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substantially justified. See also sec. 301.7430-5(a), Proced. &
Admin. Regs. Although the taxpayer has the burden of proving
that the taxpayer meets requirements (1) and (2), supra, the
Commissioner must show that the Commissioner’s position was
substantially justified. See sec. 7430(c)(4)(B)(i); Rule 232(e).
Respondent concedes that petitioner exhausted the available
administrative remedies as required by section 7430(b)(1), that
petitioner did not unreasonably protract the administrative or
court proceedings as required by section 7430(b)(3), and that
petitioner meets the net worth requirement of 28 U.S.C. section
2412(d)(2)(B). In addition, respondent does not dispute that
petitioner substantially prevailed with respect to the amount in
controversy. Respondent argues, however, that petitioner is not
the prevailing party because respondent’s position in the
administrative and judicial proceedings was substantially
justified and that the costs petitioner claims are unreasonable.
A. Whether Respondent’s Administrative and Litigation Positions
Were Substantially Justified
For purposes of deciding a motion for reasonable
administrative costs, an administrative proceeding is a procedure
or action before the Internal Revenue Service (the Service), sec.
7430(c)(5), and the “position of the United States” in an
administrative proceeding refers to the position taken by the
Service as of the earlier of (i) the date the taxpayer receives
the notice of decision of the Internal Revenue Service Office of
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