                       T.C. Memo. 1998-65



                     UNITED STATES TAX COURT



                  ANITA C. HUMAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 24232-96.             Filed February 18, 1998.



     Stephen C. Beeler, for petitioner.

     Clinton M. Fried, for respondent.



                       MEMORANDUM OPINION


     PARR, Judge:   This matter is before the Court on

petitioner's motion for award of litigation and administrative

costs pursuant to section 74301 and Rule 231.

     1
          References to sec. 7430 in this opinion are to that
section as amended by sec. 1551 of the Tax Reform Act of 1986,
Pub. L. 99-514, 100 Stat. 2085, 2752 (effective for proceedings
                                                   (continued...)
                               - 2 -


     All section references are to the Internal Revenue Code in

effect for the taxable year in issue, and all Rule references are

to the Tax Court Rules of Practice and Procedure, unless

otherwise indicated.

     Neither party requested a hearing.     The relevant facts are

taken from the parties' memoranda.     Rule 232(a)(1).   At the time

the petition was filed, petitioner resided in Marietta, Georgia.

     For the taxable year 1992, respondent determined a

deficiency in petitioner's Federal income tax of $240,590 and a

penalty under section 6662(a) of $48,118.

     On August 14, 1997, petitioner moved for summary judgment

pursuant to Rule 121.   On September 2, 1997, respondent filed a

notice of no objection.   The underlying matter herein was

resolved on September 8, 1997, when the Court granted

petitioner's motion for summary judgment and decided that there

     1
      (...continued)
commenced after Dec. 31, 1985), and by sec. 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). Sec. 7430 was amended most
recently by the Taxpayer Bill of Rights 2, Pub. L. 104-168, sec.
701, 110 Stat. 1452, 1463-1464 (1996), effective with respect to
proceedings commenced after July 30, 1996. The amendments to
that section shift to the Commissioner the burden of proving that
the position of the United States was substantially justified,
sec. 7430(c)(4)(B), and changed the hourly rate for attorney's
fees to $110, sec. 7430(c)(1)(B)(iii).
     A judicial proceeding is commenced in this Court with the
filing of a petition. Rule 20(a). Petitioner filed her petition
on Nov. 12, 1996. Accordingly, the 1996 amendments to sec. 7430
are applicable here. See Maggie Management Co. v. Commissioner,
108 T.C. 430 (1997).
                                  - 3 -


was no Federal income tax deficiency or penalty due from

petitioner for 1992.

     After concessions,2 the issues for decision are:      (1)

Whether petitioner was a prevailing party in the underlying tax

case.    We hold she was.    (2) Whether petitioner is entitled to

reasonable litigation and administrative costs.      We hold she is

to the extent set out below.

                            General Background

     Petitioner was divorced from Larry Wade Human (Human) on

January 2, 1990.    Pursuant to the divorce decree (the decree),

Human was required to pay petitioner lump-sum alimony of $24,000

immediately and $750,000 on or before May 17, 1990.

     Human failed to make the $750,000 payment as required by the

decree.    Petitioner then brought a contempt action against Human

in the Superior Court of DeKalb County, Georgia (the Superior

Court), seeking to enforce the decree and compel payment.

     By order dated November 13, 1992, the Superior Court

directed the clerk of the Superior Court (the clerk) to

distribute instanter $913,957.60 to petitioner.      This payment

consisted of the $750,000 lump-sum alimony award, plus $221,684

interest thereon, less attorney's fees of $57,726.80 paid


     2
          Respondent concedes that petitioner substantially
prevailed, exhausted her administrative remedies, did not
unreasonably protract the administrative or Court proceedings,
and met the net worth requirements.
                                 - 4 -


directly to petitioner's attorneys.      Petitioner did not include

the $750,000 as income on her 1992 return.

     The payment petitioner received from the clerk was from

proceeds paid into the Superior Court by DeKalb County, Georgia

(the county).    The county condemned the marital residence of

petitioner and Human for use by the Metropolitan Atlanta Rapid

Transit Authority.

                               Discussion

     Section 7430 provides for the award of reasonable

administrative and litigation costs to a taxpayer in an

administrative or court proceeding brought against the United

States involving the determination of any tax, interest, or

penalty pursuant to the Internal Revenue Code.     An award of

administrative or litigation costs may be made where the

taxpayer:    (1) Is the prevailing party, (2) exhausted available

administrative remedies,3 and (3) did not unreasonably protract

the administrative or judicial proceeding.     Sec. 7430(a) and

(b)(1), (3).

