Robert Schwartz and Diane Schwartz - Page 2

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          evidentiary hearing on this matter.  See Rule 232(a)(2).                    
          Accordingly, we rule on petitioners’ motion on the basis of the             
          parties’ submissions and the existing record.  See Rule                     
          232(a)(1).  The portions of our opinion on the merits in the                
          instant case, Schwartz v. Commissioner, T.C. Memo. 2003-86                  
          (Schwartz I) (holding that a yacht racing activity was engaged in           
          with an actual and honest objective of making a profit), that are           
          relevant to our disposition of this motion are incorporated                 
          herein by this reference.                                                   
               After concessions,2 the issue for decision is whether                  
          petitioners are the “prevailing party” in the underlying tax                
          case--specifically, whether respondent’s position was                       
          substantially justified.                                                    
               Section 7430 provides for the award of litigation costs to a           
          taxpayer in a court proceeding brought against the United States            
          involving the determination of any tax, interest, or penalty                
          pursuant to the Internal Revenue Code.  An award of litigation              
          costs may be made where the taxpayer (1) is the “prevailing                 
          party”, (2) exhausted available administrative remedies, (3) did            

               2  Respondent concedes that petitioners substantially                  
          prevailed with respect to the most significant issue, met the net           
          worth requirements, exhausted their administrative remedies, and            
          did not unreasonably protract the Court proceeding.  Respondent             
          did not dispute that the costs claimed by petitioners are                   
          reasonable.  Accordingly, we conclude that respondent waived this           
          issue.  See Petzoldt v. Commissioner, 92 T.C. 661, 683 (1989);              
          Levert v. Commissioner, T.C. Memo. 1989-333, affd. without                  
          published opinion 956 F.2d 264 (5th Cir. 1992).                             





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