                        T.C. Memo. 1998-176



                      UNITED STATES TAX COURT



     ESTATE OF ALTO B. CERVIN, DECEASED, BENNETT W. CERVIN,
     EXECUTOR, AND NITA-CAROL CERVIN MISKOVITCH, EXECUTOR,
         Petitioner v. COMMISSIONER OF INTERNAL REVENUE,
                            Respondent



     Docket No. 24773-92.               Filed May 12, 1998.



     Claude R. Wilson, Jr., for petitioner.

     Barbara B. Walker, for respondent.



                        MEMORANDUM OPINION

     COHEN, Chief Judge:    This case is before the Court on

petitioner's motion for an award of litigation costs under

section 7430, after remand by the Court of Appeals for the Fifth

Circuit.   Estate of Cervin v. Commissioner, 111 F.3d 1252 (5th

Cir. 1997), revg. and remanding T.C. Memo. 1994-550.   In view of
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the holdings of the Court of Appeals and concessions by

respondent, the only issues now before us are (1) the maximum

hourly rate at which petitioner may recover fees and (2) whether

petitioner may recover fees for services performed by Cervin or

by the firm in which he is a partner.

     The parties have submitted affidavits and memoranda

supporting their positions.    Neither party has requested a

hearing, and we conclude that a hearing is unnecessary.

     Unless otherwise indicated, section references are to the

Internal Revenue Code.   References to section 7430 are to the

section as amended by section 1551 of the Tax Reform Act of 1986,

Pub. L. 99-514, 100 Stat. 2085, 2752 (effective for proceedings

commenced after Dec. 31, 1985), and by section 6239(a) of the

Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647,

102 Stat. 3342, 3743-3746 (effective with respect to proceedings

commenced after Nov. 10, 1988).    They do not include amendments

to section 7430 by section 701 of the Taxpayer Bill of Rights 2,

Pub. L. 104-168, 110 Stat. 1463 (1996) (effective with respect to

proceedings commenced after July 30, 1996).

                              Background

     Alto B. Cervin (decedent) was domiciled in Texas.    Decedent

had two children, Bennett W. Cervin (Cervin) and Nita-Carol

Cervin Miskovitch (Miskovitch), who were the heirs and

coexecutors of the Estate of Alto B. Cervin (petitioner).
                                - 3 -


Respondent determined that petitioner's gross estate included

100 percent of the proceeds from three life insurance policies

and the undiscounted value of two parcels of real property.

Petitioner filed a petition for redetermination in the Tax Court.

     The Tax Court decided that petitioner's gross estate

included 100 percent of the proceeds from the life insurance

policies and that a 20-percent discount applied in valuing the

properties.    Estate of Cervin v. Commissioner, T.C. Memo. 1994-

550, revd. and remanded 111 F.3d 1252 (5th Cir. 1997).    We denied

petitioner's motion for litigation costs under section 7430.

     Petitioner appealed, asserting that only 50 percent of the

life insurance proceeds should be included in decedent's gross

estate and claiming entitlement to an award of reasonable

litigation costs under section 7430.    The Court of Appeals for

the Fifth Circuit determined that petitioner had substantially

prevailed with respect to the amount in controversy and that the

position of the United States with respect to the insurance

proceeds and the property valuation was not substantially

justified.    The Court of Appeals held for petitioner with respect

to the life insurance proceeds and award of litigation costs and

remanded the case to the Tax Court for a determination of

reasonable litigation costs.    Estate of Cervin v. Commissioner,

supra.
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                             Discussion

Hourly Rate

     An award of litigation costs is generally "based upon

prevailing market rates for the kind or quality of services

furnished".   Sec. 7430(c)(1)(B).   However, the hourly rate for

attorney's fees awarded under section 7430, as in effect in this

case, is limited to $75, adjusted for increases in the cost of

living, unless an increased award is warranted to account for

"special factors".   Sec. 7430(c)(1)(B)(iii).   See generally

Pierce v. Underwood, 487 U.S. 552, 571-572 (1988); Powers v.

Commissioner, 43 F.3d 172, 183 (5th Cir. 1995), affg. in part,

revg. in part, and remanding in part 100 T.C. 457, 489 (1993).

     Petitioner has claimed reimbursement for attorney's fees and

other litigation costs for work performed by two law firms,

Wilson & White, L.L.P. (Wilson & White) and Thompson & Knight,

P.C. (Thompson & Knight).   These attorney's fees were billed at

rates ranging from $55 to $350 per hour.    Petitioner claims a

total of $224,063.55.   Petitioner contends that two separate

special factors justify an increased award of attorney's fees in

this case:    (1) Petitioner's attorneys possessed special skills

and (2) respondent took an egregious position with respect to the

life insurance and real estate issues.    Respondent contends that

the award of attorney's fees should be limited to the statutory

rate.   Respondent also contends that the estate should not
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recover any litigation costs for Cervin's fees, because he is

petitioner's coexecutor and an heir of decedent.

     Petitioner claims that petitioner's attorneys have special

skills that constitute a special factor under section 7430.    They

allege that petitioner's attorneys have extensive knowledge and

practical experience in Texas community property law, Texas

insurance law, Federal tax law, litigation, and Internal Revenue

Service (IRS) procedures.   Although courts have expressed

willingness to consider nonlegal and technical expertise as

special factors that justify an increased award of attorney's

fees, they have generally rejected substantive specialization

within the practice of law as such a special factor.    Powers v.

