T.C. Memo. 1998-311
UNITED STATES TAX COURT
CALIFORNIA MARINE CLEANING, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 19476-96. Filed August 24, 1998.
William P. Shannahan, for petitioner.
Christine V. Olsen, for respondent.
MEMORANDUM OPINION
COLVIN, Judge: This matter is before the Court on
petitioner’s motion for litigation and administrative costs under
2
section 74301 and Rule 231.2 Respondent concedes that petitioner
substantially prevailed, exhausted its administrative remedies,
meets the net worth requirements, and did not unreasonably
protract the administrative or Court proceedings. Sec.
7430(b)(1), (3), and (c)(4)(A)(i) and (ii). The remaining issues
for decision are:
(1) Whether respondent’s position in the underlying
proceeding was substantially justified. We hold that it was not.
(2) Whether a special factor as defined in section
7430(c)(1)(B)(iii) was present in this case which would justify
an award of attorney's fees higher than $110 per hour. We hold
that no special factor was present.
1
Section references are to the Internal Revenue Code in
effect for the years in issue. References to sec. 7430 are to
that section as amended by sec. 1551 of the Tax Reform Act of
1986, Pub. L. 99-514, 100 Stat. 2752 (effective for proceedings
commenced after Dec. 31, 1985), and by sec. 6239(a) of the
Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647,
102 Stat. 3743 (effective with respect to proceedings commenced
after Nov. 10, 1988). Sec. 7430 was further amended by the
Taxpayer Bill of Rights 2, Pub. L. 104-168, sec. 701, 110 Stat.
1463 (1996), effective with respect to proceedings commenced
after July 30, 1996. The amendments to that section shifted to
the Commissioner the burden of proving that the position of the
United States was substantially justified, sec. 7430(c)(4)(B),
and changed the hourly rate for attorney's fees to $110, sec.
7430(c)(1)(B)(iii).
A judicial proceeding is commenced in this Court with the
filing of a petition. Rule 20(a). Petitioner filed its petition
on Sept. 9, 1996. Accordingly, the 1996 amendments to sec. 7430
apply here. See Maggie Management Co. v. Commissioner, 108 T.C.
430 (1997).
2
Rule references are to the Tax Court Rules of Practice and
Procedure.
3
(3) Whether the number of hours billed by petitioner's
counsel and accountant and petitioner's other litigation costs
were reasonable. We hold that they were to the extent set out
below.
The parties submitted memoranda and affidavits supporting
their positions. We decide the motion on the basis of those
memoranda and affidavits. Neither party requested a hearing. We
conclude that a hearing is not necessary to decide this motion.
Rule 232(a)(3).
Background
A. Petitioner
Petitioner is a corporation the principal place of business
of which was in San Diego, California, during the years in issue
and when it filed its petition. Petitioner reports its income
using the cash method of accounting. Petitioner is in the
business of cleaning military and civilian ships.
B. Petitioner's 1992, 1993, and 1994 Tax Returns
Petitioner timely filed U.S. corporate income tax returns
(Forms 1120) for its tax years ending on September 30, 1992,
1993, and 1994,3 on which it reported the following:
3
Petitioner's 1992, 1993, and 1994 fiscal years ended on
Sept. 30.
4
FY 1992 FY 1993 FY 1994
Gross receipts $2,839,130 $2,905,192 $2,822,943
Compensation of 165,223 272,000 269,000
officers
Salaries and wages 1,086,926 991,749 1,018,735
Repairs 26,605 26,459 15,651
Rents 59,338 32,807 33,336
Taxes 152,664 139,273 137,015
Interest 5,179 2,605 3,286
Contributions 4,325 7,745 9,591
Depreciation 75,988 63,943 54,550
Pensions, profit- 172,804 88,663
sharing plans
Other deductions1 995,464 976,003 1,050,076
Unappropriated 1,149,031 1,230,404 1,197,598
retained earnings
1
Petitioner's other deductions included expenses for
subcontractors, materials and supplies, equipment rental,
chemical analysis, waste disposal, trucks, insurance, travel,
office, legal and accounting services, permits, telephone, and
utilities.
