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In general, the Commissioner’s position is substantially
justified if, based on all of the facts and circumstances and the
legal precedents relating to the case, the Commissioner acted
reasonably. Pierce v. Underwood, 487 U.S. 552 (1988); Sher v.
Commissioner, 89 T.C. 79, 84 (1987), affd. 861 F.2d 131 (5th Cir.
1988). In other words, to be substantially justified, the
Commissioner’s position must have a reasonable basis in both law
and fact. Pierce v. Underwood, supra; Rickel v. Commissioner,
900 F.2d 655, 665 (3d Cir. 1990), affg. in part and revg. in part
on other grounds 92 T.C. 510 (1989). A position is substantially
justified if the position is “justified to a degree that could
satisfy a reasonable person.” Pierce v. Underwood, supra at 565
(construing similar language in the Equal Access to Justice Act).
Thus, the Commissioner’s position may be incorrect but
nevertheless be substantially justified “‘if a reasonable person
could think it correct’”. Maggie Mgmt. Co. v. Commissioner, 108
T.C. 430, 443 (1997) (quoting Pierce v. Underwood, supra at 566
n.2).
The relevant inquiry is whether the Commissioner’s position
was reasonable given the available facts and circumstances at the
time that the Commissioner took his position, as well as any
applicable legal precedents. Id. at 443; DeVenney v.
Commissioner, 85 T.C. 927, 930 (1985). The fact that the
Commissioner eventually concedes or loses a case does not
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