Frederick M. and Cheryl A. Prouty - Page 12

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               From the record before us we conclude that the case remained           
          unsettled due to petitioners' request for additional time to                
          substantiate unreported expenses to offset what they conceded was           
          income not reported by Mr. Prouty.                                          
               It is reasonable for respondent to make adjustments for                
          items and to refuse to concede the adjustments until he has                 
          received and verified substantiation for the amounts adjusted.              
          See Beecroft v. Commissioner, T.C. Memo. 1997-23; Simpson Fin.              
          Servs., Inc. v. Commissioner, T.C. Memo. 1996-317; McDaniel v.              
          Commissioner, T.C. Memo. 1993-148.                                          
               We are persuaded that respondent's position on the above               
          issue was reasonable.  Respondent's position was based on                   
          petitioners' failure to substantiate fully or account for the               
          item.  Further, the issue was settled within a reasonable period            
          of time after petitioners gave sufficient information to                    
          respondent.  See Harrison v. Commissioner, 854 F.2d 263, 265 (7th           
          Cir. 1988), affg. T.C. Memo. 1987-52; Wickert v. Commissioner,              
          842 F.2d 1005 (8th Cir. 1988), affg. T.C. Memo. 1986-277; Ashburn           
          v. United States, 740 F.2d 843 (11th Cir. 1984); McDaniel v.                
          Commissioner, supra.                                                        
               Because respondent's position in the administrative                    
          proceedings was substantially justified, we need not decide                 
          whether petitioners meet the net worth requirements, unreasonably           

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