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The substantially justified standard requires that the
Government's position have a reasonable basis in both law and
fact. Pierce v. Underwood, supra at 563-564. We need not decide
whether respondent had a basis in law because respondent did not
have a basis in fact. Thus, we hold that respondent's position
was not substantially justified when respondent sent the notice
of deficiency and filed the answer, and that petitioner is
entitled to an award under section 7430 for its reasonable
administrative and litigation costs.
D. Reasonable Administrative and Litigation Costs
Petitioner seeks an award for its attorney's fees of
$40,980, miscellaneous costs of $144.48, and accountant's fees of
$2,462.50. We must decide whether the number of hours billed,
the rate at which those hours were billed, and the miscellaneous
costs are reasonable as claimed by petitioner.
1. Applicable Hourly Rate for Attorney's Fees
Petitioner's attorney, William Shannahan (Shannahan), billed
at an hourly rate of $300 for his work in this case. Respondent
objects to our basing an award for litigation costs on
Shannahan's rate to the extent it exceeds $110.
Section 7430(c)(1)(B)(iii) limits the hourly rate for
attorney's fees to $110, increased by the cost of living and
other special factors. The cost of living increase is rounded to
the nearest multiple of $10. Sec. 7430(c)(1). The allowable fee
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