Ronald D. and Paula J. Pittman, et al. - Page 10




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          of deficiency.  See sec. 7430(c)(7)(B).  The position of the                
          United States that must be examined against the substantial                 
          justification standard with respect to the recovery of litigation           
          costs is the position taken by the Commissioner in the answer to            
          the petition.  See Bertolino v. Commissioner, 930 F.2d 759, 761             
          (9th Cir. 1991); Sher v. Commissioner, supra at 134-135.                    
          Ordinarily, we consider the reasonableness of each of these                 
          positions separately.  See Huffman v. Commissioner, 978 F.2d                
          1139, 1144-1147 (9th Cir. 1992), affg. in part, revg. in part and           
          remanding on other issues T.C. Memo. 1991-144.  In the present              
          cases, however, we need not consider two separate positions                 
          because there is no indication that respondent's position changed           
          or that respondent became aware of any additional facts that                
          rendered his position any more or less justified between the                
          issuance of the notices of deficiency and the filing of the                 
          answers to the petitions.                                                   
               We now turn to petitioners' contention that respondent's               
          position was not substantially justified.  In order to decide               
          whether respondent's position was substantially justified we must           
          review the substantive merits of these cases.                               
               Respondent determined that IC's cash/hybrid method of                  
          accounting did not clearly reflect its income because merchandise           
          was an income-producing factor in IC's business and, therefore,             
          that the use of inventories was necessary to clearly determine              







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