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treated as the prevailing party, the taxpayer must show that the
taxpayer substantially prevailed with respect to the amount in
controversy or the main issues and has met the net worth limits.
See sec. 7430(c)(4)(B)(i). If respondent’s position was
substantially justified, the taxpayer cannot be considered a
prevailing party and therefore cannot meet the requirements of
section 7430.
The Supreme Court has interpreted “substantially justified”
to mean “justified to a degree that could satisfy a reasonable
person.” Pierce v. Underwood, 487 U.S. 552, 565 (1988). The
United States’ position need not be correct to be “substantially
justified”; it need only have “a reasonable basis in law and
fact.” Id. at 566 n.2. The determination of reasonableness is
made on the basis of all the facts and circumstances, and the
fact that the Government eventually loses the case is not
determinative. See Baker v. Commissioner, 83 T.C. 822, 828
(1984), vacated and remanded on another issue 787 F.2d 637 (D.C.
Cir. 1986).
In their motion for fees, petitioners contend that they have
met all elements for an award under section 7430. Conversely,
2(...continued)
the Government’s “substantial justification” from the party
seeking the award to the Government.
The amendment applies to proceedings commenced after July
30, 1996. The petition was filed after July 30, 1996, making the
amended sec. 7430 applicable.
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Last modified: May 25, 2011