden of proving
that respondent's position was not substantially justified. Rule
232(e); Dixson Corp. v. Commissioner, 94 T.C. 708, 714-715
(1990); Ganter v. Commissioner, 92 T.C. 192, 197 (1989), affd.
905 F.2d 241 (8th Cir. 1990).
As originally enacted, section 7430 required that a taxpayer
establish that the position of the United States was
unreasonable. In 1986, Congress adopted the standard applicable
to the Equal Access to Justice Act (EAJA), 28 U.S.C. sec. 2412
(1988), by changing "unreasonable" to "not substantially
justified". Tax Reform Act of 1986, Pub. L. 99-514, sec. 1551,
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Last modified: May 25, 2011