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failed to maintain records, paid numerous workers with cash, and
failed to provide their return preparer with full and accurate
information. Respondent contended that these facts, among
others, indicated that petitioners intended to evade taxes they
knew to be owing.
Prior to the presentation of witnesses, the uncontested
facts of the case laid the foundation for a finding of fraud.
Petitioners’ intent was the primary issue at trial. Respondent,
who had the burden of proof, proffered witnesses who presented
rambling, inconsistent, and unconvincing testimony. Conversely,
the testimony of petitioners and their witnesses was credible and
established that petitioners were careless and inattentive but
did not intend to evade taxes. Simply put, respondent had a
reasonable basis for not believing petitioners, but the evidence
presented at trial established that respondent was wrong.
Notwithstanding the shortcomings of respondent’s case at trial,
respondent’s position was substantially justified. Accordingly,
petitioners are not entitled to an award of litigation and
administrative costs pursuant to section 7430.
Section 6673(a)(2) allows the Court to sanction an attorney
who has unreasonably and vexatiously multiplied the proceedings
in any case. Because we conclude that respondent’s position was
substantially justified, we also conclude that petitioners are
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Last modified: May 25, 2011