                          T.C. Memo. 2006-97



                        UNITED STATES TAX COURT



         JERRY AND PATRICIA A. DIXON, ET AL.,1 Petitioners
           v. COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos.     9382-83, 15907-84,   Filed May 10, 2006.
                    40159-84, 30979-85,
                    29643-86.


     Henry Binder and John A. Irvine, counsel for petitioners in

docket Nos. 9382-83, 15907-84, 40159-84, and 30979-85.

     Michael Louis Minns and Enid M. Williams, counsel for

petitioners in docket No. 29643-86.

     Henry E. O’Neill and Peter R. Hochman, counsel for

respondent.




     1
       Cases of the following petitioners are consolidated
herewith: Robert L. and Carolyn S. DuFresne, docket Nos.
15907-84 and 30979-85; Terry D. and Gloria K. Owens, docket No.
40159-84; and Richard and Fiorella Hongsermeier, docket No.
29643-86.
                               - 2 -

                             CONTENTS
                                                                             Page

Background   . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Discussion   . . . . . . . . . . . . . . . . . . . . . . . . .                17

I.    Introduction . . . . . . . . . . . . . . . . . . .         . . .        17
      A.   Overview of Section 7430 . . . . . . . . . .          . . .        17
      B.   Tax Court’s Authority To Award Appellate
           Fees Under Section 7430 . . . . . . . . . . .         . . .        18
      C.   The Other Side of the Coin: Inapplicability
           of Section 6673(a)(2) and the Bad
           Faith Exception . . . . . . . . . . . . . . .         . . .        22

II.   Entitlement to Relief Under Section 7430 . .   .   .   .   .   .   .    25
      A.   Respondent’s Position . . . . . . . . .   .   .   .   .   .   .    25
      B.   Paid or Incurred Requirement . . . . .    .   .   .   .   .   .    25
           1.   Overview . . . . . . . . . . . . .   .   .   .   .   .   .    25
           2.   Real Parties in Interest . . . . .   .   .   .   .   .   .    26
      C.   Substantial Justification Defense . . .   .   .   .   .   .   .    29
           1.   Identifying “the Position of the
                United States in the Proceeding” .   . . . . . .              29
           2.   Substantial Justification Analysis   . . . . . .              31
      D.   Conclusion . . . . . . . . . . . . . .    . . . . . .              33

III. Amount of Award . . . . . . . . . . . . . . . . . . . .                  33
     A.   Respondent’s Position . . . . . . . . . . . . . . .                 33
     B.   Applicability of Statutory Rate Cap . . . . . . . .                 33
          1.   Limited Availability of Qualified Attorneys .                  34
          2.   Local Availability of Tax Expertise . . . . .                  36
          3.   Difficulty of the Issues . . . . . . . . . . .                 36
          4.   Other Possible Special Factors   . . . . . . .                 37
               a.   In General . . . . . . . . . . . . . . .                  37
               b.   The Government’s Misconduct   . . . . . .                 38
               c.   The Delay Factor . . . . . . . . . . . .                  41
               d.   Test Case Status . . . . . . . . . . . .                  44
          5.   Conclusion . . . . . . . . . . . . . . . . . .                 45
     C.   Compensable Hours . . . . . . . . . . . . . . . . .                 45
          1.   Respondent’s Objections . . . . . . . . . . .                  45
               a.   Duplicative Fees Due to Change of
                    Counsel . . . . . . . . . . . . . . . . .                 45
               b.   Overstaffing . . . . . . . . . . . . . .                  46
               c.   Porter & Hedges Client Conferences . . .                  48
          2.   Additional Adjustments to Time Claimed for the
               Appeals . . . . . . . . . . . . . . . . . . .                  49
               a.   Missing Minns Time Entries . . . . . . .                  49
                                - 3 -

                b.   Minns Hours Relating to Dispute With
                     Committee . . . . . . . . . . . . . . . .   50
                c.   Additional Porter & Hedges Time Relating
                     to Minns Dispute . . . . . . . . . . . .    50
                d.   Porter & Hedges Time Relating to
                     Bill of Costs . . . . . . . . . . . . . .   51
                e.   Porter & Hedges Time Relating to Remand .   51
           3.   Adjustments to Porter & Hedges Time
                Relating to Fee Request . . . . . . . . . . .    51
                a.   Initial Research Time . . . . . . . . . .   51
                b.   Time Relating to Unsuccessful Claims . .    52
      D.   Computation of Potentially Compensable Fees . . . .   55
           1.   The Hongsermeiers--Work on the Appeal . . . .    55
                a.   2001 . . . . . . . . . . . . . . . . . .    55
                b.   2002 . . . . . . . . . . . . . . . . . .    56
                c.   Total . . . . . . . . . . . . . . . . . .   57
           2.   The Hongsermeiers--Work on the Fee Request       57
                a.   2003 to 2005 . . . . . . . . . . . . . .    57
                b.   2006 . . . . . . . . . . . . . . . . . .    57
                c.   Application of Limited Success Factor . .   57
           3.   The PH Petitioners . . . . . . . . . . . . . .   59
                a.   2001 . . . . . . . . . . . . . . . . . .    59
                b.   2002 to 2005 . . . . . . . . . . . . . .    60
                c.   2006 . . . . . . . . . . . . . . . . . .    61
                d.   Total . . . . . . . . . . . . . . . . . .   61
      E.   Potentially Compensable Expenses . . . . . . . . .    62
      F.   Amounts Paid or Incurred by Eligible Persons . . .    62
           1.   Amounts Paid Through the Defense Fund . . . .    63
                a.   Minns Agreement . . . . . . . . . . . . .   63
                b.   Porter & Hedges Agreement . . . . . . . .   66
           2.   Amounts Paid Directly to Minns   . . . . . . .   68
           3.   Amounts Incurred But Not Paid . . . . . . . .    68
           4.   Summary . . . . . . . . . . . . . . . . . . .    69
      G.   Final Figures . . . . . . . . . . . . . . . . . . .   69

IV.   Interest . . . . . . . . . . . . . . . . . . . . . . . .   70

Appendix A--September 1, 2005 Order . . . . . . . . . . . . .    72

Appendix B--September 8, 2005 Order . . . . . . . . . . . . .    78

Appendix C--November 18, 2005 Order . . . . . . . . . . . . .    84


                         MEMORANDUM OPINION

      BEGHE, Judge:   These cases are before the Court on separate

remand from the Court of Appeals for the Ninth Circuit.   In this

opinion, we address petitioners’ requests for appellate
                               - 4 -

attorney’s fees and expenses under section 7430,2 originally

filed with the Court of Appeals in the aftermath of Dixon v.

Commissioner, 316 F.3d 1041 (9th Cir. 2003), revg. and remanding

T.C. Memo. 1999-101.

                            Background3

     Petitioners (the Dixons, DuFresnes, Owenses, and

Hongsermeiers) are, along with one other couple--the Youngs--the

remaining test case petitioners in the Kersting tax shelter

litigation.   That litigation arose from respondent’s disallowance

of interest deductions claimed by participants in various tax

shelter programs promoted by Henry F.K. Kersting during the late

1970s through the 1980s.   Under the test case procedure, most of

the other Kersting program participants who had filed Tax Court

petitions (“nontest case petitioners”) entered into “piggyback”

agreements in which they agreed that their cases would be

resolved in accordance with the Court’s opinion in the test

cases.4   Eventually, more than 300 nontest case petitioners made



     2
       Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended, and Rule references
are to the Tax Court Rules of Practice and Procedure.
     3
       The following background statement is based on the
existing record and additional information submitted by the
parties in connection with the appellate fee requests. We have
not found it necessary to hold an evidentiary hearing. See Rule
232(a)(2).
     4
       Upon the final disposition of the test cases, the
relatively few nontest case petitioners who did not enter into
piggyback agreements will generally be ordered to show cause why
their cases should not be decided in the same manner as the test
cases.
                              - 5 -

periodic and/or lump sum contributions to a fund (hereafter, the

“Defense Fund” or “Fund”) created to share the cost of the test

case litigation.5

     Following a 3-week trial, the Court sustained virtually all

of respondent’s determinations in each of the test cases.    See

Dixon v. Commissioner, T.C. Memo. 1991-614 (Dixon II).6    Shortly

thereafter, on June 9, 1992, respondent notified the Court that,

prior to the trial of the test cases, respondent’s trial

attorney, Kenneth W. McWade (McWade), and his supervisor,

Honolulu District Counsel William A. Sims (Sims), had entered

into contingent settlement agreements with two of the test case

petitioners (the Thompsons and the Cravenses) and had failed to

disclose those agreements to their superiors, to the Court, or to

the other test case petitioners or their counsel.   Respondent

asked the Court to conduct an evidentiary hearing to determine

whether the undisclosed agreements had affected the trial of the

test cases or the opinion of the Court.   The Court denied

respondent’s request for an evidentiary hearing, entered

decisions giving effect to the Thompson and Cravens settlements,

and reentered or allowed to stand the decisions sustaining



     5
       The Defense Fund was initially known as the Don Belton
Legal Defense Fund and subsequently became known as the Atlas
Legal Defense Fund.
     6
       Prior to the trial of the test cases, the Court had issued
an opinion rejecting the test case petitioners’ arguments that
certain evidence should be suppressed and that the burden of
proof should be shifted to respondent. See Dixon v.
Commissioner, 90 T.C. 237 (1988) (Dixon I).
                              - 6 -

respondent’s determinations against the other test case

petitioners.

     On appeal, the Court of Appeals for the Ninth Circuit,

citing Arizona v. Fulminante, 499 U.S. 279, 309 (1991), stated:

          We cannot determine from this record whether the
     extent of misconduct rises to the level of a structural
     defect voiding the judgment as fundamentally unfair, or
     whether, despite the government’s misconduct, the
     judgment can be upheld as harmless error. [DuFresne v.
     Commissioner, 26 F.3d 105, 107 (9th Cir. 1994) (per
     curiam), vacating Dixon v. Commissioner, T.C. Memo.
     1991-614.]

The Court of Appeals vacated the Court’s decisions in the test

cases (other than the Thompson and Cravens cases) and remanded

them for “an evidentiary hearing to determine the full extent of

the admitted wrong done by the government trial lawyers.”   Id.

In response to the direction of the Court of Appeals to consider

on the merits all motions of intervention filed by interested

parties, this Court ordered that the cases of 10 nontest case

petitioners (hereafter, the participating nontest case

petitioners) be consolidated with the remaining test cases for

purposes of the evidentiary hearing.   One of the participating

nontest case petitioners was represented by Joe Alfred Izen, Jr.

(Izen), who had represented the test case petitioners (other than

the Thompsons and Cravenses) at the original trial; the others

were represented by either Robert Alan Jones (Jones) or Robert

Patrick Sticht (Sticht).

     On the basis of the record developed at the evidentiary

hearing, the Court held that the misconduct of the Government
                                - 7 -

attorneys in the trial of the test cases did not constitute a

structural defect in the trial but rather resulted in harmless

error.   See Dixon v. Commissioner, T.C. Memo. 1999-101 (Dixon

III).    However, the Court imposed sanctions against respondent,

holding that Kersting program participants who had not had final

decisions entered in their cases would be relieved 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).

     After the issuance of Dixon III, the remaining test case

petitioners, all of whom were still represented by Izen, and some

of the participating nontest case petitioners filed motions for

attorney’s fees and costs (the initial fee requests), relying

primarily on sections 7430 and 6673.    The Court ordered the

movants to submit documentation pertaining to fees and expenses

incurred commencing June 10, 1992 (i.e., the day after the Court

learned of the misconduct by the Government attorneys).    In Dixon

v. Commissioner, T.C. Memo. 2000-116 (Dixon IV), the Court

rejected the initial fee requests insofar as they relied on

section 7430, on the ground that the movants had not

substantially prevailed on the merits as required by section

7430(c)(4)(A)(i).   However, the Court awarded a portion of the

claimed fees and expenses under section 6673(a)(2)(B) (relating
                                 - 8 -

to misconduct of the Commissioner’s attorneys in Tax Court proceedings).

     The Court entered decisions in the remaining test cases and

certified the cases of the participating nontest case petitioners

for interlocutory appeal.   Izen filed notices of appeal on behalf

of the remaining test case petitioners, and he also filed an

interlocutory appeal on behalf of Norman and Barbara Adair, the

participating nontest case petitioners he represented.7      Izen

purported to file his interlocutory appeal on behalf of not only

the Adairs, but also on behalf of nontest case petitioners in

more than 450 docketed cases who had not participated in the

evidentiary hearing and therefore were not included in this

Court’s certification order.

     In January 2001, the Defense Fund, acting through a five-

person “steering committee”, retained attorney Michael Louis

Minns (Minns) to replace Izen.    Under the Minns retainer

agreement, the Defense Fund agreed to pay Minns an up-front,

nonrefundable fee of $110,000, while Minns agreed to a maximum

fee for his firm of $150,000.    The Fund also agreed to a $75,000

fee for Lawfinders Associates, Inc. (Lawfinders), a firm hired by

Minns to assist in researching and writing his appellate briefs.

Although Minns replaced Izen as counsel of record for the Dixons,



     7
       Jones and Sticht filed interlocutory appeals on behalf of
the other participating nontest case petitioners.
                               - 9 -

DuFresnes, Owenses, and Hongsermeiers, Izen remained counsel of

record for the Youngs, the only other remaining test case

petitioners.

