                  T.C. Summary Opinion 2009-155



                      UNITED STATES TAX COURT



               ELIZABETH B. CHAPMAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10030-08S.             Filed October 13, 2009.



     Elizabeth B. Chapman, pro se.

     L. Katrine Shelton, for respondent.



     GERBER, Judge:   This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

when the petition was filed.1   Pursuant to section 7463(b), the

decision to be entered is not reviewable by any other court, and




     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                - 2 -

this opinion shall not be treated as precedent for any other case.

     Petitioner seeks to recover the litigation2 and

administrative fees and costs of her proceeding under section

7430.    The issues3 for our consideration are:   (1) Whether

petitioner was a prevailing party under section 7430(c)(4) and

(2) whether petitioner is entitled to reimbursement beyond the

statutory rate.4

                             Background

     In a July 12, 2007, letter, respondent notified petitioner

that her 2005 Federal income tax return was to be examined.

Petitioner’s accountant, Ms. Hill, represented her before

respondent in the administrative examination.     On July 19, 2007,

after respondent’s examiner did not respond to Ms. Hill’s

telephone calls, Ms. Hill sent a facsimile to the examiner to

schedule the examination.    On July 23, 2007, Ms. Hill reached the



     2
      Petitioner initially sought to recover her administrative
fees and costs, but after she was forced to go to trial on that
issue, the Court granted petitioner’s oral motion to amend her
motion to include the costs and fees of litigation.
     3
      Initially, respondent questioned whether petitioner had met
the net worth requirement for recovery under sec. 7430, but
respondent has conceded that petitioner satisfies that
requirement.
     4
      The statutory rate was $170 per hour for 2007 and 2008, and
$180 per hour for 2009. See Rev. Proc. 2006-53, sec. 3.40, 2006-
2 C.B. 996, 1003; Rev. Proc. 2007-66, sec. 3.39, 2007-2 C.B. 970,
976; Rev. Proc. 2008-66, sec. 3.38, 2008-45 I.R.B. 1107, 1114.
                               - 3 -

examiner and requested that the examination be held within 2

weeks after the normal 4-week period.    Although the examiner’s

group manager approved the examination date, respondent’s

personnel chose to issue a 30-day letter setting forth

adjustments and a proposed deficiency, even though petitioner had

not had an opportunity to present documentation to the examiner.

The 30-day letter and confirmation of an examination date were

sent concurrently to petitioner.    This placed petitioner in a

position of having to appeal even before she was provided with an

opportunity to present documentation at an examination.

     On September 11, 2007, Ms. Hill appeared at the examiner’s

office and presented documentation with respect to the items

respondent questioned.   Ms. Hill presented documentation that

substantiated deductions in excess of those that petitioner had

claimed on her 2005 tax return.    After reviewing the documents

for 4 hours, the examiner explained to Ms. Hill that she would

have to come back another time.    Ms. Hill suggested that the

examiner issue an information document request (IDR) to which

petitioner could respond in order to save her client from

additional billings for Ms. Hill’s time.    The examiner agreed and

issued an IDR, to which petitioner promptly responded.    After

approximately 1 month Ms. Hill began calling the examiner and the

examiner’s group manager to ask when the examiner would issue a

report.
                                - 4 -

     The items in question during the examination approximated

$75,000 and would have resulted in an income tax deficiency

approximating $15,000.   On November 8, 2007, the examiner issued

her report (a revised 30-day letter) indicating a proposed tax

deficiency of $151.   Within a week Ms. Hill sent correspondence

to the examiner and her group manager advising that certain

information submitted had not been appropriately considered and

that there should be no deficiency whatsoever.      After there was

no response to the correspondence, Ms. Hill made repeated calls

to the group manager and, at one point, the group manager

indicated that she thought that the examination would result in

no change (no deficiency).   In spite of this, a statutory notice

of deficiency determining a $151 income tax deficiency was issued

to petitioner.

     After the group manager refused to reconsider the determined

deficiency, petitioner went to the Taxpayer Advocate’s Office

during the 90-day period within which the notice of deficiency

was appealable to this Court.   Petitioner filed a petition and

was granted an Appeals conference.      At the Appeals conference

petitioner submitted two documents to the Appeals officer, after

which respondent agreed to a zero deficiency for 2005.      Those two

documents had been presented to the examiner but could not be

found by the Appeals officer.   Following that, petitioner sought
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to recover litigation and administrative fees and costs incurred

with respect to her 2005 tax year.

                            Discussion

     Section 7430(a) authorizes an award to a prevailing party of

reasonable litigation or administrative fees and costs paid or

incurred before or during a court proceeding which is brought by

or against the United States in connection with the

determination, collection, or refund of any tax, interest, or

penalty under the Internal Revenue Code.    The taxpayer must

establish that she:   (1) Is the prevailing party; (2) has

exhausted the available administrative remedies; (3) has not

unreasonably protracted the court proceedings; and (4) has

claimed litigation costs that are reasonable.    Sec. 7430(a) and

(b)(1), (3).

