T.C. Memo. 1999-383
UNITED STATES TAX COURT
LOUIS A. PIETRO AND VIRGINIA R. PIETRO, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11722-97. Filed November 24, 1999.
Glen A. Stankee, for petitioners.
Sergio Garcia-Pages, for respondent.
MEMORANDUM OPINION
FOLEY, Judge: This matter is before the Court on
petitioners’ Motion for Recovery of Reasonable Litigation Costs
pursuant to section 7430 and Rule 231. Unless otherwise
indicated, all section references are to the Internal Revenue
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Code in effect for the years in issue, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
Background
On their Federal income tax returns, petitioners did not
report income, relating to 1987 through 1991, from controlled
foreign corporations that operated concessionaires aboard cruise
ships (“CFC” issue); did not report income, relating to 1990,
from Marne Investments, Limited (“Marne” issue); and deducted a
loss relating to 1991 (“loss” issue). By notice dated March 12,
1997, respondent determined deficiencies, and additions to tax,
relating to these issues.
Petitioners resided in Coral Gables, Florida, when they
filed the petition on June 6, 1997. Before trial, the parties
settled the case. Petitioners conceded that there was a $39,742
deficiency relating to 1990. Respondent conceded all other
issues. Petitioners thereafter filed the motion for $15,364 of
litigation costs.
Discussion
We may award litigation costs to petitioners if they meet
the statutory requirements. See sec. 7430(b)(1), (b)(3),
(c)(1)(B)(iii), (c)(4). After concessions, the remaining issues
are whether respondent’s positions relating to the Marne and loss
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issues were substantially justified and whether certain fees and
other costs are reasonable.
I. Substantial Justification
We may award costs to petitioners where respondent’s
position was not substantially justified (i.e., did not have a
reasonable basis in law and fact). See Pierce v. Underwood, 487
U.S. 552, 563-565 (1988). “The justification for each of
respondent’s positions must be independently determined.”
Foothill Ranch Co. Partnership v. Commissioner, 110 T.C. 94, 97
(1998). Respondent concedes that his position on the CFC issue
was not substantially justified. Respondent contends that his
position on the Marne issue was substantially justified, but he
offers no law or fact supporting his position. In addition,
respondent failed to contend that his position on the loss issue
was substantially justified and offers no law or fact supporting
his position. Thus, respondent has not established that his
positions were substantially justified. See Maggie Management
Co. v. Commissioner, 108 T.C. 430, 437-438 (1997) (stating that
respondent must establish that his position was substantially
justified as to petitions filed after July 30, 1996).
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II. Reasonableness of Fees and Costs
A. Attorney’s Fees
Petitioners seek reimbursement for attorney’s fees at hourly
rates of $275 and $280, relating to 1997 and 1998, respectively.
Respondent contends these rates are unreasonable.
Section 7430(c)(1)(B)(iii) imposes a statutory rate for
attorney’s fees (i.e., $110 and $120 per hour, relating to 1997
and 1998, respectively). See Rev. Proc. 96-59, 1996-2 C.B. 392,
396; Rev. Proc. 97-57, 1997-2 C.B. 584, 587. Petitioners may
receive fees in excess of the statutory rate if the Court
determines that “a special factor, such as the limited
availability of qualified attorneys for such proceeding,
justifies a higher rate.” Sec. 7430(c)(1)(B)(iii). The Court
has explained:
in order for the “limited availability of qualified
attorneys” to constitute a special factor warranting
departure from the [statutory] cap, there must be a limited
availability of attorneys who possess distinctive knowledge
or a specialized skill needful to the particular litigation
in question * * *.
Cozean v. Commissioner, 109 T.C. 227, 232 (1997) (citing Pierce
v. Underwood, supra at 572); cf. Powers v. Commissioner, 100 T.C.
457, 489 (1993) (stating that there was no special factor where
the case “did not require a distinctive knowledge or specialized
skill within the general field of taxation.”), affd. in part,
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revd. in part, and remanded on another ground 43 F.3d 172 (5th
Cir. 1995).
The parties have stipulated that “there were a few other
attorneys in South Florida who had the expertise to deal with the
issues raised in the notice of deficiency and who charged hourly
rates comparable to[,] or higher than, those charged by
petitioners’ counsel.” In essence, respondent admits that there
was limited availability of qualified attorneys, that
petitioners’ attorney possessed a specialized skill needful for
the litigation in question, and that the services could not be
obtained at a lower rate. We also note that respondent has
represented to the Court that the CFC issue is “complex” and “a
case of first impression” and that petitioners’ attorney
possessed “recognized expertise in United States international
taxation”. Accordingly, petitioners are entitled to the higher
rates paid.
The parties stipulated that fees for 4.6 hours in 1998
“relate to legal work which did not require specialized
knowledge.” Therefore, no special factor justifies the higher
rate for those fees.
B. Paralegal Fees and Other Costs
Petitioners seek reimbursement for the fees of two
paralegals at hourly rates of $120 and $90. Respondent contends
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that $55 per hour (i.e., about half the attorney rate) would be
reasonable. We agree. See, e.g., Powers v. Commissioner, supra
at 493 (awarding paralegal fees at about half the attorney rate).
Accordingly, petitioners are entitled to a rate of $55 per hour
(i.e., for 44.7 hours).
Petitioners incurred $163 of reimbursable litigation costs
relating to photocopies, postage, Tax Court filing fee, faxes,
and telephone calls. An unsubstantiated $3.50 expense and an
$11.50 Federal Express expense shall not be reimbursed. See
Cassuto v. Commissioner, 93 T.C. 256, 275 (1989) (declining to
reimburse Federal Express expense absent proof of necessity),
affd. in part and revd. in part on another ground 936 F.2d 736
(2d Cir. 1991).
We award petitioners $9,681.
Any other contention made by the parties is irrelevant,
moot, or meritless.
To reflect the foregoing,
An appropriate order and
decision will be entered.