In this case, the government's position -- reflected in the deficiency notices and in the answer to Linda's Tax Court petition -- is that the Commissioner could not reliably determine whether Linda or Steve was entitled to the claimed EICs based upon Sean and Liane as qualifying children until Steve defaulted. The Tax Court held that this position was substantially justified because the two taxpayers had asserted conflicting EIC claims and provided inconsistent information concerning Steve's residence during the years in question. In these circumstances, the Tax Court concluded, "[i]t is not unreasonable for [the Commissioner] to require a taxpayer to corroborate claims regarding a dispositive and unresolved fact." Sherbo v. Commissioner, T.C. Mem. 1999-367, 78 T.C.M. (CCH) 742, 744. We review the Tax Court's findings of fact for clear error and its decision not to award costs for abuse of discretion. Kenagy v. United States, 942 F.2d 459, 463 (8th Cir. 1991).

II. Discussion.

Whether the government's position was substantially justified is necessarily a fact intensive, case-by-case determination. Kenagy, 942 F.2d at 464. In this case, as in Wickert v. Commissioner, 842 F.2d 1005, 1008 (8th Cir. 1988), it is undisputed that the Commissioner conceded the validity of Linda Sherbo's EIC claims promptly after learning that Steve had ended the "whipsaw" situation by defaulting his conflicting claims. The issue, then, is whether the Commissioner was substantially justified in issuing deficiency notices and filing an answer in the Tax Court challenging Linda's EIC claims prior to Steve's default. On appeal, Linda argues that the Commissioner's position lacked a reasonable basis in law and fact. It will clarify the factual component of this dispute if we first address her issues of law, issues made more complex because of the many recent amendments to the EIC statute.

Steve's modified adjusted gross income was higher than Linda's in 1995 and 1996. Therefore, Linda would not have been the eligible individual under the EIC's tie- breaker provision if both parents were otherwise eligible to claim Sean and Liane as qualifying children. See 32(c)(1)(C). Both parents met the relationship and age requirements under 32(c)(3)(B) & (C). However, Linda argues that the IRS lacked a reasonable basis in law to disallow her EIC claims for two reasons.

First, Linda argues that Steve could not satisfy the residence test in 32(c)(3)(A)(ii) as a matter of law because, even if he lived with the children in Linda's home in 1995 and 1996, the residence test also requires that the eligible individual be the head of household, as defined in the Internal Revenue Code, and Steve could not qualify as head of their household under 26 U.S.C. 2(b)(1) because he did not provide over one-half the cost of maintaining the household.

This argument had considerable force under the EIC statute prior to 1990. See Schnelten v. Commissioner, T.C. Mem. 1993-264, 65 T.C.M. (CCH) 2961, 2967. The prior statute provided that an eligible individual must be married, a surviving spouse, or a head of household. Each of those alternatives included a residence requirement. See 26 U.S.C. 32(c)(1)(A)(iii) & (B) (1988). In 1990, in substantially amending 32, Congress deleted the requirement that an eligible individual must be married, a surviving spouse, or a head of household, but it retained the residence requirement by adding a residence test to the definition of "qualifying child." Under the amended statute, a qualifying child is one "who has the same principal place of abode as the taxpayer for more than one-half of such taxable year." See 32(c)(1)(A) and 32(c)(3)(A)(ii) as enacted in the Omnibus Budget Reconciliation Act of 1990, Pub. L. No. 101-508, 11111(a), 104 Stat. 1388, 1388-410.

The Commissioner construes the new provision as a simple residence test, without the additional financial maintenance requirements of the head-of-household definition in 2(b)(1).1 The plain language of 32(c)(3)(A)(ii) supports that construction. Linda counters by pointing to a passage in the 1990 legislative history stating that Congress "intended that the determination of whether the residency requirement is met is made under rules similar to those applicable with respect to whether an individual meets the requirements for head-of-household filing status." H. R. Conf. Rep. No. 101-964, reprinted in 1990-6 U.S.C.C.A.N. 2374, 2742. But the example given -- disregarding temporary absences due to education or illness -- is consistent with a simple residence test. As this case illustrates, a simple residence test is easier to administer than the former test, which required the IRS to determine head- of-household status, as well as residence. We conclude the Commissioner is substantially justified in construing 32(c)(3)(A)(ii) as a simple residence test.