Petitioner paid no dividends and had no inventory in fiscal
years 1992, 1993, and 1994.
C. The Audit and Respondent's Determination
In 1995, respondent audited petitioner's 1992, 1993, and
1994 fiscal years (FY). The record does not indicate who
respondent talked to or what documents respondent saw during the
audit.
On May 15, 1996, respondent notified petitioner, pursuant to
section 534(b), that respondent intended to issue a notice of
deficiency determining that petitioner is liable for the
accumulated earnings tax under section 531 for FY 1992, 1993, and
1994. Petitioner had 60 days to file a section 534(c) statement.
Sec. 534(c); sec. 1.534-2(d)(2), Income Tax Regs. On June 13,
5
1996, respondent sent a notice of deficiency to petitioner. In
it, respondent determined that petitioner had deficiencies in
income tax (including accumulated earnings tax) of $100,548 for
FY 1992, $68,286 for FY 1993, and $50,678 for FY 1994.
Respondent determined that petitioner had accumulated taxable
income of $289,736 in FY 1992, $205,937 in FY 1993, and $160,203
in FY 1994.
Respondent determined petitioner's accumulated earnings4 as
of the close of the prior year as follows:
9/30/92 9/30/93 9/30/94
Accrual basis $1,149,031 $1,230,404 $1,197,598
Accounts receivable (985,378) (852,526) (655,925)
Tax refund receivable (16,474) (42,197)
Accounts payable 1,818 2,080 1,676
Deferred taxes 117,643 67,687 7,684
Income taxes payable 56,867
Cash basis 339,981 431,171 508,836
Respondent computed petitioner's accumulated earnings
credit5 in the notice of deficiency as follows:
4
A corporation's accumulated earnings are the earnings it
accumulates rather than distributes. See United States v.
Donruss Co., 393 U.S. 297, 303 (1969).
5
The accumulated earnings credit is generally the amount of
(continued...)
6
Computation of Accumulated Earnings Credit
9/30/92 9/30/93 9/30/94
Minimum credit $250,000 $250,000 $250,000
Less: Accumulated earnings
as of close of prior year 339,981 431,171 508,836
Allowable minimum credit
(sec. 535(c)(2)) -0- -0- -0-
Current earnings and profits
retained for reasonable needs
of business
(sec. 535(c)(1)(A)) -0- -0- -0-
Less: Deduction for LTCG
(sec. 535(b)(6)) -- -- --
Allowable credit
(sec. 535(c)(1)) -0- -0- -0-
Respondent's only explanation for determining that
petitioner was liable for accumulated earnings tax was that
petitioner was "formed or availed of for the purpose of [its]
shareholders avoiding income tax".
Respondent did not state the basis for determining that
petitioner had no reasonable needs to retain earnings for the
years at issue. The notice of deficiency contained no Bardahl6
computation or other analysis of petitioner's need for working
capital. Respondent issued the notice of deficiency before
5
(...continued)
the taxpayer's earnings and profits for the taxable year that is
retained for the reasonable needs of the business. Sec.
535(c)(1). The accumulated earnings credit is subtracted from
the taxpayer's taxable income in calculating accumulated taxable
income. Sec. 535(a).
6
A Bardahl computation is an estimate of a taxpayer's
working capital needs based on its business needs for one
operating cycle. Bardahl Manufacturing Corp. v. Commissioner,
T.C. Memo. 1965-200.
7
petitioner filed a section 534(c) statement or requested an
Appeals Office conference.
