MEMORANDUM OPINION

ARMEN, Special Trial Judge: This case is before the Court on petitioner's motion to recover administrative and litigation costs ¹1996 Tax Ct. Memo LEXIS 509">*513 pursuant to section 7430 and Rule 231. ²

We decide the matter before us based on the pleadings, petitioner's motion, respondent's response to petitioner's motion, petitioner's reply to respondent's response, and respondent's response to petitioner's reply, as well as the various exhibits attached thereto.

Background

Petitioner Nellwyn A. Buck (petitioner) resided in Texas City, Texas, at the time that the petition was filed with the Court.

At all relevant times, petitioner was married to, and resided with, Pittman A. Buck, Jr. (Mr. Buck).

Petitioner and Mr. Buck prepared a document purporting to be a joint Federal income tax return for the taxable year 1988 (the purported return). Petitioner and Mr. Buck mailed the purported return to respondent on April 17, 1989, and respondent received it 2 days later on April1996 Tax Ct. Memo LEXIS 509">*514 19, 1989.

The purported return was not signed by either petitioner or Mr. Buck. Rather, the purported return contained the statement "Fifth Amendment" in the spaces provided for petitioner's and Mr. Buck's signatures. ³

Line 53 of the purported return reported "total tax" in the amount of $ 24,939.21. Line 61 of the purported return claimed "total payments" in the amount of $ 15,470.11, consisting1996 Tax Ct. Memo LEXIS 509">*515 of withheld tax in the amount of $ 9,470.11 and estimated tax payments in the amount of $ 6,000. Line 65 of the purported return reported a balance due in the amount of $ 9,469.10 (i.e., $ 24,939.21 less $ 15,470.11). A check for such amount was enclosed with the purported return and was apparently negotiated by respondent.

Respondent did not process the purported return as a return. Rather, respondent assessed a frivolous return penalty pursuant to section 6702. ⁴

On November 10, 1994, respondent issued a 30-day letter to petitioner with respect to petitioner's 1988 taxable year. On December 5, 1994, petitioner mailed a letter to respondent protesting the adjustments proposed in the 30-day letter and requesting administrative1996 Tax Ct. Memo LEXIS 509">*516 review. In her letter dated December 5, 1994, petitioner informed respondent that she had already paid her taxes for the taxable year 1988.

By notice of deficiency dated April 14, 1995, respondent determined a deficiency in petitioner's income tax in the amount of $ 22,779. Respondent also determined that petitioner was liable for additions to tax under sections 6651(a) and 6654(a) in the amounts of $ 3,327.25 and $ 783.20, respectively.

On or about June 12, 1995, petitioner and Mr. Buck submitted a joint Federal income tax return for the taxable year 1988, which respondent processed as a return (the filed return). The filed return was virtually identical to the purported return, except that petitioner and Mr. Buck signed the filed return, under penalties of perjury, in the spaces provided for their signatures. ⁵

1996 Tax Ct. Memo LEXIS 509">*517 In the top right corner of the first page of the filed return, Mr. Buck's Social Security number was entered in the space entitled "Your social security number". Petitioner's social security number was entered immediately below Mr. Buck's in the space provided for "Spouse's social security number".

On June 30, 1995, petitioner filed a petition for redetermination (the petition) in respect of the notice of deficiency dated April 14, 1995. On that same day, petitioner designated Oklahoma City, Oklahoma, as the place of trial of this case. ⁶

The petition contains an allegation that the purported return was "accepted" by respondent "for all purposes". The petition contains a further allegation that assessment of any deficiency against petitioner for the taxable year 1988 is barred by the 3-year statute of limitations under section 6501(a).

Respondent filed an answer1996 Tax Ct. Memo LEXIS 509">*518 (the answer) to the petition on August 30, 1995. The answer contains affirmative allegations regarding the statute of limitations on assessment. Thus, the answer alleges that the purported return was not a valid return and that, as a consequence, the statute of limitations does not bar the assessment of any deficiency against petitioner for 1988.

The answer was prepared by an attorney in respondent's District Counsel office in Houston, Texas. ⁷ The attorney attempted to locate the filed return, which was mentioned in the petition. However, by the time the answer was due, the filed return could not be obtained, and it was therefore not available to respondent's attorney in preparing the answer.

On September 14, 1995, respondent transferred petitioner's case to respondent's District Counsel office in Oklahoma City, Oklahoma, 1996 Tax Ct. Memo LEXIS 509">*519 for trial preparation. As previously indicated, Oklahoma City had been designated by petitioner as the place of trial of this case.

