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enactment of the Taxpayer Bill of Rights 2, Pub. L. 104-168, sec.
701, 110 Stat. 1452, 1463 (1996). They bear the burden of
proving that respondent's position in the proceedings was not
substantially justified. Sec. 7430(c)(4)(A)(i); Rule 232(e).
A position is "substantially justified" when it is
"justified to a degree that could satisfy a reasonable person."
Pierce v. Underwood, 487 U.S. 552, 565 (1988). It is not enough
that a position simply has enough merit to avoid sanctions for
frivolousness; it must have a "reasonable basis both in law and
fact". Id.
Whether the position of the United States in this proceeding
was substantially justified depends on whether respondent's
positions and actions were reasonable in light of the facts of
the case and the applicable legal precedents. Sher v. Commis-
sioner, 89 T.C. 79, 84 (1987), affd. 861 F.2d 131 (5th Cir.
1988). The inquiry must be based on the facts reasonably avail-
able to respondent when the position was maintained. Coastal
Petroleum Refiners, Inc. v. Commissioner, 94 T.C. 685, 689
(1990). The fact that respondent did not prevail in the under-
lying litigation does not require a determination that the
position of the Internal Revenue Service was unreasonable, Broad
Ave. Laundry & Tailoring v. United States, 693 F.2d 1387, 1391-
1392 (Fed. Cir. 1982); however, it remains a factor to be con-
sidered. Heasley v. Commissioner, 967 F.2d 116, 120 (5th Cir.
1992), affg. in part and revg. in part and remanding T.C. Memo.
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