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The fact that the Commissioner eventually loses or concedes
a case does not by itself establish that the position the
Commissioner took is unreasonable. Estate of Perry v.
Commissioner, 931 F.2d 1044, 1046 (5th Cir. 1991) (award of
litigation costs in Court of Appeals), affg. T.C. Memo. 1990-123;
Swanson v. Commissioner, 106 T.C. 76, 94 (1996). It is only a
factor that may be considered. Nalle v. Commissioner, 55 F.3d at
192 n.7; Estate of Perry v. Commissioner, 931 F.2d at 1046.
In determining whether respondent’s position was not
substantially justified, the question is whether respondent knew
or should have known that the Government’s position was invalid
at the time that it took the position in the litigation. Nalle
v. Commissioner, 55 F.3d at 191; Coastal Petroleum Refiners v.
Commissioner, 94 T.C. at 689.
The instant case does not present questions as to validity
of Treasury regulations or disputed interpretations of the
statutes, as did, e.g., Nalle v. Commissioner, supra, and Minahan
v. Commissioner, 88 T.C. 492 (1987). Rather, the instant case is
based on availability of factual substantiation of claimed
deductions. As of November 21, 1996, the date the answer was
filed, respondent knew (1) the information that petitioners’
representative had given to Ward at the April 23, 1996, meeting,
(2) petitioners’ representative claimed at this meeting that
there was proper documentation to verify all the income and
expense items shown on petitioners’ tax returns for the years in
issue, and (3) petitioners’ representative had claimed from the
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