Roger L. and Patricia A. Lavallee - Page 12

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                  Section 7430(a)(1) provides that a party that has prevailed                         
            in any administrative proceeding against the United States may                            
            recover reasonable administrative costs.  Section 7430(c)(2)                              
            limits the term "reasonable administrative costs" to include only                         
            costs incurred on or after the earlier of (i) the date of the                             
            receipt by the taxpayer of the notice of the decision of the                              
            Internal Revenue Service Office of Appeals, or (ii) the date of                           
            the notice of deficiency.  Estate of Gillespie v. Commissioner,                           
            103 T.C. 395, 396 (1994).                                                                 
                  To obtain an award of administrative costs, taxpayers must                          
            establish that:  (1) They have "substantially prevailed" in the                           
            controversy; (2) they satisfy certain net worth requirements; (3)                         
            the position of the United States in the proceeding was not                               
            substantially justified; (4) they have not unreasonably                                   
            protracted the proceedings; and (5) the amount of the costs                               
            sought is reasonable.  Sec. 7430(b) and (c).  Petitioners must                            
            prove that they satisfy each of these requirements.  Rule 232(e);                         
            Gantner v. Commissioner, 92 T.C. 192, 197 (1989), affd. 905 F.2d                          
            241 (8th Cir. 1990).12  The parties have stipulated that                                  

                  12In the Taxpayer Bill of Rights 2, Pub. L. 104-168, sec.                           
            701(b), 110 Stat. 1452, 1463 (1996), sec. 7430(c)(4) was amended                          
            to require the Government to establish that its position was                              
            substantially justified.  This amendment is effective for                                 

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