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Although we determined that petitioner and Mr. Sharer
maintained separate households and were living separate and
apart, respondent's position at all relevant times, including the
date the notice of deficiency was issued and the date the answer
was filed, was substantially justified. Respondent's position
was reasonable and supported by substantial evidence. During
1986 and 1987, petitioner and Mr. Sharer continued to maintain a
joint checking account into which petitioner deposited her wages
and Mr. Sharer his draw from Sharer Accountancy. At trial,
respondent offered testimony from Mr. Sharer's secretary, Sandra
Matsko, that indicated petitioner and Mr. Sharer were still
living together. Our holding in petitioner's favor,
notwithstanding this evidence to the contrary, resulted in large
part from our crediting petitioner's testimony concerning her and
Mr. Sharer's marital relationship. As the Court of Appeals for
the Seventh Circuit explained, "when resolution of a case hinges
to such an extent on determinations of witness credibility, it is
an abuse of discretion to find that the government's position was
not substantially justified." Wilfong v. United States, supra at
368.
B. Funds Petitioner Received as Loan Repayments
We determined that $9,555 of the $25,950 petitioner received
from Sharer Accountancy in 1987 was not taxable income of
petitioner's because the $9,555 was in repayment of loans
petitioner had previously made to Mr. Sharer. At trial,
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