     The moving party bears the burden of proving that these

requirements are met.   Rule 232(e).   A taxpayer is generally the

prevailing party if the taxpayer substantially prevailed with

respect to either the amount in controversy or the most

significant issue or set of issues.    Sec. 7430(c)(4)(A).   Under

section 7430(c)(4)(B), even if the taxpayer meets the

requirements of a prevailing party under section 7430(c)(4)(A),

the taxpayer will not be treated as a prevailing party if the

Commissioner’s position in the proceeding was substantially

justified.
                                 - 6 -

     Respondent conceded that petitioner satisfied the net worth

requirement.   Although respondent argued that petitioner did not

exhaust all administrative remedies, the record amply supports

our holding that petitioner met that requirement.    Therefore, we

are left to decide whether:    (1) Respondent’s position “was

substantially justified” under section 7430(c)(4)(B)(i); and/or

(2) the amount of costs petitioner claims is reasonable under

section 7430(a)(2) and (c)(1).

     It is without doubt that petitioner was the prevailing party

in this proceeding.   Accordingly, we must decide whether

respondent’s position was “substantially justified”.

“Substantially justified” is defined as “justified to a degree

that could satisfy a reasonable person” and having a “reasonable

basis both in law and fact”.     Pierce v. Underwood, 487 U.S. 552,

565 (1988); Huffman v. Commissioner, 978 F.2d 1139, 1147 n.8 (9th

Cir. 1992), affg. in part, revg. in part and remanding T.C. Memo.

1991-144.   It is the Commissioner’s burden to prove that his

position was substantially justified.    See sec. 7430(c)(4)(B)(i).

The Commissioner’s position may be incorrect and yet be

substantially justified “if a reasonable person could think it

correct”.   See Pierce v. Underwood, supra at 566 n.2.    Whether

the Commissioner acted reasonably ultimately turns on the

available information that formed the basis for the

Commissioner’s position as well as on the relevant law.     See
                                 - 7 -

Coastal Petroleum Refiners, Inc. v. Commissioner, 94 T.C. 685,

688-690 (1990).   The fact that the Commissioner eventually loses

or concedes a case does not by itself establish that the

Commissioner’s position was unreasonable.    However, it is a

factor that may be considered.     Maggie Mgmt. Co. v. Commissioner,

108 T.C. 430, 443 (1997).

     In evaluating the Commissioner’s justification, we identify

when the Commissioner took a position and then decide whether the

position taken from that point forward was substantially

justified.   Andary-Stern v. Commissioner, T.C. Memo. 2002-212.

We generally analyze the Commissioner’s position in the

administrative proceeding separately from the position taken in

the litigation.    Huffman v. Commissioner, supra.    In this case,

however, respondent’s position did not change and can be analyzed

concurrently.

     Petitioner argues that respondent was not substantially

justified because of the failure to investigate the underlying

facts, resulting in respondent’s erroneous position in the 30-day

letter and, ultimately, in respondent’s answer.      Petitioner was

notified during 2007 that her 2005 tax return was under

examination.    Normally, the examination would be scheduled within

a 4-week period; however, petitioner asked for a 2-week

extension.   The matters under examination were simply questions

of substantiation of deductions.    The extension was granted but
                               - 8 -

respondent, for reasons that remain unexplained, issued a 30-day

letter proposing to disallow all of the questioned deductions

before affording petitioner an opportunity to substantiate them.

     Petitioner provided respondent’s examiner with documentation

that reflected that she was entitled to deductions in an amount

that was in excess of the amount respondent questioned.

Respondent’s examiner issued a revised 30-day letter proposing a

$151 income tax deficiency, and petitioner attempted to persuade

respondent that there was no deficiency for 2005.    For reasons

that remain unexplained, respondent’s personnel did not provide

petitioner with the opportunity to show that there was no

deficiency and issued a statutory notice of deficiency

determining a $151 income tax deficiency.

     Petitioner attempted to have respondent withdraw the

statutory notice to avoid the expense of filing a petition in

this Court, but petitioner’s efforts were unsuccessful and a

petition was filed.   In the petition, petitioner contended that

there was no deficiency and that she had substantiated deductions

in excess of those respondent questioned.   Petitioner also

contended that she was entitled to fees and costs.    In the answer

respondent generally denied petitioner’s allegations and prayed

that the deficiency should be sustained.

     After this proceeding was filed, petitioner met with an

Appeals officer, who agreed that there was no deficiency due from
                               - 9 -

petitioner.   Respondent argues that the Appeals officer was

exposed to new information that had not been shown to

respondent’s examiner during the administrative proceeding, but

petitioner provided credible testimony showing that respondent’s

argument is incorrect.