     In January and February 2001, the Hongsermeiers and 112

nontest case petitioners (hereafter, the group of 112) made

contributions to the Defense Fund (all but two in the amount of

$1,500) totaling $168,600 in connection with the hiring of Minns.

In addition, from January 2001 through November 2001 (the last

full month during which the steering committee recognized Minns

as the Fund’s counsel), the Hongsermeiers and 106 members of the

group of 112 made smaller contributions to the Defense Fund

totaling $99,600.   Thus, total contributions to the Defense Fund

by the Hongsermeiers and the group of 112 from January 2001

through November 2001 amounted to $268,200.   The Fund paid the

aforementioned fees of $110,000 and $75,000 to Minns and

Lawfinders, respectively, in early 2001.8

     The steering committee became dissatisfied with Minns, and

by letter dated December 7, 2001, the Defense Fund formally

requested Porter & Hedges, L.L.P. (Porter & Hedges) to take over

the appeals and to represent the Fund in “the anticipated

litigation involving our former attorney in this matter, Michael

Minns.”   The ensuing engagement letter confirms that Porter &


     8
       The Fund paid other amounts under the Minns agreement,
including a $20,000 fee to an accounting firm, for which the
Hongsermeiers do not seek recovery.
                              - 10 -

Hedges, in addition to the appellate work, would “represent the

Committee with regard to counsel and assistance in terminating

its relationship with its present lawyer, Michael Louis Minns,

and * * * assist * * * in obtaining a refund of attorneys’ fees

and expenses paid to Mr. Minns or at his direction”.   The

engagement is on an hourly fee basis, with the Defense Fund

agreeing to advance $120,000 for application against expected

billings.   Three members of the steering committee--all nontest

case petitioners--are jointly and severally liable for the

Defense Fund’s obligations under the agreement, which are not

limited by the $120,000 estimate and required advance.

     From December 12, 2001 to April 5, 2002, the Dixons and 43

nontest case petitioners (hereafter, the group of 43)--36 of whom

are also part of the group of 112--made contributions to the

Defense Fund (all but three in the amount of $1,500) totaling

$66,050 in connection with the hiring of Porter & Hedges.    In

addition, from December 2001 through April 2002, 37 members of

the group of 43 made smaller contributions to the Defense Fund

totaling $18,150.   Thus, total contributions to the Defense Fund

from December 2001 through April 2002 by the Dixons and the group

of 43 amounted to $84,200.   Porter & Hedges has received only

$60,000 from the Defense Fund to date, with the last payment

occurring in April 2002.
                              - 11 -

     Although Porter & Hedges attorneys Henry Binder (Binder) and

John A. Irvine (Irvine) entered appearances in the Court of

Appeals on behalf of the Dixons, DuFresnes, and Owenses, Minns

remained counsel of record for the Hongsermeiers.    Thus, three

sets of counsel pursued the appeals of the test cases:      Izen on

behalf of the Youngs, Minns on behalf of the Hongsermeiers, and

Porter & Hedges on behalf of the Dixons, DuFresnes, and Owenses

(hereafter, the PH petitioners).

     The Court of Appeals reversed and remanded, holding that the

misconduct of the Government attorneys in the trial of the test

cases was a fraud on the court, for which no showing of prejudice

is required.   See Dixon v. Commissioner, 316 F.3d 1041 (9th Cir.

2003) (Dixon V); see also Dixon v. Commissioner, T.C. Memo. 2006-

90 (Dixon VI) (determining the parameters of the illicit Thompson

settlement and extending the benefit thereof to all remaining

Kersting project petitioners in accordance with the mandate of

the Court of Appeals in Dixon V).   After the issuance of Dixon V,

a group comprising the Hongsermeiers and 38 nontest case

petitioners--35 of whom are also part of the group of 112 and

three of whom are part of the group of 112 and the group of 43--

retained Minns to continue representing their interests in post-

appellate matters (including this fee litigation).    The

Hongsermeiers and each member of the group of 38 paid Minns a

$3,500 retainer fee.
                              - 12 -

     Shortly after the issuance of Dixon V, the Hongsermeiers and

the PH petitioners filed separate requests with the Court of

Appeals for attorney’s fees incurred on appeal.    The

Hongsermeiers’ request relates solely to services performed by

Minns and Lawfinders, and the PH petitioners’ request relates

solely to services performed by Porter & Hedges.    As filed, both

appellate fee requests relied exclusively on section 7430.

     Rather than filing a fee request with the Court of Appeals

on behalf of the Youngs, Izen objected to petitioners’ fee

requests.9   Izen’s primary objection was that petitioners had not

paid or incurred the amounts requested:

          In actuality, Mr. Binder’s motion fails to reveal
     the true clients in interest who have paid him fees to
     represent their interests on appeal. These “real
     clients in interest” are the same clients represented
     by Joe Alfred Izen, Jr. in the appeal styled Barbara L.
     Adair, Et Al, v. Commissioner * * *.




     9
       Izen is not the only attorney in these proceedings who
was, at least initially, hostile to petitioners’ appellate fee
requests. In a filing relating to the evidentiary hearing
required to implement the primary mandate of Dixon V, Jones (who
would subsequently file his own appellate fee request on behalf
of the participating nontest case petitioners he represents, see
infra note 12) remarked:

     Test case counsel, exclusive of Mr. Izen, charged
     clients in excess of $500,000 to copy Mr. Izen’s, Mr.
     Jones’, and Mr. Sticht’s prior work from the
     evidentiary hearing [held in 1996 and 1997] without
     adding one new idea which had a substantial effect on
     the Dixon appeal. These taxpayers cannot afford to pay
     expensive lawyers by the hour in order to get the
     relief they so justly deserve.
                               - 13 -

Izen then filed a motion in the Adairs’ interlocutory appeal to

transfer consideration of attorney’s fees on appeal to the Tax

Court.   See 9th Cir. R. 39-1.8.   Although the Court of Appeals

promptly granted the motion, Izen waited more than 2 years to

file his appellate fee request with this Court.    That fee request

is currently pending and will be the subject of a later opinion.

See infra note 12.

     On May 28, 2003, the Court of Appeals, acting through the

panel that had decided Dixon V, issued the following order in

response to petitioners’ appellate fee requests:

          Appellants’ request for attorneys’ fees on appeal
     is remanded to the Tax Court for a determination of
     entitlement and, if warranted, amount. Although not
     required by this order, an evidentiary hearing may aid
     the Tax Court in making this determination. The panel
     retains jurisdiction over all further proceedings that
     may arise.

Thereafter, petitioners’ counsel attempted, unsuccessfully, to

retrieve from the Court of Appeals the documents relative to the

appellate fee requests.   Petitioners’ counsel and respondent’s

counsel eventually filed in this Court a Special Stipulation of

Facts Concerning Appellants’ Request for Attorneys’ Fees on

Appeal (the stipulation), stipulating the authenticity of the

appellate fee requests and all related objections, oppositions,

replies, and records attached as exhibits to the stipulation.

Petitioners have largely pursued their appellate fee requests in

this Court on a joint basis.
                               - 14 -

     In considering the appellate fee requests, we solicited the

parties’ views as to whether we were limited to section 7430,

cited in their requests, or were instead free to proceed under

section 6673(a)(2), on which we relied in Dixon IV.10   In a May

2005 order, we expressed the view that “there are substantial

obstacles to awarding appellate fees and costs under section

6673(a)(2)”.   Shortly thereafter, the Youngs filed a motion in

this Court for attorney’s fees under section 6673 relating to

services performed (and expenses incurred) by Izen on appeal.

     In August 2005, the PH petitioners amended their appellate

fee request to assert entitlement under the “bad faith” exception

to the so-called American rule (hereafter, the bad faith

exception), while continuing to rely on section 7430 as an

alternative ground.11   By the amendment, the PH petitioners also

seek interest on the requested fees and expenses from January 17,

2003 (the date of the Court of Appeals’ Dixon V opinion).

     In an order dated September 1, 2005, which we incorporate by

reference and reproduce as Appendix A, we concluded that “the


     10
       Sec. 7430 contains certain conditions and limitations
that do not apply to fee awards under sec. 6673(a)(2). See infra
Parts I.A., I.C.
     11
       The American rule generally prohibits a Federal court
from awarding attorney’s fees in the absence of a statute or
contract providing for a fee award. Chambers v. NASCO, Inc., 501
U.S. 32, 61 (1991) (Kennedy, J., dissenting) (citing Alyeska
Pipeline Serv. Co. v. Wilderness Socy., 421 U.S. 240, 258-259
(1975)).
                              - 15 -

principles enunciated in Cooter & Gell v. Hartmarx Corp., [496

U.S. 384 (1990),] preclude us from awarding appellate fees and

expenses under the bad faith exception to the American rule”.

Having determined to proceed under section 7430, and with a nod

to Izen’s previous objection, we ordered petitioners to submit

net worth affidavits for all real parties in interest with

respect to their appellate fee requests; namely, “those

individuals who have made payments to Porter & Hedges or Michael

Minns, P.L.C.--through contributions to the Atlas Legal Defense

Fund or otherwise--or are liable to Porter & Hedges or Michael

Minns, P.L.C. for the unpaid portion of the requested fees and

expenses”.   See Rule 231(b)(4); see also infra Part I.A.

Meanwhile, in an order dated September 8, 2005, which we

incorporate by reference and reproduce as Appendix B, we

similarly rejected the Youngs’ reliance on section 6673 and

ordered them to submit net worth affidavits for all real parties

in interest.12

     On November 7, 2005, the PH petitioners filed a motion for

reconsideration of our September 1 order, as well as a separate


     12
       That order also pertains to a motion for appellate fees
and expenses filed in this Court in July 2005 by the
participating nontest case petitioners represented by Jones. We
subsequently informed the parties that we would handle that
motion and the Youngs’ appellate fee motion (filed by Izen)
separately from petitioners’ appellate fee requests. To complete
the story regarding appellate fee requests, the Court understands
that Sticht and respondent are working on a comprehensive
stipulation and submission regarding requests for fees by
participating nontest case petitioners represented by Sticht.
                                - 16 -

motion for appellate attorney’s fees under section 6673.    We

denied the motion for reconsideration by order dated November 18,

2005, which we incorporate by reference and reproduce as Appendix

C.   We separately denied the PH petitioners’ motion for fees

under section 6673 “[f]or the reasons discussed in our Order

dated September 8, 2005” (App. B).

      The Hongsermeiers claim attorney’s fees of $276,434.75,

based on (1) 930.32 hours devoted to the appeal and 278.75 hours

devoted to the fee request,13 and (2) rates ranging from $50 to

$300 per hour.     They have not requested any expenses other than

attorney’s fees.

     The PH petitioners claim attorney’s fees of $494,514.75,

based on (1) 1,157.65 hours devoted to the appeal and 734.1 hours

devoted to the fee request, and (2) rates ranging from $90 to

$460 per hour.14    They also claim other expenses of $20,307.15.


      13
       Respondent does not dispute that fees relating to work on
a fee request (“fees for fees” or “fees on fees”) are potentially
recoverable under sec. 7430. See, e.g., Huffman v. Commissioner,
978 F.2d 1139, 1149 (9th Cir. 1992), affg. in part and revg. in
part on other grounds T.C. Memo. 1991-144.
     14
       Both fee requests include legal assistant or paralegal
fees. Although sec. 7430 does not specifically provide for the
recovery of such fees, this Court has routinely awarded them,
see, e.g., Foothill Ranch Co. Pship. v. Commissioner, 110 T.C.
94, 101-102 (1998), and we have no reason to believe that the
Court of Appeals for the Ninth Circuit would take a different
approach. Cf. Commissioner, INS v. Jean, 496 U.S. 154, 163 n.10
(1990) (Equal Access to Justice Act (EAJA) case; Court’s
hypothetical refers to paralegal fees even though the EAJA, from
which sec. 7430 derives, does not specifically refer to such
fees); Sorenson v. Mink, 239 F.3d 1140, 1144 (9th Cir. 2001)
                                                   (continued...)
                             - 17 -

                           Discussion

I.   Introduction

     A.   Overview of Section 7430

     Section 7430 provides that, subject to certain conditions, a

taxpayer who prevails against the Government in any Federal tax

proceeding (administrative or judicial) may recover reasonable

costs, including attorney’s fees, paid or incurred in connection

with such proceeding if the Government’s position in the

proceeding was not substantially justified.    Sec. 7430(a),

(c)(1)(B)(iii), (c)(4)(A) and (B).    In its report accompanying

the bill in which section 7430 originated, the House Committee on

Ways and Means contemplated that such fee awards “will enable

individual taxpayers to vindicate their rights regardless of

their economic circumstances.”   H. Rept. 97-404, at 11 (1981).

     A taxpayer seeking litigation costs under section 7430 must

have exhausted all available administrative remedies prior to

litigation, must not have unreasonably protracted the

proceedings, and, if an individual, must not have had a net worth

in excess of $2 million as of the filing date of the suit.     Sec.

7430(b)(1), (b)(3), (c)(4)(A)(ii); see 28 U.S.C. sec.

2412(d)(2)(B)(i) (1988) (individual net worth limitation


     14
      (...continued)
(EAJA fee application included legal assistant fees; no
discussion of the issue). Although legal assistant and paralegal
fees do not fit neatly within the category of either “attorney’s
fees” or “expenses”, we follow petitioners’ lead in grouping them
with attorney’s fees.
                              - 18 -

contained in the Equal Access to Justice Act and incorporated by

reference in sec. 7430(c)(4)(A)(ii)).    Reasonable attorney’s fees

may not exceed the rate of $125 per hour (as adjusted for

inflation) unless “a special factor, such as the limited

availability of qualified attorneys for such proceeding, the

difficulty of the issues presented in the case, or the local

availability of tax expertise, justifies a higher rate.”    Sec.

