                         T.C. Memo. 1999-157



                       UNITED STATES TAX COURT



                MARK AND VALORIE KRUSE, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15352-95.                      Filed May 7, 1999.



     Steven J. Chase, John W. West III, Cheryl L. Gordon, and

Dale S. Davidson, for petitioners.

     Randall B. Pooler and Randall P. Andreozzi, for respondent.


                          MEMORANDUM OPINION


     PANUTHOS, Chief Special Trial Judge:      This matter is before

the Court on respondent's Motion for Summary Judgment pursuant to

Rule 121.1    The issue for decision is whether there is a genuine


     1
          All Rule references are to the Tax Court Rules of
Practice and Procedure. All section references are to the
                                                   (continued...)
                               - 2 -

issue as to any material fact and whether a decision may be

rendered as a matter of law as to whether petitioners have paid

or incurred litigation costs within the meaning of section

7430(a)(2) and 7430(c)(1)(B)(iii).     Petitioners have filed a

response objecting to the granting of this motion.     Based on the

record herein, we conclude a hearing and oral argument is not

necessary for the resolution of the pending motion.

Background

     Petitioners are husband and wife.     Petitioner Mark Kruse is

the president and sole shareholder of Mark A. Kruse, D.C., P.C.,

d.b.a Kruse Chiropractic Clinic (hereinafter Kruse P.C.).     On May

17, 1995, respondent issued a notice of deficiency determining

deficiencies in petitioners' income tax for the 1991, 1992, and

1993 tax years.   The notice of deficiency determined adjustments

as to payments made by Kruse P.C. as a participating employer in

the Supplemental Employers' Benefit Association (SEBA) Employers'

Benefit Plan of America and the SEBA Employers' Benefit Trust of

America (hereinafter collectively referred to as the SEBA Plan)

for the 1991, 1992, and 1993 tax years.     The notice of deficiency

determined that the payments were includable in petitioners'

gross income for those years under sections 402(b)(1) and 83.

The matter involved the issue of whether the SEBA Plan is a



     1
      (...continued)
Internal Revenue Code as amended.
                               - 3 -

nonqualified deferred compensation plan subject to section 404,

or a welfare benefit fund under section 419(e).   Another

adjustment set forth in the notice of deficiency pertained to

whether the Kruse P.C. Money Purchase Pension Plan and Trust is a

qualified pension plan exempt from tax under section 501(a).

     On August 11, 1995, petitioners filed a timely petition in

this case.   Subsequently, lawyers of the law firm of Abel, Band,

Russell, Collier, Pitchford & Gordon (the law firm) were retained

to represent petitioners in this matter.   Petitioners submitted

affidavits which state in part:

     2.   [We] retained the law firm * * * (through the SEBA
     Employers Plan and Trust) to represent [us] in
     connection with this action.

     3.   Although [we] executed no Letter of
     Representation, this Affidavit will serve to
     acknowledge that [we were] and still remain liable to
     pay * * * [the law firm] all costs and fees incurred,
     with regard to their representation of [ourselves], in
     this proceeding.

     4.   [We] have paid $1,633[2] of these fees directly,
     through the assessment of [our] SEBA Employers Plan and
     Trust Fund in order to fund this action.

     5.   In the event that the SEBA Plan and Trust did not
     or does not pay the Law firm * * * all reasonable fees
     and costs incurred in relation to the above referenced
     Tax Court case, [we] hereby certify that [we were] and
     do remain liable for this amount.

     William Gable is the president of the SEBA Plan.   All

invoices for services rendered by the law firm in this case have


     2
          This amount was amended to $2,972 in subsequent
affidavits.
                                - 4 -

been addressed to Mr. Gable.   As of December 30, 1998, the law

firm billed a total of $116,449 for services rendered, and Mr.

Gable paid $102,659 of that amount with assets of the SEBA Plan.

Mr. Gable also provided an affidavit stating the SEBA Plan is

funding the case, and petitioners are liable for any amounts, if

any, not paid by the plan.

