Phillip Lee Allen and Carolyn F. Allen - Page 4

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          respondent argues that, although petitioners substantially                  
          prevailed with respect to the issues and amounts in controversy,            
          petitioners are not the prevailing party because respondent was             
          substantially justified in maintaining his position.  Respondent            
          also argues that all administrative remedies were not exhausted,            
          that petitioners unreasonably protracted the proceedings, and               
          that the fees requested are unreasonable.  If we determine that             
          respondent was substantially justified, we need not address the             
          other aspects raised by respondent.                                         
               Respondent contends that the evidence that was available               
          prior to trial substantially justified the position that                    
          petitioners’ settlement included payment for punitive damages.              
          Petitioners counter that the evidence they provided to respondent           
          regarding the expenses of rehabilitating their home rendered                
          respondent’s position on the taxability of the settlement                   
          unreasonable and without justification.                                     
               In seeking to recover from their insurance company,                    
          petitioners made a series of demands for reimbursement as the               
          repairs progressed and the amount of damage grew due to                     
          subsequent discoveries of damage.  After a few payments to                  
          petitioners, the insurance company disputed petitioners’                    
          estimates and refused to honor petitioners’ demands.  Petitioners           
          brought suit over this refusal and alleged delay by the insurance           
          company.  In their complaint, petitioners set forth several                 





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