Huffman

Petitioners, Clair S. Huffman and his wife, Patricia S. Huffman, now deceased, appeal from the Tax Court’s partial grant of their motion for costs and attorney’s fees requested under I.R.C. § 7430, as amended by the Technical and Miscellaneous Revenue Act of 1988, Pub.L. No. 100-647, 102 Stat. 3342, § 6239(a) (“TAMRA”), which allows the recovery of “reasonable administrative costs” and “reasonable litigation costs” by a prevailing party in a tax case. I.R.C. § 7430(a). 1 The Commissioner cross-appeals. We affirm in part, reverse in part, and remand.

I

ISSUES

1. Did the Tax Court err as a matter of law in bifurcating the analysis under § 7340 to determine whether the “United States’ position in the proceeding” was “substantially justified” into two stages: the “administrative stage,” which concerns the notice of deficiency, and the “judicial stage” which concerns the government’s answer to the Tax Court petition?

*1141 2. Assuming bifurcated analysis is proper under § 7430, did the Tax Court err as a matter of law, or otherwise abuse its discretion, by considering only the answer filed by Respondent in the judicial proceeding and in holding that the United States’ position in…