7430(c)(1)(B)(iii).15

     Respondent publishes the inflation-adjusted rate cap on an

annual basis.   The hourly rate cap for fees incurred in 2001 (the

earliest year for which petitioners claim fees) is $140.    Rev.

Proc. 2001-13, 2001-1 C.B. 337, 341.    The hourly rate cap for

fees incurred between 2002 and 2005 is $150.    Rev. Proc. 2001-59,

2001-2 C.B. 623, 628; Rev. Proc. 2002-70, 2002-2 C.B. 845, 850;

Rev. Proc. 2003-85, 2003-2 C.B. 1184, 1190; Rev. Proc. 2004-71,

2004-2 C.B. 970, 976.   The hourly rate cap for fees incurred in

2006 is $160.   Rev. Proc. 2005-70, 2005-47 I.R.B. 979, 985.

     B.   Tax Court’s Authority To Award Appellate
          Fees Under Section 7430

     Before we evaluate petitioners’ appellate fee requests under

section 7430, we address the threshold issue of our authority to



     15
       The latter two examples of special factors were added by
the Internal Revenue Service Restructuring and Reform Act of
1998, Pub. L. 105-206, sec. 3101(a)(2), 112 Stat. 727, effective
for costs incurred after Jan. 18, 1999, id. sec. 3101(g), 112
Stat. 729. All of the costs sought by petitioners were incurred
after Jan. 18, 1999.
                              - 19 -

award appellate fees under that section.16   We begin by observing

that the Court of Appeals cannot independently empower us to make

such an award.   See Cooter & Gell v. Hartmarx Corp., 496 U.S.

384, 409 (1990) (reversing that portion of Court of Appeals’

judgment remanding the case to District Court for award of

appellate attorney’s fees as part of Rule 1117 sanction; that

rule does not authorize District Courts to award attorney’s fees

incurred on appeal).   Having said that, we are satisfied that

section 7430, unlike the provision at issue in Cooter & Gell,

authorizes trial courts (such as the Tax Court) to award

litigation costs incurred on appeal.

     Our conclusion that we may award appellate fees under

section 7430 ultimately rests on the distinction between (1) fee

awards (such as those under section 7430) authorized under “fee-

shifting rules that embody a substantive policy, such as a



     16
       We are hesitant to phrase the issue (i.e., whether we can
award appellate litigation costs under sec. 7430) in terms of our
“jurisdiction”. See Scarborough v. Principi, 541 U.S. 401, 414
(2004) (Equal Access to Justice Act does not describe what
“classes of cases” the Court of Appeals for Veterans Claims is
competent to adjudicate; rather, it relates only to postjudgment
proceedings auxiliary to cases already within that court’s
adjudicatory authority); see also Kafka & Cavanagh, Litigation of
Federal Civil Tax Controversies, par. 2.01[5], at 2-8 (2d ed.
1997) (Tax Court’s “jurisdiction” to consider a motion for
litigation costs is part and parcel of its jurisdiction over the
underlying action); cf. Rule 270(c) (recognizing that the Tax
Court’s jurisdiction to review an administrative denial of
administrative costs derives from sec. 7430(f)(2)).
     17
       References to Rule 11 are to Rule 11 of the Federal Rules
of Civil Procedure.
                               - 20 -

statute which permits a prevailing party in certain classes of

litigation to recover fees”, Chambers v. NASCO, Inc., 501 U.S.

32, 52 (1991), and (2) fee awards (such as those under Rule 11,

the bad faith exception, or section 6673(a)(2)) that serve as

sanctions, the imposition of which “depends not on which party

wins the lawsuit, but on how the parties conduct themselves

during the litigation”, Chambers v. NASCO, Inc., supra at 53

(drawing the distinction in the context of the Erie doctrine as

applied to the bad faith exception).    See also Bus. Guides, Inc.

v. Chromatic Commcns. Enters., Inc., 498 U.S. 533, 553 (1991)

(Rule 11 sanctions, which “are not tied to the outcome of [the]

litigation”, “do not constitute the kind of fee shifting at issue

in Alyeska [Pipeline Serv. Co. v. Wilderness Socy., 421 U.S. 240

(1975)].”18   In Cooter & Gell v. Hartmarx Corp., supra at 409,

the Supreme Court expressly recognized this distinction in the

context of appellate fees:   “As Rule 11 is not a fee-shifting

statute, the policies for allowing district courts to require the

losing party to pay appellate, as well as District Court

attorney’s fees, are not applicable.”




     18
       The “kind of fee shifting at issue in Alyeska” involved
the substantive policy of encouraging private parties “to bring
suit to further broad public interests” such as protecting the
environment, i.e., under the “private attorney general” theory.
Wilderness Socy. v. Morton, 495 F.2d 1026, 1034 (D.C. Cir. 1974),
revd. sub nom. Alyeska Pipeline Serv. Co. v. Wilderness Socy.,
421 U.S. 240 (1975).
                               - 21 -

     The foregoing dictum from Cooter & Gell regarding the

authority of District Courts to award appellate attorney’s fees

under fee-shifting statutes is consistent with the Supreme

Court’s approach in Commissioner, INS v. Jean, 496 U.S. 154

(1990), issued 1 week prior to Cooter & Gell.    In Jean, the Court

held that the recipient of a fee award under the Equal Access to

Justice Act (EAJA), the fee-shifting statute from which section

7430 derives, may recover fees incurred litigating the fee award

without a separate showing that the Government’s opposition to

the fee award was not substantially justified.    See Commissioner,

INS v. Jean, supra at 159 (“only one threshold [substantial

justification] determination for the entire civil action is to be

made”).   In so holding, the Court observed that while “[a]ny

given civil action can have numerous phases”, “the EAJA--like

other fee-shifting statutes--favors treating a case as an

inclusive whole”.   Id. at 161-162.19   To interpret a fee-shifting

statute such as the EAJA or section 7430 as not authorizing a

trial court to award appellate attorney’s fees would be




     19
       The Court also noted that the EAJA “refers to an award of
fees ‘in any civil action’ without any reference to separate
parts of the litigation, such as discovery requests, fees, or
appeals.” Commissioner, INS v. Jean, 496 U.S. at 159 (emphasis
added). Similarly, sec. 7430(a)(2) refers to “costs incurred in
connection with such [tax-related] court proceeding”, and sec.
7430(c)(6) defines “court proceeding” as “any civil action
brought in a court of the United States” (including the Tax
Court), without any reference to separate phases of the
proceeding.
                              - 22 -

inconsistent with the unitary approach espoused by the Court in

Jean.20

      C.   The Other Side of the Coin: Inapplicability
           of Section 6673(a)(2) and the Bad Faith Exception

      The distinction between fee-shifting provisions and fee

sanctions also informs our prior refusals to evaluate

petitioners’ appellate fee requests under either section

6673(a)(2) or the bad faith exception, each of which falls into

the fee sanction category.   See Apps. A, B, C.   In contrast to

the unitary approach adopted in the fee-shifting (EAJA) case of

Commissioner, INS v. Jean, 496 U.S. at 159, under which “only one

threshold [substantial justification] determination for the

entire civil action is to be made”, the Supreme Court adopted a

“direct causation” approach 1 week later in Cooter & Gell v.

Hartmarx Corp., supra, a case involving a fee sanction under Rule

11.   There, the Court rejected the argument that the reference in

Rule 11 (as then in effect) to fees and expenses incurred

“because of” the offending filing included fees incurred in

defending a District Court’s Rule 11 sanction on appeal:    “We



      20
       If the authority to award appellate fees under the EAJA
or sec. 7430 resided exclusively in the appellate courts, then
there would be two “substantial justification” determinations
whenever an appellate court, applying the (deferential) abuse of
discretion standard, see Pierce v. Underwood, 487 U.S. 552, 557-
563 (1988), upholds the trial court’s determination in that
regard (i.e., with respect to an EAJA or sec. 7430 fee request
pertaining to trial fees), but reaches the opposite conclusion in
disposing of a similar request for appellate fees in the same
case.
                                 - 23 -

believe Rule 11 is more sensibly understood as permitting an

award only of those expenses directly caused by the

[sanctionable] filing, logically, those at the trial level.”

Cooter & Gell v. Hartmarx Corp., 496 U.S. at 406.     Thus, while

Jean contemplates that the recipient of an EAJA fee award may

recover fees incurred in defending the award on appeal without a

separate showing that the Government’s appeal of the award was

not substantially justified, the Court in Cooter & Gell concluded

that a litigant defending a Rule 11 fee award on appeal may

recover appellate expenses “only when those expenses are caused

by a frivolous appeal, and not merely because a Rule 11 sanction

upheld on appeal can ultimately be traced to a baseless filing in

district court.”   Id. at 407.

     The foregoing dichotomy suggests that a litigant who is

entitled to attorney’s fees at the trial level on the basis of

his opponent’s misconduct must, in the absence of additional

sanctionable conduct at the appellate level, premise any claim

for appellate fees on a fee-shifting (prevailing party)

provision.   Because some fee-shifting provisions impose

restrictions (such as hourly rate caps) that may not apply to fee

sanctions, such a litigant may find that his claims for

attorney’s fees incurred during the trial and appellate phases,

respectively, of the same litigation are subject to markedly

different rules.   That is the case here.   Under section

6673(a)(2), we are authorized to sanction respondent for the
                               - 24 -

attorney misconduct that marred the test case trial by charging

him the full amount of petitioners’ attorney’s fees relating to

the Tax Court proceedings necessitated by that misconduct,

subject only to the requirement that such amounts have been

reasonably incurred.21   Because that misconduct did not extend to

the appellate proceedings, petitioners are relegated to the

applicable fee-shifting provision--section 7430, with its hourly

rate cap and eligibility requirements--with regard to their

appellate fee requests.22   Cf. Hutto v. Finney, 437 U.S. 678, 689

& n.13, 693 & n.21 (1978) (Court separately analyzes fee awards

ordered by the District Court and the Court of Appeals,

respectively; whereas the trial court’s award was adequately

supported by its finding of bad faith, the appellate court’s

award, not supported by any finding of bad faith at the appellate

level, could only be sustained under the Civil Rights Attorneys



     21
       Specifically, sec. 6673(a)(2)(B) provides that, whenever
respondent’s attorneys have unreasonably and vexatiously
multiplied proceedings in this Court, the Court may require the
United States to pay the excess attorney’s fees and other
litigation costs reasonably incurred because of such conduct.
Although we imposed substantial percentage reductions in our fee
awards under sec. 6673(a)(2) in Dixon IV, those reductions were
attributable to counsel’s various failures to substantiate their
claims in their entirety.
     22
       We note further that (1) sec. 6673(a)(2) by its terms
appears to be limited to Tax Court proceedings, and (2) inasmuch
as petitioners filed their appellate fee requests with the Court
of Appeals under sec. 7430, our evaluation of those requests
under sec. 6673(a)(2) or the bad faith exception arguably would
be outside the scope of the Court of Appeals’ mandate. Cf.
Pollei v. Commissioner, 94 T.C. 595 (1990).
                                - 25 -

Fees Awards Act of 1976 (CRAFAA), see 42 U.S.C. sec. 1988 (2000),

a fee-shifting statute designed to encourage private enforcement

of civil rights laws).

II.   Entitlement to Relief Under Section 7430

      A.   Respondent’s Position

      Respondent contends that petitioners are not entitled to any

relief under section 7430 because (1) they have failed to

demonstrate that they “paid or incurred” the claimed fees and

expenses, and (2) respondent’s position on appeal was

substantially justified.

      B.   Paid or Incurred Requirement

           1.   Overview

      Unlike certain other fee-shifting statutes, section 7430

generally allows the recovery of attorney’s fees only to the

extent such amounts have been paid or incurred.23   Sec.

7430(a)(2), (c)(1)(B)(iii); see Frisch v. Commissioner, 87 T.C.

