                       T.C. Memo. 2009-89



                     UNITED STATES TAX COURT



  ROBERT HUNTER AND BARBARA A. GRIDLEY, ET AL.,1 Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



    Docket Nos. 10588-83,   17646-83,    Filed April 29, 2009.
                27053-83,   10931-84,
                28723-84,   38757-84,
                13477-87,   19464-92,
                  621-94,    9532-94.



    Robert Alan Jones and Declan J. O’Donnell, for petitioners

in docket Nos. 10588-83, 17646-83, 27053-83, 10931-84, 28723-84,

38757-84, 13477-87, 621-94, and 9532-94.

     Robert Alan Jones, for petitioners in docket No. 19464-92.

     Henry E. O’Neill, for respondent.


     1
      Cases of the following petitioners have been consolidated
herewith for purposes of this opinion: Ronald L. and Mattie L.
Alverson, docket No. 17646-83; Russell L., Sr. and Sally A.
Fleer, docket Nos. 27053-83 and 13477-87; Robert H. and Barbara
A. Gridley, docket Nos. 10931-84 and 38757-84; Arden L. and
Barbara G. Blaylock, docket No. 28723-84; Willis F., II and Marie
D. McComas, docket No. 19464-92; Wesley Armand and Sherry Lynn
Cacia Baughman, docket No. 621-94; and Norman A. Cerasoli and
Estate of Irene Cerasoli, Deceased, Norman A. Cerasoli, Executor,
docket No. 9532-94.
                                -2-

                             CONTENTS

Background   . . . . . . . . . . . . . . . . . . . . . . . . . . 7

I.    Kersting Tax Litigation Before Dixon V Remand   . . . . . . 7

II.   Dixon V Remand Proceedings . . . . . . . . . . . . . . .         12

      A.   Houston Status Conference . . . . . . . . . . . . .         12
      B.   Los Angeles Status Conference and the Thompsons’
           Tax Records for Years Other Than 1979, 1980, and
           1981 . . . . . . . . . . . . . . . . . . . . . . .          13
      C.   Motion for Limited Expedited Discovery and
           Proposed Expert Witness Testimony of Victoria
           Osborn . . . . . . . . . . . . . . . . . . . . . .          14
      D.   Las Vegas Special Session (Osborn Continued) . . .          16
      E.   Los Angeles Special Session and Motion for Summary
           Judgment of 100-Percent Discount as Sanction
           (Osborn Concluded) . . . . . . . . . . . . . . . .          18
      F.   Washington, D.C., Special Session and Petitioners’
           Opening Brief . . . . . . . . . . . . . . . . . . .         20
      G.   Award of Appellate Fees and Our Determination of
           the Scope of the Thompson Settlement . . . . . . .          21
      H.   Dixon V Remand Fee and Expense Requests . . . . . .         23

Discussion   . . . . . . . . . . . . . . . . . . . . . . . . .         27

I.    Application of Section 6673(a)(2)(B) . . . . . . . . . .         27

II.   Adjustments to Requested Fees and Expenses . . . . . . .         29

      A.   Substantiation of Fees . . . . . . . . . . .    . . .       30
      B.   Jones’s Hourly Rate . . . . . . . . . . . . .   . . .       30
      C.   Respondent’s Objections to Fees and Expenses
           Not Included in Current Request . . . . . .     . . .       31
      D.   Fees and Expenses Included in Petitioners’
           Dixon III Appellate Fee Request . . . . . . .   .   .   .   32
      E.   Fees Incurred During the Appeal of Dixon III    .   .   .   33
      F.   Fees Related to Closed Cases . . . . . . . .    .   .   .   33
      G.   Excessive Time on Opening Brief . . . . . . .   .   .   .   35
      H.   Client Relations . . . . . . . . . . . . . .    .   .   .   36
      I.   Osborn Proposed Expert Witness Report . . . .   .   .   .   40
      J.   Motion for Summary Judgment of 100-Percent
           Discount as Sanction . . . . . . . . . . . .    . . .       42
      K.   Inadequately Described Entries . . . . . . .    . . .       44
      L.   Miscellaneous Objections and Adjustments . .    . . .       45

Conclusion   . . . . . . . . . . . . . . . . . . . . . . . . .         47
                                -3-

                        MEMORANDUM OPINION


     BEGHE, Judge:   This is the second opinion in our third set

of opinions on petitioners’ requests for attorney’s fees and

expenses incurred in the Kersting tax shelter project litigation

after the discovery and disclosure of the misconduct of

respondent’s trial counsel in Dixon v. Commissioner, T.C. Memo.

1991-614 (Dixon II), vacated and remanded per curiam sub nom.

DuFresne v. Commissioner, 26 F.3d 105 (9th Cir. 1994), on remand

Dixon v. Commissioner, T.C. Memo. 1999-101 (Dixon III), revd. and

remanded 316 F.3d 1041 (9th Cir. 2003) (Dixon V), on remand Dixon

v. Commissioner, T.C. Memo. 2006-90 (Dixon VI), supplemented by

Dixon v. Commissioner, T.C. Memo. 2006-190 (Dixon VIII), on

appeal (9th Cir., Dec. 28, 2006, and Jan. 3, 2007).

     In our first attorney’s fees opinion, Dixon v. Commissioner,

T.C. Memo. 2000-116 (Dixon IV) (supplementing Dixon III), we

awarded Kersting project petitioners fees and expenses under

section 6673(a)(2)(B)2 for representation services in this Court

rendered by Attorneys Joe Alfred Izen (Izen), Robert Allen Jones

(Jones), and Robert Patrick Sticht (Sticht) during the DuFresne

remand.



     2
      Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                -4-

     In the second set of attorney’s fees opinions, Dixon v.

Commissioner, T.C. Memo. 2006-97 (Dixon VII), and Young v.

Commissioner, T.C. Memo. 2006-189, we responded to the

supplemental mandate of the Court of Appeals for the Ninth

Circuit to rule on Kersting project petitioners’ requests for

appellate attorney’s fees and expenses incurred in the Dixon V

appellate proceedings.   In Dixon VII we awarded appellate

attorney’s fees and expenses under section 7430 to Kersting

project petitioners represented in the Dixon V appeal by John R.

Irvine (Irvine) and his partner, Henry G. Binder (Binder), of

Porter & Hedges and by Michael Louis Minns (Minns).   In Young we

awarded appellate fees and expenses under section 7430 to

Kersting project petitioners represented in the Dixon V appeal by

Izen and Jones.

     The current set of opinions pertains to fees and expenses

Kersting project petitioners incurred in this Court during the

remand from Dixon V (Dixon V remand proceedings),3 which resulted

in Dixon VI, supplemented by Dixon VIII, determining the terms of




     3
      Respondent and petitioners represented by Sticht entered
into a comprehensive settlement agreement for fees and expenses
incurred from 1992 through 2006, including the Dixon V remand
proceedings. On Oct. 4, 2006, we ordered respondent to disburse
$1,254,368.11 to Sticht’s clients in satisfaction of that
agreement.
                                -5-

the Thompson settlement.4   Early in the Dixon V remand

proceedings respondent agreed that Kersting project petitioners

would be entitled under section 6673(a)(2)(B) to attorney’s fees

and expenses incurred in the Dixon V remand proceedings.     All

attorneys who represented Kersting project petitioners in the

Dixon V remand proceedings have applied for attorney’s fees and

expenses incurred in the Dixon V remand proceedings.5     This



     4
      In the Dixon V remand proceedings, petitioners’ dockets
were consolidated for purposes of hearing, briefing, and opinion
with 23 other docketed cases of Kersting project petitioners
represented by Irvine, Izen, Minns, and Sticht.
     5
      The table below summarizes the legal fees and expenses (by
individual attorneys and in total) Kersting project petitioners
have requested with respect to petitioners’ attorneys’ services
in the Dixon V remand proceedings:

     Attorney        Fees             Expenses          Total

     Jones        $265,717.45     $15,965.97       $281,683.42
     Minns         967,362.21      21,525.99        988,888.20
     Izen          748,674.14      38,248.06        786,922.20
     Irvine &
      Binder     1,101,575.34      64,032.76      1,165,608.10
        Total    3,083,329.14     139,772.78      3,223,101.92

In addition, respondent agreed that non-test-case petitioners
represented by Sticht were entitled to recover fees and expenses
totaling $317,708.03 for services Sticht rendered in the Dixon V
remand proceedings as part of the total award for Sticht’s
services. See supra note 3.