D. Petitioner's Section 534(c) Statement
On July 12, 1996, petitioner filed a timely section 534(c)
statement identifying the grounds on which it relied to establish
that it did not unreasonably accumulate earnings. Petitioner
asserted that it had 11 grounds to accumulate earnings: (1) To
provide a reserve for Federal income tax and interest; (2) to
provide working capital; (3) to expand to additional port cities;
(4) to replace equipment; (5) to provide loans to customers or
suppliers; (6) to meet competition; (7) to provide insurance; (8)
to provide a litigation reserve; (9) to prepare for unsettled
business conditions; (10) to make pension and profit sharing plan
contributions; and (11) to respond to the possible loss of its
principal customer, the U.S. Navy.
Petitioner filed its petition in this case on September 9,
1996. On April 9, 1997, this case was calendared for trial at
the September 15, 1997, session of this Court at San Diego,
California.
On April 24, 1997, respondent filed a motion for a ruling
that petitioner's section 534(c) statement was insufficient to
shift the burden of proof to respondent. On July 22, 1997, we
held that petitioner's section 534(c) statement did not contain
enough facts to shift the burden of proof to respondent.
8
E. Postpetition Conferences
Petitioner's case was assigned to an Appeals officer
sometime after petitioner filed its petition. Respondent's
revenue agent Bruce Zaer (Zaer) met with petitioner's counsel on
May 15 and July 11, 1997, to discuss petitioner's case. At the
July 11 meeting, petitioner's counsel told Zaer that petitioner
had erroneously reported earnings and profits on an accrual basis
rather than on a cash basis on its 1991 tax return. As a result
of the error, petitioner erroneously included accounts receivable
of about $662,000 in accumulated earnings. Petitioner reported
on its 1991 return that its accumulated earnings were $853,837,
while in fact they were only about $190,000. Around July 17,
1997, petitioner's accountant prepared a corrected analysis of
petitioner's accumulated taxable income for FY 1986 to 1994.7 He
concluded that petitioner had accumulated taxable income of
$340,611 for FY 1992, $501,955 for FY 1993, and $615,005 for FY
1994. Respondent's Appeals officer reviewed the accountant's
analysis and agreed with it. On August 14, 1997, respondent
conceded the accumulated earnings tax issue.
F. Settlement of the Case
At the calendar call on September 15, 1997, the parties
announced that they had reached a basis of settlement. The
7
In his corrected analysis, petitioner's accountant
concluded that petitioner's accumulated earnings for fiscal year
1991 were about $110,000.
9
parties stipulated that petitioner had deficiencies in income tax
of $18,208 for FY 1992, $8,124 for FY 1993, and $6,388 for FY
1994, that petitioner is not liable for accumulated earnings tax
for those years, and that petitioner is not liable for additions
to tax for those years.
G. Petitioner's Litigation Costs
Petitioner filed a motion for an award of litigation and
administrative costs on September 15, 1997. Petitioner incurred
attorney's fees and other costs for services performed in this
matter from June 14, 1996, to December 12, 1997, as follows:
Date of services Fee Attorney hours Costs
1996:
June 5-21 $1,650 5.5 --
June 28-July 17 3,540 11.8 --
July 20-Aug. 16 1,110 3.7 --
Aug. 27-29 1,050 3.5 $144.48
Nov. 8-21 900 3.0 --
Dec. 11-16 1,170 3.9 --
1997:
Jan. 6 90 .3 --
Jan. 27 30 .1 --
Apr. 15-25 510 1.7 --
Apr. 28-May 23 7,740 25.8 --
May 27-June 24 3,870 12.9 --
June 26-July 16 4,530 15.1 --
July 30-Aug. 25 570 1.9 --
Aug. 26-Sept. 26 9,060 30.2 --
Sept. 29-Oct. 18 1,080 3.6 --
Nov. 10-18 480 1.6 --
Nov. 26-Dec. 12 3,600 12.0 --
Total 40,980 136.6 144.48
10
Date of services Fee Accountant hours
June 1996-
Sept. 1997 $2,462.50 98.5
Discussion
A. Motion for Litigation and Administrative Costs: Introduction
Generally, a taxpayer who has substantially prevailed in
a Tax Court proceeding may be awarded reasonable administrative
and litigation costs. Sec. 7430(a), (c). To be entitled to an
award, the taxpayer must:
1. Exhaust administrative remedies.8 Sec. 7430(b)(1).
Respondent concedes that petitioner meets this requirement.
