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The legislative history for the initial enactment of section
7430 contains the explanation that the exhaustion of the
administrative remedies provision was
intended to preserve the role that the administrative
appeals process plays in the resolution of tax disputes
by requiring taxpayers to pursue such remedies prior to
litigation. A taxpayer who actively participates in
and discloses all relevant information during the
administrative stages of the case will be considered to
have exhausted the available administrative remedies.
Failure to so participate and disclose information may
be sufficient grounds for determining that the taxpayer
has not exhausted administrative remedies and,
therefore, is ineligible for an award of litigation
costs.
H. Rept. 97-404, supra at 13. Finally, section 7430 was not
intended “to permit awards for litigation costs which the
taxpayer could have reduced or avoided through full disclosure of
all relevant facts.” Id. at 15.
Accordingly, section 7430 was intended to motivate
respondent to consider and react reasonably to taxpayers’
evidence and arguments. Consistent with that purpose is the
regulatory requirement that taxpayers provide respondent with
relevant information supporting their position. Obviously, if
the theories and/or information presented to Appeals is
irrelevant, without substance, or unsupportable, the taxpayer
will not have exhausted administrative remedies and will not
likely be a prevailing party within the meaning of section 7430.
Triplett v. Commissioner, T.C. Memo. 1998-313. As a result, such
a taxpayer will not be entitled to recover litigation costs.
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