Hung N. Nguyen - Page 9

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          will nevertheless fail to qualify as the prevailing party if                
          respondent can establish that respondent’s position in the                  
          administrative and court proceedings was substantially justified.           
          Sec. 7430(c)(4)(B)(i).                                                      
               B.  Substantial Justification                                          
               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            
          could think it correct’”.  Maggie Mgmt. Co. v. Commissioner, 108            
          T.C. 430, 443 (1997) (quoting Pierce v. Underwood, supra at 566             
          n.2).                                                                       
              The relevant inquiry is “whether * * * [the Commissioner]              






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