2. Substantially prevail with respect to the amount in
controversy. Sec. 7430(c)(4)(A)(i)(II). Respondent concedes
that petitioner meets this requirement.
3. Be an individual whose net worth did not exceed $2
million, or an owner of an unincorporated business, or any
partnership, corporation, etc., the net worth of which did not
exceed $7 million, when the petition was filed. Sec.
7430(c)(4)(A)(ii); 28 U.S.C. sec. 2412(d)(2)(B) (1988).
Respondent concedes that petitioner meets this requirement.
8
This requirement does not apply to an award for reasonable
administrative costs. Sec. 7430(b)(1).
11
4. Show that the taxpayer did not unreasonably protract
the proceedings. Sec. 7430(b)(3). Respondent concedes that
petitioner meets this requirement.
5. Establish that the amounts of costs and attorney's fees
claimed by the taxpayer are reasonable. Sec. 7430(a), (c)(1) and
(2). Respondent disputes the number of hours of legal services
claimed by petitioner. Petitioner also claimed that it was
entitled to more than $110 per hour adjusted for inflation.
Respondent disputes that contention.
For proceedings beginning after July 30, 1996, the taxpayer
is not entitled to an award for reasonable administrative and
litigation costs if the Commissioner shows that the position of
the United States in the action was substantially justified.
Sec. 7430(c)(4)(B)(i). Respondent bears the burden of proving
that respondent's position was substantially justified. Id.
Respondent contends that respondent has made this showing.
B. Position of the United States and Substantially Justified
Standard
1. Position of the United States
The Commissioner takes a position in an administrative
proceeding as of the earlier of the date the taxpayer receives an
Internal Revenue Service (IRS) Appeals decision or the
Commissioner sends the notice of deficiency. Sec. 7430(c)(7)(B).
Respondent's position in the administrative proceeding was
12
established on June 13, 1996, when the notice of deficiency was
sent.
The position taken by the United States, for purposes of an
award of litigation costs, is the position of the United States
in a judicial proceeding. Sec. 7430(c)(7)(A). Respondent took a
position in the judicial proceeding in this case on November 12,
1996, when respondent's answer was filed. See Huffman v.
Commissioner, 978 F.2d 1139, 1148 (9th Cir. 1992), affg. in part,
revg. in part and remanding T.C. Memo. 1991-144.
2. Substantially Justified Standard
The parties dispute whether respondent's position in the
administrative and judicial proceedings was substantially
justified.
The Commissioner's position is substantially justified if
that position could satisfy a reasonable person. Pierce v.
Underwood, 487 U.S. 552, 565 (1988); Rickel v. Commissioner, 900
F.2d 655, 665 (3d Cir. 1990), affg. in part and revg. in part on
other grounds 92 T.C. 510 (1989); Swanson v. Commissioner, 106
T.C. 76, 86 (1996); Powers v. Commissioner, 100 T.C. 457, 470,
473 (1993), affd. on this issue, revd. in part and remanded on
other issues 43 F.3d 172 (5th Cir. 1995). To be substantially
justified, the Commissioner's position must have a reasonable
basis in both law and fact. Pierce v. Underwood, supra; Hanover
Bldg. Matls., Inc. v. Guiffrida, 748 F.2d 1011, 1015 (5th Cir.
13
1984); Powers v. Commissioner, supra. For a position to be
substantially justified, there must be substantial evidence to
support it. Pierce v. Underwood, supra at 564-565; Powers v.
Commissioner, supra at 473.
