William T. and Nicole L. Gladden - Page 7

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          temporary regulations under section 7430(c)(4)(E).  With regard             
          to the policy argument, petitioners quote from the Senate report            
          associated with section 7430(c)(4)(E) as follows:                           

                    The Committee believes that settlement of tax                     
               cases should be encouraged whenever possible.                          
               Accordingly, the Committee believes that the                           
               application of a rule similar to FRCP 68 is appropriate                
               to provide an incentive for the IRS to settle                          
               taxpayers’ cases for appropriate amounts, by requiring                 
               reimbursement of taxpayer’s costs when the IRS fails to                
               do so.  [S. Rept. 105-174, at 48 (1998), 1998-3 C.B.                   
               537, 584.]                                                             

               Petitioners emphasize the purpose underlying rule 68 of the            
          Federal Rules of Civil Procedure, namely, to encourage                      
          settlements and to reduce litigation.  Fed. R. Civ. P. 68,                  
          Advisory Committee’s Note, 1946 Amendment, 28 U.S.C. app. at 801-           
          802 (2000); Marek v. Chesny, 473 U.S. 1, 5-7 (1985); Delta Air              
          Lines, Inc. v. August, 450 U.S. 346, 352 (1981).                            
               Although technically applicable only to qualified offers               
          made in administrative and court proceedings after January 3,               
          2001, petitioners emphasize that the temporary regulations                  
          promulgated under section 7430 support their interpretation of              
          section 7430(c)(4)(E)(ii)(I) because the temporary regulations              
          provide that the settlement limitation will apply only where the            
          settlement occurs and the judgment is entered “exclusively”                 
          pursuant to a settlement.  Sec. 301.7430-7T(f), Temporary Proced.           
          & Admin. Regs., 66 Fed. Reg. 730 (Jan. 4, 2001).  Section                   






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