838, 844 (1986) (distinguishing CRAFAA, under which a court “may

allow the prevailing party * * * a reasonable attorney’s fee”);

cf. Blanchard v. Bergeron, 489 U.S. 87, 96 (1989) (fee award

under CRAFAA is not limited to the amount the prevailing party

owes his attorney pursuant to contingent fee agreement).    For

purposes of section 7430, fees are “incurred” when there is a

legal obligation to pay them.    E.g., Grigoraci v. Commissioner,



      23
       But see sec. 7430(c)(3)(B), providing an exception for
pro bono services.
                                - 26 -

122 T.C. 272, 277-278 (2004).     In that regard, respondent notes

that none of the steering committee members who are jointly and

severally liable for the Defense Fund’s obligations to Porter &

Hedges is a party to the PH petitioners’ fee request.      Similarly,

respondent asserts that “[t]he Hongsermeiers have failed to show

that they, as opposed to the Atlas Legal Defense Fund and/or its

Steering Committee members, are personally liable for” Minns’s

fees.     Respondent further complains that the appellate fee

requests are devoid of any evidence regarding the existence or

amounts of petitioners’ contributions to the Defense Fund.24

            2.    Real Parties in Interest

     Under the “real party in interest” approach we adopted in

our September 1, 2005 order (App. A), the fact that petitioners

have not, by and large, paid or incurred the claimed fees and

expenses does not render those amounts unrecoverable under

section 7430.    As one commentator has recognized in the context

of the EAJA, even though that statute “states plainly that the

award is to be made to the ‘prevailing party’”, “[t]his is not to

say that the party named in the lawsuit is invariably the true

litigant to whom an award is due.”       Sisk, “The Essentials of the


     24
       Petitioners subsequently submitted schedules prepared by
the business manager of the Defense Fund indicating that the
Hongsermeiers and the Dixons contributed $3,900 and $3,000,
respectively, to the Defense Fund during the years 2000-2003.
Respondent does not suggest that contributions to the Defense
Fund cannot qualify as amounts paid for purposes of sec. 7430.
Cf. Grason Elec. Co. v. NLRB, 951 F.2d 1100, 1106 (9th Cir. 1991)
(suggesting that fees requested under EAJA may have been paid
through contributions to multiemployer association).
                               - 27 -

Equal Access to Justice Act:    Court Awards of Attorney’s Fees for

Unreasonable Government Conduct (Part One),” 55 La. L. Rev. 217,

343 (1994); see, e.g., Grason Elec. Co. v. NLRB, 951 F.2d 1100

(9th Cir. 1991) (real parties in interest in EAJA case included

all 48 members of multiemployer collective bargaining association

who financed the litigation, not just the 6 members who were

parties to the litigation).    The case for looking beyond the

named parties is particularly compelling in these proceedings,

where similarly situated taxpayers not only shared the costs of

the litigation but also “had rights at stake in the case on the

merits”.   Sisk, supra at 346 (arguing that one can be a real

party in interest with respect to an EAJA fee request--and

thereby potentially entitled to recover the requested fees--only

by virtue of one’s status as a real party in interest in the

underlying litigation on the merits; i.e., that financial

responsibility for the claimed legal fees does not confer real

party in interest status).25

      We now hold that the real parties in interest in this

litigation include not only the test case petitioners and

participating nontest case petitioners, but also all other




     25
       Conversely, Professor Sisk reasons, a real party in
interest who has no financial responsibility for legal fees
cannot recover those fees under the EAJA for the simple reason
that such person has not “incurred” any fees as required by the
statute. Sisk, “The Essentials of the Equal Access to Justice
Act: Court Awards of Attorney’s Fees for Unreasonable Government
Conduct (Part One),” 55 La. L. Rev. 217, 346-347 (1994).
                              - 28 -

remaining nontest case petitioners.26   Accordingly, the relevant

inquiry is not whether petitioners paid or incurred the claimed

fees and expenses, but whether the real parties in interest who

did pay or incur those amounts satisfy the net worth requirement




     26
       It could be argued that only those nontest case
petitioners who are bound by the outcome of this litigation,
i.e., those who entered into piggyback agreements, should be
considered real parties in interest. Cf. Mearkle v.
Commissioner, 90 T.C. 1256, 1261 & n.6 (1988) (refusing to fully
reimburse petitioners’ claimed litigation costs when those costs
clearly related to cases of similarly situated taxpayers--Amway
distributors--as well; Court notes that “this case is not a ‘test
case’ which the parties and the Court agree to litigate in order
to resolve an issue affecting many other taxpayers who agree to
be bound by the result therein”). (Emphasis added.) However, in
Dixon v. Commissioner, T.C. Memo. 2006-90 (Dixon VI), we observe
that “the parties have agreed--and properly so--that the sanction
[imposed in Dixon VI] applies to benefit not only the test case
petitioners, but also to nontest case petitioners in all
remaining docketed cases in the Kersting project, whether or not
they signed piggyback agreements.” (Emphasis added.) We
similarly draw no distinction between piggybackers and non-
piggybackers for purposes of our real party in interest analysis.
                                 - 29 -

imposed by section 7430(c)(4)(A)(ii).27      We address that issue in

Part III.F., infra.

     C.     Substantial Justification Defense

            1.     Identifying “the Position of the
                   United States in the Proceeding”

     Under section 7430(c)(4)(B)(i), it is “the position of the

United States in the proceeding” that is evaluated under the

substantial justification standard.       Typically, the position of

the United States in a judicial proceeding for purposes of

section 7430 is set forth in the Commissioner’s answer to the

petition.    E.g., Maggie Mgmt. Co. v. Commissioner, 108 T.C. 430,

442 (1997).      These proceedings, of course, are anything but

typical.    Although these cases originated with petitions and

answers in a tax deficiency setting, the appellate fees at issue

are not directly related to those initial pleadings or the

ensuing litigation on the merits.      Rather, the proceedings to



     27
       In Cobell v. Norton, 407 F. Supp. 2d 140, 148 (D.D.C.
2005), the court concluded that the net worth affidavits of the
named plaintiffs in the underlying class action “amply satisfy
the [net worth] requirements of the [EAJA] statute for the entire
class.” We note that the referenced class includes more than
350,000 claimants. See id. at 145. Olenhouse v. Commodity
Credit Corp., 922 F. Supp. 489 (D. Kan. 1996), the EAJA case
cited by the Norton court for support, is similarly inapposite.
The court in Olenhouse, while recognizing that “[e]ach party
seeking an award must meet the relevant net worth cap”, id. at
492, concluded that the named plaintiffs, “i.e., those who
prosecuted the claim”, id. at 493, were the ones seeking the EAJA
award; accordingly, they alone were required to meet the net
worth requirement. The court noted that the Government “has not
shown that * * * unnamed members of the class were willing and
able to bear the cost of the litigation.” Id. That is not the
case here.
                                - 30 -

which these fees relate involve the legal and factual issues

raised by the misconduct of IRS attorneys McWade and Sims in the

original trial of the test cases.    Accordingly, we look to the

misconduct inquiry (as opposed to tax deficiency) phase of these

proceedings to determine “the position of the United States in

the proceeding”.

     While the parties are in general agreement that the relevant

“position of the United States” derives from the misconduct

inquiry phase of these proceedings, their respective submissions

compel us to clarify exactly what it is we are testing against

the substantial justification standard.    Not surprisingly,

petitioners repeatedly draw our attention to the odious character

of the attorney misconduct.   At the other end of the spectrum,

respondent emphasizes the inherent reasonableness of defending a

trial court victory on appeal.    In our view, the issue is not

whether the conduct of Sims and McWade was substantially

justified (it obviously was not), nor whether respondent’s

decision to defend his Dixon III victory against petitioners’

appeals (as opposed to simply rolling over) was substantially

justified (it obviously was).    Rather, our inquiry focuses on

respondent’s litigating position regarding the legal effect of

the attorney misconduct (i.e., that such misconduct amounted to

harmless error and therefore did not invalidate the decisions

entered against the test case petitioners following the issuance

of Dixon II).
                               - 31 -

          2.     Substantial Justification Analysis

     We turn now to the issue of whether respondent’s position,

as identified above, was substantially justified.28      A position

of the United States in a judicial proceeding is substantially

justified if it has a reasonable basis in law and fact.      E.g.,

Maggie Mgmt. Co. v. Commissioner, supra at 443.       Common sense

dictates that if the Government was able to prevail at trial

(only to lose on appeal), its position ordinarily will have been

reasonable.    See H. Rept. 97-404, at 15 (1981) (stating that in

such situation “the appellate court would not normally award

attorney’s fees to the taxpayer since the trial court, by

definition, had found the government’s position to be

reasonable”); S. Comm. on Fin., Technical Explanation of

Committee Amendment, 127 Cong. Rec. 32070, 32078 (1981) (same);

see also Ness v. Commissioner, 73 AFTR 2d 94-1195, at 94-1196

(9th Cir. 1994) (fact that the Commissioner prevailed in the Tax

Court, while “not dispositive”, is “significant”).      On the other



     28
       In the case of proceedings commenced after July 30, 1996,
the Government bears the burden of establishing that its position
was substantially justified. Sec. 7430(c)(4)(B)(i); see Taxpayer
Bill of Rights 2, Pub. L. 104-168, sec. 701(d), 110 Stat. 1463
(1996). In the case of proceedings commenced on or before that
date, the taxpayer bears the burden of establishing that the
Government’s position was not substantially justified. Sec.
7430(c)(4)(A)(i), prior to amendment by the Taxpayer Bill of
Rights 2, supra. The parties apparently assume that the current
rule applies to these cases. While our resolution of the
substantial justification issue would be the same regardless of
which rule applies, we are of the view that the relevant
“proceedings” commenced prior to July 30, 1996. Cf. supra note
19.
                                - 32 -

hand, it is “not always * * * true” that trial courts “[act] on a

soundly reasoned basis in every tax case.”       Huckaby v. U.S. Dept.

of Treasury, 804 F.2d 297, 299 (5th Cir. 1986); see also Henry v.

Commissioner, 34 Fed. Appx. 342, 345 (9th Cir. 2002) (Court of

Appeals had previously “found clear error in the Tax Court’s

findings” on negligence issue, which “leads to the conclusion

that the Commissioner’s position was not substantially

justified”).

     As noted above, respondent took the position in Dixon III

that the acknowledged attorney misconduct amounted to harmless

error, and this Court agreed.    While we would like to think that

we “[acted] on a soundly reasoned basis” in adopting respondent’s

position, the Court of Appeals in Dixon V could not have been

more clear in expressing and emphasizing its view that our

holding in Dixon III did not have a reasonable basis in law.        The

Court of Appeals began by stating:       “We review the Tax Court’s

refusal to grant a motion vacating a judgment on the basis of

fraud on the court for abuse of discretion, mindful that only

when this Court has a ‘definite and firm conviction that the Tax

Court committed a clear error of judgment in the conclusion it

reached’ is reversal appropriate.”       Dixon v. Commissioner, 316

F.3d 1041, 1046 (9th Cir. 2003) (citations omitted).         The Court

of Appeals quickly concluded:    “Because the Tax Court applied the

wrong legal standard, it abused its discretion.”       Id.

Specifically, “[t]he Tax Court * * * applied the wrong law when
                              - 33 -

it imposed a requirement that taxpayers show prejudice as a

result of the misconduct.”   Id.   Taking our cue from Henry v.

Commissioner, supra, we conclude that, given the foregoing

language of the Court of Appeals in Dixon V, respondent’s

position in Dixon III was not substantially justified.   Cf.

Golembiewski v. Barnhart, 382 F.3d 721, 724 (7th Cir. 2004)

(“Strong language against the government’s position in an opinion

[of a reversing appellate court] discussing the merits of a key

issue is evidence in support of an award of EAJA fees.”).

     D.   Conclusion

     We conclude that petitioners are entitled to relief under

section 7430.

III. Amount of Award

     A.   Respondent’s Position

     Respondent argues that, even if petitioners are entitled to

relief under section 7430, we should determine the amounts of

their awards by giving effect to section 7430’s hourly rate cap

and by denying compensation for services respondent alleges are

“redundant, excessive and unnecessary.”29

     B.   Applicability of Statutory Rate Cap

     The rate cap to which fee awards under section 7430 are

generally subject applies “unless the court determines that * * *

a special factor, such as the limited availability of qualified



     29
       Respondent does not quantify that argument in terms of
noncompensable hours.
                                - 34 -

attorneys for such proceeding, the difficulty of the issues

presented in the case, or the local availability of tax

expertise, justifies a higher rate.”     Sec. 7430(c)(1)(B)(iii).

Not surprisingly, petitioners urge us to lift the rate cap, while

respondent argues that we have no legal basis for doing so.30       We

begin by examining the three examples of special factors in the

statute and then discuss other factors that courts have taken

into account in this context.

             1.   Limited Availability of Qualified Attorneys

     The Supreme Court has narrowly interpreted the “limited

availability of qualified attorneys” factor in the context of the

EAJA.     See Pierce v. Underwood, 487 U.S. 552, 571-572 (1988),

interpreting 28 U.S.C. sec. 2412(d)(2)(A)(ii).31    Specifically,

the Court concluded that such language

     must refer to attorneys “qualified for the proceedings”
     in some specialized sense, rather than just in their
     general legal competence. We think it refers to
     attorneys having some distinctive knowledge or



     30
       The Hongsermeiers also argue that respondent’s
calculation of the applicable rate caps, see supra Part I.A., is
erroneous. They maintain that a 27.6-point increase in the
relevant CPI figures (i.e., from 151.075 to 178.675) requires a
27.6-percent increase in the statutory rate cap. That argument
is based on a misapprehension of the statutory adjustment
formula; it is the relative difference between CPI figures (i.e.,
27.6/151.075 = 18.27 percent)--not the arithmetic difference--
that determines the adjustment. See sec. 1(f)(3) (cross-
referenced in flush language of sec. 7430(c)(1)).
     31
       “The reasoning employed by the courts under the
attorney’s fees provision of the Equal Access to Justice Act
applies equally to review under section 7430.” Huffman v.
Commissioner, 978 F.2d at 1143.
                              - 35 -

      specialized skill needful for the litigation in
      question--as opposed to an extraordinary level of the
      general lawyerly knowledge and ability useful in all
      litigation. Examples of the former would be an
      identifiable practice specialty such as patent law, or
      knowledge of foreign law or language. * * * [Id. at
      572.]

