National Industrial Investors, Inc. - Page 10

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            was originally filed.  In light of the lack of evidence available                          
            to respondent, her position was not unreasonable.                                          
                  Furthermore, respondent's litigation position disputing                              
            expenses that the Court ultimately found allowable did not rest                            
            on evidence that was scant or unworthy of belief.  VanderPol v.                            
            Commissioner, supra at 370.  Respondent relied on testimony and                            
            trial exhibits showing that petitioner's only asset and                                    
            overwhelming source of its income during 1989 and 1990 was a                               
            triple net lease, a purely passive activity.  Testimony from                               
            petitioner's own accountant tended to show that petitioner's                               
            business records did not reflect income from activities other                              
            than holding the leased premises.  Moreover, a reasonable person                           
            could discount evidence of founder and former principal                                    
            shareholder Charles Byrne's consulting activities on behalf of                             
            NII that endeavored to show petitioner did not engage solely in a                          
            passive activity.  Therefore, respondent reasonably argued that                            
            such a passive activity would generate virtually none of the                               
            disallowed deductions, other than interest and depreciation                                
            expenses, discussed infra pp. 10-14.                                                       
                  The Court holds that respondent was substantially justified                          
            in maintaining her position on the issue of current business                               
            expenses, so that the parties could present their conflicting                              
            evidence to the Court and so we could judge the weight to be                               






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