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The determination of reasonableness is based on all of the
facts and circumstances surrounding the proceeding and the legal
precedents relating to the case. See Coastal Petroleum Refiners,
Inc. v. Commissioner, 94 T.C. 685, 694-695 (1990). A position
has a reasonable basis in fact if there is such relevant evidence
as a reasonable mind might accept as adequate to support a
conclusion. See Pierce v. Underwood, supra at 565. A position
is substantially justified in law if legal precedent
substantially supports the Commissioner's position given the
facts available to the Commissioner. See Coastal Petroleum
Refiners, Inc. v. Commissioner, supra at 688. Determining the
reasonableness of the Commissioner's position and conduct
requires considering what the Commissioner knew at the time. See
Rutana v. Commissioner, 88 T.C. 1329, 1334 (1987); DeVenney v.
Commissioner, 85 T.C. 927, 930 (1985).
The fact that the Commissioner loses on the merits or
concedes the case does not establish that a position was not
substantially justified; however, it is a factor to be
considered. See Powers v. Commissioner, 100 T.C. 457, 471
(1993), affd. in part and revd. in part 43 F.3d 172 (5th Cir.
1995).
Respondent interviewed many people in order to determine
what had actually transpired between petitioner Michael H.
Johnson (Mr. Johnson) and officials from the City of Lancaster
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