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parties primarily dispute, however, whether respondent's position
in the judicial proceeding was substantially justified.
Petitioners contend that respondent's position in the
judicial proceeding was not substantially justified. Respondent
asserts that it was reasonable to argue that petitioners did not
engage in their horse breeding and horse racing activities for
profit. We agree with respondent. For the reasons set forth
below, we shall deny petitioners' motion for award of reasonable
litigation costs.
Position of the United States
The position taken by the United States, for purposes of
litigation costs, is the position of the United States in a
judicial proceeding. See sec. 7430(c)(7)(A). Respondent took a
position in the judicial proceeding herein on the date
respondent's answer was filed--March 4, 1997. See Huffman v.
Commissioner, 978 F.2d 1139, 1148 (9th Cir. 1992), affg. in part
and revg. in part T.C. Memo. 1991-144.
Substantial Justification
The Commissioner's position is substantially justified if
that position could satisfy a reasonable person and if it has a
reasonable basis in both fact and law. See Pierce v. Underwood,
487 U.S. 552, 565 (1988); Swanson v. Commissioner, 106 T.C. 76,
86 (1996). We examine the facts known to the Commissioner at the
time the position was taken. See Coastal Petroleum Refiners,
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