Donald S. Hazelton - Page 12

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               Whether respondent's position was not substantially                    
          justified turns on a finding of reasonableness, based upon all              
          the facts and circumstances, as well as the legal precedents                
          relating to the case.  Pierce v. Underwood, 487 U.S. 552 (1988);            
          Sher v. Commissioner, 89 T.C. 79, 84 (1987), affd. 861 F.2d 131             
          (5th Cir. 1988).  A position is substantially justified if the              
          position is "justified to a degree that could satisfy a                     
          reasonable person."  Pierce v. Underwood, supra at 565; Powers v.           
          Commissioner, 100 T.C. 457, 470-471 (1993).  A position that                
          merely possesses enough merit to avoid sanctions for                        
          frivolousness will not satisfy this standard; rather, it must               
          have a "reasonable basis both in law and fact".  Pierce v.                  
          Underwood, supra at 564-565.                                                
               The Court must "consider the basis for respondent's legal              
          position and the manner in which the position was maintained."              
          Wasie v. Commissioner, 86 T.C. 962, 969 (1986).  The fact that              
          respondent eventually loses or concedes a case does not establish           
          an unreasonable position.  Sokol v. Commissioner, 92 T.C. 760,              
          767 (1989); Baker v. Commissioner, 83 T.C. 822, 828 (1984),                 
          vacated on other issues 787 F.2d 637 (D.C. Cir. 1986).  The                 
          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, 85 T.C. 927, 930 (1985).                                      





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