’s position was

substantially justified.   See sec. 7430(c)(4)(B)(i); Rule 232(e).

      Respondent concedes that petitioner did not unreasonably

protract the court proceeding and that petitioner meets the net

worth requirement of 28 U.S.C. section 2412(d)(2)(B).    In

addition, respondent does not dispute that petitioner

substantially prevailed with respect to the amount in

controversy.   Respondent alleges, however, that respondent’s

position was substantially justified, that petitioner did not

exhaust the administrative remedies available to him, and that

the costs petitioner claims are unreasonable.

A.   Whether Respondent’s Position Was Substantially Justified

      For purposes of deciding a motion for reasonable litigation

costs, section 7430(c)(7)(A) defines the Commissioner’s

“position” as the position taken in the court proceeding.     In the

present case, respondent took a position when respondent filed an

answer to petitioner’s petition.   See Huffman v. Commissioner,

978 F.2d 1139, 1148 (9th Cir. 1992), affg. in part, revg. in part

and remanding T.C. Memo. 1991-144; Maggie Mgmt. Co. v.

Commissioner, 108 T.C. 430, 442 (1997).

      The Commissioner’s position is substantially justified if it

has a reasonable basis in both fact and law and is justified to a

degree that could satisfy a reasonable person.   Huffman v.
                                - 9 -

Commissioner, supra at 1147 n.8 (citing Pierce v. Underwood, 487

U.S. 552, 565 (1988)); Rosario v. Commissioner, T.C. Memo. 2002-

247; sec. 301.7430-5(c)(1), Proced. & Admin. Regs.    In deciding

whether the Commissioner’s position was substantially justified,

a significant factor is whether, on or before the date the

Commissioner assumed the position, the taxpayer provided “all

relevant information under the taxpayer’s control and relevant

legal arguments supporting the taxpayer’s position to the

appropriate Internal Revenue Service personnel.”5    Sec. 301.7430-

5(c)(1), Proced. & Admin. Regs.