T.C. Memo. 2000-119
UNITED STATES TAX COURT
EUGENE P. KREMER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4916-99. Filed April 5, 2000.
Benjamin C. Sanchez and Rebecca A. Walden, for petitioner.
Wendy Abkin, for respondent.
MEMORANDUM OPINION
GERBER, Judge: Petitioner moved for an award of fees and
costs under section 7430.1 Petitioner alleges that he is the
prevailing party, has exhausted administrative remedies, did not
unreasonably protract the administrative or court proceeding, and
1
Section references are to the Internal Revenue Code as
amended and in effect for the period under consideration.
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meets the net worth test. Respondent does not dispute
petitioner’s allegations and agrees that petitioner is entitled
to costs and fees. The dispute between the parties concerns the
reasonableness of petitioner’s claim for costs and fees.
Background
During 1993, respondent examined the Federal tax returns of
disability retirees (including petitioner) of the City of
Oakland, California, and, as of 1995, petitioner’s counsel
represented more than 300 similarly situated taxpayers. During
1995, a test or lead case approach was agreed to, and a group of
taxpayers agreed with respondent to be bound by the outcome of
that case. The policy was not uniform, however, and petitioner
and other taxpayers were not afforded agreements to be bound to a
test case. During January 1996, a case with the same issue,
Picard v. Commissioner, T.C. Memo. 1997-320, was submitted to the
Court, resulting in a 1997 decision adverse to the taxpayer.
On December 10, 1998, respondent determined a deficiency for
petitioner’s 1996 tax year attributable to the disability income.
On January 26, 1999, the Court of Appeals for the Ninth Circuit
reversed this Court’s holding in Picard v. Commissioner, 165 F.3d
744 (9th Cir. 1999), revg. T.C. Memo. 1997-320. On February 5,
1999, before incurring the expense of filing a petition in
response to the December 10, 1998, deficiency notice, petitioner
advised that he would agree to an extension of the period of
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assessment and requested respondent to rescind the deficiency
notice. Respondent’s agent agreed that it would be mutually
beneficial to rescind, but the agent could not secure
petitioner’s internal file, and, accordingly, petitioner
requested respondent’s Appeals Office to rescind. In early March
1999, respondent refused to rescind the December 10, 1998,
deficiency notice, and so petitioner, through his counsel, filed
the petition to commence this proceeding. At about this time, it
was evident that the Government would not seek a writ of
certiorari with respect to the Picard case, a fact admitted by
respondent in his May 7, 1999, answer.
This case was set for trial by this Court’s August 19, 1999,
trial notice. By letter dated November 18, 1999, respondent
notified petitioner’s counsel that respondent would concede the
Picard issue, but would not agree to any costs or fees.
Thereafter, petitioner and respondent negotiated concerning the
case, and, as of January 13, 2000, the parties reached an
impasse. On January 12, 2000, respondent’s counsel wrote a
letter to petitioner agreeing to pay the fees up to that point at
an hourly rate of $125. Petitioner, however, rejected the offer.
Respondent did not concede the substantive or underlying
disability income issue until January 20, 2000, 4 days before the
scheduled trial session. It appears that respondent withheld the
concession until petitioner’s counsel had to prepare the case for
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presentation; i.e., stipulation of facts, etc. Petitioner seeks
$1,587 in administrative costs from the March 3, 1999, request to
respondent’s Appeals Office to rescind the deficiency notice
until the March 9, 1999, mailing of his petition. Petitioner
also seeks $14,824.50 in litigation costs from the time of the
petition to the filing of his motion seeking fees. Petitioner’s
counsel is a specialized tax lawyer and is seeking $250 per hour,
while respondent contends that, to the extent any such fees are
recoverable, they should be paid at the modified statutory rate
of $130 per hour. In the alternative, if the Court is not
disposed to grant more than the statutory fee, petitioner seeks
reduced fees at the statutory rate. A summary of petitioner’s
fee claims and the amounts to which respondent agrees is as
follows:
Claim for Administrative Fees and Costs
Attorney’s fees, 3/3/99 through 3/9/99,
5.91 hours at $250 per hour $1,477.50
Filing fee and clerical costs +109.50
Total administrative fees and costs claimed 1,587.00
Amount agreed to by respondent -248.30
Difference between the parties 1,338.70
Claim for Litigation Fees and Costs
Attorney’s fees, 3/10/99 to 1/27/00,
59.14 hours at $250 per hour $14,785.00
Clerical and office costs +39.50
Total litigation fees and costs claimed 14,824.50
Amount agreed to by respondent -1,970.30
Difference between the parties 12,854.20
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Discussion
The discrepancy between the parties is attributable to two
aspects: (1) Whether petitioner is entitled to attorney’s fees
at $250 per hour or whether he is limited to the statutory rate;
and (2) whether petitioner is entitled to fees and costs after
respondent’s January 12, 2000, offer to settle petitioner’s fee
and cost claims.
