SUPPLEMENTAL MEMORANDUM OPINION ^*

KROUPA, Judge: This matter is before the Court on petitioner's motion for litigation fees and costs pursuant to section 7430 and Rule 231. ¹ The issue is whether petitioner is entitled to recover $ 16,522 ² for expenses incurred in litigating his Federal income tax liability for 2001. We hold that he is not.

2006 Tax Ct. Memo LEXIS 27">*28 Background

The underlying facts of this case are set out in detail in Allemeier v. Commissioner, T.C. Memo. 2005-207 (Allemeier I). We summarize the factual and procedural background briefly to rule on the instant motion. Petitioner resided in Pacific Grove, California, when he filed the petition.³

On a Federal tax return for 2001, petitioner claimed business expense deductions for a master's degree in business administration (MBA) and other expenses related to his work for Selane Products (the company). Respondent disallowed the expense deductions in a deficiency notice dated October 1, 2003, and determined that petitioner was liable for an accuracy-related penalty.

We ruled in petitioner's favor regarding petitioner's MBA- related expense deductions and the accuracy-related penalty but denied petitioner deductions for other claimed business expenses because petitioner failed to substantiate the expenses in Allemeier I. Petitioner2006 Tax Ct. Memo LEXIS 27">*29 then submitted a motion for litigation costs, and respondent filed a response. ⁴ Respondent agrees that petitioner: (1) Has not unreasonably protractedthe court proceedings; (2) has substantially prevailed with respect to the amount in controversy and with respect to the most significant issue presented in the court proceedings; and (3) has met the net worth requirements as provided by law. Respondent disputes, however, that petitioner exhausted all administrative remedies, that petitioner was the prevailing party, and that petitioner's litigation fees are reasonable.

Neither party requested a hearing on this motion, and the Court concludes that a hearing is not necessary to decide this motion. See Rule 232(a)(2). Accordingly, the Court rules on petitioner's motion based on the parties' submissions and the record in this case.

Discussion

We must determine2006 Tax Ct. Memo LEXIS 27">*30 whether petitioner is entitled to recover reasonable litigation costs. A taxpayer may recover reasonable litigation costs if the taxpayer establishes that he or she is the prevailing party, has exhausted administrative remedies, has not unreasonably protracted the court proceedings, and has claimed reasonable litigation costs. ⁵Sec. 7430(a), (b)(1), (3), (c)(4). A taxpayer bears the burden to prove that he or she satisfies these requirements. Rule 232(e); Corson v. Comm'r, 123 T.C. 202">123 T.C. 202, 123 T.C. 202">205-206 (2004).

Prevailing Party

To be a prevailing party, the taxpayer must substantially prevail with respect to either the amount in controversy or the most significant issue or set of issues presented, and must satisfy the net worth requirements. See sec. 7430(c)(4)(A); 28 U.S.C. sec. 2412(d)(2)(B)(2000). The taxpayer will not be treated as a prevailing party, however, if the Commissioner's2006 Tax Ct. Memo LEXIS 27">*31 position in the court proceeding was substantially justified. Sec. 7430(c)(4)(B). The Commissioner has the burden to prove that his position was substantially justified. See sec. 7430(c)(4)(B)(i); Rule 232(e).

Respondent concedes that petitioner substantially prevailed and met the net worth requirements. See sec. 7430(b) and (c)(4)(A). Respondent contends, however, that petitioner is not treated as a prevailing party because respondent's position in the court proceeding was substantially justified.