Applying that reasoning, and leaving aside for the moment the

issue of tax expertise,32 we conclude that the general advocacy

and case management skills of petitioners’ counsel, while

undoubtedly “needful for the litigation”, do not justify a

departure from the statutory rate cap under the “limited

availability of qualified attorneys” exception, however

extraordinary in degree and limited in supply those skills may

be.   Cf. Hyatt v. Barnhart, 315 F.3d 239, 251 (4th Cir. 2002)

(“plaintiffs do not contend that expertise in class action

enforcement and procedure is a ‘special factor’ warranting an

increase in the statutory [EAJA] maximum rate”; such expertise

“should certainly not be beyond that possessed or easily acquired

by reasonably competent attorneys”); Animal Lovers Volunteer

Association, Inc. v. Carlucci, 867 F.2d 1224, 1226-1227 (9th Cir.

1989) (rejecting claim that “considerable expertise in appellate



      32
       See infra Part III.B.2., discussing the “local
availability of tax expertise” factor. We note that, prior to
the addition of that factor to sec. 7430 in 1998, see supra note
15, courts applying sec. 7430 generally held that, inasmuch as
the provision applies exclusively to tax cases, counsel’s tax
expertise did not support the finding of a special factor. See,
e.g., Huffman v. Commissioner, supra at 1150; Cassuto v.
Commissioner, 936 F.2d 736, 743 (2d Cir. 1991), affg. in part and
revg. in part on other grounds 93 T.C. 256 (1989); McWilliams v.
Commissioner, T.C. Memo. 1995-111.
                                 - 36 -

matters that would be necessary to successfully prosecute an

appeal against the enormous resources of the federal government”

is a special factor under the EAJA); Scarborough v. Nicholson, 19

Vet. App. 253, 264 (2005) (rejecting specialization in Supreme

Court litigation as a special factor under the EAJA).

            2.     Local Availability of Tax Expertise

     Petitioners’ counsel do not fare any better with regard to

this factor for the simple reason that tax expertise had little,

if anything, to do with the misconduct inquiry phase of this

litigation.      Cf. Hyatt v. Barnhart, supra at 252 (even if

counsel’s expertise in Social Security law could warrant a

departure from the EAJA hourly rate cap, “there has been no

satisfactory showing that such expertise was necessary to handle

the dispute [interpretation of settlement agreement] that

actually gave rise to the award of attorneys’ fees and costs

currently at issue”).     Thus, while we do not question counsel’s

tax expertise, such expertise does not support the finding of a

special factor under these circumstances.

            3.     Difficulty of the Issues

     Petitioners assert that the misconduct inquiry phase of

these proceedings presented difficult issues relating to

procedural due process, structural defect, “Footnote Nine”

error,33 and standards of proof and review applicable to the

doctrine of harmless error.      Petitioners point to DuFresne v.


     33
          See Brecht v. Abrahamson, 507 U.S. 619, 638 n.9 (1993).
                               - 37 -

Commissioner, 26 F.3d at 107, in which the Court of Appeals

framed the issue as one of structural defect versus harmless

error, as giving rise to the need to address the specified

difficult issues.34   The Court of Appeals, however, made no

reference to any of those issues in its Dixon V opinion.    Rather,

the Court of Appeals focused solely on the issue of fraud on the

court--specifically, whether fraud on the court requires a

showing of prejudice (i.e., whether it is properly the subject of

harmless error analysis).   The court’s 1-paragraph (with

accompanying footnote) disposition of that issue, see Dixon v.

Commissioner, 316 F.3d at 1047 & n.9, belies petitioners’

assertion that the relevant issues in the case were sufficiently

difficult to justify a departure from the statutory rate cap.

Cf. Golembiewski v. Barnhart, 382 F.3d at 724 (rejecting the

District Court’s contention that the complexity of the case

warranted a finding of substantial justification under the EAJA;

“our opinion does not reveal a complex case”).

          4.   Other Possible Special Factors

          a.   In General

     In Pierce v. Underwood, 487 U.S. 552 (1988), the Supreme

Court recognized that the language of the EAJA admits of other

possible special factors in addition to the statutory example of




     34
       In fairness to petitioners, they took their cue from us
in that regard; we framed our analysis in Dixon III in terms of
structural defect versus harmless error in response to DuFresne.
                              - 38 -

limited availability of qualified attorneys.     After narrowly

interpreting that factor, the Court continued:

          For the same reason of the need to preserve the
     intended effectiveness of the [then applicable] $75
     cap, we think the other “special factors” envisioned by
     the exception must be such as are not of broad and
     general application. * * * The “novelty and difficulty
     of issues,” “the undesirability of the case,” the “work
     and ability of counsel,” and “the results obtained,”
     are factors applicable to a broad spectrum of
     litigation; they are little more than routine reasons
     why market rates are what they are. The factor of
     “customary fees and awards in other cases,” is even
     worse; it is not even a routine reason for market
     rates, but rather a description of market rates. * * *
     [Id. at 573; citations to Pet. for Cert. omitted.]

Although Congress subsequently amended section 7430 to include

one of the factors specifically rejected by the Court in Pierce

(i.e., the difficulty of the issues), see supra note 15, there is

no indication in the relevant legislative history that the

amending Congress intended any broader retreat from the general

principles expressed in the foregoing excerpt in the context of

section 7430.   Thus, factors that are of “broad and general

application” (including the undesirability of the case, work and

ability of counsel, and results obtained) presumably remain

insufficient justification for lifting the caps.

          b.    The Government’s Misconduct

     It is certainly tempting to point to the attorney misconduct

in this litigation as a special factor that justifies a departure

from the hourly rate cap of section 7430.     Support for that

position may be found in Jean v. Nelson, 863 F.2d 759 (11th Cir.
                               - 39 -

1988), affd. on other grounds sub nom. Commissioner, INS v. Jean,

496 U.S. 154 (1990), in which a divided panel of the Court of

Appeals for the Eleventh Circuit concluded that the Government’s

misconduct can be a special factor under the EAJA.35    The

majority rejected the notion that the threshold “reasonableness”

inquiry under the EAJA precludes any further consideration of the

Government’s behavior:

     As the dissent points out, the EAJA already requires
     that the government’s position have no ‘reasonable
     basis in law and fact’ as a condition precedent to the
     recovery of fees. The EAJA does not, however, protect
     a litigant against potential government harassment. It
     is easy to imagine a situation where a position that is
     not ‘substantially justified’ is exacerbated by
     improper purposes in defending the lawsuit. * * * Thus,
     if the government in this case advanced litigation for
     any improper purpose such as harassment, unnecessary
     delay or increase in the plaintiffs’ expense, then
     consistent with Pierce, its action warrants the
     imposition of a special factor. [Id. at 776 n.13.]

See also Pollgreen v. Morris, 911 F.2d 527, 537-538 (11th Cir.

1990).    However, the Court of Appeals for the Fifth Circuit

explicitly rejected the Jean analysis in Estate of Cervin v.

Commissioner, 200 F.3d 351, 355-358 (5th Cir. 2000), affg. T.C.

Memo. 1998-176, reasoning that the finding of a special factor

under section 7430 based on the Government’s misconduct would

amount to an impermissible award of punitive damages.    Accord

Cassuto v. Commissioner, 936 F.2d 736, 743-744 (2d Cir. 1991),


     35
       The Supreme Court’s affirmance of Jean is limited to the
Court of Appeals’ holding that fees incurred in obtaining an EAJA
fee award are recoverable regardless of whether the Government
was substantially justified in opposing the initial fee request.
                               - 40 -

affg. in part and revg. in part on other grounds 93 T.C. 256

(1989); Fields v. Commissioner, T.C. Memo. 2002-320; see also In

re Sealed Case 00-5116, 254 F.3d 233, 237 (D.C. Cir. 2001) (EAJA

case).

     We agree with the majority view and conclude that

disregarding the section 7430 rate cap on the basis of the

attorney misconduct in this litigation would improperly add a

punitive aspect to the fee award.   Stated differently, such an

approach would blur the distinction between fee-shifting

provisions and punitive measures that the Supreme Court has drawn

in cases such as Cooter & Gell v. Hartmarx Corp., 496 U.S. at

409, and Chambers v. NASCO, Inc., 501 U.S. at 51-55.     See supra

Part I.B.    As the dissent in Jean v. Nelson, 863 F.2d at 782

(Kravitch, J., dissenting), observed in reasoning that Government

misconduct should not be treated as a special factor under the

EAJA:    “Rule 11 sanctions are always available to compensate ‘a

litigant whose opponent acts in bad faith in instituting or

conducting litigation.’”   Here, the acknowledged misdeeds of

McWade and Sims have been the subject of sanctions under section

6673(a)(2)(B) with respect to proceedings at the trial level.

See supra Part I.C.    Such misconduct is relevant to our present

task only in relation to the threshold issue under section 7430

of whether respondent’s position regarding the legal

ramifications of the misconduct was substantially justified.      See

supra Part II.C.
                                - 41 -

          c.      The Delay Factor

     In Library of Congress v. Shaw, 478 U.S. 310 (1986), the

Supreme Court held that a 30-percent increase in the lodestar

amount of a Title VII fee award to account for the delay factor

violated the “no-interest” rule, which prohibits the recovery of

interest in a suit against the Government absent an express

waiver of sovereign immunity with regard to interest.      Two years

later, the Court of Appeals for the D.C. Circuit concluded that

the “special factor” provision of the EAJA provides the express

waiver of sovereign immunity required by Shaw.      Wilkett v. ICC,

844 F.2d 867, 876 (D.C. Cir. 1988).      The court therefore

concluded that Shaw is not inconsistent with the law of that

circuit holding that delay may be regarded as a special factor

under the EAJA.     Id.; see also Masonry Masters, Inc. v. Nelson,

105 F.3d 708, 713-714 (D.C. Cir. 1997); Okla. Aerotronics, Inc.

v. United States, 943 F.2d 1344, 1350 (D.C. Cir. 1991).

     The Courts of Appeals for the Fifth and Eleventh Circuits

have sided with the D.C. Circuit on the delay issue in the

context of the EAJA, while the Courts of Appeals for the Seventh

and Federal Circuits have gone the other way.      Compare Perales v.

Casillas, 950 F.2d 1066, 1077 (5th Cir. 1992) (agreeing with the

D.C. Circuit that “[e]ven after the Supreme Court’s sweeping

prohibition in Shaw of interest awards against the United

States”, “some forms of delay may justify enhancing the statutory
                              - 42 -

base rate under the EAJA”),36 and Pollgreen v. Morris, supra at

537-538 (citing Wilkett but not Shaw; delay can be a special

factor under the EAJA if “the length of the delay was

excessive”), with Marcus v. Shalala, 17 F.3d 1033, 1039 (7th Cir.

1994) (Wilkett, Okla. Aerotronics, and Perales “amount to an end

run around the no-interest rule in Shaw because the statutory

provision allowing for a higher fee where there is a special

factor is not the kind of express, unambiguous statutory language

sufficient to waive sovereign immunity”), and Chiu v. United

States, 948 F.2d 711, 721 (Fed. Cir. 1991) (stating in dictum

that the argument for delay as a special factor would not pass

muster under Shaw).37

     We agree with the Courts of Appeals for the Seventh and

Federal Circuits that the Wilkett line of authority runs directly

counter to Library of Congress v. Shaw, supra.   See also Wilkett

v. ICC, supra at 795 (Starr, J., dissenting from denial of rehg.



     36
       The Court of Appeals for the Fifth Circuit subsequently
stated, without mentioning Perales or its special factor
analysis, that Shaw precludes an award of interest on a sec. 7430
fee award. See Wilkerson v. United States, 67 F.3d 112, 120 n.15
(5th Cir. 1995).
     37
       The courts in Marcus v. Shalala, 17 F.3d at 1039, and
Chiu v. United States, 948 F.2d at 721, also contended that
Wilkett runs afoul of the Supreme Court’s subsequent admonition
in Pierce v. Underwood, 487 U.S. at 573, that special factors
under the EAJA cannot be of “broad and general application”. The
Court of Appeals for the D.C. Circuit attempted to reconcile its
holding in Wilkett with Pierce in Okla. Aerotronics, Inc. v.
United States, 943 F.2d 1344, 1350 (D.C. Cir. 1991) (clarifying
that “what makes the factor ‘special’ is not simple delay, but
unusual delay”).
                               - 43 -

en banc) (“the panel’s decision is incompatible with the

teachings of” Shaw); Okla. Aerotronics, Inc. v. United States,

supra at 1353 (Williams, J., concurring and dissenting) (finding

Wilkett’s rationale “far from clear”); Masonry Masters, Inc. v.

Nelson, supra at 714 (Henderson, J., concurring) (asserting that,

because the EAJA lacks the express waiver contemplated in Shaw,

fees awarded thereunder “can never be enhanced for delay as a

matter of law”).    In Shaw, the Supreme Court rejected the

argument that language in Title VII making the Government liable

for costs (including a reasonable attorney’s fee) “the same as a

private person” operated as an express waiver of sovereign

immunity with respect to interest, even though interest on

attorney’s fees may be recovered in a Title VII suit against a

private employer.    In our view, the case for waiver was stronger

under the version of Title VII at issue in Shaw38 than it is under

the EAJA or, by extension, section 7430.   See Wilkerson v. United

States, 67 F.3d 112, 120 n.15 (5th Cir. 1995) (“Nothing in § 7430

indicates that Congress intended to waive its immunity from

interest awards”); Miller v. Alamo, 992 F.2d 766, 767 (8th Cir.

1993) (same); Austin v. Commissioner, T.C. Memo. 1997-157 (same);

see also Intl. Woodworkers of Am., AFL-CIO, Local 3-98 v.