Issue 1.    Prevailing Party

     To be a "prevailing party", a taxpayer must (1)

substantially prevail with respect to either the amount in

controversy or the most significant issue or set of issues


     3
          This requirement does not apply to an award for
reasonable administrative costs. Sec. 7430(b)(1).
                                - 5 -


presented, and (2) meet the net worth requirements of 28 U.S.C.

sec. 2412(d)(2)(B).    Sec. 7430(c)(4)(A)(i) and (ii).   A taxpayer

will not be treated as a prevailing party, however, if the United

States establishes that its position was substantially justified.

Sec. 7430(c)(4)(B).

     As we stated earlier, respondent concedes that petitioner

substantially prevailed and met the net worth requirements.    The

parties primarily dispute, however, whether respondent's position

in both the administrative and judicial proceedings was

substantially justified.

     Petitioner contends that respondent's position in both the

administrative and judicial proceedings was not substantially

justified.   Specifically, petitioner claims that before the

issuance of the notice of deficiency, respondent knew or had

reason to know that the $750,000 received by petitioner in 1992

was in the nature of a property settlement incident to divorce

and thus, pursuant to section 1041, not includable in her gross

income.

     Respondent asserts that it was reasonable to argue

inconsistent positions against petitioner and Human in order to

protect the revenue.    The inconsistent positions were necessary,

respondent claims, because Human maintained that his payment to

petitioner in 1992 was alimony deductible by him and thus

includable in petitioner's income.
                                 - 6 -


     We find respondent's arguments unpersuasive.    For the

reasons set forth below, we shall grant petitioner's motion for

award of reasonable litigation and administrative costs.

     Position of the United States

     The Commissioner takes a position in an administrative

proceeding as of the earlier of the date the taxpayer receives an

Internal Revenue Service (IRS) Appeals decision or the date of

the notice of deficiency.   Sec. 7430(c)(7)(B).   Respondent's

position in the administrative proceeding was first established

with the issuance of the notice of deficiency, dated August 30,

1996.4

     The position taken by the United States, for purposes of

litigation costs, is the position of the United States in a

judicial proceeding.   Sec. 7430(c)(7)(A).   Respondent took a

position in the judicial proceeding herein on the date

respondent's answer was filed--January 13, 1997.    See Huffman v.

Commissioner, 978 F.2d 1139, 1148 (9th Cir. 1992), affg. in part

and revg. in part T.C. Memo. 1991-144.

     Substantial Justification

     The Commissioner's position is substantially justified if

that position could satisfy a reasonable person and if it has a


     4
          Petitioner incorrectly asserts that Nov. 1, 1995, is
the "Administrative Proceeding Date." This is immaterial,
however, as petitioner does not seek fees for services rendered
prior to Oct. 23, 1996.
                                - 7 -


reasonable basis in both fact and law.    Pierce v. Underwood, 487

U.S. 552, 565 (1988); Swanson v. Commissioner, 106 T.C. 76, 86

(1996).   We examine the facts known to the Commissioner at the

time the position was taken.    Coastal Petroleum Refiners, Inc. v.

Commissioner, 94 T.C. 685, 689 (1990).    The fact that the

Commissioner eventually loses or concedes a case is not

determinative of whether a taxpayer is entitled to reasonable

litigation and administrative costs.     Sokol v. Commissioner, 92

T.C. 760, 767 (1989).

           Administrative Proceeding

     We first consider whether respondent's position during the

administrative proceeding was substantially justified.    The sole

issue involved in the administrative proceeding was whether the

$750,000 payment petitioner received in 1992 from Human was

periodic alimony under Georgia law, thereby includable in her

income, or lump-sum alimony under Georgia law and thus excludable

from her income.

     On August 10, 1995, shortly after the IRS initiated an

examination of petitioner's 1992 return, one of petitioner's

attorneys met with Merlon Harper (Harper), the IRS agent

conducting the examination.    During that meeting, petitioner's

attorney explained that the $750,000 payment received from Human

was in the nature of a property settlement and not includable in

her income.   In addition, petitioner's attorney submitted a legal
                               - 8 -


memorandum and copies of the court decisions discussed in the

memorandum which supported the position that under Georgia law

the payment was lump-sum alimony in the nature of a property

settlement.

