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To qualify as the "prevailing party", the taxpayer must
establish that (1) the position of the United States in the
proceeding was not substantially justified,5 (2) the taxpayer
substantially prevailed with respect to the amount in controversy
or with respect to the most significant issue or set of issues
presented, and (3) the taxpayer satisfies the applicable net
worth requirements. Sec. 7430(c)(4)(A). Respondent concedes
that petitioner meets the second and third criteria listed above;
however, respondent contends that the position taken in both the
administrative and litigation aspects of the proceedings was
substantially justified. Rule 232(e); Dixson Intl. Serv. Corp.
v. Commissioner, 94 T.C. 708, 714-715 (1990); Gantner v.
Commissioner, 92 T.C. 192, 197 (1989), affd. 905 F.2d 241 (8th
Cir. 1990). Accordingly, the issue is whether "the position of
the United States in the proceeding was not substantially
justified." Gantner v. Commissioner, 905 F.2d at 245.
In deciding this issue, the Court must first identify the
point in time at which the United States is considered to have
taken a position and then decide whether the position taken from
that point forward was not substantially justified. The "not
5 In relevant part, the Taxpayer Bill of Rights 2 (TBR2),
Pub. L. 104-168, secs. 701-704, 110 Stat. 1452, 1463-1464 (1996),
amended sec. 7430 to place on the Commissioner the burden of
proving that respondent's position in the administrative
proceeding and the proceeding in this Court were substantially
justified. The provisions of TBR2 are effective only with
respect to proceedings commenced after July 30, 1996.
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