                        T.C. Memo. 1999-383



                      UNITED STATES TAX COURT



     LOUIS A. PIETRO AND VIRGINIA R. PIETRO, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11722-97.                Filed November 24, 1999.



     Glen A. Stankee, for petitioners.

     Sergio Garcia-Pages, for respondent.



                        MEMORANDUM OPINION


     FOLEY, Judge:   This matter is before the Court on

petitioners’ Motion for Recovery of Reasonable Litigation Costs

pursuant to section 7430 and Rule 231.   Unless otherwise

indicated, all section references are to the Internal Revenue
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Code in effect for the years in issue, and all Rule references

are to the Tax Court Rules of Practice and Procedure.

                              Background

     On their Federal income tax returns, petitioners did not

report income, relating to 1987 through 1991, from controlled

foreign corporations that operated concessionaires aboard cruise

ships (“CFC” issue); did not report income, relating to 1990,

from Marne Investments, Limited (“Marne” issue); and deducted a

loss relating to 1991 (“loss” issue).      By notice dated March 12,

1997, respondent determined deficiencies, and additions to tax,

relating to these issues.

      Petitioners resided in Coral Gables, Florida, when they

filed the petition on June 6, 1997.     Before trial, the parties

settled the case.   Petitioners conceded that there was a $39,742

deficiency relating to 1990.    Respondent conceded all other

issues.   Petitioners thereafter filed the motion for $15,364 of

litigation costs.

                              Discussion

     We may award litigation costs to petitioners if they meet

the statutory requirements.    See sec. 7430(b)(1), (b)(3),

(c)(1)(B)(iii), (c)(4).   After concessions, the remaining issues

are whether respondent’s positions relating to the Marne and loss
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issues were substantially justified and whether certain fees and

other costs are reasonable.

I.   Substantial Justification

      We may award costs to petitioners where respondent’s

position was not substantially justified (i.e., did not have a

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

U.S. 552, 563-565 (1988).   “The justification for each of

respondent’s positions must be independently determined.”

Foothill Ranch Co. Partnership v. Commissioner, 110 T.C. 94, 97

(1998).   Respondent concedes that his position on the CFC issue

was not substantially justified.    Respondent contends that his

position on the Marne issue was substantially justified, but he

offers no law or fact supporting his position.      In addition,

respondent failed to contend that his position on the loss issue

was substantially justified and offers no law or fact supporting

his position.   Thus, respondent has not established that his

positions were substantially justified.      See Maggie Management

Co. v. Commissioner, 108 T.C. 430, 437-438 (1997) (stating that

respondent must establish that his position was substantially

justified as to petitions filed after July 30, 1996).
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II.   Reasonableness of Fees and Costs

      A.   Attorney’s Fees

      Petitioners seek reimbursement for attorney’s fees at hourly

rates of $275 and $280, relating to 1997 and 1998, respectively.

Respondent contends these rates are unreasonable.

      Section 7430(c)(1)(B)(iii) imposes a statutory rate for

attorney’s fees (i.e., $110 and $120 per hour, relating to 1997

and 1998, respectively).     See Rev. Proc. 96-59, 1996-2 C.B. 392,

396; Rev. Proc. 97-57, 1997-2 C.B. 584, 587.    Petitioners may

receive fees in excess of the statutory rate if the Court

determines that “a special factor, such as the limited

availability of qualified attorneys for such proceeding,

justifies a higher rate.”    Sec. 7430(c)(1)(B)(iii).   The Court

has explained:

      in order for the “limited availability of qualified
      attorneys” to constitute a special factor warranting
      departure from the [statutory] cap, there must be a limited
      availability of attorneys who possess distinctive knowledge
      or a specialized skill needful to the particular litigation
      in question * * *.

Cozean v. Commissioner, 109 T.C. 227, 232 (1997) (citing Pierce

v. Underwood, supra at 572); cf. Powers v. Commissioner, 100 T.C.

457, 489 (1993) (stating that there was no special factor where

the case “did not require a distinctive knowledge or specialized

skill within the general field of taxation.”), affd. in part,
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revd. in part, and remanded on another ground 43 F.3d 172 (5th

Cir. 1995).

     The parties have stipulated that “there were a few other

attorneys in South Florida who had the expertise to deal with the

issues raised in the notice of deficiency and who charged hourly

rates comparable to[,] or higher than, those charged by

petitioners’ counsel.”   In essence, respondent admits that there

was limited availability of qualified attorneys, that

petitioners’ attorney possessed a specialized skill needful for

the litigation in question, and that the services could not be

obtained at a lower rate.    We also note that respondent has

represented to the Court that the CFC issue is “complex” and “a

case of first impression” and that petitioners’ attorney

possessed “recognized expertise in United States international

taxation”.    Accordingly, petitioners are entitled to the higher

rates paid.

     The parties stipulated that fees for 4.6 hours in 1998

“relate to legal work which did not require specialized

knowledge.”   Therefore, no special factor justifies the higher

rate for those fees.

     B.   Paralegal Fees and Other Costs

     Petitioners seek reimbursement for the fees of two

paralegals at hourly rates of $120 and $90.   Respondent contends
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that $55 per hour (i.e., about half the attorney rate) would be

reasonable.   We agree.   See, e.g., Powers v. Commissioner, supra

at 493 (awarding paralegal fees at about half the attorney rate).

Accordingly, petitioners are entitled to a rate of $55 per hour

(i.e., for 44.7 hours).

     Petitioners incurred $163 of reimbursable litigation costs

relating to photocopies, postage, Tax Court filing fee, faxes,

and telephone calls.   An unsubstantiated $3.50 expense and an

$11.50 Federal Express expense shall not be reimbursed.       See

Cassuto v. Commissioner, 93 T.C. 256, 275 (1989) (declining to

reimburse Federal Express expense absent proof of necessity),

affd. in part and revd. in part on another ground 936 F.2d 736

(2d Cir. 1991).

     We award petitioners $9,681.

     Any other contention made by the parties is irrelevant,

moot, or meritless.

     To reflect the foregoing,

                                              An appropriate order and

                                         decision will be entered.
