125 F.3d 860
80 A.F.T.R.2d 97-7374, 97-2 USTC P 50,863
Peter R. URWYLER, Plaintiff-Appellant,
UNITED STATES of America, Defendant-Appellee.
United States Court of Appeals, Ninth Circuit.
Submitted Sept. 18, 1997,
Decided Oct. 10, 1997.
NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.
Appeal from the United States District Court for the Eastern District of California, D.C. No. CV-93-05181-GEB/DLB
Before KOZINSKI, MAYER** and FERNANDEZ, Circuit Judges.
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.