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In order to qualify as the "prevailing party", a taxpayer
must establish: (1) The position of the United States in the
proceeding is not substantially justified; (2) the taxpayer has
substantially prevailed with respect to the amount in controversy
or the most significant issue or set of issues presented; and (3)
the taxpayer satisfies the applicable net worth requirements.
Sec. 7430(c)(4)(A); sec. 301.7430-5(a), Proced. & Admin. Regs.
Finally, if a taxpayer qualifies as a prevailing party, only
administrative and litigation costs that are reasonable may be
awarded. Sec. 7430(a), (c)(1) and (2). These requirements are
in the conjunctive; i.e., petitioner must satisfy each of the
requirements to be entitled to reasonable litigation and
administrative costs. Minahan v. Commissioner, 88 T.C. 492, 497
(1987).
We begin with whether respondent's position was
substantially justified. Petitioner bears the burden of proving
that respondent's position was not substantially justified. Sec.
7430(c)(4)(A)(I); Rule 232(e); Ganter v. Commissioner, 92 T.C.
192, 197 (1989), affd. 905 F.2d 241 (8th Cir. 1990); Dixson Corp.
v. Commissioner, 94 T.C. 708, 714-715 (1990). A position is
"substantially justified" if the position is "justified to a
degree that could satisfy a reasonable person". Pierce v.
Underwood, 487 U.S. 552, 565 (1988).
We examine here whether the Commissioner's position was not
substantially justified. Respondent took a position in the
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