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years 1990, 1991 and 1992. It was only after the Court’s opinion
in Petito v. Commissioner, T.C. Memo. 2000-363, on petitioner’s
motion for reconsideration, that petitioner and respondent’s
counsel apparently became aware that in fact the IRS had treated
Petito Corp. as a C corporation in its internal records. It was
at this point that respondent conceded all adjustments in this
case, recognizing that his determination and position were
inconsistent with his own administrative records.3
Respondent failed to explain to the Court why he proceeded
as he did in this case and why no one in the IRS discovered at
some earlier time that respondent’s determination in the notice
of deficiency and position taken in this litigation were
inconsistent with respondent’s internal records. Considering the
ease with which respondent could have determined Petito Corp.’s
correct status, it was unreasonable for respondent to issue the
disputed notice of deficiency to petitioner and to litigate this
case.
B. Unreasonable Protraction of the Proceedings
Respondent contends that petitioner should not be awarded
3 Respondent indicated that consistent treatment of Petito
Corp. with the internal documents would require respondent to
proceed directly against the corporation. Respondent also
acknowledged that the normal 3-year period of limitations under
sec. 6501(a) for making an assessment against Petito Corp. has
expired.
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