Greg McIntosh and Sheila R. McIntosh - Page 20

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          simplified production method may be elected for any trade or                
          business as a method for determining costs allocable to ending              
          inventories of produced and other eligible property on hand at              
          the end of the year.  See sec. 1.263A-2(b)(1) and (2), Income Tax           
          Regs.  The record in this case fails to show that petitioners               
          ever made any such election or that they made any argument to               
          respondent that they relied upon the above provision when                   
          reporting the expenses on their return for 1995.                            
               We find that respondent's position that the $2,008.06                  
          represented an amount that had to be capitalized into the cost of           
          the Vallecito property was a reasonable application of the law              
          given the available facts and circumstances at the time that                
          respondent took his position.                                               
               We find that respondent's positions on the disputed issues             
          were reasonable positions sufficiently supported by the facts and           
          circumstances in petitioners' case and the existing legal                   
          precedent.  See Pierce v. Underwood, 487 U.S. 552 (1988).                   
          Because we find respondent's positions to have been reasonable,             
          we cannot find petitioners to be "prevailing" parties, and their            
          motion will therefore be denied.                                            
               To reflect the foregoing,                                              
                                             An appropriate order will                
                                        be issued, and decision will be               
                                        entered under Rule 155.                       

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