Galedrige Construction, Inc. - Page 15

          fact that there was authority at the time of filing does not mean           
          the taxpayer was correct."                                                  
               As support for its argument that its position was                      
          substantially justified, respondent relies on J.P. Sheahan                  
          Associates, Inc. v. Commissioner, T.C. Memo. 1992-239, a case               
          that was decided several years after petitioner filed its return            
          for taxable year 1989.                                                      
               Respondent's understanding of when substantial authority is            
          determined is incorrect because petitioner is entitled to rely on           
          the law that existed at the time its return was filed.  See sec.            
          1.6661-3(b)(4)(iii), Income Tax Regs.                                       
               We conclude that respondent's position with regard to the              
          section 6661 issue was not substantially justified.                         
          Issue 2.  Reasonable Costs                                                  
               Petitioner seeks recovery of litigation fees and costs that            
          it incurred after its petition was filed.  Petitioner seeks                 
          recovery of only the fees and costs related to the section 6661             
          issue and for its motion for litigation costs.  In Huffman v.               
          Commissioner, 978 F.2d at 1149, the Court of Appeals for                    
          the Ninth Circuit, the Court of Appeals to which an                         
          appeal in this case lies, stated that "So long as the                       
          government's position justifies recovery of fees, any reasonable            
          fees to recover such fees are recoverable."  Thus, the fees                 
          incurred by petitioner for its motion for reasonable attorney's             
          fees are recoverable.  We must decide whether the number of hours           

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