Donovan, 792 F.2d 762, 766-767 (9th Cir. 1985) (pre-Shaw; no



     38
       Title VII has since been amended to expressly allow the
recovery of interest against the Government in Title VII actions.
See 42 U.S.C. sec. 2000e-16(d) (2000); Landgraf v. USI Film
Prods., 511 U.S. 244, 251 (1994).
                                - 44 -

interest on EAJA fee award since no statutory provision expressly

authorizes such interest).

            d.    Test Case Status

     One aspect of this litigation that is certainly “not of

broad and general application” (and therefore potentially

supports the finding of a special factor) is its test case

status.    Undoubtedly, counsel’s efforts have beneficially

affected hundreds of nontest case petitioners.    At least one

court, however, has explicitly rejected the notion that such

widespread benefit may be treated as a special factor under the

EAJA.   See Pollgreen v. Morris, 911 F.2d 527 (11th Cir. 1990).

Pollgreen involved an EAJA fee award to plaintiffs who had

successfully challenged fines and property seizures stemming from

their participation in the “Freedom Flotilla” of Cuban refugees

in 1980.    The District Court had doubled the statutory rate, in

part because the litigation benefited “not only * * * the

Plaintiffs herein but a class of people, including over 1,000

vessel owners.”     Id. at 537; see also Lyden v. Howerton, 731 F.

Supp. 1545, 1556 (S.D. Fla. 1990) (same language in another

“Freedom Flotilla” case).    The Court of Appeals concluded that

the District Court’s “consideration of the litigation’s benefit

to a broad class of people is foreclosed by Pierce’s prohibition

on considering ‘the results obtained’”.    Pollgreen v. Morris,
                                - 45 -

supra at 537.39    In that regard, we deem it noteworthy that Pierce

itself involved a class action in which plaintiffs’ counsel

secured a $60 million settlement against the Department of

Housing and Urban Development that was paid to more than 150,000

low-income tenants of federally subsidized housing projects.    See

Underwood v. Pierce, 547 F. Supp. 256, 258 (C.D. Cal. 1982).

          5.      Conclusion

     For the reasons discussed above, we conclude that we are

constrained to apply the statutory rate caps in determining the

respective amounts of petitioners’ fee awards under section 7430.

     C.   Compensable Hours

          1.      Respondent’s Objections

          a.      Duplicative Fees Due to Change of Counsel

     Respondent argues that any fee award should exclude

“duplicative attorneys’ fees associated with two sets of

appellate counsel having to read the same record and learn the

same case.”    While the inefficiencies associated with a change in

counsel may, in some instances, warrant a reduced fee award, see,

e.g., Spell v. McDaniel, 852 F.2d 762, 768 (4th Cir. 1988), we

conclude that such a reduction would be inappropriate here.    As

noted above, more than 300 nontest case petitioners have financed

the test case litigation through contributions to the Defense


     39
       The court also cited Jean v. Nelson, 863 F.2d at 775, a
class action involving Haitian refugee claims, in which it had
rejected “vindication of public rights” as a special factor under
the EAJA.
                                 - 46 -

Fund.     It is hardly surprising that this group, faced with the

largely unfavorable outcome of Dixon III, would fracture over the

issue of legal representation going forward.     Indeed, given the

number of contributors to the Defense Fund, three sets of

appellate counsel (i.e., Izen, Minns, and Porter & Hedges) does

not seem unreasonable.40    Therefore, we shall not reduce the

number of compensable hours merely to account for the fact that

Minns and Porter & Hedges had to “read the same record and learn

the same case” with which Izen was already familiar.

             b.   Overstaffing

     Respondent also asserts that “it is apparent that these

cases have been overstaffed by both Mr. Minns and Porter and

Hedges and that the number of hours charged by those firms for

the appeal is excessive and outside the realm of reason.”     In

evaluating the reasonableness of the hours claimed, we are aided

by the fact that, taking into account Izen’s appellate fee

request, we have before us three separate fee applications

relating to the same appellate proceedings.41    Each of those

applications contains a breakdown of hours devoted to various

tasks as delineated in the Ninth Circuit’s Form 9.     Regarding



     40
       We note that three sets of counsel participated in the
evidentiary hearing underlying our opinion in Dixon III as well:
Izen, Jones, and Sticht.
     41
       Although Jones has also filed a motion in this Court for
appellate fees and expenses, see supra note 12, he did not
directly participate in the appeals of the test cases as did
Izen.
                              - 47 -

what we deem to be the four “core” categories (obtaining and

reviewing records, legal research, preparing briefs, and

preparing for and attending oral argument), Izen claims 676.65

hours, Minns claims 779.18 hours (including Lawfinders’ time),

and Porter & Hedges claims 1,013.9 hours.   While it may be

somewhat presumptuous for this Court to judge the relative merits

of the appellate briefs,42 we see no obvious justification for the

significantly greater number of hours claimed by Porter & Hedges

in these categories.   Assuming for these purposes that the

subject hours claimed by Izen and Minns represent the low end and

the midpoint, respectively, of the range of reasonableness, we

reduce the Porter & Hedges figure by 130 hours so that the




     42
       We do observe that it was Izen who hewed to the line that
the misconduct of respondent’s attorneys was a fraud on the
Court, and that the primary relief to which all eligible
petitioners should be entitled is the benefit of the Thompson
settlement. Binder and Minns argued primarily for the complete
vacatur of this Court’s decisions, which would result in a
complete win--no deficiencies--for the petitioners (although
Binder did suggest the Thompson settlement as an alternative).
In the light of hindsight, Izen’s approach has been vindicated;
the Court of Appeals in Dixon V adopted both his diagnosis and
his prescription without reservation.

     Having said that, we do not mean to imply that all of Izen’s
appellate time was well spent. He was the only attorney who
continued to argue that the Kersting tax shelters created valid
tax deductions, a position not only contrary to the holdings of
this Court in Dixon II and Dixon III, but also contrary to that
of the Court of Appeals for the Ninth Circuit in the related
promoter penalty case. See Kersting v. United States, 206 F.3d
817 (9th Cir. 2000). We also have the impression that
considerable time was wasted at the appellate level in dealing
with Izen’s unsuccessful and unnecessary attempts to include
hundreds of nontest cases in the Adairs’ interlocutory appeal.
                               - 48 -

resulting figure (883.9 hours) for these categories is in line

with the high end of the range of reasonableness.

            c.   Porter & Hedges Client Conferences

       Respondent alleges that the PH petitioners have failed to

demonstrate the reasonableness of “charges for numerous

conferences with various unidentified individuals, apparently

members of the Steering Committee.”     Our concern lies with the

lack of subject matter descriptions for many of those conferences

and other client communications such as e-mail correspondence.

As discussed above, the committee hired Porter & Hedges not only

to replace Minns but also to recover amounts previously paid to

him.    We do not intend to hold the Government responsible for

fees attributable to the latter task.     In that regard, the

parties’ submissions indicate that Binder assumed primary

responsibility for the Porter & Hedges briefs, while Irvine dealt

with the Minns situation and client relations, in addition to

overseeing work on the briefs.    Most of the generic references to

client contacts appear in Irvine’s time entries, and common

experience suggests that such contacts were more likely related

to the Minns dispute or client relations than, say, appellate

strategy.    Nevertheless, in the absence of subject matter

descriptions, we assume that the time Irvine spent consulting

with Defense Fund representatives was divided equally between

matters relating to the Minns dispute and client relations on the

one hand, and matters relating to the appeal, on the other.
                              - 49 -

          2.   Additional Adjustments to Time Claimed for the
               Appeals

          a.   Missing Minns Time Entries

     Although Minns claims 577.42 hours of attorney and legal

assistant time for his firm (i.e., not including the Lawfinders

time) in the Hongsermeiers’ initial appellate fee request, the

accompanying time entries for Minns and his in-house staff cover

only 462.56 hours.   Inasmuch as those time entries run only

through January 22, 2002, they do not cover the final preparation

of the brief (apparently mailed on January 25, 2002), the

preparation of the reply brief, or the oral argument.43   While we

are not inclined to provide Minns the opportunity to “prove up”

his firm’s undocumented efforts at this late date, we likewise

are not prepared to disregard those efforts altogether.

Accordingly, we shall credit Minns with the 66-hour block of time

he categorized as “preparing for and attending oral argument” in

his submission to the Court of Appeals and disallow the remaining

48.86 undocumented hours.44




     43
       We note that there is no corresponding break in the Bates
numbering of the documents accompanying the parties’ special
stipulation of facts (filed in this Court) regarding the
appellate fee requests.
     44
       Only 11.5 of those 48.86 hours are attributable to Minns;
the balance is attributable to his associate attorney and his
legal assistant.
                               - 50 -

           b.    Minns Hours Relating to Dispute With Committee

     As stated above, we will not hold the Government responsible

for fees attributable to the dispute between the steering

committee and Minns.   Following the approach used above with

regard to Irvine’s time, we assume that, absent subject matter

descriptions to the contrary, the time Minns and his staff spent

during December 2001 and January 2002 communicating with clients

was divided equally between damage control and matters relating

to the appeal.   Similarly, we assume that time spent

communicating with Irvine during this contentious period was

devoted to “self defense” and to coordination efforts in equal

measure.

           c.    Additional Porter & Hedges Time Relating to Minns
                 Dispute

     We have previously dealt with Irvine’s nondescriptive time

entries relating to client communications.   We add here that,

consistent with our treatment of Minns, we assume, absent subject

matter descriptions to the contrary, that time spent by Irvine

communicating with Minns and his staff was divided equally

between matters relating to the Minns dispute and matters

relating to the appeal.   We also disallow the relatively small

amount of time Irvine devoted to “review of contracts”, as that

task is clearly identifiable with his firm’s engagement by the

steering committee to handle its dispute with Minns.
                                - 51 -

            d.   Porter & Hedges Time Relating to Bill of Costs

     Porter & Hedges claims approximately 33 hours of attorney

time (most of it Binder’s) relating to a bill of costs in the

amount of $5,663.40.45    See Fed. R. App. P. 39.   We see no

justification for the devotion of that much time to a task

normally considered ministerial.    In that regard, we note that

Minns has not claimed any time relating to the bill of costs he

filed on behalf of the Hongsermeiers.    We disallow all but 5

hours of attorney time relating to the PH petitioners’ bill of

costs.

            e.   Porter & Hedges Time Relating to Remand

     A few of Binder’s time entries describe time spent analyzing

the illicit Thompson settlement shortly after the Court of

Appeals’ issuance of Dixon V.    As those entries relate to the

ensuing remand proceedings in this Court, they are not properly

the subject of an appellate fee request.    See supra text

accompanying note 21.

            3.   Adjustments to Porter & Hedges Time Relating to
                 Fee Request

            a.   Initial Research Time

     According to the Porter & Hedges time entries, four

attorneys spent 85.2 hours researching section 7430 and

attorney’s fees issues (and memorializing that research) before




     45
          The Court of Appeals ultimately allowed $3,808.50 of such
costs.
                                - 52 -

work on the actual fee request even began.    That seems excessive

to us, and we accordingly reduce those hours by 50 percent.

            b.    Time Relating to Unsuccessful Claims

     All of the adjustments we have made thus far relate to

either (1) documentation or (2) what may be termed the efficiency

aspect of the reasonableness standard incorporated into section

7430.     In Hensley v. Eckerhart, 461 U.S. 424, 436 (1983), a case

involving CRAFAA (the general civil rights fee-shifting

statute),46 the Supreme Court addressed another aspect of

reasonableness in this context:

             If * * * a plaintiff has achieved only partial or
        limited success, the product of hours reasonably
        expended on the litigation as a whole times a
        reasonable hourly rate may be an excessive amount.* * *

          * * * That the plaintiff is a “prevailing party”
     therefore may say little about whether the expenditure
     of counsel’s time was reasonable in relation to the
     success achieved. * * *

Professor Sisk sometimes refers to this aspect of the

reasonableness standard as the limited success factor.     Sisk,

“The Essentials of the Equal Access to Justice Act:      Court Awards

of Attorney’s Fees for Unreasonable Government Conduct (Part

Two),” 56 La. L. Rev. 1, 119 (1995).

     The Supreme Court subsequently referred to the limited

success factor in the context of “fees for fees” (i.e., fees



     46
       “The standards set forth in this opinion are generally
applicable in all cases in which Congress has authorized an award
of fees to a ‘prevailing party.’” Hensley v. Eckerhart, 461 U.S.
424, 433 n.7 (1983).
                              - 53 -

incurred in obtaining a fee award) in Commissioner, INS v. Jean,

496 U.S. 154 (1990).   As discussed in Part I.B., supra, the Court

in Jean held that fees for fees are recoverable under the EAJA

without a separate showing that the Government’s opposition to

the fee award was not substantially justified.   In response to

the Government’s argument that such a holding would have the

effect of allowing “an automatic award of ‘fees for fees’”, id.

at 162, the Court stated:

          Because Hensley v. Eckerhart, 461 U.S. 424, 437
     (1983), requires the district court to consider the
     relationship between the amount of the fee awarded and
     the results obtained, fees [claimed] for fee litigation
     should be excluded [from the award] to the extent that
     the applicant ultimately fails to prevail in such
     litigation. For example, if the Government’s challenge
     to a requested rate for paralegal time resulted in the
     court’s recalculating and reducing the award for
     paralegal time from the requested amount, then the
     applicant should not receive fees for the time spent
     defending the higher rate. [Id. at 163 n.10.]