Second, Linda argues that the Commissioner had no basis in law for disallowing her entire EIC claims because Steve identified only Liane as a qualifying child in 1995 and Sean in 1996, and therefore Steve could not be an eligible individual for the other child each year. Linda bases this argument on Lestrange v. Commissioner, T.C. Mem. 1997-428, 74 T.C.M. (CCH) 685, where the Tax Court held that a person could not be an eligible individual for purposes of the EIC tie-breaker rule, if the qualifying child was not identified on that person's tax return.

Once again, Linda's contention ignores a subsequent statutory amendment. Congress legislatively overruled LeStrange by repealing its statutory basis, former 32(c)(3)(A)(iv), in 6021 of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, 112 Stat. 685, 824, reprinted in 1998-1 U.S.C.C.A.N. 824. The Joint Committee on Taxation explained this amendment as intended to overrule Lestrange and restore the IRS's prior position -- "the tie-breaker rule would apply where more than one individual otherwise could claim the same child as a qualifying child on their respective tax returns, regardless of whether the child is listed on any tax return."2 This 1998 amendment was expressly made retroactive to 1990, see 6021(c)(2), 112 Stat. at 824; its retroactivity was constitutional because the amendment merely clarified prior law. See Sutherland v. Commissioner, T.C. Mem. 2001-8, 81 T.C.M. (CCH) 1001, 1004.

In other words, under the applicable EIC tie-breaker rule, the IRS investigation was not only concerned with resolving a "whipsaw" situation. Although the conflicting EIC claims initially filed by Linda and Steve Sherbo no doubt triggered the IRS's interest in the issue, the agency was required to determine which parent was the proper eligible individual with respect to both children, in order to fulfill Congress's intent "to ensure that only needy taxpayers receive the EIC." Sutherland, 81 T.C.M. (CCH) at 1005. As Sean and Liane lived together in 1995 and 1996, if one was a "qualifying child" for Steve, almost certainly the other was as well. Thus, the Commissioner took a substantially justified legal position in disallowing Linda's entire EIC claims until the issue of Steve's residence was resolved, even if Steve was not claiming the full EIC to which he might have been entitled.

Having resolved Linda's issues of law in the Commissioner's favor, we come to the question of whether the government's position was substantially justified in fact. As we have explained, the critical question was whether Steve was the eligible individual under the EIC tie-breaker rule because he lived with the children for at least six months each tax year. Linda asserts there is a "complete absence of evidence that Steve could satisfy the residency test." That is simply not true. When it issued the deficiency notices, the IRS had the following information suggesting that both Steve and Linda satisfied the residence test in 1995 and 1996:

* Steve's tax returns, reporting the same home address as Linda's returns.

* Linda's December 23, 1997, letter reporting that Steve and both children lived with her at that address in 1995 and 1996.

* Linda's March 20, 1998, letter. This letter asserted that Steve did not live with the children more than one-half of those years. But in support, Linda enclosed only an IRS Form 8332 for each year signed by Steve on March 11, 1998. This Form states that it is to be used by a custodial parent who wishes to release an exemption claim, not an EIC claim. Submitting these documents, which did not address the residence question, no doubt caused the reviewing IRS examiner to wonder why Linda was unable to obtain from Steve a document that directly addressed either the residence question or his competing EIC claims.

Faced with this conflicting information, the IRS issued deficiency notices along with an Explanation of Items that encouraged Linda to submit documents that would corroborate her assertion that Steve did not live with the children during 1995 and most of 1996 -- bank statements, a rental agreement, and so forth, the kind of documents that most people have readily available.

When faced with a "whipsaw" situation, the Commissioner is "entitled to defend against inconsistent results by holding both parties to the transaction liable for the deficiency," until the claim of one or the other is conceded or conclusively rejected. Maggie Mgmt. Co. v. Commissioner, 108 T.C. 430, 446 (1997); accord Wickert, 842 F.2d at 1008. Moreover, because Linda as taxpayer had the ultimate burden of proving her entitlement to a tax credit such as the EIC, see, e.g., 330 W. Hubbard Restaurant Corp. v. United States, 203 F.3d 990, 997 (7th Cir. 2000), we agree with the Tax Court that it was reasonable for the Commissioner to require her to corroborate her assertion regarding Steve's residence, which was a dispositive and unresolved fact. Accord Pan Pac. Trading Corp. v. Commissioner, T.C. Mem. 1994-101, 67 T.C.M. (CCH) 2374, 2380, aff'd, 73 F.3d 370 (9th Cir. 1995) (unpublished). In these circumstances, the Tax Court did not abuse its discretion in denying Linda's motion for costs on the ground that the Commissioner was substantially justified in disallowing Linda's EIC claims until Steve's conflicting claims were resolved when he defaulted.

The judgment of the Tax Court is affirmed.