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remedies, that he made a qualified offer, and that respondent’s
position was not substantially justified. Respondent contends
that his position was substantially justified, that petitioner
failed to exhaust all administrative remedies, and that
petitioner did not make a qualified offer, pursuant to section
7430(g). We agree with respondent.
On the date respondent issued the notice of deficiency and
after filing his answer, respondent based his position on the
following: (1) Petitioner was convicted, pursuant to section
7206(1) and (2), of filing, aiding or assisting the filing of
false tax returns; (2) petitioner substantially underreported his
income for the years in issue; (3) petitioner commingled business
funds with personal funds; and (4) petitioner kept inadequate
books and records. See Webb v. Commissioner, 394 F.2d 366, 378
(5th Cir. 1968)(stating indicia of fraud includes the failure to
report income over an extended period of time), affg. T.C. Memo.
1966-81; Wright v. Commissioner, 84 T.C. 636, 643-644
(1985)(stating taxpayer’s conviction, pursuant to section
7206(1), is a factor to be considered in determining fraud).
Although respondent had a reasonable basis for his position, he
simply did not establish that petitioner had the requisite intent
to evade tax. Thus, notwithstanding the shortcomings of
respondent’s case at trial, respondent’s position was
substantially justified.
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