The Court of Appeals for the Ninth Circuit has expressly held

that “the legal principles for recovering attorney’s fees laid

out in Hensley [citation omitted] apply to requests for fees-on-

fees”.   Thompson v. Gomez, 45 F.3d 1365, 1367 (9th Cir. 1995);

see also Atkins v. Apfel, 154 F.3d 986, 990 (9th Cir. 1998).

     While it is often difficult to allocate attorney time

between successful and unsuccessful issues and claims, “denial of

a particular form or aspect of relief occasionally may be

attributable to a discrete motion or proceeding, thus allowing

the limited success factor to be measured by hours devoted to
                               - 54 -

that effort.”   Sisk, 56 La. L. Rev. at 119; see also Hensley v.

Eckerhart, supra at 436 (one way a court can give effect to the

limited success factor is by “attempt[ing] to identify specific

hours that should be eliminated”).      That is the case with regard

to our rejection of the PH petitioners’ attempts (1) to avoid the

section 7430 rate cap by asserting entitlement under the bad

faith exception and section 6673, and (2) to obtain interest on

their fee award (see infra Part IV).      Specifically, the PH

petitioners’ August 2005 amendment of their fee request (and the

prerequisite motion for leave to amend), their motion for

reconsideration of our September 1, 2005 order, and their

November 2005 request for appellate fees under section 6673

pertain exclusively to those unsuccessful claims.     We therefore

disallow the 123.7 hours Porter & Hedges devoted to those

filings.47   Cf. Anthony v. Sullivan, 982 F.2d 586 (D.C. Cir. 1993)

(plaintiff initially sought recovery of fees under both the Title

VII fee provision, which contains no rate cap, and the EAJA;

after Court of Appeals overturned the Title VII award, plaintiff

established entitlement to EAJA award on remand; held, Hensley

dictates that plaintiff’s EAJA award not include any fees

incurred in the unsuccessful defense of the Title VII award on

appeal).



     47
       We do not intend to suggest thereby that the positions
taken in those filings are in any way frivolous. See Hensley v.
Eckerhart, supra at 436 (partial or limited success must be taken
into account even though the unsuccessful claims are nonfrivolous
and raised in good faith).
                                 - 55 -

     D.      Computation of Potentially Compensable Fees

     We now determine the amount of claimed fees that, to the

extent paid or incurred by real parties in interest who satisfy

section 7430’s net worth requirement (hereafter, eligible

persons), see infra Part III.F., are compensable under section

7430.     Where the fee requests reflect the use of “block billing”

(i.e., the assignment of multiple discrete tasks to a single

block of time), we use our best judgment to allocate the

aggregate amount of time among the various tasks.

             1.   The Hongsermeiers--Work on the Appeal48

             a.   2001

     Taking into account the $140 rate cap in effect for 2001,

the Hongsermeiers claim 377.17 hours at $140 per hour, 31 hours

at $100 per hour, and 17.69 hours at $50 per hour.     Regarding the

50-percent reduction for time deemed attributable to both the

dispute with the steering committee and the appeal, we have

assigned 16.4 hours in December to client communications (Minns:

8.5 hours; associate attorney:     4.5 hours; legal assistant:   3.4

hours).     We therefore (1) reduce the $140 (Minns) time by 4.25

hours (50% of 8.5 = 4.25), leaving 372.92 hours; (2) reduce the

$100 (associate) time by 2.25 hours (50% of 4.5 = 2.25), leaving



     48
       Because the Defense Fund retained Minns to pursue the
appeal and a separate group subsequently retained him to pursue
appellate fees, we compute the potentially compensable fees with
respect to those two engagements separately. The Hongsermeiers
claim $220,201 for work on the appeal and $56,233.75 for work on
the fee request.
                                - 56 -

28.75 hours; and (3) reduce the $50 (legal assistant) time by 1.7

hours (50% of 3.4 = 1.7), leaving 15.99 hours.    The resulting

amount is $55,883.30, determined as follows: [(372.92 X $140) +

(28.75 X $100) + (15.99 X $50)] = ($52,208.80 + $2,875 + $799.50)

= $55,883.30.

          b.    2002

     Taking into account the $150 rate cap in effect for 2002,

the Hongsermeiers claim 446.95 hours at $150 per hour, 34.4 hours

at $100 per hour, and 23.11 hours at $50 per hour.    Of the 48.86

hours disallowed due to missing time entries, 11.5 hours relate

to $150 time, 20.8 hours relate to $100 time, and 16.56 hours

relate to $50 time.    Regarding the 50-percent reduction for

January 2002 time deemed attributable to both the rift with the

steering committee and the appeal, we have assigned 6.9 hours to

client communications (Minns:    5.1 hours; legal assistant:    1.8

hours) and 2.9 hours to Irvine communications (Minns:    1.9 hours;

legal assistant:   1 hour).   We therefore reduce the $150 (Minns)

time by an additional 3.5 hours (5.1 + 1.9 = 7; 50% of 7 = 3.5)

and reduce the $50 (legal assistant) time by an additional 1.4

hours (1.8 + 1 = 2.8; 50% of 2.8 = 1.4).    That leaves 431.95

hours of $150 time (446.95 - 11.5 - 3.5 = 431.95), 13.6 hours of

$100 time (34.4 - 20.8 = 13.6), and 5.15 hours of $50 time (23.11

- 16.56 - 1.4 = 5.15).    The resulting amount is $66,410,

determined as follows: [(431.95 X $150) + (13.6 X $100) + (5.15 X

$50)] = ($64,792.50 + $1,360 + $257.50) = $66,410.
                                - 57 -

          c.   Total

     The total amount of potentially compensable fees with

respect to the Hongsermeiers’ fee request for work on the appeal

is $122,293.30 ($55,883.30 for 2001 and $66,410 for 2002).

          2.   The Hongsermeiers–Work on the Fee Request

          a.   2003 to 2005

     Taking into account the $150 rate cap in effect during the

years 2003 through 2005, the Hongsermeiers claim 177.85 hours at

$150 per hour, 92.75 hours at $125 per hour, 2.4 hours at $75 per

hour, and 2.65 hours at $50 per hour.    The resulting amount is

$38,583.75, determined as follows: [(177.85 X $150) + (92.75 X

$125) + (2.4 X $75) + (2.65 X $50)] = ($26,677.50 + $11,593.75 +

$180 + $132.50) = $38,583.75.

          b.   2006

     Taking into account the $160 rate cap in effect for 2006,

the Hongsermeiers claim 0.5 hours at $160 per hour, 0.9 hours at

$125 per hour, and 1.7 hours at $50 per hour.    The resulting

amount is $277.50, determined as follows: [(0.5 X $160) + (0.9 X

$125) + (1.7 X $50)] = ($80 + $112.50 + $85) = $277.50.

          c.   Application of Limited Success Factor

     While the Hongsermeiers did not join in the PH petitioners’

unsuccessful fee request claims discussed in Part III.C.3.b.,

supra, that does not mean that Hensley’s limited success factor

has no application to their claim for fees on fees.    As Professor

Sisk observes: “Because ordinarily it is difficult to precisely
                                - 58 -

link a certain segment of legal services to the denial of

particular relief, the limited success factor typically is

addressed at a separate stage through a percentage downward

adjustment of the lodestar.”    Sisk, 56 La. L. Rev. at 119; see

also Hensley v. Eckerhart, 461 U.S. at 436-437 (in applying the

limited success factor, a court “may attempt to identify specific

hours that should be eliminated, or it may simply reduce the

award to account for the limited success”).    Here, the lodestar

for the Hongsermeiers’ fees on fees is $38,861.25 ($38,583.75 for

2003 through 2005, and $277.50 for 2006).     In determining the

degree of success they achieved with regard to their fee request,

we compare the number of “merits hours” they claimed (i.e., hours

relating to the appeal--930.32) with the number of merits hours

we have allowed (868.36).49    See Thompson v. Gomez, 45 F.3d 1365

(9th Cir. 1995) (upholding District Court’s award of 87.2 percent

of requested fees on fees to reflect the parties’ 87.2-percent

settlement with regard to requested “merits fees”); Harris v.

McCarthy, 790 F.2d 753, 759 (9th Cir. 1986) (upholding District

Court’s award of 11.5 percent of requested fees on fees to

reflect its award of 11.5 percent of requested merits fees).       The


     49
       See supra Parts III.D.1.a. and III.D.1.b. (372.92 + 28.75
+ 15.99 + 431.95 + 13.6 + 5.15 = 868.36). We compare merits
hours claimed to merits hours allowed rather than merits fees
claimed to merits fees awarded because much of the difference
between the merits fees claimed and the merits fees awarded in
this case is attributable to sec. 7430’s rate cap, the effect of
which is already reflected in the fees on fees lodestar amount of
$38,861.25.
                               - 59 -

resulting success ratio (868.36/930.32) is 93.33 percent, which

we apply to the aforementioned lodestar to obtain the amount of

potentially compensable fees on fees with respect to the

Hongsermeiers’ fee request: $36,269.20.50

          3.   The PH Petitioners

          a.   2001

     Taking into account the $140 rate cap in effect for 2001,

the PH petitioners claim 112.15 hours at $140 per hour, 3.25

hours at $105 per hour, and 0.5 hours at $90 per hour.    We begin

by allocating to 2001 a portion of the 130-hour “overstaffing”

reduction discussed above.   Based on the Porter & Hedges time

entries, we estimate that 10 percent of the hours devoted to

tasks described in the “core” categories of the Ninth Circuit’s

Form 9, see supra Part III.C.1.b., are attributable to services

performed in 2001.    Accordingly, we reduce the time claimed for

2001 by 13 hours (10% of 130 = 13).     Since more than 96 percent

of the time claimed for 2001 falls into the $140 category, we

further allocate the entire 13-hour reduction to the $140 time.

Next, we apply the 50-percent reduction to Irvine’s 2001 time

deemed attributable to both the Minns dispute and the appeal.     In


     50
       We note here that, even though petitioners did not
receive all the relief they requested on appeal, see supra note
42, we see no need to reduce their “merits fees” awards by
applying a success ratio. See Hensley v. Eckerhart, 461 U.S. at
435 & n.11 (where plaintiff obtains “excellent results”, fee
award will normally encompass all hours reasonably expended on
the litigation; fact that such plaintiff did not receive all the
relief requested is not necessarily significant).
                                    - 60 -

that regard, we have assigned 10.5 hours to generic client

communications and 1.5 hours to Minns communications.        We

therefore reduce the $140 time by an additional 6 hours (10.5 +

1.5 = 12; 50% of 12 = 6).        Finally, we have assigned 0.75 hours

to Irvine’s review of contracts and further reduce the $140 time

by that amount.        The end result is a 19.75-hour reduction in the

$140 time (13 + 6 + .75 = 19.75), leaving 92.4 hours of $140

time.        The resulting amount is $13,322.25, determined as follows:

[(92.4 X $140) + (3.25 X $105) + (0.5 X $90)] = ($12,936 +

$341.25 + $45) = $13,322.25.

                b.   2002 to 2005

     Taking into account the $150 statutory rate cap in effect

during the years 2002 through 2005, the PH petitioners claim

1,683.85 hours at $150 per hour, 1 hour at $140 per hour, 0.7

hours at $130 per hour, 1.4 hours at $120 per hour, 2 hours at

$105 per hour, 1 hour at $100 per hour, and 15.5 hours at $90 per

hour.        We adjust the $150 time to reflect the following

reductions: (1) Remainder of the 130-hour overstaffing reduction-

-117 hours; (2) Irvine’s time deemed attributable to the Minns

dispute--7.8 hours;51 (3) excessive time pertaining to the bill of

costs--28 hours; (4) work attributable to the remand proceedings-



        51
       We have assigned 15.6 hours of Irvine’s 2002 time to
generic client communications (10.9 hours) and Minns
communications (4.7 hours). As we deem 50 percent of that time
to be attributable to the Minns dispute, the resulting reduction
is 7.8 hours (50% of 15.6 = 7.8).
                                 - 61 -

-7.9 hours; (5) excessive preliminary research regarding section

7430 and attorney’s fees issues--42.6 hours (85.2 X 50% = 42.6);

and (6) time devoted to unsuccessful fee request claims--123.7

hours (119.2 hours of Binder’s time and 4.5 hours of Irvine’s

time).    The end result is a 327-hour reduction in the $150 time

(117 + 7.8 + 28 + 7.9 + 42.6 + 123.7 = 327), leaving 1,356.85

hours of $150 time.      The resulting amount is $205,631.50,

determined as follows: [(1,356.85 X 150) + (1 X $140) + (0.7 X

$130) + (1.4 X $120) + (2 X $105) + (1 X $100) + (15.5 X $90] =

($203,527.50 + $140 + $91 + $168 + $210 + $100 + $1,395) =

$205,631.50.

            c.   2006

     Taking into account the $160 rate cap in effect for 2006,

the PH petitioners claim 67.9 hours at $160 per hour and 2.5

hours at $140 per hour.52     The resulting amount is $11,214,

determined as follows: [(67.9 X $160) + (2.5 X $140)] = ($10,864

+ $350) = $11,214.

            d.   Total

     The total amount of potentially compensable fees with

respect to the PH petitioners’ fee request is $230,167.75




     52
       In their final submission of fees and expenses, the PH
petitioners seek to recover an additional $4,865 that Porter &
Hedges estimates it will incur in pursuing the fee request “until
this Court rules on this motion”. We are not aware of any
authority supporting such a request, nor do we see the need for
such additional fees and expenses under the circumstances.
                               - 62 -

($13,322.25 for 2001, $205,631.50 for 2002 through 2005, and

$11,214 for 2006).

