Laura E. Austin - Page 22

          Commissioner, 85 T.C. at 930.  Thus, the determination of whether           
          respondent was substantially justified in her position turns on             
          when she knew the facts of this issue.  Following an Appeals                
          conference, the District Director sent a letter dated September             
          16, 1993, to petitioner's accountant, Mr. Charles Currie,                   
          offering to concede the software issue if petitioner would                  
          concede the travel expense issue and the method of accounting               
          issue.  The letter states "the settlement offer is reasonable in            
          light of the evidence presented in the case."  Neither the letter           
          nor the record indicates what specific evidence the letter may be           
          referring to; however, with no further discussion evident in the            
          record, respondent conceded the software issue on the day of the            
          trial.  Thus, we conclude that respondent knew the facts of this            
          issue before the notice of deficiency was mailed.  Accordingly,             
          we find respondent was not substantially justified in her                   
          position on this issue.                                                     
          Issues Conceded by Petitioner                                               
               Petitioners concede the $14,842 travel expense issue, and              
          Hashimoto concedes that he was not an innocent spouse.  As                  
          petitioners are not the prevailing party on these issues, we                
          shall not award petitioners reasonable litigation or                        
          administrative costs with respect to either of these issues.6               

               6    Hashimoto's motion for litigation costs was limited to            
          his expenditure for representation in the innocent spouse issue.            
          Accordingly, we do not award any costs to him.                              

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