     On September 22, 1995, petitioner's tax attorney, Stephen C.

Beeler (Beeler), provided Revenue Agent Harper with a second

legal memorandum that reviewed in detail the facts preceding the

$750,000 payment from Human and discussed at length the

conclusion that the payment was lump-sum alimony and not

includable in petitioner's income.

     The underlying controversy focused on section 71(a), which

provides:   "Gross income includes amounts received as alimony or

separate maintenance payments."   A payment satisfies the

definition of alimony only if there is no liability to make any

such payment after the death of the payee spouse.   Sec.

71(b)(1)(D).

     Respondent argues that the divorce decree specifically

referred to the $750,000 payment as "alimony" and was silent as

to Human's obligation to make payment upon petitioner's death.

Therefore, respondent states, "it was necessary * * * to review

state court opinions on this issue."

     The Supreme Court of Georgia addressed this issue in Winokur

v. Winokur, 365 S.E.2d 94 (Ga. 1988).   In that case, the Supreme

Court of Georgia stated:
                                - 9 -


           This case calls for a distinction between periodic
     alimony and lump sum alimony. The question is
     important because the obligation to pay periodic
     alimony terminates at the death of either party while
     the obligation to pay lump sum alimony * * * does not
     * * *

Id. at 95.    The Supreme Court of Georgia then defined lump-sum

alimony:

          If the words of the documents creating the
     obligation state the exact amount of each payment and
     the exact number of payments to be made without other
     limitations, conditions or statements of intent, the
     obligation is one for lump sum alimony * * *.

Id. at 96.    The payment may be made either at once or in

intervals.    Id.; see also Stone v. Stone, 330 S.E.2d 887 (Ga.

1985).    If the above conditions are satisfied, the payments are

considered lump-sum alimony under Georgia law in the nature of a

property settlement and thus not includable in income to the

payee.5    See Winokur v. Winokur, supra.

     Having identified the rule under Georgia law, we now turn to

its application in petitioner's case.       The exact amount of the

payment ($750,000) and the exact number of payments (single

payment at once) are stated without other limitations,


     5
          In this manner, the Supreme Court of Georgia applies
substance over form. If the divorce decree states the exact
amount and number of payments without other conditions, i.e., the
remarriage of the payee spouse, the payment will be termed lump-
sum alimony with the duty to pay surviving the payee spouse. The
payment may be made in gross or installments. As long as the
above conditions are satisfied, Georgia law recognizes that in
substance the payment is a property settlement even though
defined as lump-sum alimony.
                               - 10 -


conditions, or statements of intent.    Therefore, the payment

satisfies the definition of lump-sum alimony as provided by the

Supreme Court of Georgia.    In addition, the divorce decree does

not refer to the payment merely as "alimony" as respondent

claims, but specifically as "lump sum alimony".    As lump-sum

alimony, Human's obligation to pay petitioner $750,000 would not

have terminated had petitioner died before payment.    Therefore,

the payment did not satisfy the definition of alimony under

section 71 and could not be includable in petitioner's income.

     Respondent was in possession of this information before the

issuance of the notice of deficiency.    The only adjustments made

to petitioner's 1992 return in the notice of deficiency were an

addition of $750,000 to petitioner's income and a penalty under

section 6662 of $48,118.    The notice of deficiency stated that

these adjustments were made "due to a whipsaw issue between * * *

[petitioner] and a related party."

     We have previously recognized the propriety of respondent's

assuming inconsistent positions between former spouses regarding

payments incident to divorce under certain circumstances.    See

Jacklin v. Commissioner, 79 T.C. 340, 344 (1982); Warnack v.

Commissioner, 71 T.C. 541, 547-548 (1979).    Respondent argues

that inconsistent positions were required here because Human took

the position that his payment to petitioner in 1992 was alimony

deductible by him and includable in petitioner's income.    We
                                  - 11 -


disagree.   Inconsistent positions were not appropriate here.

There was no doubt about the facts, and the State law was clear

that the payment to petitioner in 1992 was in the nature of a

property settlement and not alimony.

     In sum, we find that respondent failed to carry the burden

in establishing that the position taken during the administrative

proceeding was substantially justified.

