Bernardo Paz - Page 4

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               3.  Be an individual whose net worth did not exceed $2                 
          million when the petition was filed.  Sec. 7430(c)(4)(A)(ii); 28            
          U.S.C. sec. 2412(d)(2)(B) (1988).  Respondent concedes that                 
          petitioner meets this requirement.                                          
               4.  Not unreasonably protract the proceedings.  Sec.                   
          7430(b)(3).  Respondent concedes that petitioner meets this                 
               5.  Establish that the amounts of costs and attorney’s fees            
          claimed are reasonable.  Sec. 7430(a), (c)(1).  Respondent                  
          concedes that the amounts petitioner claimed are reasonable.                
               In addition, the taxpayer is not entitled to an award for              
          reasonable litigation costs if the Commissioner shows that the              
          position of the United States in the proceeding was substantially           
          justified.  Sec. 7430(c)(4)(B)(i).                                          
          B.   Whether Respondent’s Position Was Substantially Justified              
               The parties dispute whether respondent’s position in the               
          underlying proceeding was substantially justified.                          
               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 law and fact.  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,           

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