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The Commissioner’s position is substantially justified if
that position could satisfy a reasonable person. Pierce v.
Underwood, 487 U.S. 552, 565 (1988). To be substantially
justified, the Commissioner’s position must have a reasonable
basis in both fact and law. Id.; Hanover Bldg. Matls., Inc. v.
Guiffrida, 748 F.2d 1011, 1015 (5th Cir. 1984); Powers v.
Commissioner, 100 T.C. 457, 470, 473 (1993), affd. on this issue,
revd. in part and remanded on other issues 43 F.3d 172 (5th Cir.
1995). A position has a reasonable basis in fact if there is
relevant evidence which a reasonable person might accept as
adequate to support a conclusion. Pierce v. Underwood, supra at
565. For a position to be substantially justified, there must be
substantial evidence to support it. Id. at 564-565; Powers v.
Commissioner, supra at 473.
2. Whether Respondent Had a Reasonable Basis in Fact
Respondent contends that respondent reasonably used
statistical data to estimate Manwah’s gross receipts because
petitioners lacked complete records for the years in issue, and
that the Dun & Bradstreet average gross receipts data provided a
reasonable basis for respondent’s estimate of Manwah’s gross
receipts. It is clear that the Commissioner may, in the absence
of records, use a reasonable method to reconstruct a taxpayer’s
income. Holland v. United States, 348 U.S. 121, 131 (1954).
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Last modified: May 25, 2011