            Judicial Proceeding

     We now examine whether respondent's position in the judicial

proceeding was substantially justified.     The position taken in

respondent's answer was the same as in the notice of deficiency;

i.e., respondent claimed that the $750,000 payment was includable

in petitioner's income for 1992.      As stated above, respondent was

in possession of information which established that this position

was erroneous over a year before the answer was filed.

     Respondent argues, however, that new information was

received after the time the answer was filed (January 13, 1997).

Respondent claims that the legal memorandum received from Beeler

on September 22, 1995, did not disclose that the payment was made

by the clerk of the Superior Court pursuant to a property

condemnation order and not by Human directly.     Respondent claims

that it was not until August 20, 1997, that he knew the clerk and

not Human had made the payment.      This, respondent asserts, formed

the basis for filing a notice of no objection to petitioner's
                               - 12 -


motion for summary judgment.   We fail to see the relevance of

this argument.   The fact that the payment was made by the clerk

is not determinative as to whether the payment was alimony.    If

the payment had been made by Human directly to petitioner, it

still would have been in the nature of a property settlement.

     Accordingly, respondent has failed to carry the burden in

establishing that the position in the judicial proceeding was

substantially justified.

Issue 2.   Reasonable Administrative and Litigation Costs

     Petitioner seeks recovery of reasonable litigation and

administrative costs that she incurred.   We have observed that

"'So long as the government's position justifies recovery of

fees, any reasonable fees to recover such fees are recoverable.'"

Galedrige Constr., Inc. v. Commissioner, T.C. Memo. 1997-485

(quoting Huffman v. Commissioner, 978 F.2d at 1149).   Thus, the

fees incurred by petitioner for her motion for reasonable

litigation and administrative costs are recoverable.   We must

decide whether the number of hours billed, the rate at which

those hours were billed, and the miscellaneous costs are

reasonable as claimed by petitioner.

     Fees of Attorney Stephen C. Beeler

     Petitioner submitted an itemized statement from her

attorney, Beeler, for the hours that were spent on the case from

October 23, 1996, through November 18, 1997.   Beeler billed his
                              - 13 -


time at an hourly rate of $180 through December 31, 1996, and

$190 beginning on January 1, 1997.     Respondent objects to

Beeler's rate as exceeding the statutory maximum.

     Section 7430(c) defines reasonable litigation and

administrative costs in part as "reasonable fees paid or incurred

for the services of attorneys".   Section 7430(c)(1)(B)(iii)

limits the hourly rate for attorney's fees to $110, with

allowances for increase in the cost of living6 and other special

factors.

     Beeler attempts to establish certain special factors in

order to justify billing at an hourly rate exceeding the

statutory cap.   He lists his experience as a tax attorney, a tax

law professor, and an author of tax articles.     In addition,

Beeler claims that his hourly rate is equal to or lower than the

prevailing local rates charged by tax attorneys with comparable

experience and that petitioner could not have obtained a

similarly qualified local tax attorney at a lower rate.




     6
          The cost of living increase provided in sec. 7430(c)(1)
does not help petitioner here. Sec. 7430(c)(1) provides that
attorney's fees for 1997 are eligible for the increase as
determined under that section and sec. 1(f)(3). See also Rev.
Proc. 96-59, 1996-2 C.B. 392. Under the preceding determination,
Beeler's allowable fee for services rendered in 1997 is $113.
Sec. 7430(c)(1) also provides, however, that if after the
increase the fee is not a multiple of $10, it shall be rounded to
the nearest multiple of $10. Therefore, Beeler's allowable fee
for 1997 is rounded down and remains at $110.
                              - 14 -


     We recently addressed special factors in this context in

Cozean v. Commissioner, 109 T.C. 227 (1997).   In Cozean, we

recognized that for the "limited availability of qualified

attorneys" to qualify as a special factor allowing an increase in

the statutory maximum, "there must be a limited availability of

attorneys who possess distinctive knowledge or a specialized

skill needful to the particular litigation in question, as

opposed to an extraordinary level of general lawyerly knowledge."

Id. at 232 (citing Pierce v. Underwood, 487 U.S. 552, 572

(1988)).   In providing examples of attorneys possessing

distinctive knowledge or specialized skill, the Supreme Court

listed patent attorneys and attorneys with knowledge of foreign

language or law.   Pierce v. Underwood, supra at 572.

     We have further noted that "the work and ability of counsel,

the results obtained, and the customary fees and awards in other

cases should not be considered for the purpose of determining

whether an increased award is warranted."   Cozean v.

