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T.C. Memo. 1994-182. Respondent’s position may be incorrect and
yet be substantially justified “if a reasonable person could
think it correct”. Pierce v Underwood, 487 U.S. at 566 n.2.
Whether respondent acted reasonably in the instant case
ultimately turns on the available information which formed the
basis for respondent’s position, as well as on the law relevant
to the instant case. Nalle v. Commissioner, 55 F.3d at 191-192;
Coastal Petroleum Refiners v. Commissioner, 94 T.C. 685, 688-690
(1990).
The fact that respondent eventually loses or concedes a case
does not by itself establish that respondent’s position is
unreasonable. Estate of Perry v. Commissioner, 931 F.2d 1044,
1046 (5th Cir. 1991)(award of litigation costs in Court of
Appeals), affg. T.C. Memo. 1990-123; Swanson v. Commissioner, 106
T.C. 76, 94 (1996). However, it is a factor that may be
considered. Nalle v. Commissioner, 55 F.3d at 192 n.7; Estate of
Perry v. Commissioner, 931 F.2d at 1046.
In determining whether respondent’s position was not
substantially justified, the question is whether respondent knew
or should have known that the Government’s position was invalid
at the time that respondent took the position in the litigation.
Nalle v. Commissioner, 55 F.3d at 191; Coastal Petroleum Refiners
v. Commissioner, 94 T.C. at 689.
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