James H. Swanson and Josephine A. Swanson - Page 16

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          become final.  See, e.g., Cassuto v. Commissioner, 93 T.C. 256,             
          260 (1989), affd. in part, revd. in part, and remanded on another           
          issue 936 F.2d 736 (2d. Cir. 1991).  Having so held, we turn to             
          the merits of petitioners' motion.                                          
               Section 7430 provides that, in any court proceeding brought            
          by or against the United States, the "prevailing party" may be              
          awarded reasonable litigation costs.  Sec. 7430(a).  To qualify             
          as a "prevailing party" for purposes of section 7430,                       
          petitioners must establish that:  (1) The position of the United            
          States in the proceeding was not substantially justified; (2)               
          they substantially prevailed with respect to the amount in                  
          controversy, or with respect to the most significant issue                  
          presented; and (3) they met the net worth requirements of 28                
          U.S.C. sec. 2412(d)(2)(B) (1994), on the date the petition was              
          filed.  Sec. 7430(c)(4)(A).  Petitioners must also establish that           
          they exhausted the administrative remedies available to them                
          within the Internal Revenue Service and that they did not                   
          unreasonably protract the proceedings.  Sec. 7430(b)(1), (4).               
          Petitioners bear the burden of proof with respect to each of the            
          preceding requirements.  Rule 232(e).                                       
               Although it is conceded that petitioners substantially                 
          prevailed in this case, respondent does not agree that her                  
          litigation position was not substantially justified.7                       

          7                                                                           
               Respondent argues that our consideration of whether she was            
                                                             (continued...)           




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