                   United States Court of Appeals
                              For the Eighth Circuit
                          ___________________________

                                  No. 18-2343
                          ___________________________

                                    Stefan A. Tolin

                              lllllllllllllllllllllPetitioner

                                            v.

                         Commissioner of Internal Revenue

                              lllllllllllllllllllllRespondent
                                      ____________

                      Appeal from The United States Tax Court
                                  ____________

                            Submitted: January 15, 2019
                                Filed: July 3, 2019
                                  ____________

Before SMITH, Chief Judge, COLLOTON and ERICKSON, Circuit Judges.
                              ____________

SMITH, Chief Judge.

       Taxpayer Stefan Tolin prevailed in a deficiency proceeding before the United
States Tax Court.1 He then sought an award of attorney’s fees. The tax court granted
the award, but it denied Tolin’s request for an enhancement to the hourly fee rate.
Tolin received an award of attorney’s fees at the statutory rate of $180 per hour. See


      1
          The Honorable Joseph H. Gale, United States Tax Court Judge.
26 U.S.C. § 7430. The tax court also reduced the number of compensable hours. On
appeal, Tolin claims the tax court erred by reducing the hours claimed and by
calculating the award using the statutory rate. We affirm.

                                   I. Background
       Tolin, a Minnesota attorney, owned a thoroughbred horse racing and breeding
business. Tolin’s business primarily sold breeding rights for his prized stallion,
Choosing Choice. Though he lived in Minnesota, Tolin boarded Choosing Choice in
Louisiana under the care of thoroughbred industry professionals. He generally
conducted his business via telephone, but he also prepared marketing materials and
made several trips to Louisiana each year to promote the stallion among breeders
there.

       In 2008, the Commissioner of Internal Revenue (“Commissioner”) issued Tolin
a notice of deficiency for his 2002, 2003, and 2004 federal income tax returns. The
notice informed him that the net losses he had claimed for his thoroughbred business
during those years were disallowed as “passive activity losses” under
26 U.S.C. § 469. Section 469 prohibits taxpayers from offsetting their active income
with losses incurred through business activities “in which the taxpayer does not
materially participate.” Id. § 469(c)(1)(B). After receiving the notice, Tolin hired
Richard Craigo, a California attorney who specializes in tax issues common to the
thoroughbred horse industry, to petition the tax court for redetermination.

      To avoid the tax deficiency, Tolin needed to demonstrate that he met any one
of seven available tests to qualify his conduct as “material participation” in the
thoroughbred activity. See 26 C.F.R. § 1.469-5T(a). The first of these tests requires
showing that “[t]he individual participates in the activity for more than 500 hours
during” the taxable year. Id. § 1.469-5T(a)(1). Cumulatively, Tolin estimated that he
had participated in the thoroughbred activity for 891 hours in 2002, 862 hours in
2003, and 937.5 hours in 2004. He corroborated these estimates with phone records,

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witness testimony, and other materials. The case proceeded to trial, and the tax court
ultimately determined that Tolin performed more than 500 hours of qualifying work
during each of the years in question. The court found Tolin’s activities met the
“material participation” test. Consequently, he was entitled to claim deductions for
the losses he had incurred through the business and avoid the deficiency claimed by
the Commissioner.

       Following his trial success, Tolin petitioned the court for reasonable litigation
costs and attorney’s fees allowable under 26 U.S.C. § 7430. He sought attorney’s fees
totaling $256,920, based on 642.3 hours of work between May 1, 2009, and January
31, 2011, calculated at a rate of $400 per hour. The government argued that Craigo’s
time expenditure and rate were not reasonable given the nature of the case and that
§ 7430 limits the hourly rate for attorney’s fees to $180 per hour.

       The tax court concluded that Tolin was a “prevailing party” entitled to recover
fees incurred after December 1, 2009—the point at which the tax court determined
the government’s litigation position was no longer “substantially justified.” See 26
U.S.C. § 7430(c)(4). The court divided the relevant hours for separate consideration:
hours claimed during pretrial and trial portions of the proceeding (153.7), and hours
claimed for post-trial work (300.1). The tax court reduced the pretrial and trial portion
of the recovery to 116 hours. Tolin does not contest that portion of the ruling on
appeal.

      Then the tax court analyzed the claimed post-trial hours by dividing them into
periods during which the post-trial opening brief and reply brief were prepared. First,
Craigo recorded 196.3 hours in his timesheets from August 21 through December 8,
2010. Describing the timesheets as “skeletal,” the tax court determined that Craigo
spent 176.3 of those hours preparing the post-trial opening brief. Tolin v. Comm’r,
115 T.C.M. (CCH) 1119, 2018 WL 1391815, at *15 (2018). The remaining 20 hours
were spent identifying and correcting an error in a trial exhibit. The tax court

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determined that the hours spent on correcting the exhibit were reasonably expended,
but it took issue with some of the remaining 176.3 hours for briefing.

