Tan Dang & Ke T. Chaw Dang v. Commissioner - Page 6




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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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