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* * * * * * *
As a legal matter, the petitioners were required to
substantiate the deductions claimed on their returns. As a
factual matter, the information available to respondent at
the time of Answer was that, although the representative
prepared petitioners’ returns and was in possession of the
records which he used to prepare the returns, the
representative failed to communicate with the Agent in order
for those records to be inspected.5 Respondent submits
that, under these circumstances, it was reasonable for
respondent to answer the case and require petitioners to
submit their substantiation for review before respondent
conceded the adjustments.
* * * * * * *
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3 Moreover, the file reflected that, considering the
circumstances, the Agent had not been unreasonable in
exploring the possibility of extending the statutes of
limitations.
* * * * * * *
5 Respondent does not argue that it was unreasonable
of petitioners’ representative to decline to extend the
statute of limitations. Rather, it is respondent’s
position that the substantiation could have been
provided beginning April 23, 1996, allowing
consideration prior to the issuance of the statutory
notice. * * *
Petitioners maintain as follows:
1. Respondents [sic] denial of substantially all of
Petitioners’ deductions on their 1991 and 1992 individual
income tax returns was not substantially justified because
Respondent did not have a basis in both fact and law for the
disallowance at the time Respondent issued the notice of
deficiency or during the litigation of this case.
2. Petitioners are entitled to an award for administrative
and litigation costs [see supra note 1] under I.R.C. Section
7430 since Respondent’s position was not substantially
justified either when Respondent issued the notice of
deficiency or during the litigation of this case.
* * * * * * *
Respondent’s position did not have a reasonable basis in
both fact and law because Respondent had no information
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