Robert M. and Paulette G. Maddox - Page 20

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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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