James Tinnell - Page 7

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          penalty pursuant to the Internal Revenue Code; (2) has exhausted            
          his administrative remedies within the IRS; and (3) did not                 
          unreasonably delay or protract the court proceedings.  Respondent           
          concedes that petitioner exhausted his administrative remedies              
          but maintains that petitioner is not a prevailing party and that            
          he unreasonably delayed or protracted these proceedings.                    
               To be a prevailing party, a taxpayer must satisfy the                  
          applicable net worth requirements set forth in section                      
          7430(c)(4)(A)(ii) and must substantially prevail with respect to            
          either the amount in controversy or the most significant issue or           
          set of issues presented.  Sec. 7430(c)(4)(A).  Respondent                   
          concedes that petitioner satisfies the applicable net worth                 
          requirements and that petitioner has substantially prevailed but            
          argues that respondent’s litigating position was substantially              
               Section 7430(c)(4)(B)(i) provides that a party shall not be            
          treated as a prevailing party if the Commissioner establishes               
          that his position was substantially justified.  Whether the                 
          Commissioner’s position was substantially justified is to be                
          resolved by applying a reasonableness standard.  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).  The                
          litigating position of the Commissioner is substantially                    
          justified if the position had a reasonable basis in both fact and           

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