The fact that the Commissioner eventually loses or concedes
a case does not establish that a taxpayer is entitled to an award
of reasonable litigation and administrative costs. Wilfong v.
United States, 991 F.2d 359, 364 (7th Cir. 1993); Hanson v.
Commissioner, 975 F.2d 1150, 1153 (5th Cir. 1992); Sokol v.
Commissioner, 92 T.C. 760, 767 (1989). However, it is a factor
to be considered. Estate of Perry v. Commissioner, 931 F.2d
1044, 1046 (5th Cir. 1991); Powers v. Commissioner, supra at 471.
C. Whether Respondent's Position in the Notice of Deficiency
Was Substantially Justified
1. Background--Accumulated Earnings Tax
A taxpayer is liable for accumulated earnings tax if it is
formed or availed of to avoid income tax for its shareholders by
permitting earnings and profits to accumulate instead of being
divided or distributed. Sec. 532(a); Hughes, Inc. v.
Commissioner, 90 T.C. 1, 15 (1988). However, the accumulated
earnings tax does not apply if a corporation lacks the proscribed
purpose. Technalysis Corp. v. Commissioner, 101 T.C. 397, 403
(1993); Pelton Steel Casting Co. v. Commissioner, 28 T.C. 153,
173 (1957), affd. 251 F.2d 278 (7th Cir. 1958).
14
2. Basis in Fact
a. Whether Facts Known by Respondent Provide a Basis
in Fact
Respondent argues that respondent's position was
substantially justified on the basis of the following information
which respondent knew or reasonably believed when respondent sent
the notice of deficiency: (a) Petitioner was in the business of
cleaning ships; (b) petitioner was a cash basis taxpayer; (c)
petitioner reported unappropriated retained earnings of
$1,149,031 for FY 1992, $1,230,404 for FY 1993, and $1,197,598
for FY 1994; (d) petitioner reported gross receipts or sales of
$2,839,130 for FY 1992, $2,905,192 for FY 1993, and $2,822,943
for FY 1994; (e) petitioner reported total deductions of
$2,571,712 for FY 1992, $2,685,388 for FY 1993, and $2,679,903
for FY 1994; (f) petitioner paid no dividends in FY 1992, 1993,
and 1994; and (g) petitioner had no inventory in FY 1992, 1993,
and 1994.
These facts do not provide a basis in fact for respondent’s
position that petitioner intended to avoid tax for its
shareholders. Section 1.533-1(a)(2), Income Tax Regs., lists
factors to be considered in deciding whether a corporation
intended to avoid income tax of its shareholders, including: (1)
Dealings between the corporation and its shareholders for the
personal benefit of the shareholders; for example, personal
15
loans; (2) corporate investment of undistributed assets in
unrelated businesses or investments; and (3) the corporation's
dividend history. Respondent has not shown that respondent had
any reason to believe that there were dealings between petitioner
and its shareholders for their personal benefit or that
petitioner had invested in unrelated businesses. Respondent knew
that petitioner did not pay dividends in the years in issue but
cites no authority that the absence of dividends, in isolation,
triggers liability for accumulated earnings tax.
The record does not show what respondent did, or learned
about petitioner, during the audit of this case. Petitioner's
returns suggest that petitioner had a significant ongoing
business. Petitioner's returns do not provide a basis in fact
for respondent's position that petitioner was formed or availed
of for the proscribed purpose. Respondent does not claim to have
had any information about the merits of the case other than
petitioner's returns before adopting the position at issue here.
See Powers v. Commissioner, supra at 472.
It has been held that the Government does not have a
reasonable basis in both fact and law if it does not diligently
investigate a case. United States v. Estridge, 797 F.2d 1454,
1458 (8th Cir. 1986) (award for litigation costs granted where
Commissioner did not diligently investigate which of several
persons was liable for tax of an employer under section 6672(a));
16
Powers v. Commissioner, supra at 473. Respondent lacked a basis
in fact for determining that petitioner was liable for the
accumulated earnings tax because respondent apparently had no
facts about petitioner's business plans and did not show whether
the case was diligently investigated.
b. Petitioner's Error in Reporting Accounts
Receivable
Petitioner erroneously included accounts receivable of
$662,000 in accumulated earnings on its tax return for 1991.
