Deborah A. Cole - Page 11

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          Dr. Imhoff, indicating that petitioner received $4,147.50 of                
          income in 1991, and on an unsubstantiated assertion by Dr. Imhoff           
          that the $4,147.50 constituted nonemployee income.  Respondent              
          did not obtain the necessary documentation from Dr. Imhoff and              
          petitioner until after the notice of deficiency was issued and              
          the answer was filed.  Once respondent obtained the necessary               
          information, she had little difficulty confirming most of                   
          petitioner's assertions.  This process should have preceded the             
          issuance of the notice of deficiency.                                       
               Respondent argues that the parties have stipulated that "the           
          Commissioner was substantially justified in its [sic] position              
          that petitioner received income from a check of $703.50 in                  
          January, 1991."   Our determination, however, of whether                    
          respondent was "substantially justified" within the meaning of              
          section 7430(c)(4)(A)(i) is based on the position respondent took           
          on August 9, 1994 (i.e., the date the notice of deficiency was              
          issued), and January 17, 1995 (i.e., the date respondent filed              
          her answer).  See sec. 7430(c)(7)(A) and (B); Huffman v.                    
          Commissioner, supra at 1143-1147.  On both of these dates,                  
          respondent's position was not substantially justified, because              
          she had an insufficient basis in fact to determine that                     
          petitioner had received $4,147.50 of nonemployee income.                    
          Portillo II, supra.  Respondent did not take a position relating            
          to the $703.50 check until June or July of 1995, when she                   
          received a copy of the check.  The fact that respondent then took           




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