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treated as a prevailing party because respondent’s position in
the court proceeding was substantially justified.
Substantial Justification
The Commissioner’s position is substantially justified if,
based on all the facts and circumstances and relevant legal
precedents, the Commissioner acted reasonably. See Pierce v.
Underwood, 487 U.S. 552, 565 (1988); Sher v. Commissioner, 89
T.C. 79, 84 (1987), affd. 861 F.2d 131 (5th Cir. 1988). The
Commissioner’s position may be incorrect yet substantially
justified if the Commissioner’s position had a reasonable basis
in law and fact. See Pierce v. Underwood, supra at 566 n.2;
Huffman v. Commissioner, 978 F.2d 1139, 1147 n.8 (9th Cir. 1992),
affg. in part, revg. in part and remanding T.C. Memo. 1991-144;
sec. 301.7430-5(c)(1), Proced. & Admin. Regs. A position has a
reasonable basis in fact if there is relevant evidence that a
reasonable mind might accept as adequate to support a conclusion.
Pierce v. Underwood, supra at 564-565; Huffman v. Commissioner,
supra.
That respondent loses on an issue is not determinative of
the reasonableness of respondent’s position. See Wasie v.
Commissioner, 86 T.C. 962, 968-969 (1986); DeVenney v.
Commissioner, 85 T.C. 927 (1985). It remains a factor, however,
to be considered. Estate of Perry v. Commissioner, 931 F.2d
1044, 1046 (5th Cir. 1991); Powers v. Commissioner, 100 T.C. 457,
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