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Accordingly, on the basis of the record in the
instant case, we conclude that respondent’s position
was not substantially justified. [Mauerman v.
Commissioner, T.C. Memo. 1995-237; emphasis added.]
Mauerman II does not stand for the blanket proposition,
asserted by petitioners, that, if this Court finds that the
Commissioner’s determination is arbitrary, capricious, or without
sound basis in fact or law, it necessarily follows that his
litigating position cannot be substantially justified. Rather,
Mauerman II acknowledges that there may be situations in which
the Commissioner’s litigating position in support of a
determination is substantially justified even though the
determination ultimately is held to be arbitrary, capricious, or
without sound basis in fact or law. We must decide whether this
is one of those situations.
Respondent contends that this case presents one of the
“other situations” contemplated in Mauerman II. In respondent’s
objection to petitioners’ motion for award of litigation and
administrative costs filed June 13, 2000, respondent summarizes
his position as follows:
Whenever respondent determines a taxpayer’s method of
accounting does not clearly reflect income, the
standard of review is abuse of discretion. Thor Power
Tool Co. v. Commissioner, 439 U.S. 522, 532 (1979);
Cole v. Commissioner, 586 F.2d 747, 749 (9th Cir.
1978), affg. 64 T.C. 1091 (1975). The Court’s
conclusion that a change in accounting method was
unwarranted requires a finding that the Commissioner
abused his discretion; however, the record does not
support a finding that respondent had no factual or
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