John Bowden, Inc. - Page 8

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          (1) The position of the United States was not substantially                 
          justified; (2) the taxpayer substantially prevailed with respect            
          to either the amount in controversy or the most significant issue           
          or set of issues presented; and (3) the taxpayer met the net                
          worth requirements of 28 U.S.C. section 2412(d)(2)(B) (1994) at             
          the time the petition was filed.  Sec. 7430(c)(4).                          
               Respondent concedes that petitioner meets the net worth                
          requirements and that petitioner substantially prevailed with               
          respect to the amount in controversy.  Therefore, we need only              
          examine the question of whether the Government's litigation                 
          position was substantially justified.  See Swanson v.                       
          Commissioner, 106 T.C. 76, 86 (1996).                                       
          Substantially Justified                                                     
               Whether the Government's position was substantially                    
          justified turns on a finding of reasonableness, based upon all              
          the facts and circumstances, as well as the legal precedents                
          relating to the case.  Pierce v. Underwood, 487 U.S. 552, 565               
          (1988).  A position is substantially justified if the position is           
          "justified to a degree that could satisfy a reasonable person."             
          Id.  Determining the reasonableness of the Government's position            
          and conduct requires considering what the Government knew at the            
          time.  See Rutana v. Commissioner, 88 T.C. 1329, 1334 (1987);               
          DeVenney v. Commissioner, 85 T.C. 927, 930 (1985).                          

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