       The opening brief, the tax court noted, was only 36 pages long and “was
devoted to demonstrating that [Tolin] had satisfied three of the regulatory tests for
material participation.” Id. at *16. The court’s review of Craigo’s timesheets showed
an “extraordinary number of telephone conferences between” Tolin and Craigo
during the briefing period, leading the tax court to “conclude that the
consultation . . . caused the preparation time to become unreasonable in relation to the
task at hand.” Id. The court noted that a “hallmark” of Tolin’s activity in his
thoroughbred business was making numerous daily phone calls to business associates,
and it surmised that his “penchant for incessant telephoning and micromanagement
carried over into his participation in the briefing of the deficiency case.” Id.
Consequently, the tax court treated only one-half of the 176.3 opening brief hours as
having been reasonably expended. The tax court similarly reduced by half the 103.8
hours that Craigo submitted for work on the reply brief, citing the same reasons.

        Lastly, the tax court limited Tolin’s recoverable attorney’s fees rate to the
statutory maximum. The tax court acknowledged that an enhanced rate is available
under § 7430(c)(1)(B)(iii) when justified by the presence of some “special factor.”
But it concluded that nothing more than generalized tax and litigation experience was
needed to prove the extent of Tolin’s participation in the thoroughbred activity. The
tax court awarded fees for 160.1 hours of post-trial work at the statutory rate. Tolin
filed a motion for reconsideration, which the tax court denied.

                                  II. Discussion
      On appeal, Tolin argues that the tax court erred by declining to find the
presence of a special factor warranting an enhanced fee rate and by reducing the
number of hours worked during the post-trial process. We review the tax court’s



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determination of attorney’s fees under § 7430 for an abuse of discretion. United
States v. Bisbee, 245 F.3d 1001, 1007 (8th Cir. 2001).

                           A. Presence of “Special Factor”
        A “prevailing party” in a deficiency case is entitled to recover reasonable
attorney’s fees. 26 U.S.C. § 7430. Section 7430(c)(1)(B)(iii) provides a statutory cap
on attorney’s fees “unless the court determines that 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.” General knowledge and litigation abilities are not enough to justify the
enhancement; the “qualified attorney” must possess “some distinctive knowledge or
specialized skill needful for the litigation in question.” Pierce v. Underwood, 487
U.S. 552, 572 (1988) (discussing the special factor determination in context of the
Equal Access to Justice Act (EAJA), which contains a nearly identical fee limiting
provision).

       Tolin asserts that Craigo possessed three special factors that the tax court
ignored. The first was Craigo’s special expertise in the equine industry. The second
was Craigo’s 100 percent success rate on the one disputed trial issue. The third was
an “aggregation” of his equine expertise and trial success factors with his general
legal experience and his substantial experience with tax law. Tolin admits he has not
found case law to support his aggregation theory, but he submits that it is a plausible
result that has not yet been authoritatively disallowed.

       First, Tolin cites an out-of-circuit case for the proposition that his equine
knowledge should qualify as a special factor. See Bode v. United States, 919 F.2d
1044 (5th Cir. 1990). In Bode, the court acknowledged that the merits of that case had
possibly required an attorney’s special knowledge about quarterhorses, and it stated
that such expertise “may well have qualified as a special factor,” without reaching the
issue of whether it qualified in that case. Id. at 1051. Here, the tax court

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acknowledged Bode’s dicta, but it concluded that Craigo’s specialized knowledge of
the horse industry was not “needful for the litigation in question.” See Underwood,
487 U.S. at 572. To prevail in his case, Tolin only had to describe the nature and
extent of his participation in his thoroughbred business. The tax court did not have
“to make any determinations regarding breeding rights, stud or sale contracts,
distribution of race winnings, or any other equine-related issues,” so Craigo’s
specialized knowledge did not significantly contribute to the litigation. Tolin, 2018
WL 1391815, at *16.

       Tolin argues that knowledge of industry practices and standards is integral to
applying the complex rules that comprise this area of the tax law. But an attorney
without Craigo’s equine expertise could still explain the nature of Tolin’s work and
why it qualified under any one of the seven “material participation” tests2 outlined in
the regulations. The tax court did not abuse its discretion in determining that Craigo’s
specialized knowledge did not warrant an upward departure from the statutory fee
rate.

       Tolin also cites Bode to support finding the existence of a special factor based
on his “exceptional results” at trial. 919 F.2d at 1051–52 (“To the extent that
exceptional results can be a special factor . . . the district court could find . . . that the
results obtained in this case meet that definition.”). But according to the Code of
Federal Regulations, “[t]he undesirability of the case, the work and the ability of
counsel, the results obtained, and customary fees and awards in other cases . . . do not
constitute special factors” that would warrant more than the statutory rate. 26 C.F.R.


