- 12 -
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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