Peter R. Urwyler, Plaintiff-appellant, v. United States of America, Defendant-appellee, 125 F.3d 860 (9th Cir. 1997)

MEMORANDUM^* 

Urwyler can prevail in his action for attorney's fees only if the IRS was not "substantially justified" in its pre-litigation or litigation positions. To be substantially justified, the IRS must be "justified to a degree that could satisfy a reasonable person." Pierce v. Underwood, 487 U.S. 552, 565 (1988). Urwyler argues that the IRS had no evidence to support its pre-litigation con-duct. The IRS, however, may properly rely on hearsay evidence when conducting an investigation. Avery v. C.I.R., 574 F.2d 467, 468 (9th Cir. 1978). In finding Urwyler had received unreported income, the IRS relied on tax returns filed by his father's comp-any and on workers' compensation insurance forms; evidence the District Court found substantially justified its actions. We agree.

Urwyler also alleges that during discovery the IRS engaged in delay tactics. In response, the IRS claims that it made a good faith, timely effort under "unusual" circumstances to produce all relevant evidence. The District Court agreed, and Urwyler offers no reason why this ruling was an abuse of discretion. Urwyler further argues that the IRS knew it had no admissible evidence showing he had received unreported income, yet it still partici-pated in litigation. The IRS replies that it had admissible evi-dence, but did not think it was necessary to introduce it. Again, the District Court agreed, and nothing in the record suggests an abuse of discretion.

AFFIRMED.