Carolyn B. Cooper - Page 6




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               There is an exception.  Petitioner will in any event fail to           
          qualify as the prevailing party if respondent establishes that              
          the United States' position in the court proceeding was                     
          substantially justified.  Sec. 7430(c)(4)(B).  We apply section             
          7430, as amended by the Taxpayer Bill of Rights 2 (TBOR 2), Pub.            
          L. 104-168, secs. 701-704, 110 Stat. 1452, 1463-1464 (1996),                
          which requires the United States to establish that the position             
          of the United States in such proceedings was substantially                  
          justified.  These amendments to section 7430 are effective with             
          respect to proceedings commenced after July 30, 1996.  TBOR 2               
          secs. 701(d), 702(b), 703(b), and 704(b), 110 Stat. 1463-1464.              
          Because the petition in this case was filed on June 30, 1997,               
          section 7430 as amended by TBOR 2 applies.  Maggie Management Co.           
          v. Commissioner, 108 T.C. 430, 437-441 (1997).                              
               Respondent argues that petitioner is not the prevailing                
          party because the position of the United States was substantially           
          justified and the costs claimed are not reasonable.  Respondent             
          concedes that petitioner has satisfied the other requirements of            
          section 7430.                                                               
               The United States' position is substantially justified if it           
          is justified to a degree that could satisfy a reasonable person             
          and has a reasonable basis in both fact and law.  Pierce v.                 
          Underwood, 487 U.S. 552, 565 (1988) (interpreting similar                   
          language in the Equal Access to Justice Act, 28 U.S.C. sec. 2412            
          (1988)); Maggie Management Co. v. Commissioner, supra at 443.  A            



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