     Declan O’Donnell (O’Donnell) has not filed a request for an
award of attorney’s fees. However, Jones and O’Donnell provided
joint representation to Robert H. and Barbara A. Gridley (the
Gridleys), Russell L., Sr. and Sally A. Fleer (the Fleers), and
Arden L. and Barbara G. Blaylock (the Blaylocks). We therefore
assume that the motion Jones filed on July 10, 2007, is the
Gridleys’, Fleers’, and Blaylocks’ sole fee and expense request.
                                 -6-

Memorandum Opinion covers fees and expenses petitioners incurred

for Jones’s services in the Dixon V remand proceedings.    Our most

recent Opinion, Dixon v. Commissioner, 132 T.C. __ (2009) (Dixon

IX), dealt with fees and expenses incurred for services provided

by Irvine, Binder, and other Porter & Hedges attorneys.    A

subsequent opinion or opinions will deal with the pending fee

requests of Kersting project petitioners represented by Minns and

Izen in the Dixon V remand proceedings.

     In the tables below we summarize the fees and expenses

petitioners have requested herein, respondent’s objections, fees

and expenses we will allow over respondent’s objections, and the

amounts we hold petitioners are entitled to recover for Jones’s

services and expenses in the Dixon V remand proceedings.

                            Fee Award

     Fees petitioners request                        $265,717.45
     Fees to which respondent
       objects                         $116,873.75
     Fees allowed despite
       respondent’s objections           49,806.25
     Fees disallowed                                   67,067.50
     Fee award                                        198,649.95

                          Expense Award

     Expenses petitioners request                     $15,965.97
     Expenses to which respondent
       objects                          $13,178.22
     Expenses allowed despite
       respondent’s objections            3,229.52
     Expenses disallowed                               9,948.70
     Expense award                                     6,017.27
                                 -7-

                             Background

     The underlying facts in these cases are fully described in

Dixon II, Dixon III, Dixon IV, Dixon VI, Dixon VII, Young v.

Commissioner, supra, Dixon VIII, and Dixon IX.      The parties have

provided additional pertinent facts in petitioners’ fee request

and respondent’s objections thereto.      The parties have not

requested an evidentiary hearing, and we have found a hearing

unnecessary.    Cf. Rule 232(a)(2).

I.   Kersting Tax Litigation Before Dixon V Remand

     Petitioners are non-test-case petitioners in the Kersting

tax shelter litigation.    The Kersting tax shelter litigation

arose from respondent’s disallowance of interest deductions

claimed by participants in tax shelter programs promoted by Henry

F.K. Kersting during the late 1970s and the 1980s.      Respondent’s

determinations of deficiencies against Kersting tax shelter

participants eventually resulted in the docketing of

approximately 1,800 cases in the Tax Court.      Most Kersting

project petitioners entered into piggyback agreements with

respondent in which they agreed that their cases would be

resolved in accordance with the outcome of a small number of test

cases.

     In Dixon II the Court upheld the deficiencies resulting from

Kersting tax shelter deductions claimed by petitioners in the

test cases.    On June 9, 1992, shortly after the entry of the
                                -8-

Court’s decisions in Dixon II, respondent’s management discovered

that before trial respondent’s trial attorney, Kenneth W. McWade

(McWade), and his supervisor, Honolulu District Counsel William

A. Sims (Sims), had entered into secret settlement agreements

with test case petitioners John R. and Maydee Thompson (the

Thompsons) and John R. and E. Maria Cravens (the Cravenses).

Sims and McWade had not disclosed the Thompson and Cravens

settlements to their superiors, the Court, or the other test case

petitioners or their counsel.   The primary purpose and final

effect of the Thompson settlement was to provide the Thompsons

refunds more than sufficient to pay the fees of Luis C. DeCastro

(DeCastro), the Thompsons’ attorney, to represent them in the

test case trial.

     Respondent moved for the Court to conduct an evidentiary

hearing to determine whether the undisclosed settlement

agreements had affected the Tax Court’s decision in Dixon II.

The Court denied respondent’s motion for an evidentiary hearing,

entered decisions giving effect to the Thompson and Cravens

settlements, and allowed to stand the decisions sustaining

respondent’s adverse determinations against the other test case

petitioners.   We also denied motions to intervene in the Thompson

and Cravens cases filed by Izen and Sticht on behalf of certain

test case and non-test-case petitioners.
                               -9-

     The test case petitioners (other than the Thompsons and the

Cravenses) and the non-test-case petitioners seeking to intervene

appealed to the Court of Appeals for the Ninth Circuit.   The

Court of Appeals vacated our decisions in the test cases, holding

that an evidentiary hearing was necessary to determine whether

the misconduct of respondent’s counsel had given rise to “a

structural defect voiding the judgment [in Dixon II] as

fundamentally unfair, or whether, despite the government’s

misconduct, the judgment can be upheld as harmless error.”

DuFresne v. Commissioner, 26 F.3d at 107.   The Court of Appeals

directed the Tax Court to hold such a hearing and to consider the

merits of all motions of intervention filed by affected parties.

In an unpublished opinion, Adair v. Commissioner, 26 F.3d 129

(9th Cir. 1994), the DuFresne panel (Goodwin, Ferguson, and

Trott, JJ.) also affirmed our denials of the motions to intervene

in the Thompson and Cravens cases on the ground that those

decisions had become final.

     To give effect to the direction of the Court of Appeals in

DuFresne to consider the merits of all motions to intervene by

affected parties, we further ordered the consolidation of 10 non-

test-cases with the remaining test cases.   Petitioners were among

the non-test-case petitioners whose cases were so consolidated.

     During the course of the evidentiary hearing, Izen sought

discovery of documents listed in respondent’s privilege log that
                                -10-

pertained to respondent’s conduct following the trial of the test

cases.    Izen alleged that, among other things, respondent’s

activities after May 1992 amounted to an effort to conceal the

fraudulent conduct of the Government attorneys in the test cases.

We denied Izen’s discovery requests, sustaining various

privileges asserted by respondent.     See Dixon III, Procedural

History of the Evidentiary Hearing III. Developments Following

Initial Evidentiary Hearing, C. Denial of Mr. Izen’s Motion To

Compel Production of Documents.

       After the evidentiary hearing we issued our opinion in Dixon

III.    In that opinion we allowed the Court’s decisions in Dixon

II to stand, holding that the misconduct of the Government

attorneys did not create a structural defect that prejudiced the

Court’s decision in Dixon II but amounted to harmless error.       We

imposed sanctions against respondent by relieving petitioners of

liability for (1) the interest component of the addition to tax

for negligence under former section 6653(a), and (2) the

incremental interest attributable to the increased rate

prescribed in former section 6621(c).    On April 1, 1999, the next

day after our issuance of the Dixon III opinion, we referred the

misconduct of Sims, McWade, and DeCastro to the Tax Court’s

Committee on Admissions, Ethics, and Discipline.

       In Dixon IV we imposed additional sanctions pursuant to

section 6673(a)(2)(B) by ordering respondent to pay attorney’s
                                 -11-

fees of Kersting project petitioners to investigate and present

the evidence of Sims’s and McWade’s misconduct to the Court.

     The test case petitioners again appealed to the Court of

Appeals for the Ninth Circuit.    We also certified the cases of

non-test-case petitioners represented by Izen, Sticht, Jones, and

Declan J. O’Donnell (O’Donnell) for interlocutory appeal.       After

various procedural delays described in Young v. Commissioner,

T.C. Memo. 2006-189, the Court of Appeals accepted the

interlocutory appeals of the non-test-cases but held them in

abeyance pending resolution of the appeals of the test cases.

