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other grounds and remanding T.C. Memo. 1991-144. Respondent’s
administrative and litigation positions are substantially
justified if they have a reasonable basis in both law and fact.
Maggie Mgmt. Co. v. Commissioner, 108 T.C. 430, 443 (1997).
In the instant case, we conclude that respondent’s position
was both reasonable and substantially justified in both the
administrative and judicial proceedings. Petitioners failed to
provide the requisite documentation until after respondent issued
the notice of deficiency and filed an answer. Deductions are a
matter of legislative grace, and petitioners must prove they are
entitled to the deductions. Rule 142(a); New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934). In the absence of any proof
of entitlement to the disputed deductions, respondent was
reasonable to maintain his position that the disputed deductions
were not allowed. Prouty v. Commissioner, T.C. Memo. 2002-175.
It was not until March 21, 2006, that respondent received the
documentation relating to the disputed deductions, at which time
respondent conceded the propriety of the deductions.5
5Respondent also contends that petitioners protracted the
instant proceedings and are therefore ineligible for cost
recovery. Sec. 7430(b)(3). Although we do not address that
issue, since we have disposed of the instant motion on other
grounds, we note that petitioners did not provide the required
documentation to support their claimed deductions until less than
2 weeks before trial. Once in possession of the requested
documentation, respondent presumably would have conceded the
deductions at any point in the administrative or litigation
process, as respondent ultimately did on the eve of trial after
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