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At trial and in their posttrial briefs in Marten I, all
parties, including petitioners, relied on post-DEFRA section 71.
We held in Marten I that pre-DEFRA section 71 applied. On
November 5, 1999, Ms. Marten filed a motion for reconsideration
of our opinion in Marten I in which she argued that Marten I,
pursuant to Q&A-26 of section 1.71-1T(e), Temporary Income Tax
Regs., 49 Fed. Reg. 34458 (Aug. 31, 1984) (hereinafter Q&A-26),
should have been decided under post-DEFRA section 71. Respondent
filed a response to the motion for reconsideration in which
respondent agreed with Ms. Marten. In an order dated April 20,
2000, we granted the motion for reconsideration and considered
whether Q&A-26 dictated that post-DEFRA section 71 should apply.
There was no definitive case law directly on point, and the
legislative history behind DEFRA was not illuminating. We
interpreted Q&A-26 in light of the effective date language in
DEFRA and decided that, under Q&A-26 and DEFRA itself, pre-DEFRA
section 71 applied to the instant case. Given the difficulty of
the issue and lack of case law on point, respondent was
substantially justified in taking the position, as petitioners
did in Marten I, that post-DEFRA section 71 applied.
Petitioners also complain that respondent took inconsistent
positions in regards to petitioners and Ms. Marten and thus could
not have been substantially justified. We have held that the
Commissioner is entitled to take inconsistent positions against
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