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fraud issue and the nonfraud issues based on the relative dollar
amounts at issue. Per the notice of deficiency, the total amount
in dispute was $539,209, of which $447,651, or approximately 83
percent, was attributable to the fraud issue. Based on that
percentage, we allocate $23,420 of the $28,217 of residual
(category 3) fees to the fraud issue. Adding that figure to the
$7,784 of category 1 fees, we find that $31,204 of petitioner’s
$37,998 of potentially recoverable attorney’s fees are allocable
to the fraud issue (the fraud defense amount).
b. Subtraction of Nonrecoverable Portion of Fraud
Defense Amount
We have found that respondent’s assertion of the fraud
penalty with respect to 1991, but not 1992 or 1993, was
substantially justified in part (justified with respect to the
business income omission on the initial 1991 return but not
justified with respect to the business deductions overstatement
on the amended 1991 return). Accordingly, in order to determine
the portion of the fraud defense amount that petitioner is not
entitled to recover, we must first allocate a portion of such
amount to the 1991 fraud issue. The total of respondent’s fraud
penalties for 1991 through 1993 is $447,651. Based on the
relative amounts of such penalties for 1991 ($129,158), 1992
($299,461), and 1993 ($19,032), we allocate 29 percent, or
$9,049, of the $31,204 fraud defense amount to the 1991 fraud
issue. Next, we must allocate that $9,049 between the two 1991
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