Paul Frehe Enterprises, Inc. - Page 6

          Circuit's opinion in Wachtell, Lipton produced well-defined                 
          conflicts with the Court of Appeals for the Seventh Circuit's               
          opinion in Jerome Mirza.  By May 19, 1993, the Commissioner had             
          appealed Citrus Valley, which presented an acknowledged conflict            
          with the Court of Appeals for the Seventh Circuit's opinion in              
          Jerome Mirza.  Citrus Valley also presented issues similar to               
          those decided in Vinson & Elkins and Wachtell, Lipton.  Under               
          these circumstances, respondent's decision to await the outcome             
          on appeal of the lead actuarial cases, including Citrus Valley,             
          before settling this case was substantially justified.  A failure           
          by the Commissioner or the taxpayers to pursue any of the lead              
          cases to a definitive conclusion would have defeated the purpose            
          of the litigation format.                                                   
               Our opinion in Citrus Valley Estates v. Commissioner, supra,           
          was affirmed by the Court of Appeals for the Ninth Circuit on               
          March 8, 1995.  The period in which the Commissioner might have             
          filed a petition for writ of certiorari did not expire until June           
          7, 1995.  Following the Commissioner's decision not to seek                 
          certiorari, a concession letter was sent to petitioner's counsel            
          on June 14, 1995, which resulted in the aforesaid Settlement                
          Stipulation filed July 18, 1995.                                            
               Respondent's position with respect to actuarial assumptions            
          in this case was the same as her position in Vinson & Elkins,               
          Wachtell, Lipton, and Citrus Valley.  The Commissioner's position           
          had merit and was competently presented at trial and argued on              

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