                        T.C. Memo. 2002-282



                      UNITED STATES TAX COURT



             TAN DANG & KE T. CHAW DANG, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6715-00.              Filed November 14, 2002.



     Joyce Rebhun, for petitioners.

     Michael W. Berwind, for respondent.



                         MEMORANDUM OPINION


     COLVIN, Judge:   This matter is before the Court on

petitioners’ motion for litigation costs under section 7430 and

Rule 231.   After concessions, the issues for decision are:

     1.   Whether respondent’s position in the underlying

proceeding was substantially justified.    We hold that it was not.
                                 - 2 -

     2.   Whether petitioners are entitled to an award of

attorney’s fees at an hourly rate higher than $140.    We hold that

they are not.

     The parties submitted memoranda and affidavits supporting

their positions.   We decide the motion based on those memoranda

and affidavits.    We conclude that a hearing is not necessary to

decide this motion.   Rule 232(a)(2).

     Section references are to the Internal Revenue Code in

effect for the years in issue.    Rule references are to the Tax

Court Rules of Practice and Procedure.

                              Background

A.   Petitioners

     Petitioners are husband and wife who resided in California

when they filed the petition.

B.   Dang v. Commissioner, T.C. Memo. 2002-117

     Petitioners owned a grocery store (Manwah) that was failing

in 1995, 1996, and 1997.   About half of the purchases at Manwah

were made with food stamps.    Manwah was located in an

economically depressed area of Los Angeles.    Six of the seven

grocery stores in that area had closed by the time of trial.

     Petitioners gave respondent’s agent daily summaries or tapes

of Manwah’s sales for 331 days for 1995, 6 months for 1996, 9

months for 1997, and all of 1998.
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     The following table shows the costs of goods sold and gross

receipts petitioners reported, and the amount of gross receipts

determined by respondent:

             Costs of goods       Gross receipts     Gross receipts
             sold reported         reported by       determined by
 Year        by petitioners        petitioners        respondent

 1995          $869,270             $1,088,298        $1,123,087
 1996           862,277              1,074,289         1,111,182
 1997           881,352              1,077,288         1,118,467

     Respondent determined that petitioners understated Manwah’s

gross receipts solely by applying Dun & Bradstreet average gross

profit percentage data for U.S. grocery stores with annual gross

receipts of up to $1 million to their reported costs of goods

sold.   Respondent’s agent also estimated Manwah’s gross receipts

by annualizing the amounts shown on daily records that

petitioners had given him, but the record does not show the

results of that analysis.     Finally, respondent’s agent used some

of petitioners’ records to estimate the markups of an unknown

number of unspecified products sold in Manwah in 1998.        However,

as stated above, respondent’s determination was based solely on

Dun & Bradstreet average gross profit data.      In Dang v.

Commissioner, T.C. Memo. 2002-117, we held that the Dun &

Bradstreet data did not provide a reliable basis to estimate

gross profit percentages because petitioners’ store was below

average.
                                 - 4 -

C.      Petitioners’ Litigation Costs

        Petitioners incurred attorney’s fees for services performed

in the underlying case from January 20, 2000, to July 8, 2001, as

follows:

            Date         Attorney services         Attorney hours

  Jan. 20, 2000        Filed petition                     2.46
  July 2, 2000         Developed case                     6.00
  Mar. 4, 2001         Prepared for trial                 2.00
  Apr. 3, 2001         Prepared for trial                 6.00
  May 2, 2001          Tried case                         4.00
  June 4, 2001         Prepared brief                    10.00
  July 8, 2001         Prepared brief                     4.00
    Total hours                                          34.46
    Multiplied by the attorney’s hourly rate           $285.00
                                                     1
    Total hourly fees                                  9,821.10

  Client costs for copying respondent’s files         $151.00
  Client costs for filing petition                      60.00
    Total costs                                     10,032.10
        1
       Petitioners attached to their motion a document entitled
“Billing Schedule” which erroneously stated that the total hourly
costs of 34.46 hours at $285 per hour was $9,761.

                              Discussion

A.      Motion for Litigation Costs

        Generally, a taxpayer who has substantially prevailed in a

Tax Court proceeding may be awarded reasonable litigation costs.

