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disallowance of the Hoyt partnership items before taking his
litigating position in this case. Respondent, who has the burden
of proving actual knowledge under section 6015(c)(3)(C), should
have meaningfully evaluated whether he could prove that
petitioner had actual knowledge by taking into account the
information petitioner supplied, the extensive audit and
litigating history regarding the Hoyt organization and the Hoyt
partnerships, and the specific information regarding the manner
in which the Hoyt organization operated the Hoyt partnerships,
including the ones in which petitioner and Mr. Bulger had
invested. The record does not indicate that respondent
considered any of the information that was available to him in
April 2003 before adopting his litigating position, other than
the fact that petitioner and Mr. Bulger had made a joint
investment in SGE. Respondent’s failure to evaluate the
information in his possession and its effect on his ability to
prove that petitioner had actual knowledge of the items giving
rise to the deficiencies cannot be rationalized. We conclude
that respondent’s litigating position regarding actual knowledge
was not reasonable or justified. See Stieha v. Commissioner, 89
T.C. 784, 791 (1987) (Commissioner’s lack of diligence in
evaluating impact of recent court opinions not substantially
justified).
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