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adequate substantiation for the business expense deductions
disallowed in the notice of deficiency. Taking into account
controlling legal precedent and based on the facts available to
respondent when the notice of deficiency was issued, as well as
when the answer was filed, we find that respondent’s position
that results from that refusal has a reasonable basis in law and
fact and therefore is substantially justified. See Maggie Mgmt.
Co. v. Commissioner, 108 T.C. at 443.
Our conclusion on this point is not altered by the fact that
a settlement was achieved after “mock-up” tax returns that
differed from all of the returns previously submitted by
petitioners and additional substantiation were provided and
reviewed by respondent’s counsel. See Harrison v. Commissioner,
854 F.2d 263, 265 (7th Cir. 1988), affg. T.C. Memo. 1987-52;
Wickert v. Commissioner, 842 F.2d 1005 (8th Cir. 1988), affg.
T.C. Memo. 1986-277.
II. The “Deferred Income” Issue
In the notice of deficiency and in his answer, respondent
takes the position that $195,000 of licensing fees received by
ISOA, Inc., are includable in its income in the year received.
According to petitioners, respondent has failed to establish that
his position has a reasonable basis in law. Petitioners argue
that respondent’s position is, therefore, not substantially
justified.
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Last modified: November 10, 2007