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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
proceeding.
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