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Petitioner seeks recovery of litigation fees and costs in
the total amount of $25,121.17. In her original answer,
respondent averred that petitioner had not fully substantiated
claimed expenditures, their deductibility, or their business
purpose, thereby denying petitioner's allegations that it had
paid or incurred all the expenses in dispute as ordinary and
necessary business expenses. Moreover, respondent denied that
petitioner was entitled to claim depreciation deductions as well
as deductions for disputed net operating loss carryovers.
Respondent also disputed petitioner's contention that no part of
any underpayment was attributable to negligence or failure to
comply with applicable rules or regulations. As revised in
subsequent amendments to the answer, respondent's litigation
position came to include an issue of unreported services income
and a related addition to tax for negligence.
In some cases courts have adopted an issue-by-issue approach
to section 7430, apportioning the requested awards between those
issues for which respondent was, and those issues for which
respondent was not, substantially justified. See Powers v.
Commissioner, 51 F.3d 34, 35 (5th Cir. 1995); Swanson v.
Commissioner, supra. We follow that approach here and separately
discuss whether respondent's position on each issue was
substantially justified.
(1) Disallowed Current Business Expenses
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Last modified: May 25, 2011