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of the United States was substantially justified; (2) that
petitioners have failed to exhaust their administrative remedies;
and (3) that the costs claimed are not reasonable. Respondent
concedes that petitioners have satisfied the other requirements
of section 7430.
We first consider whether respondent’s position was
substantially justified. For the following reasons, we find that
it was.
A position is substantially justified if it is justified to
a degree that could satisfy a reasonable person and has a
reasonable basis in both fact and law. Pierce v. Underwood, 487
U.S. 552, 565 (1988) (interpreting similar language in the Equal
Access to Justice Act, 28 U.S.C. sec. 2412 (1988)); Nalle v.
Commissioner, 55 F.3d 189, 191 (5th Cir. 1995), affg. T.C. Memo.
1994-182; Swanson v. Commissioner, 106 T.C. 76, 86 (1996). The
determination of reasonableness is based on all of the facts and
circumstances surrounding the proceedings. Nalle v.
Commissioner, supra at 191. A position has a reasonable basis in
fact if there is such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion. Pierce v.
Underwood, supra at 564-565. A position is not substantially
justified in law if legal precedent does not provide substantial
support for the Commissioner’s position given the facts available
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