     In the meantime, Minns replaced Izen as appellate attorney

for the Dixons, DuFresnes, and Hongsermeiers.      Later, Irvine and

Binder replaced Minns as appellate attorneys for the Dixons and

DuFresnes.    Minns remained appellate attorney for the

Hongsermeiers, and Izen remained appellate attorney for the

Youngs and the Owenses.

     On January 17, 2003, a different panel of the Court of

Appeals (D.W. Nelson, Hawkins, and Wardlaw, JJ.) issued Dixon V

(amended March 18, 2003), reversing Dixon III and remanding the

test cases.    The Court of Appeals held that the misconduct of the

Government attorneys was a fraud on the Court, for which no

showing of prejudice was required.      Dixon V, at 1046.   The Court

of Appeals directed that we extend terms equivalent to those of

the Thompson agreement to “Appellants and all other taxpayers
                                -12-

properly before this Court”.    Id. at 1047.   The Court of Appeals

left to the Tax Court’s discretion “the fashioning of such

judgments which, to the extent possible and practicable, should

put these taxpayers in the same position as provided for in the

Thompson settlement.”    Id. n.11.   The Court of Appeals took no

action on the denial of Izen’s discovery requests.

      On March 14, 2003, another panel of the Court of Appeals

(Canby, O’Scannlain, and T.G. Nelson, JJ.) remanded the non-test-

cases that had been appealed and held in abeyance, directing

further proceedings consistent with Dixon V.    On April 23, 2003,

the Tax Court received the primary mandate of the Court of

Appeals (the primary mandate) vacating Dixon III.    On June 2,

2003, the Court received the supplemental mandate of the Dixon V

panel, directing us to consider petitioners’ appellate fee

requests.

II.   Dixon V Remand Proceedings

      A.    Houston Status Conference

      On July 7, 2003, after reviewing an April 30 motion by

respondent and petitioners’ status reports, we scheduled a status

conference, to be held in Houston on August 18, 2003.    On July

11, 2003, we ordered the parties to file reports of their

suggestions for the agenda of that status conference.    By August

12, 2003, counsel for the petitioners whose cases had been

consolidated for the Dixon V remand proceedings, as well as
                                -13-

counsel for other Kersting project petitioners, filed such

reports.   In his report O’Donnell asserted that Kersting project

petitioners whose cases had been closed by stipulated decisions

(the closed cases) should also be entitled to the benefit of the

Thompson settlement.6

     B.    Los Angeles Status Conference and the Thompsons’ Tax
           Records for Years Other Than 1979, 1980, and 1981

     After the Houston status conference it became obvious that

the parties were in substantial disagreement about the terms of

the Thompson settlement.    Specifically, petitioners contended

that the Thompsons derived tax benefits from the Thompson

settlement that went beyond the stated terms of the settlement

and decision documents.    Petitioners also asserted that the

benefit extended to taxable years of the Thompsons other than

1979, 1980, and 1981, the taxable years at issue in the Thompson

test cases.




     6
      Several Kersting project petitioners whose cases had been
closed by stipulated decisions subsequently filed or attempted to
file motions to vacate decisions. In Hartman v. Commissioner,
T.C. Memo. 2008-124, reconsidering and superseding Lewis v.
Commissioner, T.C. Memo. 2005-205, we held that the Thompson
settlement sanction will be imposed against respondent in the
docketed cases of all Kersting project petitioners in which
stipulated decisions were entered on or after June 10, 1985, the
commencement date of the Court’s Honolulu trial session at which
the Court and representatives of the parties agreed to use the
test case procedure. Our Hartman opinion is the subject of
motions for reconsideration by respondent and some petitioners,
which raise primarily issues of implementation.
                                 -14-

     Because the parties could not agree on the terms of the

Thompson settlement, further evidentiary proceedings were

required to determine those terms and provisions.      The Court

scheduled a status conference in Los Angeles, which was held on

September 5, 2003.     At this conference Jones complained that

respondent had failed to provide transcripts of the Thompsons’

tax records.   Jones argued that these records were needed to

determine whether the terms of the Thompson settlement extended

to years other than 1979, 1980, and 1981.

     C.   Motion for Limited Expedited Discovery and Proposed
          Expert Witness Testimony of Victoria Osborn

     On September 8, 2003, Jones filed a motion for limited

expedited discovery.    Jones attached to this motion the

declaration of Victoria Osborn (Osborn), in anticipation of

seeking to qualify her as an expert witness.     In her declaration,

Osborn asserted that the Internal Revenue Service (IRS) could

retrieve Return View (RTVUE) records, which would contain

information sufficient to satisfy Jones’s request for the

Thompsons’ tax records.    Osborn asserted that RTVUE would provide

line-by-line records of the Thompsons’ tax returns, whereas the

Individual Master Files (IMFs) respondent had given petitioners

provided only general information.      In an order dated September

17, 2003, we granted Jones’s motion for limited expedited

discovery.
                                 -15-

     On September 29, 2003, respondent’s counsel, Henry E.

O’Neill (O’Neill), sent Jones a letter stating that respondent

could provide petitioners only with IMF transcripts and not RTVUE

transcripts.   Respondent’s letter explained that RTVUE

transcripts had never existed for years before 1990.   Respondent

further explained that RTVUE files are automatically deleted

after 3 years and that therefore the Thompson RTVUE records were

not available for 1990 through 1994.

     On October 2, 2003, the Court held a telephone conference

in which counsel for the parties and the Court discussed Izen’s

request for documents listed in respondent’s privilege log.    Izen

asserted that those documents were no longer subject to privilege

and would provide information about the Thompsons’ tax records

for the years 1978 through 1993.    In an order dated October 10,

2003, the Court informed Izen that those documents were not in

the Court’s possession and that Izen should request them from

respondent by motion.

     During that conference Jones stated that he would contact

respondent informally with suggestions for possible alternative

sources for RTVUE transcripts.    On October 31, 2003, Jones sent

respondent a fax reciting respondent’s general procedure for

requesting RTVUE transcripts.    Jones did not provide or suggest

alternative sources for RTVUE transcripts.   On November 3, 2003,

respondent filed a status report, including a copy of Jones’s
                                -16-

fax.    On November 10, 2003, Jones filed his status report, again

requesting that respondent provide him with the Thompsons’ tax

returns for the years 1989 through 1993.    Jones also requested

that the Court release certain documents under seal, which had

been provided by the Thompsons’ estate planning counsel,

pertaining to the Thompsons’ 1989 through 1993 tax records.

       On November 24, 2003, respondent filed a supplement to the

November 3, 2003, status report.    In that report, respondent had

continued to assert that RTVUE transcripts were no longer

available for any of the years 1990 through 1994 and that they

never existed for the years 1978 through 1989.    The supplement

contained the declaration of Shirley Smart (Smart), a litigation

coordinator at the Fresno service center, that RTVUE transcripts

were no longer available for any of the years 1990 through 1994

and that RTVUE records never existed for years before 1990.

       On December 19, 2003, the Court issued an order for

production of all items described in the privilege log, except

item No. 123.    The privilege log documents included the

Thompsons’ tax returns for 1989, 1991, and 1992.

       D.   Las Vegas Special Session (Osborn Continued)

       On April 13, 2004, the Court issued a scheduling order,

setting the first session of the evidentiary hearing for

September 20, 2004, in Las Vegas, Nevada, and setting forth the

agenda for the hearing.    The order stated that the hearing was to
                                -17-

be held for the sole purpose of determining the terms of the

Thompson settlement.    It further stated that neither appellate

fees nor the closed cases would be addressed during the

evidentiary hearing.    On August 27, 2004, Jones filed

petitioners’ motion for leave to submit out of time notice of

expert witness and a notice of expert witness to which Osborn’s

proposed expert witness summary report was attached.

