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about the case and had made no attempt to obtain information
about the case prior to adopting the position at issue.
Respondent failed to diligently investigate this case.
We agree with petitioners’ conclusion.
We must identify the point at which the United States is
first considered to have taken a position, and then decide
whether the position, taken from that point forward was or was
not substantially justified. Maggie Management Co. v.
Commissioner, 108 T.C. at 442. The position of the United States
is the position taken by respondent in this proceeding.
Sec. 7430 (c)(7)(A). Respondent’s position is that which is
set forth in the answer filed with the Court on November 21,
1996. Maggie Management Co. v. Commissioner, 108 T.C. at 442.
Substantially justified is defined as “justified to a degree
that could satisfy a reasonable person” and having a “reasonable
basis both in law and fact”. Pierce v. Underwood, 487 U.S. 552,
565 (1988); Nalle v. Commissioner, 55 F.3d 189, 191 (5th Cir.
1995), affg. T.C. Memo. 1994-182. Respondent’s position may be
incorrect and yet be substantially justified “if a reasonable
person could think it correct”. Pierce v. Underwood, 487 U.S. at
566 n.2.
Whether respondent acted reasonably in the instant case
ultimately turns on the available information which formed the
basis for the position taken in the answer, as well as on any
legal precedents related to the case. Nalle v. Commissioner, 55
F.3d at 191-192; Coastal Petroleum Refiners v. Commissioner, 94
T.C. 685, 688 (1990).
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