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Subparagraphs (A) and (B) of section 7430(c)(4) together set
forth circumstances in which a taxpayer is allowed to recover
administrative costs. Under subparagraph (A), a taxpayer who
substantially prevails with respect to the amount in controversy
or issues presented will be a prevailing party unless the
Government shows, under subparagraph (B), that its position was
substantially justified. Subparagraph (B) of section 7430(c)(4)
is not independent from subparagraph (A) but is instead a
condition on which the recovery of administrative costs depends.
If the Government establishes that its “position” was
substantially justified, the taxpayer cannot be a prevailing
party. Thus, even though the TBOR 2 amendment removed any direct
reference to the term “position” in section 7430(c)(4)(A), there
still must be an analysis of whether the Government has taken a
position as that term is defined in subsection (c)(7) in
evaluating whether a taxpayer is a prevailing party under
subsection (c)(4).
Indeed, any contrary construction–-that a “position” as
defined in section 7430(c)(7) is not necessary for a taxpayer to
qualify as a “prevailing party”–-would run contrary to the
purpose behind the TBOR 2 amendment. If no “position” is
required, taxpayers would always qualify as prevailing parties
before a notice of deficiency or Appeals Office decision had been
issued. This would result from the Government’s inability to
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