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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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