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reasonable costs incurred in connection with the administrative
or court proceedings. Sec. 7430(a)(2) and (c)(1).
To be a prevailing party, the taxpayer must substantially
prevail with respect to either the amount in controversy or the
most significant issue or set of issues presented and satisfy the
applicable net worth requirement. Sec. 7430(c)(4)(A).
Respondent concedes that petitioners have satisfied the
requirements of section 7430(c)(4)(A). Petitioners will
nevertheless fail to qualify as the prevailing party if
respondent can establish that his position in the court and
administrative proceedings was substantially justified. Sec.
7430(c)(4)(B).
B. Substantial Justification
The Commissioner's position is substantially justified if,
based on all of the facts and circumstances and the legal
precedents relating to the case, respondent acted reasonably.
Pierce v. Underwood, 487 U.S. 552 (1988); Sher v. Commissioner,
89 T.C. 79, 84 (1987), affd. 861 F.2d 131 (5th Cir. 1988). A
position is substantially justified if the position is "justified
to a degree that could satisfy a reasonable person". Pierce v.
Underwood, supra at 565 (construing similar language in EAJA).
Thus, the Commissioner's position may even be incorrect but
substantially justified "if a reasonable person could think it
correct". Maggie Management Co. v. Commissioner, 108 T.C. 430,
443 (1997).
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Last modified: May 25, 2011