     Despite the late entry into the Kersting project proceedings

of the Porter & Hedges attorneys, counsel for the Dixon V

taxpayers informally agreed that Porter & Hedges, Binder in

particular, would essentially serve as lead counsel in the Dixon

V remand proceedings.    On September 9, 2004, Binder filed

petitioners’ motion to allocate the burden of proof to respondent

on specified issues in determining of the terms of the Thompson

settlement.

     On September 10, 2004, O’Neill informed petitioners that, on

September 7, 2004, he had discovered the Thompsons’ tax records

and returns for the years 1983 through 1989.

     On September 20 through 22, 2004, the Court held the first

scheduled hearing session in Las Vegas.    During this session, on

September 20, 2004, the parties submitted a joint stipulation of

facts that included among its accompanying exhibits the tax

records O’Neill had rediscovered on September 7, 2004.
                                 -18-

     Respondent also filed a motion in limine to exclude Osborn’s

proposed expert witness testimony.      Because Osborn’s report was

little more than an outline, the Court postponed ruling on

respondent’s motion to give Osborn the opportunity to prepare a

more detailed report.    On October 4, 2004, Jones submitted the

“Superseding Expert Witness Report of Expert Witness Victoria

Osborn.”     On October 7, 2004, the Court issued an order denying

respondent’s motion in limine to exclude Osborn’s testimony,

without prejudice to renew if her superseding report should fail

to meet the requirements of rule 702 of the Federal Rules of

Evidence.

     E.     Los Angeles Special Session and Motion for Summary
            Judgment of 100-Percent Discount as Sanction (Osborn
            Concluded)

     Many factual issues remained unresolved after the Las Vegas

session.    On October 6, 2004, the Court issued a scheduling order

continuing the hearing to November 22, 2004, in Los Angeles.     On

November 4, 2004, respondent filed a renewed motion in limine to

exclude Osborn’s testimony and her superseding report.     On

November 5, 2004, the Court ordered Jones to respond to that

motion by November 15, 2004, and Jones filed a timely response.

On November 16, 2004, the Court granted respondent’s motion in

limine because Osborn’s report consisted primarily of legal

conclusions, which are not the proper subject of expert

testimony.    See Rule 143(f)(1); Fed. R. Evid. 702 and 703.    Even
                               -19-

though the report was not admissible as expert testimony, the

Court admitted the report into evidence “for the sole purpose of

ruling on respondent’s [renewed] motion in limine”.

     On November 22, 2004, Jones filed a motion to strike and for

sanctions, claiming Osborn had been defamed by materials included

in respondent’s renewed motion in limine.

     On December 10, 2004, the Court denied Jones’s motion to

strike and for sanctions.   The Court’s order made clear that the

Court had not considered the materials Jones had complained about

in ruling on respondent’s motion in limine.   Moreover, the

Court’s order also “forewarned” Jones that the Court would:

     not be inclined to look with favor on the inclusion in
     his fee application for post-mandate work in these
     cases of the time spent and expenses incurred in the
     preparation of the motion to strike and for sanctions.
     The Court and counsel have been heavily burdened with
     attempting to resolve the multiple aspects of this
     difficult, protracted, and unique litigation. It
     should have been clear to Mr. Jones more than a year
     ago that Ms. Osborn had nothing useful to offer in
     terms of producing relevant evidence to the Court.

     On January 31, 2005, Jones and O’Donnell filed a motion for

summary judgment on behalf of petitioners Gridley and Fleer.       The

motion contended that the Court should respond to the Dixon V

primary mandate by granting the Kersting project petitioners a

100-percent discount from the deficiencies as a sanction.7    On


     7
      In claiming that Kersting project petitioners should be
entitled to have the Kersting deficiencies eliminated, Jones and
O’Donnell ignored the decision of the Court of Appeals in Dixon V
                                                   (continued...)
                                -20-

February 24, 2005, respondent filed an objection to petitioners’

motion for summary judgment of a 100-percent discount as a

sanction.    Citing Rule 121(b), respondent asserted that

petitioners were not entitled to summary judgment because there

were material facts in dispute.    Agreeing with respondent, we

denied the motion for summary judgment for failure to satisfy the

requirements of Rule 121(b).

     On March 29, 2005, O’Donnell and Jones filed their “Pre-

trial Memorandum of Petitioners Gridley & Fleer”.    In that

pretrial memorandum O’Donnell and Jones again requested that we

reconsider our denial of petitioners’ motion for summary judgment

of a 100-percent discount.    We retitled the memorandum as “Pre-

trial Memorandum of Petitioners Gridley & Fleer and Motion for

Reconsideration of Order Denying Motion for Summary Judgment”.

In an order dated March 29, 2005, we denied O’Donnell and Jones’s

motion for reconsideration of our denial of their motion for

summary judgment.

     F.     Washington, D.C., Special Session and Petitioners’
            Opening Brief

     On February 3, 2005, petitioners filed a motion for a third

and final evidentiary hearing session.    On February 4, 2005, we



     7
      (...continued)
that “we will not enter judgment eradicating all tax liability of
these taxpayers. Such an extreme sanction, while within the
Court’s power, is not warranted under these facts.” Dixon V, at
1047.
                                -21-

issued an order setting the final hearing session for March 29,

2005, in Washington D.C.    On February 23, 2005, Binder filed

petitioners’ supplemental motion to allocate the burden of proof,

augmented by a memorandum of points and authorities.

     On March 29, 2005, in Washington, D.C., we commenced the

final 2-day session of the Dixon V evidentiary hearing.    On the

second day of the Washington, D.C., session, the Kersting project

petitioners agreed to submit a joint opening brief, a task for

which the parties acknowledged Binder would do most of the work.

At that time Binder noted that the brief would take hundreds of

hours and referred to an earlier comment by Izen that the opening

brief would be a “Herculean effort”.     Counsel for respondent and

the Kersting project petitioners further informed the Court that

they agreed that attorney’s fees incurred during the Dixon V

remand proceedings should be awarded under section 6673(a)(2)

rather than section 7430.

     G.   Award of Appellate Fees and Our Determination of the
          Scope of the Thompson Settlement

     On May 13, 2005, we ordered the parties to file reports, by

June 13, 2005, explaining their views on how we should award

attorney’s fees and expenses for the proceedings on remand and

appellate attorney’s fees in response to the supplemental mandate

of the Court of Appeals.    On July 13, 2005, respondent filed a

response to our order of May 13, 2005.    On July 14, 2005, Binder

filed a 189-page joint opening brief that was signed by all
                                -22-

petitioners’ counsel who had participated in the Dixon V remand

proceedings.   On July 15, 2005, Jones, O’Donnell, and Izen

submitted a 21-page joint supplemental opening brief.

     On July 15, 2005, Jones also submitted petitioners’ report

responding to our order of May 13, 2005.     Petitioners’ report was

combined with the motion of appellant non-test-case petitioners

for award of attorney’s fees and expenses.    In the motion,

petitioners requested an award of fees incurred through June 30,

2005.

     On May 2, 2006, we issued our opinion in Dixon VI,

explaining our determination of the terms of the Thompson

settlement.    On May 10, 2006, we issued our opinion in Dixon VII,

awarding fees and expenses incurred during the appeal from Dixon

III to petitioners represented by Porter & Hedges attorneys

Irvine and Binder and by Minns.

     On June 15, 2006, we ordered Jones to respond to or rebut

any conclusions reached in Dixon VII.   On July 19, 2006, Jones

filed his third supplement to petitioners’ request for an award

of appellate attorney’s fees.

     On September 6, 2006, we issued our opinion in Young v.

Commissioner, T.C. Memo. 2006-189, awarding petitioners

represented by Jones and Izen attorney’s fees and expenses

incurred during the appeal from Dixon III.    In Young we awarded

appellate fees and expenses for the period between May 2000 and
                               -23-

April 30, 2003, the date respondent had filed the motion for a

status conference.   We specifically excluded from the awards fees

and expenses postdating the appeal, beginning with fees and

expenses related to respondent’s request for a status conference

on April 30, 2003.

