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7430(c)(4)(B)(i). Respondent bears the burden of proof on this
issue. Sec. 7430(c)(4)(B).1 Because the parties appear to agree
on the underlying facts, there are no factual disputes to
resolve, and we shall proceed on the basis of the parties’
submissions.
Factual and Procedural Background
The Loan
In 1986 petitioner Charles B. Owens (petitioner) borrowed
$596,078 from First RepublicBank (the loan). The loan matured in
1989. Upon the failure of First RepublicBank, the loan became
the property of the Federal Deposit Insurance Corporation (FDIC).
Petitioner never made any payments on the loan, and the FDIC
issued him an Internal Revenue Service Form 1099-C, Cancellation
of Debt 1994 (the Form 1099-C) with respect thereto. The Form
1099-C specifies the date of cancellation of the loan (October 6,
1994), the total amount canceled ($1,338,924.32), and the portion
of the total amount canceled consisting of interest
($742,846.32).
1 Sec. 7430(c)(4)(B) applies to proceedings commenced after
July 30, 1996. Taxpayer Bill of Rights 2, Pub. L. 104-168, sec.
701(d), 110 Stat. 1452, 1463 (1996). While we have yet to decide
the issue of when administrative (as opposed to judicial)
proceedings are commenced for purposes of that effective date,
see Maggie Mgmt. Co. v. Commissioner, 108 T.C. 430, 438 (1997),
respondent does not dispute petitioners’ assertion that
respondent bears the burden of proof on the “substantial
justification” issue with respect to all of the costs at issue.
We therefore proceed under the assumption that petitioners are
correct in that regard.
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