     A significant factor in determining whether the Commissioner

acted reasonably as of a given date is whether, on or before that

date, the taxpayer presented all relevant information under the

taxpayer’s control.   Corson v. Commissioner, 123 T.C. 202, 206-

207 (2004); sec. 301.7430-5(c)(1), Proced. & Admin. Regs.   Thus,

whether the Commissioner acted reasonably may turn upon the

available facts which formed the basis for the Commissioner’s

position.   Nalle v. Commissioner, 55 F.3d 189, 191-192 (5th Cir.

1995), affg. T.C. Memo. 1994-182; DeVenney v. Commissioner, 85

T.C. 927, 930 (1985).

     Accordingly, from the time that respondent’s examiner issued

the revised 30-day letter, respondent had documentation and

information that would have resulted in no deficiency for

petitioner.   Petitioner tried, without success, to show the

examiner and the group manager that respondent’s position was

incorrect, but petitioner was ignored and a statutory notice was

issued, forcing petitioner to proceed with litigation.

Respondent’s position and actions from the time of the revised
                                - 10 -

30-day letter were not reasonable and resulted in unnecessary

costs and fees to petitioner.

     Respondent has presented no evidence showing that it was

reasonable to determine that petitioner had a deficiency for

2005.     Likewise, respondent has not explained why it was

necessary to proceed to litigation or to rush the administrative

proceeding (e.g., imminent expiration of the period for

assessment).     Respondent has not proven that his position was

substantially justified either in the administrative proceeding

or during the litigation.     See, e.g., Powers v. Commissioner, 100

T.C. 457 (1993), revd. in part on other grounds 43 F.3d 172 (5th

Cir. 1995).     In Powers, the Commissioner made no effort to

contact the taxpayer before issuing the notice of deficiency.

Petitioner attempted to show respondent that it was unnecessary

to issue a notice of deficiency, and petitioner’s attempts were

ignored.

        Accordingly, petitioner is entitled to allowable costs and

fees from November 8, 2007, the time of the issuance of the

revised 30-day letter.     See sec. 7430(c)(2).    Respondent has also

questioned whether petitioner’s claimed costs are reasonable and

in particular whether the hourly charge for Ms. Hill should be

allowed beyond the statutory rate.       Petitioner claims fees for

the services of an accountant at $400 per hour, in excess of the

statutory rate.     We must consider whether petitioner is entitled
                                 - 11 -

to an amount in excess of the statutory rate.      We must also

consider whether the hours claimed are reasonable.         See Cozean v.

Commissioner, 109 T.C. 227, 234 (1997).

     Petitioner has claimed costs of $7.13 that were incurred

during 2008.      Petitioner also claimed fees incurred since

November 8, 2007, as follows:

     Year          Number of Hours     Rate       Total

     2007              .0825           $400          $33
     2008             4.5825            400       1,833
                                                 1
     2009            14.90              400        5,960
            1
           The fees incurred during 2009 were for professional
     assistance during the litigation.

     Initially, we find petitioner’s claim for costs of $7.13 to

be reasonable and hold that she is awarded costs of $7.13.

Additionally, we have reviewed detailed hourly billings

petitioner presented and find them to be reasonable for the

nature and type of service provided.

     With respect to petitioner’s claim for fees, however, we

must consider whether petitioner is entitled to claim more than

the statutory rates allowed for the professional tax assistance

she received.

     Section 7430(c)(3)(A) provides that “fees for the services

of an individual (whether or not an attorney) who is authorized

to practice before the Tax Court or before the Internal Revenue

Service shall be treated as fees for the services of an

attorney.”      Furthermore, reimbursement of petitioner’s
                              - 12 -

accountant’s fees may not exceed the statutory rate set for each

year, absent a finding that an increase in the cost of living or

a special factor justifies a higher rate.    See sec.

7430(c)(1)(B)(iii).   The statutory rate was $170 per hour for

2007 and 2008, and $180 per hour for 2009.

     A taxpayer may recover attorney’s fees above the statutory

limit if the Court determines the existence of a special factor

such as:   (1) Limited availability of qualified attorneys for the

proceeding; (2) the difficulty of the issues presented in the

case; or (3) the local availability of tax expertise.     Id.

General expertise in tax law in itself is not a special factor

warranting a fee award in excess of the statutory rate under

section 7430.   Huffman v. Commissioner, 978 F.2d at 1150; Powers

v. Commissioner, supra at 489.

     The circumstances did not require specialized expertise.

During the administrative process petitioner was required to

substantiate claimed deductions.   There is no indication that

unique or unusual legal or procedural matters arose that would

have presented extraordinary difficulty for or required

specialized expertise of petitioner’s tax professional.    Under

those circumstances, petitioner is entitled to be awarded the

recovery of fees at the statutory rate.   Accordingly, petitioner

is entitled to be awarded fees as follows:
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Year      Number of Hours    Hourly Rate      Award

2007          .0825              $170         $14.03
2008         4.5825               170         779.03
2009        14.90                 180       2,682.00
  Total award of fees                       3,475.06

To reflect the foregoing,


                                   An appropriate order and

                             decision will be entered.
