- 9 -
and administrative proceedings was substantially justified. See
sec. 7430(c)(4)(B).
B. Substantial Justification
The Commissioner may establish that a position is
substantially justified if, based on all of the facts and
circumstances and the legal precedents relating to the case, the
Commissioner acted reasonably. See Pierce v. Underwood, 487 U.S.
552 (1988); Sher v. Commissioner, 89 T.C. 79, 84 (1987), affd.
861 F.2d 131 (5th Cir. 1988). A position is substantially
justified if the position is "justified to a degree that could
satisfy a reasonable person". Pierce v. Underwood, supra at 565
(construing similar language in EAJA). Thus, the Commissioner's
position may even be incorrect but substantially justified "if a
reasonable person could think it correct". Maggie Management Co.
v. Commissioner, 108 T.C. 430, 443 (1997).
The relevant inquiry is "whether * * * [the Commissioner]
knew or should have known that [his] position was invalid at the
onset". Nalle v. Commissioner, 55 F.3d 189, 191 (5th Cir. 1995),
affg. T.C. Memo. 1994-182. We look to whether the Commissioner's
position was reasonable given the available facts and
circumstances at the time that the Commissioner takes his
position. See Maggie Management Co. v. Commissioner, supra at
443; DeVenney v. Commissioner, 85 T.C. 927, 930 (1985).
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