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that his position was substantially justified. Sec.
7430(c)(4)(B).
Respondent contends that petitioner is not the prevailing
party within the meaning of section 7430(c)(4) because, while the
stipulation and stipulation of settled issues resolved all issues
in petitioner’s favor, respondent’s position was substantially
justified.4 The Commissioner’s position is substantially
justified if, based on all of the facts and circumstances and the
legal precedents relating to the case, the Commissioner acted
reasonably. Pierce v. Underwood, 487 U.S. 552 (1988); Sher v.
Commissioner, 89 T.C. 79, 84 (1987), affd. 861 F.2d 131 (5th Cir.
1988). In other words, to be substantially justified, the
Commissioner’s position must have a reasonable basis in both law
and fact. Pierce v. Underwood, supra; Rickel v. Commissioner,
900 F.2d 655, 665 (3d Cir. 1990), affg. in part and revg. in part
on other grounds 92 T.C. 510 (1989). A position is substantially
justified if the position is “justified to a degree that could
satisfy a reasonable person”. Pierce v. Underwood, supra at 565
(construing similar language in the Equal Access to Justice Act).
Thus, the Commissioner’s position may be incorrect but
nevertheless be substantially justified “‘if a reasonable person
4 As discussed above, respondent also contends that
petitioner did not exhaust administrative remedies and that
petitioner unreasonably protracted the proceedings. As a result
of our conclusion herein, we need not address respondent’s
additional contentions.
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