     H.    Dixon V Remand Fee and Expense Requests

     On May 4, 2007, we ordered petitioners to submit requests

for attorney’s fees and expenses incurred in the Dixon V remand

proceedings by June 8, 2007.   On May 29, 2007, Jones filed

petitioners’ motion to extend the time to file such a request.

On May 30, 2007, we granted petitioners’ motion for extension.

     On July 10, 2007, Jones filed petitioners’ motion for an

award of attorney’s fees (herein referred to as petitioners’

current fee and expense request).     Petitioners’ current fee and

expense request included fees and expenses dating from May 1,

2003, through February 28, 2007.    Because the dates covered in

petitioners’ current fee and expense request went back to May 1,

2003, it included fees we had disallowed as premature in Young v.

Commissioner, supra.   The invoices submitted covering the

overlapping periods were identical except for the fees originally

submitted on invoice Nos. 4707, 4708, and 4709 in petitioners’

appellate fee request, which were submitted on a different

invoice, No. 4712, in petitioners’ current fee and expense

request.   Other than the number of the master invoice in which
                               -24-

the fees are listed, there is no difference in the fees and

expenses submitted.

     On July 27, 2007, we ordered respondent to submit a response

to petitioners’ current fee and expense request by August 27,

2007.   On August 23, 2007, respondent filed a response to

petitioners’ current fee and expense request (herein referred to

as respondent’s current response).    In the current response,

respondent objected not only to the fees and expenses in

petitioners’ current request but also to fees and expenses

petitioners had requested in their July 15, 2005, appellate fee

request.   As part of respondent’s incorporation of respondent’s

objections to the appellate fee request respondent attached

copies of portions of respondent’s response to petitioners’

appellate fee and expense request:    Pages 13-19 and Exhibit F of

respondent’s October 28, 2005, response and pages 15-16 and

Exhibit E of respondent’s March 1, 2006, response.

     Respondent spent little effort to clarify exactly which

portions of the previous responses–-attached or not–-were

incorporated in respondent’s current response.    In the current

response, respondent restated respondent’s objections, from

respondent’s October 28, 2005, response to petitioners’ request

for an award of appellate fees, to:    $18,627.12 in fees

pertaining to closed cases, $8,175.62 in fees pertaining to

matters unrelated to the Dixon V remand, $29,389.70 related to
                               -25-

Osborn, $9,536.16 in undocumented expenses, and the

reasonableness of Jones’s hourly rate of $350.   However, Exhibit

F, which respondent attached, described only $3,949.75 in fees

and expenses related to the closed cases and $3,470 in fees and

expenses unrelated to the proceedings on remand, and $1,946.62 in

fees and expenses related to Osborn.   The response included no

explanation of which fees petitioners had failed to substantiate.

     Even though Exhibit E of respondent’s March 1, 2006,

response included more than $35,856 in fees, respondent

specifically objected only to $3,477.50 of the fees from Exhibit

E under the heading “Spreadsheet (First Supplement) Questionable

Entries Robert Allen Jones Time and Fees” in respondent’s current

response.   Respondent did not specify whether respondent was

renewing previous objections to the remaining $32,378.50 in fees

and expenses included in Exhibit E that were incurred before the

remand period.

     In the current response respondent also objected for the

first time to:   $10,436.07 in duplicate fees, $12,322.38 in

appellate fees, $12,349.70 in fees pertaining to the closed

cases, $11,497.50 in excess time spent preparing opening brief,

$33,946.90 in fees and expenses pertaining to client relations

and computations, $10,222.25 in fees and expenses that are

objectionable for a variety of reasons, and petitioners’ not
                                 -26-

having paid or incurred the fees and expenses for which they had

applied.

     On October 4, 2007, petitioners filed a reply to

respondent’s current response.    Petitioners stated that the

appellate fees respondent objected to were not part of

petitioners’ current fee request.       Petitioners also pointed out

that Exhibit E from respondent’s March 1, 2006, response to

petitioners’ appellate fee request contained numerous entries

dated before the remand period and that Jones had not included

these entries in petitioners’ current fee and expense request.

     In their reply to respondent’s response, petitioners also

conceded that they should not receive an award for entries

related to the closed cases that they had included in their

current request.   After conceding this point, however,

petitioners argued that some of the entries respondent claimed

were related to the closed cases were attributable to other

matters.   Petitioners provided a list of the entries they

contended respondent claimed were related to the closed cases and

the amounts of those entries petitioners agreed should be

disallowed.   The entries petitioners conceded were related to the

closed cases amounted to $17,359 in fees and $17.20 in expenses.

However, among the entries petitioners claimed respondent

objected to as related to the closed cases, petitioners
                               -27-

erroneously included fees and expenses respondent had objected to

on other grounds.8

                           Discussion

I.   Application of Section 6673(a)(2)(B)

     The parties agree that attorney’s fees and expenses should

be awarded, under section 6673(a)(2)(B), with respect to all

petitioners who participated in the Dixon V remand proceedings.9

Section 6673(a)(2) provides:

          (2) Counsel’s liability for excessive costs.--
     Whenever it appears to the Tax Court that any attorney
     or other person admitted to practice before the Tax
     Court has multiplied the proceedings in any case
     unreasonably and vexatiously, the Tax Court may
     require--

               (A) that such attorney or other person pay
          personally the excess costs, expenses, and
          attorneys’ fees reasonably incurred because of
          such conduct, or

               (B) if such attorney is appearing on behalf
          of the Commissioner of Internal Revenue, that the
          United States pay such excess costs, expenses, and
          attorneys’ fees in the same manner as such an
          award by a district court.


     8
      The list provided in petitioners’ reply to respondent’s
response also contained numerous computational errors and
inconsistencies. To avoid confusion, we have not elaborated on
which of respondent’s objections correspond to individual entries
on petitioners’ list. However, we have disallowed, on the
pertinent grounds, all those entries petitioners conceded are
related to the closed cases.
     9
      We would expand the defined population entitled to awards
to include Kersting project petitioners whose interests were
represented in the Dixon V remand proceedings and who paid or
incurred the obligation to pay fees and expenses of attorneys who
provided services and have filed motions for awards.
                               -28-

     During the Kersting tax shelter litigation this Court

awarded attorney’s fees and expenses under section 6673(a)(2)(B)

incurred in proceedings in this Court–-Dixon IV–-and under

section 7430 for fees and expenses incurred in the Dixon V

appellate proceedings--Dixon VII and Young v. Commissioner, T.C.

Memo. 2006-189.

     In Dixon IV, Dixon VII, and Young, we explained the

distinction between fee-shifting prevailing party statutes, such

as section 7430, which are based on substantive policy that

allows prevailing parties to recover their fees as compensation,

and fee sanction statutes, such as section 6673(a)(2), which

emphasize punishment and deterrence of party and attorney

misconduct.   See Chambers v. NASCO, Inc., 501 U.S. 32, 52 (1991);

Bus. Guides, Inc. v. Chromatic Commcns. Enters., Inc., 498 U.S.

533 (1991); Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 409

(1990).   Both section 6673(a)(2) and section 7430 limit the award

of fees to reasonable fees and expenses.   However, fee-shifting

statutes, such as section 7430, impose additional limitations

that do not apply under the sanction statutes, placing an hourly

rate cap on fees, imposing a net worth limitation on taxpayers

requesting reimbursement, and allowing awards to be made only in

favor of prevailing private parties.

     In Dixon IV we awarded fees and expenses under 6673(a)(2)(B)

because those fees were directly related to the misconduct of
                               -29-

respondent’s attorneys leading to our opinion and decisions in

Dixon III.   In Young v. Commissioner, supra, and Dixon VII, we

denied awards of fees under section 6673(a)(2)(B), following the

reasoning in Cooter & Gell v. Hartmarx Corp., supra at 409, that

the appeal of a decision to sanction a party’s conduct was not

directly related to sanctionable conduct.   Instead, we awarded

fees and expenses under section 7430 because petitioners

substantially prevailed on appeal.

