Donald S. Hazelton - Page 10

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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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