Phuong K. Nguyen - Page 12




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          administrative costs under section 7430.  See Rule 232(e).  Upon            
          satisfaction of these requirements, a taxpayer may be entitled to           
          reasonable costs incurred in connection with the administrative             
          or court proceeding.  See sec. 7430(a)(1) and (2), (c)(1) and               
          (2).                                                                        
               To be a “prevailing party”, the taxpayer must substantially            
          prevail with respect to either the amount in controversy or the             
          most significant issue or set of issues presented and satisfy the           
          applicable net worth requirement.  Sec. 7430(c)(4)(A).                      
          Respondent concedes that petitioner has satisfied the                       
          requirements of section 7430(c)(4)(A).  Petitioner will                     
          nevertheless fail to qualify as the prevailing party if                     
          respondent can establish that respondent’s position in the court            
          and administrative proceedings was substantially justified.  See            
          sec. 7430(c)(4)(B).                                                         
               B.  Substantial Justification                                          
               The Commissioner's position is substantially justified if,             
          based on all of the facts and circumstances and the legal                   
          precedents relating to the case, the Commissioner acted                     
          reasonably.  See Pierce v. Underwood, 487 U.S. 552 (1988); Sher             
          v. Commissioner, 89 T.C. 79, 84 (1987), affd. 861 F.2d 131 (5th             
          Cir. 1988).  In other words, to be substantially justified, the             
          Commissioner's position must have a reasonable basis in both law            
          and fact.  See Pierce v. Underwood, supra; Rickel v.                        






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