      In the Dixon V remand proceedings, we determined the terms

and scope of the Thompson settlement, which directly related to

the misconduct of Sims and McWade and our failure in Dixon III to

“get it right”.   We now award fees and expenses under section

6673(a)(2)(B) that are attributable to services Jones performed

during the Dixon V remand proceedings.

II.   Adjustments to Requested Fees and Expenses

      We now turn to respondent’s objections to fees and expenses

in petitioners’ current fee and expense request, as supplemented.

Respondent first objects that the fees and expenses petitioners

request were not reasonably incurred because Jones has failed to

substantiate that the fees were, in fact, paid or incurred.

Respondent also objects to the reasonableness of hourly rates

charged by Jones and his staff, fees and expenses petitioners did

not submit in their current fee and expense request, fees and

expenses we declined to award in Young v. Commissioner, supra,
                                -30-

because they were related to the Dixon V remand proceedings, fees

and expenses incurred in preparing the appellate fee request,

fees and expenses related to the closed cases, the number of

hours Jones’s staff spent on the opening brief, fees and expenses

attributable to client relations, fees and expenses related to

proposed expert witness Osborn, fees and expenses related to

Jones’s and O’Donnell’s motion for summary judgment of a

100-percent discount as sanction, inadequately described fee and

expense entries, and miscellaneous other items.

     A.   Substantiation of Fees

     Respondent also objected, in respondent’s response to

petitioners’ current fee and expense request, that petitioners

have not substantiated the amounts they paid between June 1,

2005, and April 30, 2007.    In petitioners’ October 4, 2007, reply

to respondent’s response, Jones attached a list of the amounts

his clients had paid.   We therefore conclude that petitioners

have substantiated the amounts paid.

     B.   Jones’s Hourly Rate

     Respondent objects that Jones’s hourly rate of $350 is

unreasonable and urges us to allow Jones the same rate as we did

in Young v. Commissioner, supra, in which we awarded fees and

expenses under section 7430.    Respondent is arguing in effect

that the capped rate under section 7430 applies to section

6673(a)(2).   We disagree.   As a fee-shifting prevailing party
                                 -31-

statute, section 7430 places a cap on the hourly rate for an

award of attorney’s fees.    Section 6673(a)(2), however, is a fee

sanctions statute and its provisions require only that the fees

awarded be reasonable.    Section 6673 does not impose a cap on

hourly rates.    See Harper v. Commissioner, 99 T.C. 533, 552

(1992).

     Jones’s rate is reasonable.    During the Dixon V remand

proceedings, Binder and Irvine billed at rates ranging from $310

to $425 before 2005 and $375 to $475 during and after 2005.

Sticht billed at $350 per hour for his services during the remand

period.    Respondent has agreed that Binder’s, Irvine’s, and

Sticht’s rates are reasonable.    At $350 per hour, Jones’s rate

approximates or equals the rates charged by Binder and Sticht.

Jones’s rate is also less than the rate charged by Irvine.

     C.     Respondent’s Objections to Fees and Expenses Not
            Included in Current Request

     We next address respondent’s objections to fees and expenses

petitioners did not include in their current fee and expense

request.    In respondent’s response to petitioners’ request,

respondent renewed the objections from respondent’s October 28,

2005, and March 1, 2006, responses to petitioners’ July 15, 2005,

appellate fee request and its supplements.    These renewed

objections date back as far as 1999.    However, petitioners

requested fees and expenses incurred only after April 30, 2003,

1 week after our receipt of the Dixon V primary mandate.      In
                                -32-

determining the award to petitioners in this opinion, we have

considered only those fees and expenses petitioners included in

their current fee and expense request.   We therefore deny

respondent’s objections to fees and expenses not included in

petitioners’ current request.

     D.   Fees and Expenses Included in Petitioners’ Dixon III
          Appellate Fee Request

     Petitioners’ current fee and expense request includes

entries of $9,832.50 in fees and $333.57 in expenses that

petitioners also included in their appellate fee request.

Respondent argues that we have already addressed these fees and

expenses in Young v. Commissioner, T.C. Memo. 2006-189, and that

petitioners cannot include them in their current fee request.     We

disagree; we disallowed these fees and expenses in Young because

they were related to the Dixon V remand proceedings, making

premature their inclusion in petitioners’ appellate fee request.

However, petitioners’ inclusion of those fees and expenses in

their current fee and expense request is timely.   We make no

downward adjustment to petitioners’ award on the basis of

respondent’s objection that petitioners have included in their

current fee and expense request fees and expenses we denied in

Young.
                               -33-

     E.   Fees Incurred During the Appeal of Dixon III

     Respondent also objects that $12,270 of fees and $52.38 of

expenses included in petitioners’ current fee and expense request

are related to the appeal of Dixon III and not related to the

Dixon V remand proceedings.   Those fees are as follows:

                                 Hours               Amount

          Jones                  15.70               $5,495
          Law clerk              67.75                6,775
            Total                83.45               12,270

     In their reply to respondent’s response, petitioners have

stated that none of the entries in their current fee request

relate to the Dixon V appellate proceedings.    Despite this claim,

however, petitioners included fees and expenses related to the

appellate fee request in their current fee and expense request.

Petitioners’ request for appellate fees was not related to the

proceedings on remand.   We awarded fees related to the appeal of

Dixon III in Young v. Commissioner, supra.     Petitioners’ final

opportunity to apply for appeal-related fees has passed.

Accordingly, we disallow $12,270 of fees and $52.38 of expenses

related to the appeal of Dixon III.

     F.   Fees Related to Closed Cases

     Respondent objects to $16,557.50 of fees and $91.20 of

expenses related to the closed cases.    The hours and fees

respondent claims are attributable to work on the closed cases

are as follows:
                               -34-

                                 Hours          Amount


            Jones                39.80        $13,930.00
            Paralegal             7.29            890.00
            Law clerk             4.50            537.50
            Accountant            6.55          1,200.00
              Total              58.14         16,557.50

     In their October 4, 2007, reply to respondent’s response,

petitioners conceded that efforts to vacate stipulated decisions

in closed cases are separate matters, unrelated to the terms of

the Thompson settlement.   However, petitioners argue that some of

the entries respondent claims are related to the closed cases are

not so related.   They have provided a list, identifying 12.7

hours, amounting to $1,720 in fees, and $120.62 in expenses they

claim respondent incorrectly attributed to work related to the

closed cases.

     After reviewing the relevant entries, we agree that

respondent incorrectly attributed .5 hours of attorney time to

work related to the closed cases.     The entry dated June 6, 2006,

claims 1 hour of attorney time for “Conference call with

O’Donnell, Henry O Neill, IRS re: settlement stipulations,

attorney’s fees remand; Reopening partially settled cases,” and

cannot be completely attributable to work related to the closed

cases.   We therefore allow 50 percent of that entry; .5 hours of

Jones’s services, amounting to $175 in fees.
                               -35-

     We disallow the remaining 57.64 hours of fee entries

respondent objects to as related to the closed cases.10   This

results in reductions of petitioners’ fee and expense awards by

$16,382.50 and $91.20, respectively.

     G.   Excessive Time on Opening Brief

     Respondent argues that the time Jones’s staff spent on the

joint opening brief is excessive and urges us to disallow a

portion of the related fees.   Respondent claims the number of

hours Jones’s paralegal and law clerk spent on the opening brief

is not “reasonable” within the scope of section 6673(a)(2).

Respondent objects to a total of $11,497.5011 in fees related to




     10
      In the list of entries petitioners claim respondent
attributed to closed cases, petitioners mistakenly included
several entries to which respondent had objected for other
reasons, such as work related to Osborn, to the summary judgment
of a 100-percent discount as sanction, inadequately described
entries, and entries otherwise unrelated to the Dixon V remand
proceedings. We did not include these entries in our computation
of entries related to the closed cases, but in our computations
of entries related to the appropriate corresponding objections.
However, we have not allowed any of the entries petitioners have
conceded are noncompensable.
     11
      Respondent included $5,150 of fee entries in both
respondent’s objections to “duplicate” fees and respondent’s
objections to excessive hours spent working on the opening brief.
We counted the $5,150 only once in calculating the $116,873.75 of
“Fees respondent objects to” in our fee award table, see supra p.
7, because both sets of objections were to the same fees.
                                 -36-

the opening brief.     The fees corresponding to this objection are

as follows:12

                                  Hours         Amount

                Paralegal         71.75        $9,327.50
                Law clerk         21.70         2,170.00
                  Total           93.45        11,497.50

Respondent does not object to an award for any of the 26.3 hours

Jones spent on the brief.

