Bernardo Paz - Page 2

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          whether respondent’s position in the underlying proceeding was              
          substantially justified.  We hold that it was.  Thus, we hold               
          that petitioner is not entitled to an award for litigation costs.           
               Unless otherwise specified, section references are to the              
          Internal Revenue Code as amended.  Rule references are to the Tax           
          Court Rules of Practice and Procedure.                                      
               Petitioner resided in Florida when he filed his petition.              
          A.   Petitioner’s Lottery Winnings and The Divorce Proceedings              
               In April 1992, petitioner won $7 million in the Florida                
          lottery, payable to him in 20 annual installments of $350,000.              
               Petitioner’s wife filed for divorce before petitioner                  
          received the fourth lottery payment (due on May 15, 1995).  At              
          the request of petitioner’s wife, the Circuit Court of the                  
          Eleventh Judicial District of Dade County, Florida, Family                  
          Division, ordered that the May 15, 1995, payment be placed in               
          escrow pending an agreement between petitioner and his wife or a            
          court order regarding disposition of the payment.                           
               On November 2, 1995, petitioner and his wife agreed to a               
          marital settlement and equitable division of property.  Under               
          that agreement, $3,000 of the funds in the escrow account was               
          paid to petitioner’s wife’s attorney for expert fees, and the               
          balance was divided equally between petitioner and his wife.                
          Petitioner and his wife agreed that petitioner would receive                

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