Sec. 7430(a), (c).1    To be entitled to an award, the taxpayer

must:



        1
        We apply sec. 7430 as amended by sec. 3101 of the
Internal Revenue Service Restructuring and Reform Act of 1998,
Pub. L. 105-206, 112 Stat. 685, 727, effective for costs incurred
or services performed after Jan. 18, 1999. Sec. 7430 was amended
most recently by the Community Renewal Tax Relief Act of 2000
(CRTRA 2000), Pub. L. 106-554, sec. 319(25), 114 Stat. 2763A-647,
effective Dec. 21, 2000. The petition was filed on June 15,
2000, and thus the CRTRA 2000 amendment (which was purely
clerical in nature) does not apply here.
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     1.   Exhaust administrative remedies.   Sec. 7430(b)(1).

Respondent concedes that petitioners meet this requirement.

     2.   Substantially prevail with respect to the amount in

controversy.    Sec. 7430(c)(4)(A)(i)(I).   Respondent concedes that

petitioners substantially prevailed.

     3.   Be an individual whose net worth did not exceed $2

million when the petition was filed.    Sec. 7430(c)(4)(A)(ii); 28

U.S.C. sec. 2412(d)(2)(B) (1988).    Petitioners meet this

requirement.

     4.   Not unreasonably protract the proceedings.    Sec.

7430(b)(3).    Respondent concedes that petitioners meet this

requirement.

     5.   Establish that the amount of costs and attorney’s fees

claimed are reasonable.    Sec. 7430(a), (c)(1).   Respondent

concedes that the number of attorney hours and other costs

claimed by petitioners are reasonable.

     The taxpayer is not entitled to an award for reasonable

litigation costs if the Commissioner shows that the position of

the United States in the proceeding was substantially justified.

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

B.   Whether Respondent’s Position Was Substantially Justified

     1.    Background

     The parties dispute whether respondent’s position in the

underlying proceeding was substantially justified.
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       The Commissioner’s position is substantially justified if

that position could satisfy a reasonable person.        Pierce v.

Underwood, 487 U.S. 552, 565 (1988).        To be substantially

justified, the Commissioner’s position must have a reasonable

basis in both fact and law.      Id.; Hanover Bldg. Matls., Inc. v.

Guiffrida, 748 F.2d 1011, 1015 (5th Cir. 1984); Powers v.

Commissioner, 100 T.C. 457, 470, 473 (1993), affd. on this issue,

revd. in part and remanded on other issues 43 F.3d 172 (5th Cir.

1995).      A position has a reasonable basis in fact if there is

relevant evidence which a reasonable person might accept as

adequate to support a conclusion.         Pierce v. Underwood, supra at

565.    For a position to be substantially justified, there must be

substantial evidence to support it.        Id. at 564-565; Powers v.

Commissioner, supra at 473.

       2.     Whether Respondent Had a Reasonable Basis in Fact

       Respondent contends that respondent reasonably used

statistical data to estimate Manwah’s gross receipts because

petitioners lacked complete records for the years in issue, and

that the Dun & Bradstreet average gross receipts data provided a

reasonable basis for respondent’s estimate of Manwah’s gross

receipts.      It is clear that the Commissioner may, in the absence

of records, use a reasonable method to reconstruct a taxpayer’s

income.      Holland v. United States, 348 U.S. 121, 131 (1954).
                                - 7 -

However, respondent’s use of statistical data here was not

reasonable because Manwah was clearly below average.

     Respondent relies on Estes v. Commissioner, T.C. Memo. 2000-

96, in which we held that the Commissioner’s reconstruction of

the taxpayers’ income based on partial records provided by the

taxpayers was reasonable.   However, unlike the situation in Estes

v. Commissioner, supra, where the determination was based

primarily on partial records provided by the taxpayers,

respondent’s method of reconstruction in the instant case relied

too little on petitioners’ records and too much on statistical

data from noncomparable stores.

     3.   Conclusion

     We conclude that respondent lacked a reasonable basis in

fact for respondent’s position that petitioners understated

Manwah’s gross receipts for the years in issue.   The

substantially justified standard requires that respondent’s

position have a reasonable basis in both law and fact.    Pierce v.