     We disagree with respondent.       Jones’s staff did not expend

an excessive number of hours on the opening brief.         The entries

in Jones’s invoices make clear that Jones and his staff were not

only writing the supplement to the opening brief Jones filed

separately with Izen and O’Donnell but also helping Binder with

the joint opening brief.    In fact the billing statements Porter &

Hedges submitted specifically refer to a “portion” of the opening

brief on which Jones was working.       Accordingly, we make no

deductions for time Jones’s staff spent on the opening brief.

     H.   Client Relations

     Respondent objects to time respondent refers to as “client

relations”.     Respondent asserts that $33,932.50 in fees and

$2,903.15 in expenses in petitioners’ current fee request are



     12
      Twenty-five law clerk hours and 21.5 paralegal hours
dedicated to the opening brief were included in respondent’s
objections to entries submitted in both petitioners’ appellate
and current fee requests. There is no indication that
petitioners have previously received any award for these hours.
                                  -37-

attributable to client relations and should be disallowed.        Those

fees are as follows:

                                     Hours      Amount

           Jones                      6.20     $2,170.00
           Accountant               158.81     31,762.50
             Total                  165.01     33,932.50

    We disagree with respondent.     We may award fees for time

spent on client relations if that time is sufficiently related to

the matter for which petitioners are entitled to a fee and

expense award.   See Dixon VII.    Moreover, where petitioners do

not provide the subject matter for client communications, we may

determine the amount of those communications that is compensable.

In this case, if the subject matter of client communications is

unclear, we will allow petitioners an award of 50 percent of the

requested fee or expense.

     In Dixon VII we addressed the issue of client relations when

we evaluated whether to award fees related to Binder’s and

Irvine’s client conferences.   Because we did not know the subject

matter of these conferences, we assumed that 50 percent of the

time spent in the conferences related to the appeal (the matter

for which we were awarding fees) and the remaining 50 percent

related to noncompensable unrelated matters (client relations and

“hand holding”).   We then awarded fees for the portion of the

time we allocated to appeal-related matters.
                               -38-

     In Young v. Commissioner, T.C. Memo. 2006-189, we applied

the same approach in evaluating fee and expense entries that did

not specify the subject matter of client communications.    We

allocated 50 percent of those communications to the appeals,

granting an award for that portion of the time, and 50 percent to

unrelated, noncompensable matters.

     In the case at hand, the majority of the fee entries

respondent objects to as related to client relations are for the

calculation of petitioners’ deficiencies and overpayments

according to our decisions following Dixon VI and VIII.

     These calculations were necessary to prepare the decision

documents to be submitted to the Court for entry of decision.

Because petitioners have appropriately documented the compensable

subject matter of these client-related matters, we allow these

entries in their entirety.

     Most expenses that respondent objects to as client relations

are expenses for mailing copies of court filings to clients.     We

disagree with respondent, finding that these expenses are

attributable to compensable aspects of client relations.

     Among respondent’s objections, however, are three client

relations entries not attributable to the computation of client

deficiencies and overpayments or mailing copies of court filings

to clients.   We apply the same reasoning we applied in Young v.
                               -39-

Commissioner, supra, and Dixon VII in determining the

compensability of these three entries.

     The first entry, dated August 9, 2006, is a “Letter to

clients re: status; description of appeal possibilities.”    This

entry consists of 1.25 hours of Jones’s services, amounting to

$437.50 in fees.   It is clear that these communications were not

related to the matter on remand.   We disallow the fees pertaining

to this entry.

     The second entry is an expense labeled “Express to L. Wade.”

Because the subject matter of the letter is unclear, we apply the

approach of Young v. Commissioner, supra, and Dixon VII, and

disallow one-half of the fees pertaining to this entry, $7.20.

     The third entry, “Review and execute joint letter to clients

with Declan”, comprises .25 hours of Jones’s services, amounting

to $87.50 in fees.   In this case the contents of the

communication are not clear, so we disallow 50 percent of the

award requested, reducing petitioners’ award by $43.75.

Therefore, we will deduct a total of $481.25 in fees and $7.20 in

expenses from petitioners’ requested award because those sums are

related to noncompensable client relations.   The fees and

expenses we have disallowed under this heading are as follows:
                               -40-

                                  Hours           Amount
            Fees
              Jones                   1.38        $481.25
              Accountant               -0-          -0-
                 Total                1.38         481.25

            Expenses                                $7.20

     I.    Osborn Proposed Expert Witness Report

     Respondent objects to $25,921.25 in fees and $9,783.52 in

expenses related to the services of proposed expert witness

Osborn.   The fees corresponding to this objection are as follows:

                                  Hours          Amount

            Jones                 49.55        $17,342.50
            Paralegal             36.24          4,378.75
            Account manager       21.00          4,200.00
              Total              106.79         25,921.25

     We deny any award of attorney’s fees or expenses related to

Osborn and her proposed expert witness report that were incurred

after the filing of Smart’s declaration on November 24, 2003.        In

our order of December 10, 2004, we stated that, after receiving

Smart’s declaration, Jones should have known that Osborn’s

testimony would not be useful to the Court and thus that fees and

expenses related to Osborn’s services that were incurred after

that date were not reasonably incurred.      All fees and expenses

that respondent objects to as related to Osborn were incurred

after November 24, 2003.

     This is not the first time that a court has questioned the

relevance and usefulness of Osborn’s expert testimony.      In Jones
                              -41-

v. United States, 81 Fed. Appx. 209 (9th Cir. 2003), the Court of

Appeals affirmed the District Court’s unpublished ruling in Jones

v. United States, 89 AFTR 2d 2002-1816, 2002-1 USTC par. 50, 380

(D. Nev. 2002), that an affidavit Osborn provided did not

constitute newly discovered evidence that would have likely

changed the outcome of the case.   The Court of Appeals similarly

discounted Osborn’s testimony in Parenti v. I.R.S., 70 Fed. Appx.

470 (9th Cir. 2003), affg. Parenti v. I.R.S., 91 AFTR 2d 2003-

1136, 2003-1 USTC par. 50,282 (W.D. Wash. 2003), holding that

arguments based on Osborn’s testimony claiming the assessment

against Parenti was time barred and that the District Court had

erred in excluding materials provided by Osborn lacked merit.

See Appellant’s or Petitioner’s Informal Brief at 5-6, 19-20.    In

MacElvain v. Commissioner, T.C. Memo. 2000-320, the Tax Court

rejected Osborn’s testimony after determining Osborn had no

firsthand knowledge of the taxpayer’s cases docketed in the Tax

Court.

     The Tax Court recently sanctioned Jones for attempting to

use Osborn’s testimony in Gillespie v. Commissioner, T.C. Memo.

2007-202, affd. on other issues 292 Fed. Appx. 517 (7th Cir.

2008), and Davis v. Commissioner, T.C. Memo. 2007-201, affd. 301

Fed. Appx. 398 (6th Cir. 2008), because her testimony addressed

the “post-cycle date” theory previously rejected in Dahmer v.

United States, 90 AFTR 2d 2002-6804, 2002-6809, 2002-2 USTC par.
                               -42-

50,806, at 86,219 (W.D. Mo. 2002).     We also sanctioned Jones in

these cases for making frivolous arguments related to Osborn’s

proposed testimony.   We sustain in their entirety respondent’s

objections to fees and expenses attributable to Jones’s efforts

to include the proposed expert witness report of Osborn.