On October 10, 1995, respondent's counsel in the Oklahoma City District Counsel office (respondent's counsel) discussed this case with petitioner's counsel and immediately thereafter contacted the IRS Service Center in Austin, Texas (the Austin Service Center) in order to obtain the filed return. Respondent's counsel learned that the filed return was located under Mr. Buck's account, apparently because Mr. Buck's taxpayer identification number (TIN) was the "primary TIN" and petitioner's TIN was the "spousal TIN." ⁸

Respondent's counsel received the filed return from the Austin Service Center in late October 1995. After reviewing the filed return, respondent's counsel ordered transcripts of account in order to verify the correctness of 1996 Tax Ct. Memo LEXIS 509">*520 the information contained in the filed return.

On November 22, 1995, petitioner filed a reply (the reply) to the affirmative allegations pleaded in the answer. The reply concludes by alleging that the purported return "was 'accepted' for all purposes in accordance with governing case law, and is deemed to be a return for the purpose of the running of the statute of limitations".

Upon receiving the transcripts of account in respect of the filed return in January 1996, respondent's counsel conceded that petitioner had paid her tax liability for 1988 and apparently also conceded that petitioner was not liable for the addition to tax under section 6654(a). In contrast, respondent's counsel continued to pursue the addition to tax under section 6651(a). However, on March 1, 1996, respondent's counsel conceded such addition.

No later than March 5, 1996, respondent's counsel mailed an agreed form of decision (the form of decision) to petitioner's counsel for his signature.

On March 29, 1996, the Court entered a decision in this case (the decision) utilizing the form of decision furnished by the parties. The decision reflected the parties' agreement that petitioner's income tax liability1996 Tax Ct. Memo LEXIS 509">*521 for 1988 is as follows:

The decision also reflected the parties' agreement that petitioner was not liable for any addition to tax under either section 6651(a) or section 6654(a).

The amount of the deficiency reflected in the decision (without taking into consideration the assessment subsequent to the mailing of notice of deficiency on April 14, 1995) was equal to the tax reported on the filed return.

On April 24, 1996, petitioner filed her motion for costs. Thereupon, the Court vacated the decision and filed the form of decision as a stipulation of settlement. See Rule 232(f).

Discussion

Section 7430(a) provides that the prevailing party may be awarded a judgment for (1) reasonable administrative costs incurred in connection with an administrative proceeding within the Internal Revenue Service, and (2) reasonable litigation costs incurred in connection with a court proceeding. Congress enacted section 7430 in the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 1996 Tax Ct. Memo LEXIS 509">*522 97-248, sec. 292(a), 96 Stat. 572, and, as relevant to the present case, amended it by the Technical and Miscellaneous Revenue Act of 1988 (TAMRA), Pub. L. 100-647, sec. 6239(a), 102 Stat. 3342, 3743-3747, applicable to proceedings commenced after November 10, 1988. ⁹ Because both the administrative proceeding and the court proceeding in this case were commenced after November 10, 1988, and before July 31, 1996, we apply section 7430 as amended by TAMRA.

A judgment for costs may only be awarded under section 7430(a) if a taxpayer (1) is the "prevailing party", (2) where the taxpayer seeks litigation costs, has exhausted the administrative remedies available to the taxpayer within the Internal Revenue Service, and (3) does not unreasonably protract the proceedings. Sec. 7430(a), (b)(1), (4).

In order to qualify as the "prevailing1996 Tax Ct. Memo LEXIS 509">*523 party", a taxpayer must establish that: (1) The position of the United States in the proceeding was not substantially justified; (2) the taxpayer has substantially prevailed with respect to the amount in controversy or the most significant issue or set of issues presented; and (3) the taxpayer satisfies the applicable net worth requirements. Sec. 7430(c)(4)(A). We understand respondent to concede that petitioner has satisfied the applicable net worth requirements and that petitioner has not unreasonably protracted the judicial proceeding.

Finally, if a taxpayer qualifies as the prevailing party, only administrative and litigation costs that are reasonable may be awarded. Sec. 7430(a), (c)(1) and (2).

We begin with whether respondent's position was substantially justified. Petitioner bears the burden of proving that respondent's position was not substantially justified. Rule 232(e); Dixson Corp. v. Commissioner, 94 T.C. 708">94 T.C. 708, 94 T.C. 708">714-715 (1990); Ganter v. Commissioner, 92 T.C. 192">92 T.C. 192, 92 T.C. 192">197 (1989), affd. 905 F.2d 241">905 F.2d 241 (8th Cir. 1990).

