Jerry and Patricia A. Dixon, et al. - Page 31

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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             

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