could claim these losses the accountants wrote a letter in august and all its ninth two thousand and two explaining that these suspended losses should be released because of the income and one thousand nine hundred ninety two thousand and  one revenue agent ignored the letter ignored the statute never asked for any documents in this case and issued a report and this report was incorporated in a notice of the fish and c and the adjustment was in schedule e was buried and in some other adjustments and the explanation was that land could not be depreciated so the policy didn't even we're not even aware of what the adjustment was all about the appellants filed a petition and asked to schedule e the claim that they did not even claim as much depreciation as as was disallowed and that the adjustment was inadequate the explanation answer was filed the case was on a calendar tax where calendar for october twentieth so the appeals officer was under the gun to try to settle the case and he has a in his declaration the appeals officer states that a careful reading of the statute would clearly indicate that the pellets are right the losses are allowable and there was no factual basis for the for treating losses as passive losses so the case was settled on that basis the government conceded the that the losses should be allowed because of the income in one nine hundred ninety nine to two thousand and one main reason for the fees and not being allowed will was that when the accountant wrote his letter in august ninth of two thousand and two he did provide any documents but there were never any documents requested the government usually has what they idea information document request this was this was not issued to the to the appellants the funny part is that the sad part is that the case was settled without requiring the opponents to provide any documents so the documents really weren't required a motion for rehearing was filed on that basis that the government had all all the documents they had the tax returns for all of these years and  therefore the you know there was no substantial justification on the government's part and the tax records then say that the tax returns are not that important i mean because they could not they could not be true the income might might not be accurate there was no audit of the income and therefore the tax court judge appeal that decision i think the government relies  code because it was never any basis for the position that the revenue agency talked to reduce the losses by erroneous lee claimed losses this was something out of his pure imagination the government ignores rulings if they nor any of their own regulations it doesn't say what happens if they ignore their own the own state actually the internal revenue code i would think it would be more than a rebuttable presumption there are other cases that would indicate that if the if the government does ignore a statute then they should be held accountable the big cases hanson and the fifth circuit where the government ignored the statute of limitations and hanson the the court held that the government was not substantially justified the government also raises the issue that the case was settled very quickly so there's no harm no empty schedule altman tax schedule and then when he went to appeals unlike the appellant's case the appeals officer said you have to provide these tax returns and so the three years tax returns were provided and so they held in that case that the government was substantially justified in our case there were no documents to be provided this would be pure pure fiction government also cites case called him a district court case in california and there's not enough facts to know with a statute was ignored or it's just an exchange he section ten thirty one exchange i think in fume but the burden of proof at that time was was thousand dollars approximately and it's approximately a seventy three percent reduction it's a it looks like to me was that on the one issue that this while it's of losses from the sub  what i'm trying to find out is mean was the whole difference the whole seventy three percent difference that issue or most of it it wasn't your honor it was that was about fifty percent of the total and a and then operating loss even though the net operating loss was taken into account so the government conceded that fairly promptly once they were apprised of that and by the appeals office after the answer was file there was a capital gain ordinary income issue which i think the tax court judge thought was one of the main issues but it only accounted for about sixteen percent of the tax but then there was a deal or a deal or tax which was related to the capital gain ordinary income tax and that was twenty three percent and the dealer tax again the government ignored the statute in computing and computing the tax on the dealer tax  therefore fifty three l of the internal revenue code the agent instead of computing the tax on the tax itself computed on the capital gains and this was just a poor reading of the statute substantially justified that is justified to agree that would satisfy reasonable person we agree that the youth as a government agree that in this case in the keys were prevailing party  and i don't think you'd have much trouble if your position was substantially justified based on all the returns and supporting documents you had and then when you asked for more documents and we got on the government said oh now we see your positions ok but in this case as far as i can tell the government had all the documents so it was just a question of not being alerted to  its code and regulations and if i got that wrong the second part of that is incorrect the government was quite aware of its own code and regulations you have all the documents you needed that really well with there was certain certain information that was presented to the appeals officer that had not previously presented more important arguments or are arguments primarily arguments rather than documents and statement rights act this is prime not primarily a problem with the documents so much as with the contentions the only contentions that had been raised before the notice of deficiency was issued was the letter by the c p a mr potter and what he said with respect to the carry over issue was that they suspended losses even though they had been are running asleep taken in previous years could still be taken again another words that there could be a double deduction i think if the government quite reasonably i think said hey wait a minute and did not accept this argument and then when they got  together with the appeals officer and laid out the whole thing the appeals officer said well that's an arguable position i think perhaps you're right but i'm not sure that everybody else would have one no one has ever tried this before to our knowledge it's this if it's an if it's a loophole it's a new one because we're not able we have not found any challenges to the government's and  journalist's word i mean my tax incentive is your loophole loophole so the ones you don't like instead of so the ones you do it doesn't mean anything the code is a code a nd i don't really get the idea that the i r s is entitled not to be omniscient about its own code and regs i mean in real life nobody can be nobody nobody can have a complete grasp because it's just too big  but to penalize taxpayers for not paying for being right because the i r s is wrong doesn't make sense to me and it seems like that's what your argument basically is that it's substantially justified for the taxpayer to have to spend a whole lot of money in order to explain its own code to the government and once the explanation is given the taxpayer's right this was not a clear explanation of the code this was something that  with respect to an s corporation in a year may not exceed its adjusted basis but losses are deductions disallowed for one year for lack of an adequate basis may be carried over and the income realized by the corporation increases the shareholders basis a district distribution and losses reduce it but let's point out here is but not to lose zero essentially in cap but you can carry it over well that is a carry over to a very similar sort of thing but they have not explained the details of this if at all they have not elaborated upon their argument until they got together with police with with with the appeals officer we had simply this letter from mr mr potter saying even though we've deducted it before we conduct again because it was wrong when we did it was an argument that the denied because they were not dealers the computation which is rather a complicated one what was incorrect and as soon as the mckees pointed out that this computation is incorrect the appeals officer said you're right and corrected as soon as they were pointed out or were on sort of negotiated with the baby sorts of things and all of these instances i think the government's position was reasonable to start with and as soon as the really extremely prompt and which indicates that the government was overcome with the taxpayer it's problem for the government but the government's not paying the lawyers fees and stanley i don't remember how much worse reserve involved do you have to remember it's around thirty thousand the petition the government was justified in responding negatively to the petition and then working on a settlement camp so i was perhaps a little facetious and you didn't get what i was asking why is six months prompt there an awful lot of lawyers working lawyers fees that happened in six months in this case the notice of deficiency was issued in march the response the answer was a petition was filed suit three days later the  immediately to the appeals officer there was correspondence early in the summer they met i thought i'd leave it was only one day of meetings in august and a stipulation of settled issues and a  very it was a twenty eight page notice of deficiency stipulation of settled issues was issued was signed on october first i think given the complexity of this case that's amusing prompt when no one's accusing the government of starling but maybe the reason the taxpayer was right and the government was wrong and the government failed within six months is that the taxpayers those lawyers and accountants put a lot more work into it and got it right we were obviously justified in issuing the notice of deficiency when even with our various concessions and splitting the baby and yielding an arguable matters they still paid two or agreed to twenty seven percent of the deficiency obviously substantially justified in such a case but substantially justified doesn't isn't that that requirement isn't satisfied merely because the taxpayer proved to be wrong in some  it was determined the push petitioner had claimed losses in excess of basis three years which are not are now closed by statute so i think what the agent was doing was saying that the basis was below zero therefore we