Substantial Justification

The Commissioner's position is substantially justified if, based on all the facts and circumstances and relevant legal precedents, the Commissioner acted reasonably. See Pierce v. Underwood, 487 U.S. 552">487 U.S. 552, 487 U.S. 552">565, 108 S. Ct. 2541">108 S. Ct. 2541, 101 L. Ed. 2d 490">101 L. Ed. 2d 490 (1988); 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). The Commissioner's position may be incorrect yet substantially justified if the Commissioner's position had a reasonable basis in law and fact. See 487 U.S. 552">Pierce v. Underwood, supra at 566 n.2; Huffman v. Commissioner, 978 F.2d 1139">978 F.2d 1139, 978 F.2d 1139">1147 n.8 (9th Cir. 1992), affg. in part, revg. in part and remanding T.C. Memo. 1991-144;2006 Tax Ct. Memo LEXIS 27">*32 sec. 301.7430- 5(c)(1), Proced. & Admin. Regs. A position has a reasonable basis in fact if there is relevant evidence that a reasonable mind might accept as adequate to support a conclusion. 487 U.S. 552">Pierce v. Underwood, supra at 564-565; Huffman v. Commissioner, supra.

That respondent loses on an issue is not determinative of the reasonableness of respondent's position. See Wasie v. Commissioner, 86 T.C. 962">86 T.C. 962, 86 T.C. 962">968-969 (1986); DeVenney v. Commissioner, 85 T.C. 927">85 T.C. 927 (1985). It remains a factor, however, to be considered. Estate of Perry v. Commissioner, 931 F.2d 1044">931 F.2d 1044, 931 F.2d 1044">1046 (5th Cir. 1991); Powers v. Commissioner, 100 T.C. 457">100 T.C. 457, 100 T.C. 457">471 (1993), affd. in part, revd. in part and remanded on another issue 43 F.3d 172">43 F.3d 172 (5th Cir. 1995).

The Court looks to whether the Commissioner's position was reasonable given the available facts and circumstances at the time the Commissioner took his position. See Maggie Mgmt. Co. v. Commissioner, 108 T.C. 430">108 T.C. 430, 108 T.C. 430">442-443 (1997); 85 T.C. 927">DeVenney v. Commissioner, supra at 930. The Commissioner's position in a judicial proceeding is generally the position the Commissioner2006 Tax Ct. Memo LEXIS 27">*33 took in the answer to the petition. Sec. 7430(c)(7)(A); 978 F.2d 1139">Huffman v. Commissioner, supra at 1144-1147; 108 T.C. 430">Maggie Mgmt. Co. v. Commissioner, supra at 443; Grant v. Commissioner, 103 F.3d 948">103 F.3d 948, 103 F.3d 948">952 (1996), affg. T.C. Memo. 1995-374; 89 T.C. 79">Sher v. Commissioner, supra at 86.

Whether Respondent's Position Was Substantially Justified

In Allemeier I, respondent's position was that petitioner was not entitled to an MBA-related expense deduction on two bases. Respondent argued, first, that petitioner's enrollment in the MBA program constituted a "minimum educational requirement" to continue his employment at the company. See sec. 1.162-5(b)(2), Income Tax Regs. Respondent argued, second, that petitioner's MBA qualified him for a new trade or business. See sec. 1.162-5(b)(3), Income Tax Regs.

Although we found that petitioner was encouraged rather than required to obtain the MBA, we find that respondent was substantially justified in arguing that the MBA program constituted a minimum educational requirement. See Allemeier v. Commissioner, T.C. Memo. 2005-207. Similarly, although2006 Tax Ct. Memo LEXIS 27">*34 we found that petitioner's MBA "enhanced" his preexisting skills rather than qualified him to perform "significantly" different tasks and activities, we find that respondent was substantially justified in arguing that petitioner's course of study qualified him for a new trade or business. Id.

Accordingly, we find that respondent's position was substantially justified. ⁶ Petitioner is therefore not the prevailing party and may not recover any litigation costs. 2006 Tax Ct. Memo LEXIS 27">*35 See sec. 7430(c)(4)(B). In light of this holding, we need not decide whether petitioner exhausted administrative remedies or whether the legal costs petitioner claimed are reasonable. ⁷ See, e.g., Kean v. Comm'r, T.C. Memo. 2003-275, affd. 407 F.3d 186">407 F.3d 186 (3d Cir. 2005); Gutierrez v. Commissioner, T.C. Memo. 1995-569 (where Commissioner substantially justified, no need to address whether taxpayer satisfied the other requirements of section 7430).

To reflect the foregoing,

An appropriate order and decision will be entered.