Commissioner, supra at 183 (expertise in the workings of the IRS

not special factor); Perales v. Casillas, 950 F.2d 1066, 1078

(5th Cir. 1992); Baker v. Bowen, 839 F.2d 1075, 1084 (5th Cir.

1988); Cozean v. Commissioner, 109 T.C. 227, 233 (1997).

      Specifically, expertise in tax law has been rejected as

constituting a special factor.     Powers v. Commissioner, 100 T.C.

at 489; Bode v. United States, 919 F.2d 1044, 1050-1051 (5th Cir.

1990) (attorneys seeking compensation under section 7430

generally have an expertise in tax law); Cozean v. Commissioner,

supra at 234.   Courts have also rejected combinations of special

skills as constituting a special factor.    Perales v. Casillas,

supra at 1078 (fluency in Spanish and board certification in
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immigration law not special factors under Equal Access to Justice

Act).

     Further, for special skills to be a special factor under

section 7430, petitioner must show that the skills were necessary

properly to present the case.    Pierce v. Underwood, supra at 572;

Powers v. Commissioner, 100 T.C. at 490.    Petitioner must also

show that the attorney's skills are limited in availability and

that an increased award of attorney's fees would alleviate this

shortage.   Powers v. Commissioner, 43 F.3d at 183; Pierce v.

Underwood, supra at 572; Baker v. Bowen, supra at 1084-1085;

Perales v. Casillas, supra at 1078-1079.

     Petitioner asserts that only attorneys with special skills

could have resolved the instant case so successfully, but this

assertion is undermined by their claim that respondent's position

so conflicted with well-settled State and Federal law as to be

"egregious".   Petitioner argues that respondent's position is

egregious because the Court of Appeals described the position as

unsupported, unreasonable, in conflict with well-established

State and Federal law, and contrary to respondent's own

regulations.   Without citing any authority for the proposition,

petitioner then asserts that it is a special factor for

respondent to take an egregious position.

     A position that is not substantially justified is not

necessarily egregious.   See Bayer v. Commissioner, T.C. Memo.
                                - 7 -


1991-282.    Although the Court of Appeals identified many problems

with respondent's position, it did not conclude that respondent's

position was egregious.   See Estate of Cervin v. Commissioner,

111 F.3d at 1261.

     Merely showing that respondent's position is not

substantially justified is not a special factor because, to be

entitled to litigation costs under section 7430, petitioner is

required to show that respondent took such a position.      Sec.

7430(c)(4)(B)(i).   Something that is required by a statute cannot

also be the basis for exceptional treatment under the same

statute.    See Bayer v. Commissioner, supra.   We reject

petitioner's contention that respondent's position was egregious

and therefore a special factor under section 7430, and we

conclude that no special skills justify an increased award in the

instant case.   The fees to be awarded will be calculated at the

maximum rate represented by $75 per hour adjusted for cost-of-

living increases since 1986.   See Heasley v. Commissioner, 967

F.2d 116, 125 (5th Cir. 1992), affg. in part and revg. in part

T.C. Memo. 1991-189.   Petitioner calculates such fees and related

costs as totaling $88,963.56, including fees for services

performed by Cervin and his firm.

Fees for Cervin's Services

     Cervin is petitioner's coexecutor and one of petitioner's

two heirs.   Cervin is also a shareholder in Thompson & Knight,
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one of two law firms that performed legal services for

petitioner, with not more than a 1.35-percent equity interest at

any relevant time.   Cervin performed 67.7 hours of legal services

out of a total of 145.5 hours performed by Thompson & Knight for

petitioner.    Wilson & White performed a total of 600.55 hours of

legal services for petitioner.

     Respondent argues that Cervin cannot recover litigation

costs in this case because Cervin's relationship to petitioner

cannot be distinguished from a taxpayer's representing himself,

and pro se taxpayers cannot recover attorney's fees under section

7430.   Frisch v. Commissioner, 87 T.C. 838 (1986).

     In Frisch v. Commissioner, supra, we disallowed all

attorney's fees that were claimed by the taxpayer, who was an

attorney.   In Minahan v. Commissioner, 88 T.C. 516 (1987), we

disallowed all fees paid by the taxpayer-attorney to the law firm

in which the taxpayer-attorney worked and of which he was

president and a senior stockholder.      We do not believe that the

rationale of those cases applies to the circumstances of this

case.

     In Frisch v. Commissioner, supra, we held that the plain

language of section 7430 could not be read to include lost

opportunity costs of the petitioning attorney and that, in any

event, his fees were not paid or incurred within the meaning of

the statute.   In Minahan v. Commissioner, supra, we denied fees
                                 - 9 -


to one taxpayer who was a member of the law firm to which several

taxpayers in related cases had paid substantially all of their

litigation costs.   We followed Frisch, holding that "Attorney

Minahan has an equity interest in the law firm such that payment

to the law firm was in fact payment to himself and not a fee

actually incurred."   88 T.C. at 519.

     In this case, however, the liability for fees was incurred

by the estate, and Cervin was one of the representatives of the

estate and one of the beneficiaries.       The fees were owed to a law

firm in which Cervin had a very small minority interest.       The

relationship between the fees incurred by the estate and the net

share ultimately to be credited to Cervin is so attenuated as to

be inconsequential.   We do not believe that a rule that would

have applied if Cervin were the petitioner in a case commenced in

his individual capacity should extend to the estate in this case.

     To reflect the foregoing,

                                              An appropriate order and

                                         decision will be entered.