     E.   Potentially Compensable Expenses

     The PH petitioners claim additional costs in the amount of

$20,307.18.   We reduce that amount by $2,425.66 as follows:

     Delivery charges: $105.11 (2 overnight deliveries to/from
     persons with no identifiable connection to the litigation--
     $26.86; extra charges for a Saturday package pickup--$75.25;
     discrepancy between claimed courier charge and computer
     backup--$3)

     Computer research: $444.39 (difference between amounts
     charged by provider and amounts reflected in billing
     records--$226.31; unidentified research sessions--$218.08)

     Secretarial overtime:   $1,083.90

     Double-counted charges:   $751.26 (3/10/03 to 4/30/03)

     Miscellaneous: $41 (“various tips”--$16; unidentified
     parking charge--$25)

The amount of potentially compensable expenses with respect to

the PH petitioners’ fee request is therefore $17,881.52.

     As indicated above, the Hongsermeiers have not requested any

expenses other than attorney’s fees.

     F.   Amounts Paid or Incurred by Eligible Persons

     We now determine the extent to which eligible persons paid

or incurred the potentially compensable fees and expenses with

respect to the fee requests.
                               - 63 -

          1.     Amounts Paid Through the Defense Fund

          a.     Minns Agreement

     The Defense Fund paid $185,000 in legal fees under the Minns

agreement.    Of the $220,201 claimed by the Hongsermeiers for the

corresponding legal services, see supra note 48, $122,293.30 is

potentially compensable, see supra Part III.D.1., meaning that

$97,907.70 is noncompensable ($220,201 - $122,293.30 =

$97,907.70).   Given the fungibility of money, a case can be made

for allocating the Fund’s $185,000 expenditure between the

potentially compensable fees and the noncompensable fees on a pro

rata basis.    We are not aware of any authority requiring us to do

so, and we think such an approach would run counter to the

remedial purpose of section 7430.   Accordingly, we allocate the

first $122,293.30 of the $185,000 expenditure to the potentially

compensable fees and the remaining $62,706.70 ($185,000 -

$122,293.30 = $62,706.70) to the noncompensable fees.

     Next, we must identify the contributions to the Defense Fund

from which the Fund’s $185,000 expenditure derived.      Owing again

to the fungibility of money, any methodology we use will be

somewhat arbitrary.   Nevertheless, we believe it is reasonable to

treat the $185,000 expenditure as having derived from the

$268,200 contributed to the Fund by the Hongsermeiers and the

group of 112 from January 2001 through November 2001.

     The following table lists the persons described in the

preceding paragraph (i.e., the Hongsermeiers and the group of
                             - 64 -

112) for whom we have received net worth affidavits, together

with the amount contributed by each such person to the Defense

Fund during the relevant period:

                 Name                  Amt. Contributed
                 Arbuckle                  $2,400
                 Asmus                     $2,500
                 Baccitich                 $2,400
                 Bakos                     $2,400
                 Beecher                   $2,300
                 Berger                    $3,500
                 Boettger                  $2,300
                 Bowersox                  $2,600
                 Branch                    $2,400
                 Bremner                   $2,300
                 Brown                     $2,400
                 Bruckner                  $2,400
                 Croft                     $2,700
                 Doyle                     $2,300
                 Ellis                     $2,400
                 Evans                     $2,100
                 Flatter                   $2,600
                 Fraser                    $2,500
                 Fruchnicht                $3,000
                 Fusakio                   $1,500
                 Gaubert                   $1,500
                 Gavagan                   $2,700
                 Geisler                   $2,400
                 Graham                    $2,500
                 Hague                     $1,800
                 Hannan                    $2,400
                 Hartigan                  $2,000
                 Hatcher                   $2,400
                 Heintz                    $2,500
                 Hendrickson               $2,300
                 Hillen                    $2,300
                 Hinrich                   $2,000
                 Hongsermeier              $2,600
                 Howell                    $2,300
                 Humphries                 $2,200
                 Hunt                      $2,900
                 Jensen, John              $2,400
                 Jensen, Steen             $2,300
                 Johnson, Marvin           $1,500
                 Jurewicz                  $2,400
                 Keadle                    $2,500
                                - 65 -

                 Kelley                    $2,500
                 Klasch                    $2,500
                 Krassner                  $2,700
                 Layman                    $1,700
                 Leslie                    $1,700
                 Maeda                     $2,600
                 McNamee                   $2,300
                 Meyners                   $2,500
                 Michaelson                $2,400
                 Miller, Dale              $2,400
                 Miller, R.B.              $2,800
                 Millon                    $3,000
                 Muckle                    $2,300
                 Myers                     $2,500
                 Norrell                   $2,500
                 Oakes                     $2,400
                 Oyler                     $2,700
                 Pistoll                   $2,500
                 Porter                    $2,300
                 Proctor                   $2,200
                 Pylate                    $1,500
                 Richmond                  $2,400
                 Satterfield               $2,400
                 Sheasley                  $2,500
                 St. John                  $1,900
                 Tice                      $2,600
                 Toman                     $2,700
                 Tynan                     $2,700
                 Villines                  $2,400
                 Watkins                   $2,300
                 Whittlesey                $2,500
                 Wiater                    $2,400
                 Wilson                    $2,400
                                         $176,100

Thus, at least $176,100 of the $268,200 contributed to the

Defense Fund by the Hongsermeiers and the group of 112 between

January 2001 and November 2001 derives from eligible persons (we

refer to such contributions as eligible contributions).   Here,

too, a case can be made for allocating the eligible contributions

between the Defense Fund’s $122,293.30 payment for potentially

compensable fees and its $62,706.70 payment for noncompensable
                                - 66 -

fees on a pro rata basis.   Again, we are not aware of any

authority requiring us to do so, and we think such an approach

would run counter to the remedial purpose of section 7430.

Accordingly, we allocate the eligible contributions first to the

Defense Fund’s $122,293.30 payment for potentially compensable

fees.   It follows that eligible persons paid all of those

potentially compensable fees.

           b.   Porter & Hedges Agreement

     We take a similar approach with regard to the $60,000 the

Defense Fund paid to Porter & Hedges.    Of the $514,821.90 claimed

by the PH petitioners in their appellate fee request, $248,049.27

is potentially compensable.   See supra Parts III.D.3., III.E.

First, we allocate the entire $60,000 expenditure to the

potentially compensable fees and expenses.   Next, we identify the

contributions to the Defense Fund from which the Fund’s $60,000

expenditure derived.   We believe it is reasonable to treat the

$60,000 expenditure as having derived from the $84,200

contributed to the Defense Fund by the Dixons and the group of 43

from December 2001 through April 2002.

     The following table lists the persons described in the

preceding paragraph (i.e., the Dixons and the group of 43) for

whom we have received net worth affidavits, together with the

amount contributed by each such person to the Defense Fund during

the relevant period:
                               - 67 -

             Name                       Amt. Contributed
             Asmus                           $2,000
             Bakos                           $2,200
             Beecher                         $2,100
             Brown                           $2,000
             Bruckner                        $2,000
             Croft                           $2,100
             Dixon                           $1,500
             Ellis                           $2,000
             Gomes                           $1,000
             Grippo                          $2,500
             Hague                           $2,000
             Hartigan                        $1,500
             Hatcher                         $2,000
             Heintz                          $1,700
             Hillen                          $2,000
             Hunt                            $2,400
             Ingals                          $2,100
             Johnson, Marvin                 $1,500
             Johnson, M.P.                   $1,500
             Jurewicz                        $2,000
             Keadle                          $1,800
             Klasch                          $2,000
             Leslie                          $2,000
             McNamee                         $2,000
             Meyners                         $2,100
             Miller, R.B.                    $1,800
             Moore, L.                       $1,700
             Norrell                         $1,800
             Oyler                           $1,500
             Pistoll                         $2,000
             Porter                          $2,000
             Pylate                          $ 900
             Richmond                        $2,000
             Satterfield                     $2,000
             St. John                        $1,500
             Tice                            $2,000
             Tynan                           $2,200
             Villines                        $2,000
             Whittaker                       $1,900
             Whittlesey                      $2,000
                                            $75,300

Thus, at least $75,300 of the $84,200 contributed to the Defense

Fund by the Dixons and the group of 43 between December 2001 and

April 2002 derives from eligible persons.    Again, we allocate the
                               - 68 -

eligible contributions first to the Fund’s $60,000 payment for

potentially compensable fees and expenses.   It follows that

eligible persons paid $60,000 of the potentially compensable

amount of $248,049.27.

           2.   Amounts Paid Directly to Minns

     The Hongsermeiers and each member of the group of 38 paid

Minns a $3,500 retainer fee for continued representation of their

interests in post-appellate matters, including services relating

to the Hongsermeiers’ appellate fee request.     We have received

net worth affidavits for all but five of those persons.    Thus, at

least $119,000 of the $136,500 initially paid by this group to

Minns derives from eligible persons.    We allocate that $119,000

first to the $56,233.75 claimed by the Hongsermeiers for services

relating to the fee request.   See supra note 48.    It follows that

eligible persons paid the entire portion of the claimed amount

that is potentially compensable--$36,269.20.     See supra Part

III.D.2.

           3.   Amounts Incurred But Not Paid

     While eligible persons have paid all the potentially

compensable fees with respect to the Hongsermeiers’ fee request

(thus obviating the need to determine whether eligible persons

are liable for any unpaid amounts), eligible persons have paid

only $60,000 of the $248,049.27 that is potentially compensable

with respect to the PH petitioners’ fee request.    Under the terms

of the Defense Fund’s agreement with Porter & Hedges, nontest
                              - 69 -

case petitioners Darrell Hatcher (now deceased), Robert Norrell,

and Don Hunt are jointly and severally liable for the Fund’s

obligations under the agreement, which would include the

remaining potentially compensable fees and expenses of

$188,049.27 ($248,049.27 - $60,000 = $188,049.27).   Since we have

received net worth affidavits for Messrs. Norrell and Hunt, it

follows that eligible persons are liable for, and therefore

incurred, the remaining potentially compensable fees and expenses

of $188,049.27.53

           4.   Summary

      Eligible persons have paid or incurred all the potentially

compensable amounts with respect to the appellate fee requests.

      G.   Final Figures

      We shall award (1) attorney’s fees in the amount of

$158,562.50 ($122,293.30 paid through the Defense Fund and

$36,269.20 paid outside the Defense Fund) in respect of the

Hongsermeiers’ appellate fee request, and (2) attorney’s fees and




     53
       Respondent does not suggest, nor do we have any reason to
believe, that the disproportionate liability of Messrs. Norrell
and Hunt is not bona fide. Cf. Sisk, “The Essentials of the
Equal Access to Justice Act: Court Awards of Attorney’s Fees for
Unreasonable Government Conduct (Part One),” 55 La. L. Rev. 217,
337-341 (1994) (discussing the potential for manipulation of the
EAJA eligibility requirements when counsel represents both
eligible and ineligible parties).
                               - 70 -

expenses in the amount of $248,049.27 in respect of the PH

petitioners’ appellate fee request.54

IV.    Interest

       The PH petitioners seek interest on their fee award from

January 17, 2003 (the date of the Court of Appeals’ Dixon V

opinion).   As discussed in Part III.B.4.c., supra, the “no-

interest” rule prohibits the recovery of interest in a suit

against the Government absent an express waiver of sovereign

immunity from an award of interest.     Library of Congress v. Shaw,

478 U.S. at 311.   Section 7430 contains no such express waiver,

see Wilkerson v. United States, 67 F.3d at 120 n.15; Miller v.

Alamo, 992 F.2d at 767; Austin v. Commissioner, T.C. Memo. 1997-

157, and petitioners do not point to any other provision that

might fit the bill.   Cf. Miller v. Alamo, supra at 767 (rejecting

the argument that 28 U.S.C. sec. 1961(c)(1) operates as an

express waiver of sovereign immunity from interest on a section

7430 fee award).   Accordingly, we deny the PH petitioners’

request for interest on their fee award.55


      54
       We shall address the manner in which the awards are to be
administered in a separate order or orders implementing this
opinion. In that regard, we note that some nontest case
petitioners who contributed to the Defense Fund during the
relevant period have not been asked to submit net worth
affidavits and therefore have not had the opportunity to
establish their right to share in the awards.
      55
       We recognize that in Dixon IV we granted postjudgment
interest on petitioners’ sec. 6673(a)(2) fee award. We did so
sua sponte on the basis of “this Court’s inherent power to
protect its own proceedings from abuse, oppression, and
                                                    (continued...)
                              - 71 -

      To reflect the foregoing,



                                   Appropriate orders will be

                         issued.




     55
      (...continued)
injustice”, without the benefit of briefs on the subject.
Whatever one’s views may be on the interrelationship between the
doctrines of inherent authority and sovereign immunity, compare
United States v. Horn, 29 F.3d 754, 764 (1st Cir. 1994), with
United States v. Woodley, 9 F.3d 774, 782 (9th Cir. 1993), that
issue is not presented here.
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Appendix A--September 1, 2005 Order
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Appendix B--September 8, 2005 Order
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Appendix C--November 18, 2005 Order
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