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the prohibited transactions rules, it was clearly
reasonable for respondent not to concede her position
on answer and to analyze thoroughly all positions
presented by petitioner's counsel during the litigation
stage of the case. [Emphasis added.]
We read the preceding statements as an acknowledgment by
respondent that her litigation position, as developed in the
administrative proceedings and adopted in her answer, was without
a foundation in fact or law. This case is distinguishable from
those in which respondent promptly conceded an unreasonable
position taken in her answer, thereby avoiding an award of
litigation costs. Nothing occurred between the filing of
respondent's answer and her notice of no objection to alter the
fact that she had misapplied the prohibited transaction rules of
section 4975 to petitioners' case. Accordingly, we find that
respondent's litigation position with respect to IRA #1 was not
substantially justified. Petitioners are therefore entitled to
an award of litigation costs under section 7430.
As respondent's determination of deficiencies with respect
to IRA #2 was inexorably linked to the fate of IRA #1, the award
of litigation costs is also intended to cover respondent's
litigation position with respect to IRA #2.19
b. The House Issue
Petitioners contend that respondent was not substantially
justified in determining that the sale of the Algonquin property
19
See discussion of IRA #2 supra p. 11.
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