       2
        Though the tax court only analyzed Tolin’s participation under the first test,
Tolin argued below that he met the requirements of at least three: participation in the
activity for more than 500 hours during the year in question; participation for more
than 100 hours during the year while his participation was not less than that of any
other individual for that year; and participation “on a regular, continuous, and
substantial basis during [the] year.” See 26 C.F.R. § 1.469–5T(a)(7).
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§ 301.7430-4(b)(3)(iii)(B) (emphasis added). We agree with the tax court that this
was not a particularly complex or specialized tax case. Only one issue went to trial.
The case turned on the volume and detail of Tolin’s phone call records and his
business trips to Louisiana. These facts alone largely convinced the tax court that
Tolin materially participated in the business. On this record, we conclude Tolin has
not established the presence of a special factor as contemplated by § 7430.

      Tolin’s final argument attempts to aggregate these unpersuasive factors with
Craigo’s legal experience and tax expertise. We find it unavailing. Though the
business context may have been novel, this was, nonetheless, a standard tax case
evaluating business participation. The tax court did not abuse its discretion by
determining that a higher rate was unwarranted.

                          B. Reduction of Reasonable Hours
        “The party seeking an award of fees should submit evidence supporting the
hours worked and rates claimed. Where the documentation of hours is inadequate, the
[trial] court may reduce the award accordingly.” Hensley v. Eckerhart, 461 U.S. 424,
433 (1983). The court should likewise exclude any “hours that were not reasonably
expended,” such as those “that are excessive, redundant, or otherwise unnecessary.”
Id. at 434 (internal quotation omitted).

      In its reasonable hours analysis, the tax court first discussed deficiencies in
Craigo’s submitted timekeeping records:




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      The entries do not . . . break down the time expended on a given task.
      Consequently, we are unable to determine the number of hours that
      petitioner’s counsel expended for various tasks. See Huffman v.
      Commissioner, T.C. Memo. 1994–73, 1994 WL 52368, at *1. This has
      made the Court’s task of determining the reasonableness of the fees
      difficult in some instances. Since “[t]he fee applicant has the burden of
      producing satisfactory evidence as to the number of hours reasonably
      spent on the case,” id., any estimates we have made that work to
      petitioner’s detriment are properly attributed to a failure of proof.

Tolin, 2018 WL 1391815, at *12. Because the entries do not break down the time, the
parties debate how many of the submitted hours were actually spent on the numerous
phone calls between Tolin and Craigo. But, regardless of the number of hours actually
at issue, the tax court discussed the volume of calls and characterized them as “a key
cause of the excessive hours expended” on the briefing. Id. at *16.

      Tolin contends that the tax court’s sole rationale for reducing the hours was the
number of phone calls. We disagree. In fact, the tax court found that 176.3 hours was
“excessive” in light of the short length and relatively non-complex content of the
opening brief. Id. “For the same reasons,” it found that 103.8 hours was an
unreasonable number of hours to spend preparing the reply brief. Id.

        When determining the number of hours reasonably expended, “[t]rial judges
should weigh the hours claimed against their own knowledge, experience, and
expertise of the time required to complete similar activities.” Paris Sch. Dist. v.
Harter, 894 F.3d 885, 889 (8th Cir. 2018) (cleaned up). A trial court “is in a much
better position to make this appraisal than is an appellate court.” Id. (internal
quotation omitted). Here, the tax court has a “superior understanding” of the relevant
litigation and the underlying facts affecting the reasonableness of a fee award. See
Hensley, 461 U.S. at 437.



                                         -8-
       That said, this court has similarly reduced a § 7430 fee award for excessive
hours submitted. In Miller v. Alamo, taxpayers’ attorneys submitted a total 274 hours
spent on preparing an appeal. 983 F.2d 856, 861 (8th Cir. 1993). Because the issues
had been researched beforehand to prepare for the underlying trial, we reduced an
“excessive” 118 hours—spent on researching, drafting, preparing, and reviewing the
appellate brief—to 60 hours. Id. We also reduced the “unusually high number of
hours” spent on, inter alia, attorney conferences and telephone calls, from 95 hours
to 60 hours. Id.

       In this case, Craigo’s submitted hours amounted to nearly four and a half weeks
of full-time work on the post-trial opening brief, and over two and a half weeks of
work on the reply brief. The tax court determined that these hours were unreasonably
expended in relation to the task at hand, instead granting 88.2 hours and 51.9 hours
for each, respectively. We have no reason to second-guess the tax court’s assessment,
especially in light of our own calculations in Alamo.

       Further, the government’s initial notice of deficiency sought about $60,000 in
additional taxes and penalties from Tolin. Tolin’s requested attorney’s fees, just for
the 280.1 hours submitted for post-trial briefing, would have exceeded $50,000, even
at the lower statutory rate of $180 per hour. “‘[B]illing judgment’ is an important
component in fee setting. . . . Hours that are not properly billed to one’s client also
are not properly billed to one’s adversary pursuant to statutory authority.” Hensley,
461 U.S. at 434 (internal quotation omitted). The tax court did not abuse its discretion
by determining that the requested fee award was unreasonable.

                                  III. Conclusion
      We affirm the grant of attorney’s fees as determined by the tax court.
                      ______________________________




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