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deficiency. Sec. 7430(c)(7)(B). In the judicial proceeding,
respondent took a position when respondent filed respondent’s
answer. Sec. 7430(c)(7)(A), Huffman v. Commissioner, 978 F.2d
1139, 1144-47 (9th Cir. 1992), affg. in part, revg. in part on
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 27, 2006, that respondent received the
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