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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
7430.
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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