     J.    Motion for Summary Judgment of 100-percent Discount as
           Sanction

     Respondent objects to including in the award fees incurred

in preparing and filing the motion for summary judgment of a 100-

percent discount as a sanction and the motion to reconsider that

motion, claiming that motion was “borderline frivolous”.

Respondent objects to $2,600 in fees on these grounds, as

follows:

                                      Hours   Amount

              Jones                   7.00    $2,450
              Paralegal               1.50       150
                Total                 8.50     2,600

     We agree with respondent and disallow fees incurred in the

preparation and filing of the “Motion for Summary Judgment of

100-percent Discount as Sanction” in their entirety.    Rule 121(b)

governs the disposition of motions for summary judgment filed in

this Court.   For the Court to grant a motion for summary

judgment, (a) the moving party must show the absence of dispute

as to any material fact and that a decision may be rendered as a

matter of law; (b) the factual materials and the inferences to be
                                -43-

drawn from them must be viewed in the light most favorable to the

party opposing the motion; (c) the party opposing the motion

cannot rest on the mere allegations or denials, but must set

forth specific facts showing there is a genuine issue for trial.

Brotman v. Commissioner, 105 T.C. 141, 142 (1995) (citing O’Neal

v. Commissioner, 102 T.C. 666, 674 (1994)).

     In our order of March 2, 2005, we denied the motion for

summary judgment of a 100-percent discount as a sanction,

stating:   “The motion for summary judgment does not appear to be

a genuine attempt to resolve, even in part, the issues before the

Court.”    It should have been obvious to Jones and O’Donnell that

there were numerous outstanding issues of fact.    Moreover, on

March 29, 2005, even after we denied their first motion, Jones

and O’Donnell filed a second motion in which they asked the Court

to reconsider their motion for summary judgment.    We summarily

denied their March 29, 2005, motion the day they filed it.     The

primary mandate of the Court of Appeals in Dixon V required us to

determine the terms of the Thompson settlement.    In Dixon V at

1047 the Court of Appeals stated:

     we will not enter judgment eradicating all tax
     liability of these taxpayers. Such an extreme sanction,
     while within the court’s power, is not warranted under
     these facts. Instead, we remand to the trial court
     with directions to enter judgment in favor of
     Appellants and all other taxpayers properly before this
     Court on terms equivalent to those provided in the
     settlement agreement with Thompson and the IRS.
     [Citation and fn. ref. omitted.]
                                -44-

If we had awarded summary judgment of a 100-percent discount as a

sanction, we would have completely disregarded the mandate of the

Court of Appeals.   We deny in its entirety petitioners’ request

for fees related to the motion for summary judgment of a 100-

percent discount as a sanction.

     K.   Inadequately Described Entries

     Respondent also claims that $4,895 in fee entries in

petitioners’ current request are not detailed enough to determine

whether those entries are related to the proceedings on remand

and, thus, compensable.   The hours and amounts attributable to

those entries are as follows:

                                   Hours        Amount

           Jones                    9.75      $3,412.50
           Law Clerk               10.50       1,482.50
             Total                 20.25       4,895.00

     The following amount to 9.75 hours and $3,412.50 in

attorney’s fees:    “Brief with ML for Dixon”, “Discussion re:

draft from Binder on sanctions with ML”, “Call to O’Donnell”,

“Work on brief with ML; conversation with Joe Izen,” “Work with

ML on sentencing,” “Beghe order of 7/29 re: remittance to ML,”

and “Soliation”.

     In their reply petitioners did not explain who “ML” is and

why communications with “ML” would be necessary or the meaning of

“Soliation”.   As a result, we cannot determine whether these

entries are related to the Dixon V remand proceedings.    We
                                 -45-

therefore disallow the corresponding $3,412.50 of attorney’s

fees.

     Respondent also identifies 10.5 hours of law clerk services

amounting to $1,482.50 in fees that petitioners have not

adequately described:     “Reviewed recent pleadings”, “Read recent

pleadings”, “Calls to Garrett, Gruen and Hinrich”, and “Call from

Attorney Binder”.     Petitioners have not explained the subject or

purpose of any of the above entries, any of which could pertain

to something other than determining the terms of the Thompson

settlement.     We disallow $1,482.50 of inadequately described law

clerk fees.     Petitioners’ fee request is reduced by a total of

$4,895 for inadequately described work.

     L.      Miscellaneous Objections and Adjustments

     Respondent also objects, on various grounds, to including in

the award $4,517.50 in fees and $14.20 in expenses as follows:

                                    Hours       Amount

              Jones                  7.25      $2,537.50
              Paralegal             17.70       1,980.00
                Total               24.95       4,517.50

        The entries that respondent objects to under this heading

include work related to a potential appeal, a motion to recuse

the judge, and routine file maintenance.     The first of these

objections concerns work related to a potential appeal, to which

a total of $2,137.50 in fees is attributed:     4.25 hours of
                                 -46-

Jones’s time, amounting to $1,487.50 in fees, and 6.5 hours of

the paralegal’s time, amounting to $650 in fees.

     We agree with respondent.    Work related to a potential

appeal is not related to the Dixon V remand proceedings.

Therefore, we disallow $2,137.50 in fees for services related to

a potential appeal.

     Respondent also objects to an entry related to a motion to

recuse the judge, amounting to 5.2 hours of paralegal time and

$520 in fees.   We agree with respondent.   Petitioners never filed

a motion to recuse.   We will disallow an award of fees amounting

to $520 related to this subject.

     Respondent objects to fee requests for routine file

maintenance; 6 hours and $810 in fees are attributable to

paralegal time and 1 hour amounting to $350 in fees is

attributable to attorney time.    We agree with respondent.

Routine office tasks are not sufficiently related to the

proceedings on remand.   Therefore, we disallow fees for these

entries and deduct an additional $1,160 in fees.

     Two other entries are not sufficiently related to

proceedings on remand:   One for “Refund Claims” for 1 hour of

work at Jones’s rate of $350 per hour and another for “Powers of

Attorney” for 1 hour of attorney time, amounting to $350.       We

will not award fees for either of these entries and disallow an

additional $700 from petitioners’ requested amount.
                                -47-

     Respondent objects to $28.80 in miscellaneous expenses;

“EXPRESS TO DECLAN O’DONNELL” and “Express to L. Wade”.            We

deducted $14.40 for the entry “Express to L. Wade” earlier in our

“closed cases” section.   Accordingly, we will not deduct that

amount here again.    However, we agree with respondent that the

entry “EXPRESS TO DECLAN O’DONNELL” is an inadequate description.

After considering respondent’s miscellaneous objections, we

reduce the requested award by a total of $4,517.50 in fees and

$14.40 in expenses.

                             Conclusion

     We disallow a total of $67,067.50 in fees and $9,948.70 in

expenses from petitioners’ requested award.         Our downward

adjustments are tabulated below:

                      Summary of Disallowances

        Objection                         Fees            Expenses

     Duplicative fees                      -0-               -0-
     Dixon III appeal                  $12,270.00           $52.38
     Closed cases                       16,382.50            91.20
     Opening brief                         -0-               -0-
     Client relations                      481.25             7.20
     Osborn                             25,921.25         9,783.52
     Summary judgment of a               2,600.00            -0-
      100-percent discount
     Inadequately described             4,895.00             -0-
      entries
     Miscellaneous                       4,517.50            14.40
       Total                            67,067.50         9,948.70
                               -48-

After these amounts are deducted from the petitioners’ fee and

expense request, petitioners are entitled to an award of

$198,649.95 in fees and $6,017.27 in expenses.

     Giving effect to our concluding determination in Dixon IX,

we shall invoke our inherent power to require respondent to pay

to petitioners additional amounts equal to interest at the

applicable rates for underpayments under sections 6601(a) and

6621(a)(2) on $198,649.95 and $6,017.27 from July 10, 2007, the

date Jones filed petitioners’ motion for attorney’s fees and

expenses.   We shall address the manner in which the award is to

be paid and its allocation among Jones’s clients in the order

implementing the determinations in this opinion.

     To give effect to the foregoing,


                                      An appropriate order will be

                               entered.
