James L. and Sherri R. Goertler - Page 9

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          See sec. 7430(c)(7)(A).  Based on the facts available to                    
          respondent at that time, as well as long-standing legal precedent           
          regarding the availability of tax deductions, respondent’s                  
          position had a reasonable basis in both law and fact and                    
          therefore was substantially justified.  See Maggie Mgmt. Co. v.             
          Commissioner, 108 T.C. at 443.  When respondent filed his answer,           
          he had received none of the documentation requested of                      
          petitioners to substantiate the section 151(c) deductions.  Since           
          deductions are a matter of “legislative grace”, New Colonial Ice            
          Co. v. Helvering, 292 U.S. 435, 440 (1934), a taxpayer claiming a           
          deduction “must be able to point to an applicable statute and               
          show that he comes within its terms.”  Id.  Furthermore, we have            
          observed on numerous occasions in the context of section 7430               
          that whenever the resolution of an adjustment requires a factual            
          determination, it is reasonable for the Commissioner to stand by            
          his adjustment until he has received from the taxpayer, and has             
          had a reasonable period of time to verify, documentation                    
          sufficient to substantiate the item in question.  See, e.g.,                
          Huynh v. Commissioner, T.C. Memo. 2002-110 (involving section               
          151(c) deductions).                                                         
               We note further that when respondent’s Appeals officer                 
          finally received, by letter dated July 18, 2001, the                        
          documentation requested of petitioners, he agreed to a basis of             
          settlement within a reasonable period (approximately 90 days)               






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