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his position. Maggie Mgmt. Co. v. Commissioner, supra at 442
(citing Huffman v. Commissioner, 978 F.2d 1139, 1144-1147 (9th
Cir. 1992), affg. in part and revg. in part on another ground
T.C. Memo. 1991-144). In the present case, however, we need not
follow this approach because respondent’s position was
essentially the same in the administrative and litigation
proceedings. See Maggie Mgmt. Co. v. Commissioner, supra at 442.
More specifically, respondent’s position was that petitioner had
failed to report his allocable share of income from Petito Corp.
Considering all the facts and circumstances, we conclude
that respondent’s position in this matter was not substantially
justified. Respondent determined in the notice of deficiency and
maintained in his answer that petitioner failed to report the
flowthrough income from Petito Corp. The determination in the
notice of deficiency is inconsistent with the treatment by
respondent of Petito Corp. as a C corporation as revealed by
Internal Revenue Service internal documents. Throughout this
proceeding respondent maintained that petitioner understated
income on his individual return as a result of a failure to
report income that flowed through Petito Corp., an S corporation.
This was the position taken in the notice of deficiency as well
as in this proceeding. Yet respondent’s own internal records
reflected that respondent treated Petito Corp. as a C corporation
despite the filing of Forms 1120S by the corporation for the
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