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prevailing party if the Commissioner establishes his position was
substantially justified.
Respondent concedes that: (1) Petitioner meets the net
worth requirement; (2) petitioner’s request for litigation costs
was timely; and (3) petitioner substantially prevailed with
respect to the most significant issue. However, respondent
contends: (1) Petitioner is not the prevailing party because his
litigating position was substantially justified; (2) petitioner
failed to exhaust all administrative remedies available to it;
(3) petitioner unreasonably protracted the proceedings; and (4)
petitioner did not adequately substantiate its claimed litigation
costs.
A. Whether Petitioner Exhausted the Available Administrative
Remedies
The parties dispute whether petitioner exhausted all
administrative remedies. This dispute stems from the following
facts:
(1) The IRS issued to petitioner a 30-day letter on October
2, 2002, and included Publication 5;
(2) petitioner faxed a one-sentence letter to the IRS
requesting an Appeals Office conference on October 16, 2002;
(3) the IRS notified petitioner that it was required to file
a formal written protest to obtain an Appeals Office conference;
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