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2. Substantial Justification Analysis
We turn now to the issue of whether respondent’s position,
as identified above, was substantially justified.28 A position
of the United States in a judicial proceeding is substantially
justified if it has a reasonable basis in law and fact. E.g.,
Maggie Mgmt. Co. v. Commissioner, supra at 443. Common sense
dictates that if the Government was able to prevail at trial
(only to lose on appeal), its position ordinarily will have been
reasonable. See H. Rept. 97-404, at 15 (1981) (stating that in
such situation “the appellate court would not normally award
attorney’s fees to the taxpayer since the trial court, by
definition, had found the government’s position to be
reasonable”); S. Comm. on Fin., Technical Explanation of
Committee Amendment, 127 Cong. Rec. 32070, 32078 (1981) (same);
see also Ness v. Commissioner, 73 AFTR 2d 94-1195, at 94-1196
(9th Cir. 1994) (fact that the Commissioner prevailed in the Tax
Court, while “not dispositive”, is “significant”). On the other
28 In the case of proceedings commenced after July 30, 1996,
the Government bears the burden of establishing that its position
was substantially justified. Sec. 7430(c)(4)(B)(i); see Taxpayer
Bill of Rights 2, Pub. L. 104-168, sec. 701(d), 110 Stat. 1463
(1996). In the case of proceedings commenced on or before that
date, the taxpayer bears the burden of establishing that the
Government’s position was not substantially justified. Sec.
7430(c)(4)(A)(i), prior to amendment by the Taxpayer Bill of
Rights 2, supra. The parties apparently assume that the current
rule applies to these cases. While our resolution of the
substantial justification issue would be the same regardless of
which rule applies, we are of the view that the relevant
“proceedings” commenced prior to July 30, 1996. Cf. supra note
19.
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