Ted and Tammy Estes - Page 11

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          taxpayer’s records are destroyed by fire, and the taxpayer’s                
          reconstructions are inadequate.  See, e.g., Jernigan v.                     
          Commissioner, T.C. Memo. 1978-13.  The record in this case                  
          indicates that respondent adopted a reasonable, and therefore               
          substantially justified, position in light of the inadequacy of             
          petitioners’ books and records and the information accessible to            
          respondent throughout the administrative proceedings and in                 
          respondent’s filing of the answer in this case on July 9, 1998.5            
               Petitioners argue that respondent was not substantially                
          justified in his position because respondent’s counsel ultimately           
          offered to concede the entire tax liability for all years in                
          issue based upon essentially the same information that was                  
          available to respondent prior to the issuance of the notice of              
          deficiency.  We find, however, that respondent’s position was               
          substantially justified in this case because of the lack of                 
          adequate books and records available to respondent.  The fact               
          that respondent’s counsel ultimately decided to concede the case            
          may reflect a consideration of a variety of factors–-including              
          litigation risks–-which earlier were not considered or which were           

          5  Petitioners contend that respondent’s position is that                   
          taken in a notice of decision which was sent to petitioners on              
          Jan. 15, 1998, several months before the notice of deficiency.              
          It is unclear from the record whether this notice was in fact a             
          final decision by the Appeals Office.  This is not determinative            
          in this case, however, because we find that respondent was                  
          substantially justified at all times during the administrative              

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