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examination division decided not to audit Simpson Financial's
1987 taxable year.
With respect to the Simpsons' individual return, respondent
fully conceded the constructive dividend issue. Petitioners
established to the satisfaction of respondent's counsel that the
sums in question were repayments of the Simpsons' loans to
Simpson Financial, rather than constructive dividends.
Petitioners had not established this fact at the audit, nor at
the Appeals level.
1. Motion for Litigation and Administrative Costs: Overview
In order to recover reasonable administrative and litigation
costs under section 7430, petitioners must prove, inter alia,
that they were the "prevailing party" within the meaning of
section 7430(c)(4), which requires petitioners to establish:
(1) That respondent's position was not substantially justified in
fact or law, sec. 7430(c)(4)(A)(i); Pierce v. Underwood, 487 U.S.
552, 564-565 (1988); Wilkerson v. United States, 67 F.3d 112, 119
(5th Cir. 1995); Bouterie v. Commissioner, 36 F.3d 1361, 1373
(5th Cir. 1994), revg. T.C. Memo. 1993-510; Han v. Commissioner,
T.C. Memo. 1993-386; (2) that they substantially prevailed in the
proceeding with respect to the amount in controversy or the most
significant issues presented, sec. 7430(c)(4)(A)(ii); and
(3) that at the commencement of the proceeding, they met the net
worth requirement under section 7430(c)(4)(A)(iii) and 28 U.S.C.
sec. 2412(d)(2)(B) (1994). In addition, petitioners must prove
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