Beaver Bolt, Inc. - Page 6

          B.   Whether Respondent's Position Was Substantially Justified              
               1.   Background                                                        
               A taxpayer must establish that the position of the United              
          States in the litigation was not substantially justified to be              
          entitled to an award for litigation costs.  Sec.                            
          7430(c)(4)(A)(i); Rule 232(e); Bragg v. Commissioner, 102 T.C.              
          715, 717 (1994).  The position of the United States is the                  
          position taken by the Commissioner:  (a) In the court proceeding,           
          and (b) in the administrative proceeding as of the earlier of (i)           
          the date the taxpayer receives the notice of the decision of the            
          Internal Revenue Service Office of Appeals, or (ii) the date of             
          the notice of deficiency.  Sec. 7430(c)(7).                                 
               The Equal Access to Justice Act's substantially justified              
          standard requires that the Government's position be justified               
          to a degree that would satisfy a reasonable person.  Pierce v.              
          Underwood, 487 U.S. 552, 565 (1988).  That standard applies to              
          motions for litigation costs under section 7430.  Nicholson v.              
          Commissioner, 60 F.3d 1020, 1026 (3d Cir. 1995), revg. T.C. Memo.           
          1994-280; Comer Family Equity Pure Trust v. Commissioner, 958               
          F.2d 136, 139-140 (6th Cir. 1992), affg. T.C. Memo. 1990-316;               
          Powers v. Commissioner, 100 T.C. 457, 470 (1993), affd. on this             
          issue and revd. in part and remanded on other issues 43 F.3d                
          172 (5th Cir. 1995).  To be substantially justified, the                    
          Commissioner's position must have a reasonable basis in both law            
          and fact.  Pierce v. Underwood, supra; Hanover Bldg. Matls., Inc.           

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