-9-
reasonableness of respondent's position and conduct necessarily
requires considering what respondent knew at the time. Cf.
Rutana v. Commissioner, 88 T.C. 1329, 1334 (1987); DeVenney v.
Commissioner, supra. Thus, in determining whether respondent
acted reasonably, this Court must "consider the basis for
respondent's legal position and the manner in which the position
was maintained." Wasie v. Commissioner, supra at 969.
Petitioner concedes that respondent's position with respect
to the method of accounting issue was not unreasonable; however,
it asserts that respondent's position was not substantially
justified with respect to the section 6661 issue. In some cases
courts have adopted an issue-by-issue approach to section 7430,
apportioning the requested awards between those issues for which
the Commissioner was, and those issues for which the Commissioner
was not, substantially justified. See Powers v. Commissioner, 51
F.3d 34, 35 (5th Cir. 1995); Swanson v. Commissioner, 106 T.C.
76, 102 (1996). We follow that approach here and separately
discuss whether respondent's position on the section 6661 issue
was substantially justified.
Issue 1. Whether Respondent's Determination of the Section 6661
Addition to Tax Was Substantially Justified
Section 6661(a) imposes an addition to tax if there is a
substantial understatement of income tax. There is an
understatement where the amount of tax shown on the return is
less than the amount required to be shown on the return. A
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011