UNITED STATES MUST establish THAT ITS POSITION IN PROCEEDING WAS SUBSTANTIALLY JUSTIFIED.

Sec. 701. UNITED STATES MUST establish THAT ITS POSITION IN PROCEEDING WAS SUBSTANTIALLY JUSTIFIED. (a) General Rule.— Subparagraph (A) of section 7430(c)(4) (defining prevailing party) is amended by striking clause (i) and by redesignating clauses (ii) and (iii) as clauses (i) and (ii), respectively. (b) Burden of Proof on United States.— Paragraph (4) of section 7430(c) is amended by redesignating subparagraph (B) as subparagraph (C) and by inserting after subparagraph (A) the following new subparagraph: “(B) Exception If United States Establishes That Its Position Was Substantially Justified.— “(i) General Rule.— A party shall not be treated as the prevailing party in a proceeding to which subsection (a) applies if the United States establishes that the position of the United States in the proceeding was substantially justified. “(ii) Presumption of No Justification If Internal Revenue Service Did Not Follow Certain Published Guidance.— for purposes of clause (i), the position of the United States shall be presumed not to be substantially justified if the Internal Revenue Service did not follow its applicable published guidance in the administrative proceeding. Such presumption may be rebutted. “(iii) Applicable Published Guidance.— for purposes of clause (ii), the term ‘applicable published guidance’ means— “(I) regulations, revenue rulings, revenue procedures, information releases, notices, and announcements, and 110 STAT. 1464 “(II) any of the following which are issued to the taxpayer: private letter rulings, technical advice memoranda, and determination letters.”, (c) Conforming Amendments.— (1) Subparagraph (B) of section 7430(c)(2) is amended by striking “paragraph (4)(B)” and inserting “paragraph (4)(C)”. (2) Subparagraph (C) of section 7430(c)(4), as redesignated by subsection (b), is amended by striking “subparagraph (A)” and inserting “this paragraph”. (3) Sections 6404(g) and 6656(c)(1), as amended by this Act, are each amended by striking “section 7430(c)(4)(A)(iii)” and inserting “section 7430(c)(4)(A)(ii)”. (d) Effective Date.— The amendments made by this section shall apply in the case of proceedings commenced after the date of the enactment of this Act.