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A taxpayer who is a prevailing party in an administrative or
court proceeding may be awarded reasonable litigation and
administrative costs incurred in such proceedings. Sec. 7430(a).
A prevailing party is a taxpayer who establishes: (1) The position
of the United States in the proceeding was not substantially
justified; (2) the taxpayer substantially prevailed with respect to
either the amount in controversy or on the most significant issues;
and (3) the taxpayer's net worth does not exceed $2 million. Sec.
7430(c)(4)(a). Additionally, to recover costs the taxpayer must
have exhausted his/her administrative remedies, sec. 7430(b)(1),2
not have unreasonably protracted the proceedings, sec. 7430(b)(4),
and demonstrated that costs incurred were reasonable, sec.
7430(c)(1) and (2).
Petitioner must establish all of the above requirements before
this Court may award litigation and administrative costs under
section 7430. Minahan v. Commissioner, 88 T.C. 492, 497 (1987).
Petitioner has the burden of proof with respect to each
requirement. Rule 232(e).
The parties primarily dispute whether respondent's position in
both the administrative and judicial proceedings was substantially
justified. Respondent also asserts that petitioner failed to
exhaust her administrative remedies and claims that her costs were
not reasonable.
2 This requirement applies only to litigation costs.
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Last modified: May 25, 2011