Underwood, supra at 565.    Thus, respondent’s position in this

case was not substantially justified, and petitioners are

entitled to an award for reasonable litigation costs.

C.   Whether the Attorney’s Fees and Costs Claimed Are Reasonable

     Petitioners seek an award of attorney’s fees and

miscellaneous costs totaling $10,032.
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     1.    Applicable Hourly Rate for Attorney’s Fees

     The parties dispute whether “special factors” are present

which warrant reimbursement at an hourly rate above $140.

Section 7430(c)(1)(B)(iii) provides an hourly rate for attorney’s

fees of $125, adjusted based on increases in the cost of living

since 1996.   The hourly rate for 2000 and 2001 is $140.   Rev.

Proc. 2001-13, sec. 3.26, 2001-1 C.B. 341; Rev. Proc. 99-42, sec.

3.26, 1999-2 C.B. 572; see Human v. Commissioner, T.C. Memo.

1998-65.   That rate applies unless a special factor is present

that justifies a higher rate.

     2.    Whether a Special Factor Is Present

     A special factor, such as the limited availability of

qualified attorneys for the proceeding, the difficulty of the

issues in the case, or the local availability of tax expertise,2

may justify payment of a higher hourly rate.     Sec.

7430(c)(1)(B)(iii); Internal Revenue Service Restructuring and

Reform Act of 1998, Pub. L. 105-206, sec. 3101(a), 112 Stat. 727;

see H. Conf. Rept. 105-599, at 242-244 (1998), 1998-3 C.B. 747,

996-998; S. Rept. 105-174, at 47-49 (1998), 1998-3 C.B. 537, 583-

585; H. Rept. 105-364 (Part 1), at 57-59 (1997), 1998-3 C.B. 373,




     2
        There is no evidence relating to whether there is limited
availability of qualified attorneys for the proceeding or the
local availability of tax expertise, nor do petitioners make any
argument based on those factors.
                                - 9 -

429-431.    Petitioners contend that special factors are present

that justify an award of attorney’s fees at a rate higher than

$140 per hour.

     Tax expertise, in itself, is not necessarily a special

factor in a tax case.    Cassuto v. Commissioner, 936 F.2d 736, 743

(2d Cir. 1991), affg. on this issue, revg. in part and remanding

on other issues 93 T.C. 256 (1989); Bode v. United States, 919

F.2d 1044, 1051 (5th Cir. 1990); Regimbal v. United States, 88

AFTR 2d 2001-5330, 2001-2 USTC par. 50,583 (E.D. Wash. 2001)

(applying post-1998 law, tax expertise is not a special factor).

Petitioners contend that petitioners’ counsel’s unique background

warrants an award of fees at a rate higher than $140.    We

disagree.    Rebhun has a bachelor of arts degree with highest

honors, a law degree, a master’s degree in business

administration, and a doctorate.    She is a certified public

accountant, and she has been the subject of articles in the New

York Times, Los Angeles Times, Los Angeles Daily Journal,

Washington Post, Chicago Sun-Times, Money, Glamour, Savvy Woman,

and Sylvia Porter’s Personal Finance.    Those articles describe

Rebhun as a “tax therapist” who helps people with emotional

problems to deal with the Internal Revenue Service.

     Neither Rebhun’s education nor the fact that she has been

recognized as a “tax therapist” in several magazine and newspaper

articles warrants our finding that a special factor is present.
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This case did not appear to require those skills in order for

petitioners to prevail.   Publicity that Rebhun received from the

articles apparently did not play any role in the underlying

litigation.   The issues in the underlying case were not

particularly difficult.   We do not minimize Rebhun’s

accomplishments in this case, but winning a case does not

automatically mean a special factor is present.   We find that no

special factor is present which justifies an award of attorneys’

fees at an hourly rate greater than $140.

D.   Conclusion

     Respondent concedes that Rebhun spent a reasonable amount of

time on the underlying case.   We award petitioners attorney’s

fees of $4,824.40 (34.46 hours at $140 per hour), and costs of

$60 for filing the petition and $151 for photocopying of

respondent’s files.

     To reflect the foregoing,

                                         An appropriate order and

                                    decision will be entered.
