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justification, petitioners must demonstrate "that the legal
precedent does not substantially support respondent's position
given the facts available to respondent." Coastal Petroleum
Refiners, Inc. v. Commissioner, 94 T.C. 685, 688 (1990).
Petitioners argue that respondent's position was not
reasonable as a matter of law or fact.6 Petitioners contend that
respondent ignored the "worst-case scenario" test applied by the
Court of Appeals for the Sixth Circuit in Emershaw v.
Commissioner, 949 F.2d 841 (6th Cir. 1991), affg. T.C. Memo.
1990-246, and Martuccio v. Commissioner, 30 F.3d 743 (6th Cir.
1994), revg. T.C. Memo. 1992-311, in determining whether a
taxpayer is "protected from loss" within the meaning of section
465(b)(4). Petitioners contend further that respondent
erroneously relied on the "economic reality" test applied by the
majority of Courts of Appeals in determining whether a taxpayer
is "protected from loss" under section 465(b)(4). Petitioners
argue that, since the instant case is appealable to the Court of
Appeals for the Sixth Circuit, and the material facts of the
substantive issues in the instant case parallel the facts in
Emershaw v. Commissioner, supra, and Martuccio v. Commissioner,
6 In their motion, petitioners do not distinguish between
reasonableness "as a matter of law" or "as a matter of fact";
therefore, the Court assumes that petitioners intended to dispute
the reasonableness of respondent's position both in law and in
fact. Consequently, the Court treats the two items in
conjunction with one another as petitioners have done in their
motion.
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