16
Powers v. Commissioner, supra at 473. Respondent lacked a basis
in fact for determining that petitioner was liable for the
accumulated earnings tax because respondent apparently had no
facts about petitioner's business plans and did not show whether
the case was diligently investigated.
b. Petitioner's Error in Reporting Accounts
Receivable
Petitioner erroneously included accounts receivable of
$662,000 in accumulated earnings on its tax return for 1991.
Respondent contends that petitioner's error led respondent to
determine that petitioner was liable for the accumulated earnings
tax. Respondent contends that, if petitioner had reviewed its
books and records earlier, it might have been possible to avoid
the determination or resolve the issue earlier.
We disagree. Respondent did not explain why the
determination that petitioner was liable for accumulated earnings
tax was substantially justified (e.g., that petitioner
accumulated income with the purpose of avoiding shareholder
taxes) even if petitioner had retained earnings of $1,149,031 in
FY 1992, $1,230,404 in FY 1993, and $1,197,598 in FY 1994.
c. Whether Events Occurring After Respondent Took the
Position Provide a Basis in Fact for Respondent's
Position
Respondent argues that respondent's position is
substantially justified because of events occurring after that
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