     The parties settled all the adjustments determined in the

notice of deficiency.   On May 19, 1997, a stipulation of

settlement was filed wherein the parties agreed that there are

(1) no deficiencies in income taxes owed by petitioners, nor

overpayment due to petitioners, and (2) that there are no

penalties due from petitioners under section 6662(a) for taxable

years 1991, 1992, and 1993.    On the same date, petitioners filed

a Motion for Award of Reasonable Litigation Costs under section

7430 and Rule 231, seeking to recover costs in the amount of

$78,070, plus attorney's fees incurred during the prosecution of

the motion.   Respondent objected to the granting of the motion.

     Petitioners requested a hearing on the motion, which was

scheduled to be held at a trial session in Tampa, Florida.    The

parties estimated that the hearing would require 2 or more days

since the issue whether respondent was substantially justified

would require the presentation of substantial evidence.     In lieu

of the hearing on petitioners’ motion for litigation costs, the

parties entered into a Stipulation to Be Bound, whereby the
                              - 5 -

parties agreed: (1) To stay the proceedings on the motion for

litigation costs for the shorter of (a) 12 months, or (b) such

time as either petitioners or another participant in the SEBA

Plan or any of the SEBA Plan's controlled affiliates or

subsidiaries, whom both parties agree to be similarly situated to

petitioners, files a petition and ultimately resolves on the

merits in this Court the substantive issues of the case; (2) in

the event the 12-month period elapses before such a case is

resolved in this Court, the parties shall confer with the Court

to determine whether this matter will be set for hearing,

settled, or stayed for an additional period of time; (3) the

parties will cooperate in resolving the issue of whether and to

what extent petitioners have paid or incurred reasonable

litigation costs under section 7430; (4) the parties will

cooperate in resolving any disputed fact to permit the execution

of a written stipulation of all facts relevant to the issue of

whether and to what extent petitioners have paid or incurred

reasonable litigation costs under section 7430; and (5) to a

timetable in which respondent will file a motion for summary

judgment on the issue of whether petitioners have paid or

incurred reasonable litigation costs under section 7430, if he

elects to do so.
                               - 6 -

Discussion

     The parties were unable to resolve the issue of whether

petitioners have paid or incurred reasonable litigation costs

under section 7430.   As a result, respondent filed a motion for

summary judgment on the above issue.     Petitioners filed an

objection to respondent's motion.

     Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.     See Florida Peach Corp.

v. Commissioner, 90 T.C. 678, 681 (1988).     We believe that

summary judgment is an appropriate vehicle in the particular

circumstances of this case to resolve a limited issue in the

pending motion for litigation costs since it may assist in

forgoing a needless, expensive, and time-consuming evidentiary

hearing anticipated by the parties.

     Section 7430(a) provides that, in the case of any court

proceedings brought by or against the United States in connection

with the determination, collection, or refund of any tax,

interest, or penalty, the prevailing party may be awarded a

judgment for reasonable litigation costs incurred.     Reasonable

litigation costs include reasonable fees "paid or incurred" for

the services of attorneys in connection with the court

proceeding.   Sec. 7430(c)(1)(B)(iii).    In the case presently

before us, petitioners contend they have "paid or incurred"

litigation costs within the meaning of section 7430(c)(1)(B)(iii)
                              - 7 -

because they were and remain legally obligated to pay any and all

litigation costs and expenses, not paid by the SEBA Plan.

     By virtue of the requirement that attorney's fees have been

"incurred" by the party, section 7430 differs from some other

fee-shifting statutes.

     Unlike the Civil Rights Attorneys Fees Awards Act,
     which provides for allowance of "a reasonable
     attorney's fee as part of the costs," or the FOIA
     provision which permits payment of "other litigation
     costs reasonably incurred," section 7430 is more
     narrowly drawn. * * * The plain language of the
     statute controls here * * *. * * * The common meaning
     of the word incur is "to become liable or subject to:
     bring down upon oneself." * * * [Frisch v.
     Commissioner, 87 T.C. 838, 846 (1986).]