Respondent contends that petitioner's error led respondent to
determine that petitioner was liable for the accumulated earnings
tax. Respondent contends that, if petitioner had reviewed its
books and records earlier, it might have been possible to avoid
the determination or resolve the issue earlier.
We disagree. Respondent did not explain why the
determination that petitioner was liable for accumulated earnings
tax was substantially justified (e.g., that petitioner
accumulated income with the purpose of avoiding shareholder
taxes) even if petitioner had retained earnings of $1,149,031 in
FY 1992, $1,230,404 in FY 1993, and $1,197,598 in FY 1994.
c. Whether Events Occurring After Respondent Took the
Position Provide a Basis in Fact for Respondent's
Position
Respondent argues that respondent's position is
substantially justified because of events occurring after that
17
position was taken; that is, after the notice of deficiency was
issued. For example, respondent argues that: (1) Respondent was
substantially justified because respondent promptly settled the
accumulated earnings tax issue soon after petitioner told
respondent about petitioner's error, and (2) respondent's
position had a basis in fact because petitioner's section 534(c)
statement was insufficient to shift the burden of proof to
respondent.
We disagree. Respondent must have a basis in fact when
respondent issues the notice of deficiency. Powers v.
Commissioner, 100 T.C. at 473, 477-478; Kingston v. Commissioner,
T.C. Memo. 1998-119; Grimland v. Commissioner, T.C. Memo. 1993-
367; see Pierce v. Underwood, 487 U.S. at 564-565. We do not
consider events occurring after respondent's position was
adopted, such as respondent's prompt concession or petitioner's
failure to allege specific facts in its section 534(c) statement,
in deciding whether that position was substantially justified.
Powers v. Commissioner, supra at 477.
3. Conclusion
Respondent has not shown that respondent had a basis in fact
for the position that petitioner unreasonably accumulated
earnings for FY 1992, 1993, and 1994 when respondent sent the
notice of deficiency or filed the answer.
18
The substantially justified standard requires that the
Government's position have a reasonable basis in both law and
fact. Pierce v. Underwood, supra at 563-564. We need not decide
whether respondent had a basis in law because respondent did not
have a basis in fact. Thus, we hold that respondent's position
was not substantially justified when respondent sent the notice
of deficiency and filed the answer, and that petitioner is
entitled to an award under section 7430 for its reasonable
administrative and litigation costs.
D. Reasonable Administrative and Litigation Costs
Petitioner seeks an award for its attorney's fees of
$40,980, miscellaneous costs of $144.48, and accountant's fees of
$2,462.50. We must decide whether the number of hours billed,
the rate at which those hours were billed, and the miscellaneous
costs are reasonable as claimed by petitioner.
1. Applicable Hourly Rate for Attorney's Fees
Petitioner's attorney, William Shannahan (Shannahan), billed
at an hourly rate of $300 for his work in this case. Respondent
objects to our basing an award for litigation costs on
Shannahan's rate to the extent it exceeds $110.
Section 7430(c)(1)(B)(iii) limits the hourly rate for
attorney's fees to $110, increased by the cost of living and
other special factors. The cost of living increase is rounded to
the nearest multiple of $10. Sec. 7430(c)(1). The allowable fee
19
for services ($110) indexed from 1996 to 1997 is $113. Human v.
Commissioner, T.C. Memo. 1998-65. Thus, Shannahan's allowable
fee for 1997 is $110.
