Bernardo Paz - Page 5

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          revd. in part and remanded on other issues 43 F.3d 172 (5th Cir.            
          1995).  For a position to be substantially justified, there must            
          be substantial evidence to support it.  Pierce v. Underwood,                
          supra at 564-565; Powers v. Commissioner, supra at 473.                     
               The Commissioner’s concession in the underlying proceeding             
          does not establish that a taxpayer is entitled to an award for              
          reasonable litigation costs.  Wilfong v. United States, 991 F.2d            
          359, 364 (7th Cir. 1993); Hanson v. Commissioner, 975 F.2d 1150,            
          1153 (5th Cir. 1992).  However, it is a factor to be considered.            
          Estate of Perry v. Commissioner, 931 F.2d 1044, 1046 (5th Cir.              
          1991); Powers v. Commissioner, supra at 471.                                
               1.   Whether Respondent Had a Reasonable Basis in Law                  
               Petitioner contends that respondent did not have a                     
          reasonable basis in law for respondent’s position that petitioner           
          is liable for tax on the entire $350,000 lottery payment in 1995.           
          We disagree.                                                                
               The Commissioner has a reasonable basis in law if the                  
          Commissioner’s position is based on relevant legal precedents.              
          Pierce v. Underwood, supra; Maggie Mgmt. Co. v. Commissioner, 108           
          T.C. 430, 443 (1997); Coastal Petroleum Refiners, Inc. v.                   
          Commissioner, 94 T.C. 685, 688 (1990).  Respondent contends that            
          Smith v. IRS, 75 AFTR 2d 95-2253, 94-2 USTC par. 50,503 (S.D.N.Y.           
          1994), provides a reasonable basis in law for respondent’s                  
          position.  The facts of Smith are similar to those in the instant           

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