                       T.C. Memo. 1998-385



                     UNITED STATES TAX COURT



            THERESA SALOPEK, ET AL.,1 Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 14160-97, 14161-97,        Filed October 26, 1998.
                 14162-97, 14163-97.


     David P. Leeper, for petitioners.

     David B. Mora, for respondent.



                       MEMORANDUM OPINION



     1
        Cases of the following petitioners are consolidated
herewith: Mark and Marcie M. Salopek, docket No. 14161-97;
Benjamin G. and Mary K. Salopek, docket No. 14162-97; and James
A. and Georgia J. Salopek, docket No. 14163-97.
                               - 2 -

     FOLEY, Judge:   This matter is before the Court on

petitioners' Motion for Award of Reasonable Litigation Costs

pursuant to section 7430 and Rule 231.   Unless otherwise

indicated, all section references are to the Internal Revenue

Code in effect for the years in issue, and all Rule references

are to the Tax Court Rules of Practice and Procedure.

                            Background

     Petitioners (i.e., Theresa, Mark, Marcie, Benjamin, Mary,

James, and Georgia Salopek) resided in Dona Ana County, New

Mexico, at the time their petitions were filed.   Some of the

facts have been stipulated and are so found.

     Petitioners own and operate Salopek 6U Farms, Inc.

(Salopek), a pecan farm and cattle ranch.   Salopek is an S

corporation with a fiscal year (FY) ending January 31.    The

petitioners are calendar year taxpayers.    Mark, Ben, and James,

who are Theresa's sons, filed joint income tax returns for 1993,

1994, and 1995, with their respective wives, Marcie, Mary, and

Georgia.   On or about February 1, 1996, respondent began an

examination of petitioners' 1993 Federal individual income tax

returns and Salopek's FY 1993 S corporation tax return.

Respondent assigned Agent Christopher Parker to the examination.

Petitioners filed powers of attorney authorizing David Leeper, an

attorney, to represent Salopek, and Arthur Valdez II, an

accountant, to represent the individual petitioners.    In June

1996, respondent broadened the scope of his examination to
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include petitioners' 1994 and 1995 tax returns and Salopek's FY

1994 and FY 1995 tax returns.

     Salopek's FY 1993 tax return included a $600,000 charitable

deduction relating to a contribution of cattle and a $173,338

depreciation deduction.   Salopek's FY 1994 and FY 1995 tax

returns included depreciation deductions of $211,438 and

$239,813, respectively.   As shareholders of Salopek, petitioners

included their allocable share of Salopek's ordinary income and

charitable contribution on their 1993, 1994, and 1995 individual

tax returns.   In addition, each petitioner deducted a $100,000

charitable contribution of cash in 1995 (i.e., the cash

contributions totaled $400,000).   During the examination, Agent

Parker requested Salopek's depreciation schedules and

substantiation for the charitable contributions of cash and

cattle.   Petitioners did not provide substantiation for the

cattle contribution but did provide the depreciation schedules

and substantiation for the cash contributions.    After reviewing

the depreciation schedules, Agent Parker requested, but did not

receive, substantiation for the depreciable bases of certain

pecan trees.

     On April 8, 1997, respondent mailed to petitioners notices

of deficiency relating to 1993, 1994, and 1995.   Respondent

disallowed, for lack of substantiation, each petitioner's:     (1)

Allocable share of Salopek's depreciation deductions for FY 1993,

FY 1994, and FY 1995; (2) allocable share of Salopek's $600,000
                                - 4 -

cattle contribution for FY 1993; and (3) $100,000 cash

contribution claimed on their respective 1995 tax returns.

     In petitions filed on July 3, 1997, petitioners challenged

respondent's determinations.    In answers filed on August 21,

1997, respondent reiterated the contentions set forth in the

notices of deficiency.    The cases were assigned to Appeals

Officer Robert Chirich.    On September 19, 1997, Officer Chirich

requested that petitioners provide substantiation for the

deductions relating to depreciation and contributions of cash and

cattle.    On October 20, 1997, petitioners provided partial

substantiation for the depreciation deductions.    On November 18,

1997, Officer Chirich informed petitioners' counsel that Agent

Parker would continue his examination.

     On December 12, 1997, the Court granted petitioners leave to

amend their petitions.    In the amendments, petitioners contended

that Salopek erroneously capitalized pecan tree pruning costs

and, in calculating its charitable contribution, undervalued the

cattle.    Petitioners further contended that they were entitled to

refunds.   On January 15, 1998, respondent filed answers to the

amendments, denying petitioners' contentions.

     In early December 1997, Agent Parker requested

substantiation for the deductions relating to the cattle

contribution and the depreciable bases of the pecan trees.     In

January 1998, he requested substantiation for the pruning costs

deduction.    Between December 1997 and January 1998, petitioners
                                 - 5 -

provided the requested substantiation.     Respondent then conceded

the depreciation and pruning costs deductions and settled the

cattle contribution issue.    On February 23, 1998, the parties

filed a stipulation of settled issues, and on June 1, 1998,

petitioners filed a Motion for Award of Reasonable Litigation

Costs.

                              Discussion

     We may award litigation costs to petitioners if they meet

the requirements of section 7430.    Respondent concedes that

petitioners have substantially prevailed, met the net worth

requirements, and exhausted all administrative remedies.     See

sec. 7430(a), (b)(1), (c)(4)(A).    Thus, the remaining issues for

decision are whether:   (1) Respondent's position was

substantially justified; (2) petitioners unreasonably protracted

the court proceedings; and (3) the litigation costs claimed by

petitioners are reasonable.    See sec. 7430(a), (b)(3), (c)(1),

(c)(4)(B).