Petitioner argues that he is entitled to attorney’s fees
greater than the statutory limit because his attorney is uniquely
qualified to practice tax law and that such specialized knowledge
was needed to aid him through his procedural dilemma. Neither
respondent nor this Court questions the qualification of
petitioner’s counsel; the focus here is on the need, if any, for
specialized expertise that would justify payment above the
statutory limit. The circumstances here were “cut and dried”,
and petitioner had favorable appellate court precedent. The
legal quest was to cause respondent to acknowledge that
petitioner was entitled to a no-deficiency resolution of his case
and to compensate petitioner for his costs incurred in pursuing
that result. We cannot agree that such “lawyering” would warrant
a variation from the statutory limit. See, e.g., Huffman v.
Commissioner, 978 F.2d 1139, 1149-1150 (9th Cir. 1992), affg. in
part, revg. in part and remanding T.C. Memo. 1991-144; see also
Estate of Cervin v. Commissioner, 200 F.3d 351 (5th Cir. 2000),
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affg. T.C. Memo. 1998-176. Accordingly, to the extent that
petitioner is entitled to administrative or litigation fees, they
shall be at the rate respondent determined under section
7430(c)(1)(B)(iii) to be $130 per hour.2
The other disagreement between the parties concerns the
reasonableness of fees vis-a-vis the period for which fees should
be awarded. Petitioner contends that he is entitled to claim
fees from the time respondent refused to rescind the notice until
the matter of his deficiency and claim for fees and costs was
resolved. Respondent, however, contends that petitioner is
entitled to claim fees only until January 13, 2000. Most of the
fees were incurred after the parties reached an impasse and while
petitioner’s counsel prepared for trial. Respondent focuses on
the January 13 cutoff because of a January 12, 2000, letter
written by respondent’s counsel agreeing to pay the fees up to
that point, but at a $125 hourly rate instead of the $250 rate
sought by petitioner. Petitioner rejected that offer, and his
attorney continued trial preparation (preparation of stipulations
of fact, etc). It was not until January 20, 2000, that
respondent’s counsel conceded the substantive issue, leaving the
2
The parties do not contend that the 1998 amendments to
sec. 7430(c)(1)(B)(iii) warrant a different result. See sec.
3101(a) and (b), Internal Revenue Service Restructuring and
Reform Act of 1998, Pub. L. 105-206, 112 Stat. 727, 728.
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parties’ disagreement about the fees and costs for presentation
to the Court.
Respondent contends that the facts we consider here are
similar to those in Mearkle v. Commissioner, 90 T.C. 1256 (1988).
In that case, the taxpayers refused to accept the Commissioner’s
full concession for 4 months before trial, and we held that the
taxpayers had protracted the litigation and were not entitled to
fees for the protracted 4-month period. Here, however,
respondent did not concede the substantive issue until January
20, 2000, whereas he argues that petitioner should not be allowed
to recover fees for work performed preparing the case for trial
between January 13 and the concession date. We cannot agree with
respondent’s cutoff date because respondent made an offer to
resolve the fee issue but had not conceded the underlying issue
for trial. Accordingly, respondent’s analogy to Mearkle v.
Commissioner, supra, is inapposite.
In view of the foregoing, petitioner is entitled to fees for
5.91 hours plus 59.14 hours, or 65.05 hours, at $130 per hour, or
$8,456.50, and costs of $149.
To reflect the foregoing,
An appropriate order and
decision will be entered.