Curtis and Mary Ettesvold - Page 6

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            protracted the instant proceedings, and that they meet the                
            net worth requirement imposed by section 7430(c)(4)(A)(ii).               
                 Respondent concedes that petitioners have substantially              
            prevailed with respect to the most important issue in the                 
            case, that they had not unreasonably protracted this                      
            proceeding, and that they meet the net worth requirement.                 
            Nevertheless, respondent contends that petitioners are not                
            entitled to an award of any fees or costs under section                   
                 Respondent’s position is based upon four points.                     
            First, respondent contends that, contrary to petitioners’                 
            assertion, petitioners did not exhaust their administrative               
            remedies within the Internal Revenue Service as required by               
            section 7430(b)(1).  Second, respondent contends that the                 
            qualified offer rule, on which petitioners rely, is                       
            inapplicable because any judgment in this case will be                    
            issued pursuant to a settlement, not pursuant to a judicial               
            determination and, further, because petitioners’ tax                      
            liability may be more than the amount offered in their                    
            qualified offer.  Third, respondent contends that the                     
            position of the United States was substantially justified,                
            with the result that petitioners are not to be treated as                 

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