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Pursuant to section 7430, we may award reasonable litigation
and administrative costs to a prevailing party in any tax
proceeding with the United States. Litigation costs will not be
awarded unless the prevailing party establishes that it exhausted
its administrative remedies. Sec. 7430(b)(1). In addition, the
prevailing party may not receive an award relating to any portion
of the proceedings that such party unreasonably protracted. Sec.
7430(b)(4). Respondent concedes that petitioner has exhausted
its administrative remedies, but contends that petitioner has
failed to establish: (1) It was a prevailing party; (2) it did
not unreasonably protract this proceeding; and (3) its litigation
costs were reasonable.
I. Prevailing Party
To be a "prevailing party", a party in the proceeding must:
(1) Establish that the position of the United States was not
substantially justified; (2) substantially prevail in the
controversy; and (3) meet the net worth and number of employees
requirements (net worth requirements) of the Equal Access to
Justice Act (EAJA), 28 U.S.C. sec. 2412(d)(2)(B) (1994). Sec.
7430(c)(4)(A). Respondent concedes that petitioner has
substantially prevailed in this controversy, but contends that
petitioner has failed to satisfy the remaining requirements.
A. Substantial Justification
Respondent's positions are substantially justified only if
they have a reasonable basis in law and fact. Norgaard v.
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