Foothill Ranch Company Partnership, Buck Equities, Ltd., Tax Matters Partner - Page 5

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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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