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of these requirements. Thus, we must decide whether petitioners
are the prevailing party.
To qualify as a "prevailing party", a taxpayer must
establish the following:
(1) The taxpayer substantially prevailed with respect to the
amount in controversy or with respect to the most significant
issue or set of issues presented. See sec. 7430(c)(4)(A)(i).
(2) The taxpayer is either an individual whose net worth
does not exceed $2 million, or an owner of any unincorporated
business, or any partnership, corporation, etc., the net worth of
which does not exceed $7 million at the time the petition is
filed. See sec. 7430(c)(4)(A)(ii); 28 U.S.C. sec. 2412(d)(2)(B)
(1988).
A party, however, will not be treated as the prevailing
party if the United States establishes that its position in the
proceeding was substantially justified. See sec.
7430(c)(4)(B)(i).
In this case, while respondent determined a total of
$550,567.15 in deficiencies, additions to tax, and penalties for
the years in issue, the March 20, 2000, settlement called for a
total of $170,399.71 in deficiencies, additions to tax, and
penalties. Respondent agrees that petitioners substantially
prevailed as to the amount in controversy and that they meet the
net worth requirement. Respondent contends, however, that his
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