Jerry and Patricia A. Dixon, et al. - Page 30

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          which these fees relate involve the legal and factual issues                
          raised by the misconduct of IRS attorneys McWade and Sims in the            
          original trial of the test cases.  Accordingly, we look to the              
          misconduct inquiry (as opposed to tax deficiency) phase of these            
          proceedings to determine “the position of the United States in              
          the proceeding”.                                                            
               While the parties are in general agreement that the relevant           
          “position of the United States” derives from the misconduct                 
          inquiry phase of these proceedings, their respective submissions            
          compel us to clarify exactly what it is we are testing against              
          the substantial justification standard.  Not surprisingly,                  
          petitioners repeatedly draw our attention to the odious character           
          of the attorney misconduct.  At the other end of the spectrum,              
          respondent emphasizes the inherent reasonableness of defending a            
          trial court victory on appeal.  In our view, the issue is not               
          whether the conduct of Sims and McWade was substantially                    
          justified (it obviously was not), nor whether respondent’s                  
          decision to defend his Dixon III victory against petitioners’               
          appeals (as opposed to simply rolling over) was substantially               
          justified (it obviously was).  Rather, our inquiry focuses on               
          respondent’s litigating position regarding the legal effect of              
          the attorney misconduct (i.e., that such misconduct amounted to             
          harmless error and therefore did not invalidate the decisions               
          entered against the test case petitioners following the issuance            
          of Dixon II).                                                               

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