2. Whether a Special Factor Is Present
We next decide whether a special factor is present that
justifies an award of attorney's fees at a rate higher than $110
per hour. Sec. 7430(c)(1)(B)(iii). Petitioner contends that the
issues involved in this case were very complex and that
petitioner's counsel's expertise warrants an award of fees at a
rate higher than $110. We disagree.
The prevailing hourly rate in an area, and the fact that no
attorney would have performed the work for $110 an hour, are not
special factors under section 7430(c)(1)(B)(iii). Cozean v.
Commissioner, 109 T.C. 227 (1997); Cassuto v. Commissioner, 93
T.C. 256, 269 (1989), affd. in part, revd. in part and remanded
on other issues 936 F.2d 736 (2d Cir. 1991); see Pierce v.
Underwood, 487 U.S. 552 (1988). Tax expertise of a taxpayer’s
lawyer alone is not a special factor under section
7430(c)(1)(B)(iii). Cassuto v. Commissioner, 936 F.2d at 743;
see Bode v. United States, 919 F.2d 1044, 1050 (5th Cir. 1990);
Cozean v. Commissioner, supra at 232-233. We conclude that
petitioner has not shown that any special factor is present which
warrants an increase in the $110 maximum hourly rate.
20
3. Amounts of Reasonable Administrative and Litigation
Costs
We next decide whether the amounts of petitioner's
administrative and litigation costs were reasonable. Reasonable
costs include (a) administrative fees or similar charges imposed
by the IRS, (b) reasonable expenses of expert witnesses, (c)
reasonable costs of studies, analyses, engineering reports,
tests, or projects that are necessary to prepare the taxpayer's
case, and (d) reasonable fees paid or incurred for the services
of attorneys. Sec. 7430(c)(1) and (2). Petitioner bears the
burden of proving that these costs are reasonable. Rule 232(e).
a. Attorney's Fees
Petitioner seeks attorney's fees based on 136.6 hours billed
by its counsel.
Respondent argues that petitioner's counsel's invoices do
not show the number of hours he spent for each activity he
performed for petitioner, and that they contain billings for some
services that do not relate to petitioner. Petitioner submitted
a revised affidavit from Shannahan in an attempt to show the
number of hours he spent working on this case. We agree with
respondent in part. Shannahan billed 13.1 hours to prepare the
Tax Court petition for petitioner's shareholder, to prepare S
corporation elections, to write letters to the California
21
Franchise Tax Board, and to finalize a will. That work was not
related to this case. We do not award fees for these hours.
Bode v. United States, supra at 1047-1048. Shannahan billed
123.5 hours for services related to this case. We find this to
be reasonable. Thus, we award petitioner attorney's fees of
$13,585 (123.5 hours at $110 per hour).
b. Accountant's Fees
Petitioner's accountant billed 98.5 hours at $25 per hour to
analyze accounts receivable, earnings and profits, accumulated
earnings, petitioner’s Bardahl computation, petitioner's cash
deposit journal relating to dividends, and rent expenses, and to
meet and correspond with petitioner and petitioner's counsel.
Respondent contends that some of the accountant's activities are
unrelated to petitioner's accumulated earnings tax issue. We
agree with respondent in part. Petitioner's accountant billed 12
hours to analyze rent expenses and to "return minutes book to
attorney". These services were apparently not related to this
case. We do not award fees for these hours. Bode v. United
States, supra at 1047-1048. Petitioner's accountant billed 86.5
hours for services related to this case. We find this to be
reasonable. We award petitioner accountant's fees of $2,162.50
(86.5 hours at $25 per hour).
Petitioner also seeks reimbursement of $144.48 for other
costs ($60 for the filing fee and $84.48 for registered mail and
22
postage). Respondent does not contend that these costs were
unreasonable. We treat this as respondent's concession that
these costs were reasonable.
Thus, we award petitioner attorney's fees in the amount of
$13,585, accountant's fees of $2,162.50, and costs in the amount
of $144.48.
An appropriate order will
be issued, and decision will
be entered.