Michael J. Downing and Sandra M. Downing - Page 16

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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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