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with respect to either the amount in controversy or the most
significant issue or set of issues presented. See sec.
7430(c)(4)(A). Respondent concedes that petitioners have
substantially prevailed and that they meet the applicable net
worth limitation but argues that his litigating position was
substantially justified. If respondent can establish that the
position taken in Mid-Del I was substantially justified, then
petitioners fail to qualify as prevailing parties. See sec.
7430(c)(4)(B). In deciding whether to award reasonable costs,
therefore, we address only the issue of whether respondent’s
position was substantially justified.
The Commissioner’s position is substantially justified if
the Commissioner acted reasonably in pursuing his litigating
position on the basis of all of the facts and circumstances and
the applicable legal precedents. See Pierce v. Underwood, 487
U.S. 552, 564 (1988); Sher v. Commissioner, 89 T.C. 79, 84
(1987), affd. 861 F.2d 131 (5th Cir. 1988). Although the
Commissioner’s litigating position may have been incorrect in
hindsight, it is substantially justified “if a reasonable person
could think it correct”. Pierce v. Underwood, supra at 566 n.2.
The fact that the Commissioner eventually loses a case does not
establish that the position was unreasonable. See Anthony v.
United States, 987 F.2d 670, 674 (10th Cir. 1993); Sokol v.
Commissioner, 92 T.C. 760, 767 (1989). We decide whether the
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