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prohibited "other similar arrangement" under section 465(b)(4).
See id. at 1027. Before trial, however, the Commissioner
conceded that the taxpayer was at risk and allowed the loss
deductions. See id. at 1024. After a favorable settlement, the
taxpayer sought attorney's fees, which fees this Court denied.
See id. at 1024-1025. The Court of Appeals for the Third
Circuit, however, agreed with the taxpayer, holding that this
Court abused its discretion in not awarding attorney's fees
pursuant to section 7430. See id. at 1030-1031.
In its opinion, the Court of Appeals for the Third Circuit
decided that the Commissioner's initial position, with respect to
the propriety of the taxpayer's loss deductions, was not
substantially justified. See id. at 1029. The court, however,
stated:
Although this court has yet to address this issue, we
agree with the Commissioner that the reasonableness of
her position should be evaluated under the economic
reality test as it has been adopted by the overwhelming
majority of the courts to address the issue. Whether
or not we would adopt it in a case in which we were
required to decide whether certain deductions were
proper, we believe that if the Commissioner satisfied
the economic reality test here, her position had a
reasonable basis in law. [See id. at 1027.]
Although the court considered the Commissioner's arguments under
the economic reality standard, the court emphasized that "we do
not purport to adopt the economic reality test as the law of this
circuit." Id. at 1027 n.10.
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