Thomas E. Johnston and Thomas E. Johnston, Successor in Interest to Shirley L. Johnston, Deceased - Page 7

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          taxpayer.  An award of administrative and litigation costs may be           
          made where the taxpayer (1) is the “prevailing party”, (2) has              
          exhausted available administrative remedies (in the case of                 
          litigation costs), (3) did not unreasonably protract the                    
          administrative or judicial proceeding, and (4) claimed reasonable           
          costs.  Sec. 7430(a), (b)(1), (3), (c).  One way for a taxpayer             
          to establish that the taxpayer is the prevailing party is by a              
          comparison of the amount of the last qualified offer with the               
          portion of the judgment attributable to the adjustments at issue            
          when that qualified offer was made.  Sec. 7430(c)(4)(E); sec.               
          301.7430-7T(b)(3), Temporary Proced. & Admin. Regs., 66 Fed. Reg.           
          727 (Jan. 4, 2001).                                                         
               Section 7430(c)(4)(E) and (g) provides, in part, as follows:           
               SEC. 7430(c).  Definitions.--For purposes of this                      
                         *  *  *  *  *  *  *                                          
               (4) Prevailing party.--                                                
                         *  *  *  *  *  *  *                                          
                    (E) Special rules where judgment less than                        
                    taxpayer’s offer.--                                               
                         (i) In general.--A party to a court proceeding               
                    meeting the requirements of subparagraph (A)(ii)                  
                    shall be treated as the prevailing party if the                   
                    liability of the taxpayer pursuant to the judgment                
                    in the proceeding (determined without regard to                   
                    interest) is equal to or less than the liability of               
                    the taxpayer which would have been so determined if               
                    the United States had accepted a qualified offer of               
                    the party under subsection (g).                                   

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