"The simple truth is that the plain language of section 7430

* * * is limited to actual expenditures."   Id. at 845-846.    In

analogous circumstances, it has been held that fees are incurred

when there is a legal obligation to pay them.   United States v.

122.00 Acres of Land, 856 F.2d 56 (8th Cir. 1988) (applying sec.

304(a)(2) of the Uniform Relocation Assistance and Real Property

Acquisition Policies Act of 1970, Pub. L. 91-646, 84 Stat. 1906,

1984, 42 U.S.C. 4654(a) (1970); attorney's fees were not actually

incurred because the party claiming them had no legal obligation

to pay them); accord SEC v. Comserv Corp., 908 F.2d 1407, 1414-

1415 (8th Cir. 1990) (construing to a similar effect the Equal

Access to Justice Act, codified at 5 U.S.C. sec. 504 and 28

U.S.C. sec. 2412 (1994)); see also Republic Plaza Properties

Partnership v. Commissioner, T.C. Memo. 1997-239.
                                 - 8 -

     Petitioners contend that, based on the definition of

"incurred" set out above, they have incurred the full attorney's

fees and costs in this matter.    We disagree.   Petitioners'

liability for fees and costs in this matter is contingent because

petitioners are liable for reasonable fees and costs, if any, not

paid to the law firm by the SEBA Plan.    If the liability to pay

the item of expense is contingent upon the happening of a

subsequent event, the item cannot be regarded as incurred until

the year in which the occurrence of the event causes the

contingent liability to become an absolute one.     See Pierce

Estates, Inc. v. Commissioner, 195 F.2d 475, 477 (3d Cir. 1952),

revg. 16 T.C. 1020 (1951).

     Any liability petitioners have for fees and costs is

contingent on the subsequent event of the nonpayment of fees and

costs by the SEBA Plan to the law firm.    As of December 30, 1998,

the SEBA Plan paid $102,659 of the $116,449 billed in this

matter.   As of that date, petitioners' contingent liability was

in the amount of $13,790 (the difference between the amount

billed by the law firm and the amount paid by the SEBA plan).

This liability is not "incurred" until the subsequent event of

nonpayment by the SEBA plan.

     Petitioners assert in their affidavits that they retained

the law firm, through the SEBA Plan, to represent them.     The fact

that petitioners may have retained and were represented by
                                - 9 -

attorneys in this matter is not sufficient to meet the

requirements of section 7430.    See Thompson v. Commissioner, T.C.

Memo. 1996-468.

     Petitioners assert in their affidavits that they have paid

$2,972 of the fees and costs through a direct assessment of their

share of funds in the SEBA Plan.    To the extent that petitioners

paid fees and costs through direct assessment of their share of

the SEBA Plan, we would agree that they would have "paid and

incurred" litigation costs.    However, the amount of $102,659 paid

by the SEBA Plan as of December 30, 1998, less the $2,972

allegedly paid by petitioners through direct assessment of their

share of the funds in the SEBA Plan, was not "paid or incurred"

by petitioners.    Since this amount has been paid by the SEBA

plan, petitioners are not liable for payment of that amount, nor

is there some subsequent event which would cause petitioners to

become liable.    In addition, the amount of petitioners'

contingent liability has not yet been incurred, as explained

above.

     For the aforementioned reasons, we grant respondent's motion

for summary judgment to the extent of the $102,659 billed and

paid in this matter, except to the extent petitioners have

asserted that $2,972 in payments were made by them through direct

assessment of petitioners' share of funds in the SEBA Plan.      With

respect to the $2,972 in legal fees that may have been paid
                             - 10 -

through direct assessment of their funds in the SEBA plan,

petitioners should have an opportunity to establish this amount

was paid by them and proceed with their case for reasonable

litigation costs pursuant to section 7430.

     To reflect the foregoing,

                                        An appropriate order will

                                   be issued.
