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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