Donald C. Richardson and Rita M. Allaire - Page 23

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          took several meetings with respondent's Appeals officer before              
          all the voluminous documentation required to substantiate the               
          claimed deductions were supplied to respondent.  This                       
          documentation was not produced during the examination.  The issue           
          is not whether petitioners and PCCL had documentation supporting            
          their position.  Rather, the issue is whether respondent had a              
          basis in fact for the position in the notices of deficiency.  As            
          stated above, we conclude that respondent did.                              
               Petitioners and PCCL also contend that respondent's position           
          was not substantially justified because petitioners and PCCL                
          refused to extend the statute of limitations.  They contend                 
          "respondent issued this notice * * * simply because the statute             
          of limitations was set to expire".  Even if it were shown to be             
          true that respondent issued the notices to toll the running of              
          the statute of limitations, that is not an unreasonable action              
          for respondent to take.                                                     
               In Chaum v. Commissioner, 69 T.C. 156 (1977), the IRS issued           
          a notice of deficiency to toll the running of the statute of                
          limitations after the taxpayers refused to consent to an                    
          extension.  We rejected the taxpayers' arguments that the IRS               
          action was arbitrary.  Id. at 160-164.  In Wasie v. Commissioner,           
          86 T.C. 962, 969 (1986), we found that the IRS had acted                    
          reasonably in issuing a notice of deficiency where the taxpayer             
          had refused to extend the statute of limitations.  See also                 

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