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The parties focus almost entirely on the requirements as to
litigation costs; we consider litigation costs first, and then
administrative costs.
1. Litigation Costs--Deficiency
Ordinarily, we identify the point at which the United States
is first considered to have taken a position, and then decide
whether the position, taken from that point forward, was or was
not substantially justified. Maggie Management Co. v.
Commissioner, 108 T.C. 430, 442 (1997). For purposes of the
court proceedings in the instant case, the position of the United
States is the position respondent took in the answer. Id. at
442.
“Substantially justified” is defined as “justified to a
degree that could satisfy a reasonable person” and having a
“reasonable basis both in law and fact.” Pierce v. Underwood,
487 U.S. 552, 565 (1988) (internal quotation marks omitted);5
Nalle v. Commissioner, 55 F.3d 189, 191 (5th Cir. 1995), affg.
5 Although the dispute in Pierce v. Underwood, 487 U.S. 552
(1988), arose under the provisions of the Equal Access to Justice
Act (EAJA), 28 U.S.C. sec. 2412(d), the relevant provisions of
the EAJA are almost identical to the language of sec. 7430.
Cozean v. Commissioner, 109 T.C. 227, 232 n.9 (1997).
Accordingly, we consider the holding in Pierce v. Underwood,
supra, to be applicable to the case before us.
Also, the “substantially justified” standard is not a
departure from the reasonableness standard of pre-l986 law. Sher
v. Commissioner, 89 T.C. 79, 84 (1987), affd. 861 F.2d 131 (5th
Cir. 1988). Accordingly, we consider the holdings of pre-1986
law on reasonableness to be applicable to the case before us.
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