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that the taxpayer meets requirements (1) and (2), supra, the
Commissioner must show that the Commissioner’s position was
substantially justified. See sec. 7430(c)(4)(B)(i); Rule 232(e).
Respondent concedes that petitioner did not unreasonably
protract the court proceeding and that petitioner meets the net
worth requirement of 28 U.S.C. section 2412(d)(2)(B). In
addition, respondent does not dispute that petitioner
substantially prevailed with respect to the amount in
controversy. Respondent alleges, however, that respondent’s
position was substantially justified, that petitioner did not
exhaust the administrative remedies available to him, and that
the costs petitioner claims are unreasonable.
A. Whether Respondent’s Position Was Substantially Justified
For purposes of deciding a motion for reasonable litigation
costs, section 7430(c)(7)(A) defines the Commissioner’s
“position” as the position taken in the court proceeding. In the
present case, respondent took a position when respondent filed an
answer to petitioner’s petition. See Huffman v. Commissioner,
978 F.2d 1139, 1148 (9th Cir. 1992), affg. in part, revg. in part
and remanding T.C. Memo. 1991-144; Maggie Mgmt. Co. v.
Commissioner, 108 T.C. 430, 442 (1997).
The Commissioner’s position is substantially justified if it
has a reasonable basis in both fact and law and is justified to a
degree that could satisfy a reasonable person. Huffman v.
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