Commissioner, supra at 232-233 (citing Pierce v. Underwood, supra

at 573).

     In accordance with the above, we do not regard as a special

factor the substantive tax expertise of Beeler nor the prevailing

local rates of tax attorneys with similar credentials.     Although

petitioner required the services of a competent tax attorney, she

has failed to establish that there was a limited availability of
                               - 15 -


such attorneys or that a special factor existed which justifies

an increase in the statutory maximum provided in section

7430(c)(1)(B)(iii).

     In addition, respondent claims that petitioner did not

submit adequate documentation to support her claimed costs and

that Beeler's billing summaries were not adequately itemized.      We

disagree.   Petitioner provided a sufficient summary for the

services rendered by Beeler.    See Rule 232(d)(1).

     Respondent argues that "the hours billed [by Beeler] in this

matter far exceed the normal and reasonable number of hours that

should have been expended in this matter, given the narrowness of

the legal issue involved in the case and the straightforward

nature of the facts."    We disagree and hold that the number of

hours billed by Beeler is reasonable, except as stated below.

     Beeler provided billing statements dated October 3, 1997,

and November 4, 1997 (Invoice Nos. 7523 and 7560, respectively).

These statements combined services rendered by Beeler and another

member of his law firm.7   Although we may allow recovery for

paralegal and other reasonable fees, this individual is not

identified in any of the submissions and does not provide an

hourly billing rate.    Accordingly, we will not award fees for


     7
          On the billing statements, Beeler is identified as
"SCB". The other individual is identified merely as "DLR." We
assume DLR is a paralegal, as the services rendered by the
individual include compiling documents for Beeler.
                                - 16 -


these hours.    The October 3, 1997, billing statement lists 26.3

aggregate hours of combined services.    We find 18 hours to be

reasonable for services rendered by Beeler.    The November 4,

1997, billing statement lists 9 aggregate hours of combined

services.     We find 3 hours to be reasonable for services rendered

by Beeler.8

     Fees of Attorney John Elson Howard9

     Respondent further argues that the submission of fees for

services rendered by John Elson Howard (Howard) as a "consulting"

attorney is not reasonable.    Petitioner submitted an itemized


     8
          The following statements, which we find reasonable,
were also submitted for services rendered by Beeler:

                Date             Hours
            Dec. 1, 1996          7.2
            Feb. 1, 1997          5.1
            June 7, 1997          2.9
            July 5, 1997          4.2
            Aug. 2, 1997         11.5
            Sept. 2, 1997        18.8
            Dec. 1, 1997          4.5

     9
          Petitioner submitted an itemized statement from John
Elson Howard, P.C., which purports to be of services provided by
John Elson Howard (Howard) and David Etheriedge (Etheriedge) of
Resources Planning Group, Inc., and of John Elson Howard, P.C.,
on behalf of petitioner. The statement merely provides a vague
description of the services provided, the date the services were
provided, and the cost of the services. A supplemental affidavit
stated that the hourly billing rates of Howard and Etheriedge
were $175 and $150, respectively. The statement does not
indicate which attorney provided which services or the number of
hours (itemized or aggregate) spent on the case. Since the
statement is so nebulous, we will address the services as being
rendered by Howard.
                              - 17 -


statement from Howard for his services rendered from June 3

through September 5, 1997.   Howard billed for professional

services in connection with the filing of petitioner's summary

judgment motion.   In support of her summary judgment motion,

petitioner relied on the same argument presented by Beeler in his

legal memorandum dated September 22, 1995.   Accordingly, the

services rendered by Howard are duplicative of those rendered by

Beeler.   We shall not award fees for these hours.

     Miscellaneous Litigation Expenses

     Petitioner submitted a bill showing $206.23 of miscellaneous

litigation costs, including photocopying and a filing fee.      We

find this amount to be reasonable.

     In summary, we hold that petitioner is entitled to an award

of attorney's fees in the amount of $8,272 for services rendered

by Beeler at the limited rate set forth in section

7430(c)(1)(B)(iii).   Petitioner is not entitled to an award of

attorney's fees for services rendered by Howard.     Finally,

petitioner is entitled to miscellaneous litigation expenses

incurred in the amount of $206.23.

     To reflect the foregoing,

                                          An appropriate order

                                     will be issued.