I.   Substantial Justification

     On August 21, 1997, and January 15, 1998, respondent filed

his answers and took the position that petitioners had not

substantiated and, thus, were not allowed the deductions for

depreciation, pecan tree pruning costs, and contributions of cash

and cattle.   Respondent must prove that this position was

substantially justified.   Sec. 7430(c)(4)(B).   Respondent's

position was substantially justified if it had a reasonable basis
                                - 6 -

in both law and fact.    Pierce v. Underwood, 487 U.S. 552, 563-565

(1988).   This Court will determine the reasonableness of

respondent's position as to each issue independently and

apportion the requested award between those issues for which

respondent was, and those issues for which respondent was not,

substantially justified.   See, e.g., Swanson v. Commissioner, 106

T.C. 76, 87-92 (1996).   Respondent concedes that his position

with respect to the cash contributions was not substantially

justified.

     A.    Depreciation Deductions

     Respondent contends that he was substantially justified in

disallowing Salopek's depreciation deductions because petitioners

failed to provide the necessary substantiation.    During the

examination, petitioners provided Agent Parker with Salopek's FY

1993, FY 1994, and FY 1995 depreciation schedules, each of which

delineated more than 100 assets.     After reviewing the schedules,

Agent Parker requested that petitioners substantiate the

depreciable bases of only three assets--certain pecan trees

placed in service during 1988, 1991, and 1992.    Petitioners did

not provide Agent Parker with the requisite substantiation.

Respondent then disallowed all of Salopek's depreciation

deductions.   When respondent ultimately received the

substantiation for the pecan trees, however, he conceded the

issue.    Respondent's position with respect to the pecan trees was

substantially justified.   Respondent's position with respect to
                                 - 7 -

the other assets, however, was not substantially justified

because respondent did not request substantiation for these

assets.

     B.   Pruning Costs

     In December 1997, petitioners amended their petitions to

contend that Salopek incorrectly capitalized pecan tree pruning

costs it should have expensed.    Respondent disagreed because he

had no information that substantiated petitioners' contentions.

When the appropriate substantiation was submitted, respondent

conceded the issue.   Therefore, respondent's position was

substantially justified.

     C.   Cattle Contribution

     Respondent contends that he was substantially justified in

disallowing Salopek's FY 1993 cattle contribution deduction

because petitioners failed to provide the necessary

substantiation.   The Commissioner may deny a taxpayer a deduction

for the charitable contribution of property if the taxpayer fails

to maintain certain documentation (e.g., the value of the

property and the date of the contribution).    See sec. 1.170A-

13(b), Income Tax Regs.    During the examination, Agent Parker

requested that petitioners substantiate the cattle contribution

deduction.   Upon receiving the substantiation, respondent

proposed to settle this issue.    Therefore, respondent's position

was substantially justified.
                                 - 8 -

II.   Unreasonable Protraction of Proceeding

      Petitioners are not eligible for an award of litigation

costs for any portion of the proceeding that they unreasonably

protracted.   Sec. 7430(b)(3).   Petitioners did not protract the

proceeding.   Petitioners did file numerous motions, but none were

meritless and two were necessitated by respondent's multiple

requests for documentation already in his possession.

III. Reasonable Litigation Costs

      Petitioners request an award of $95,513 in litigation costs.

Section 7430 allows petitioners to recover attorney's fees and

court costs if such fees and costs are reasonable.     Although

petitioners' attorney's billing statements do not delineate the

precise number of hours related to each of the various issues,

they provide sufficient detail to determine an appropriate award.

      Where petitioners' attorney did not allocate his hours and

costs to specific issues, we use an "apportionment percentage" to

determine the number of hours and costs for which petitioners are

entitled to an award.   The apportionment percentage is a

fraction:   The numerator is the total adjustments relating to the

issues for which respondent was not substantially justified

(i.e., cash contributions of $400,000 and depreciation deductions

of $468,589), and the denominator is the total adjustments

relating to all issues (i.e., $1,624,589).     Accordingly,

petitioners are entitled to reimbursement for 53 percent of the
                                 - 9 -

hours and costs that the attorney did not allocate to specific

issues.

     Petitioners' attorney billed a total of 387.6 hours (i.e.,

206.3 hours relating to the cattle contribution, pecan tree

basis, and pruning cost issues; 13.7 hours in 1997 relating to

the cash contributions; 127.6 hours in 1997 relating to all

issues; and 40 hours in 1998 relating to all issues).       An award

relating to attorney's fees incurred in 1997 and 1998 is limited

to the statutory rate of $110 and $120 per hour, respectively.

Sec. 7430(c); Rev. Proc. 97-57, 1997-52 I.R.B. 20; Rev. Proc. 96-

59, 1996-2 C.B. 392.   Accordingly, we award attorney's fees of

$11,490 (i.e., 1997: (13.7 + (127.6 x 53 percent)) x $110 =

$8,946; 1998: (40 x 53 percent) x $120 = $2,544; total: $8,946 +

2,544 = $11,490).

     Petitioners incurred $1,816 of reimbursable litigation costs

(i.e., filing fees of $240 and fax, copy, supply, telephone, and

travel expenses totaling $1,576).    We award petitioners $1,075

(i.e., $240 + ($1,576 x 53 percent)).

     To reflect the foregoing,

                                         Appropriate orders and

                                 decisions will be entered.