As originally enacted, section 7430 required that a taxpayer establish1996 Tax Ct. Memo LEXIS 509">*524 that the position of the United States was unreasonable. In 1986, Congress adopted the standard applicable to the Equal Access to Justice Act (EAJA), 28 U.S.C. sec. 2412 (1988), by changing "unreasonable" to "not substantially justified". Tax Reform Act of 1986, Pub. L. 99-514, sec. 1551, 100 Stat. 2752; see H. Conf. Rept. 99-841, at II-801 (1986), 1986-3 C.B. (Vol. 4) 1, 801. The purpose of the amendment was to conform section 7430 more closely to EAJA. H. Rept. 99-841, supra at II-801, 1986-3 C.B. (Vol. 4) 801. We have consistently held that the "substantially justified" standard is not a departure from the "reasonableness" standard. E.g., Sokol v. Commissioner, 92 T.C. 760">92 T.C. 760, 92 T.C. 760">763 n.7 (1989); Sher v. Commissioner, 89 T.C. 79">89 T.C. 79, 89 T.C. 79">84 (1987), affd. 861 F.2d 131">861 F.2d 131 (5th Cir. 1988).

A position is "substantially justified" if the position is "justified to a degree that could satisfy a reasonable person". Pierce v. Underwood, 487 U.S. 552">487 U.S. 552, 487 U.S. 552">565 (1988) (construing similar language in1996 Tax Ct. Memo LEXIS 509">*525 EAJA). A position that merely possesses enough merit to avoid sanctions for frivolousness will not satisfy this standard; rather, the position must have a "reasonable basis both in law and fact". Id.

As relevant herein, the position of the United States that must be examined against the substantial justification standard with respect to the administrative proceeding is the position taken by the Commissioner as of the date of the notice of deficiency. Sec. 7430(c)(7)(B). The position of the United States that must be examined against the substantial justification standard with respect to the judicial proceeding is the position taken by the Commissioner in her answer to the petition. Bertolino v. Commissioner, 930 F.2d 759">930 F.2d 759, 930 F.2d 759">761 (9th Cir. 1991), affg. an unpublished decision of this Court; Sher v. Commissioner, 861 F.2d 131">861 F.2d 131, 861 F.2d 131">134-35 (5th Cir. 1988), affg. 89 T.C. 79">89 T.C. 79 (1987).

In deciding whether the Commissioner's position was substantially justified, the Court will consider not only the basis of the Commissioner's legal position, but also the manner in which the Commissioner maintained that position. 1996 Tax Ct. Memo LEXIS 509">*526 Wasie v. Commissioner, 86 T.C. 962">86 T.C. 962, 86 T.C. 962">969 (1986). In assessing the Commissioner's position in each of the proceedings, we may consider, inter alia, whether the Commissioner used the costs and expenses of litigation to extract unjustified concessions from the taxpayer, whether the Commissioner pursued litigation to harass or embarrass the taxpayer, or whether the Commissioner's pursuit of the litigation was politically motivated. Rutana v. Commissioner, 88 T.C. 1329">88 T.C. 1329, 88 T.C. 1329">1333 (1987); DeVenney v. Commissioner, 85 T.C. 927">85 T.C. 927, 85 T.C. 927">930 (1985).

In the present case, respondent's position, both at the time she issued the notice of deficiency and at the time she filed the answer, was that petitioner was liable for a deficiency in income tax and additions to tax for 1988. It is respondent's agreement that petitioner paid her total income tax liability for 1988 in April 1989 that forms the basis of petitioner's claim for administrative and litigation costs. In other words, petitioner posits that she is a prevailing party within the meaning of section 7430 on the ground that respondent's position was not substantially1996 Tax Ct. Memo LEXIS 509">*527 justified, either at the time the notice of deficiency was issued or the answer was filed, because, at both times, petitioner had already paid her tax liability for 1988.

In contrast, respondent maintains that her position was substantially justified throughout the administrative and judicial proceedings. Respondent contends that petitioner was liable for income tax for 1988 and that respondent was forced to issue a notice of deficiency in order to assess such liability because petitioner did not file a valid return. Respondent also contends that the 6-month period between the time that the answer was filed and the time that respondent agreed to settle the entire case was a reasonable period of time for respondent to locate the return filed by petitioner and Mr. Buck on June 12, 1995, and to verify the information set forth on such return. Thus, respondent maintains that her position remained substantially justified throughout the judicial proceeding.

1. The Administrative Proceeding

We begin with petitioner's contention that respondent's position was not substantially justified at the time that the notice of deficiency was issued.

This Court has previously set forth the essential1996 Tax Ct. Memo LEXIS 509">*528 elements of a return:

First, there must be sufficient data to calculate [a] tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury. [Beard v. Commissioner, 82 T.C. 766">82 T.C. 766, 82 T.C. 766">777 (1984), affd. 793 F.2d 139">793 F.2d 139 (6th Cir. 1986).]