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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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