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maintaining that the payments of dividends to IRA #1 constituted
prohibited transactions. Respondent's litigation position with
respect to this issue was unreasonable as a matter of both law
and fact.18
Respondent would have us believe that the delay in settling
the DISC issue was due to a statement in petitioners' motion for
partial summary judgment that IRA #1 was exempt from tax at all
times. In her memorandum in objection to petitioners' motion for
litigation costs, respondent contends that this was a "new and
overriding issue" that required her to determine whether "any
other" prohibited transactions had occurred during the period
covered by the notice of deficiency. We disagree.
We need look no further than respondent's own memorandum to
divine that the true reason for her delay in conceding the DISC
18
In a letter accompanying the revenue agent's report,
respondent stated that:
We believe the statutory Notice of Deficiency
adequately describes the adjustments asserted therein.
Moreover, during the course of the examination your
client became fully cognizant of the transactions under
scrutiny. However, as a convenience to you, enclosed
is a copy of the revenue agent's report. Naturally, it
is not the Service's intent by this letter to in any
way limit the general language of the statutory notice.
The Commissioner will stand on any ground fairly raised
by the statutory notice as a basis for her
determination.
In finding that respondent was not substantially justified with
respect to the DISC issue, we have considered all grounds upon
which respondent could fairly raise a question of prohibited
transactions under sec. 4975.
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