James H. Swanson and Josephine A. Swanson - Page 25

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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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