Dennis and Nancy Flynn - Page 10

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          most significant tax issue or issues in question, and (2)                   
          respondent’s position was substantially justified.                          
                                       OPINION                                        
          A.   Background                                                             
               To qualify for an award of costs incurred in connection with           
          an administrative proceeding at the Internal Revenue Service, a             
          taxpayer must, inter alia, be the prevailing party.  Sec.                   
          7430(a)(1).  A taxpayer is not the prevailing party and thus is             
          not entitled to an award of administrative costs if the position            
          of the United States in the administrative proceeding was                   
          substantially justified.  Sec. 7430(c)(4)(B).  The Commissioner             
          bears the burden of proving that the position of the United                 
          States was substantially justified.  Id.  As discussed below, we            
          hold that respondent has made that showing.4                                



               4 To qualify for an award of administrative costs, the                 
          taxpayer also must establish that he or she exhausted                       
          administrative remedies available in the Internal Revenue                   
          Service, did not unreasonably protract the proceedings, and                 
          satisfies certain net worth limitations.  Sec. 7430(b) and                  
          (c)(4)(A).  Respondent concedes that petitioners met those                  
          requirements.                                                               
               In addition, to be a prevailing party, the taxpayer must               
          substantially prevail as to (1) the amount in controversy, or (2)           
          with respect to the most significant issue or set of issues                 
          presented.  Sec. 7430(c)(4)(A)(i).  The parties dispute whether             
          that requirement is met.  In light of our holding that                      
          respondent’s position in the proceeding was substantially                   
          justified, we need not decide whether petitioners substantially             
          prevailed.                                                                  





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