- 10 -
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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