                       109 T.C. No. 10



                UNITED STATES TAX COURT



            ROBERT T. COZEAN, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 19318-95.                     Filed October 15, 1997.



     Prior to trial, R conceded the deficiencies
determined for the years 1990 through 1992. P filed a
timely claim for an award of litigation costs,
including, among other things, attorney's fees billed
at $250 per hour and one accountant's fees billed at
$170 and $175 per hour and another's fees billed at $90
and $92 per hour. R concedes that P has satisfied all
the requirements for entitlement to litigation costs
and disputes only the amounts of the fees claimed by
the attorney and the principal accountant.
Specifically, R asserts that the limitation of sec.
7430(c)(1)(B)(iii), I.R.C., of $75 per hour (adjusted
for inflation) for the years in issue, applies to all
fees claimed.


     Held: P failed to establish that a special factor
existed which justifies an award of attorney's fees in
excess of the $75 limitation (adjusted for inflation).
                               - 2 -

          Held, further: The fees claimed for services of
     the accountants, who are authorized to practice before
     the Internal Revenue Service, are to be treated as
     services of an attorney pursuant to sec. 7430(c)(3),
     I.R.C., and, accordingly, the limitation of sec.
     7430(c)(1)(B)(iii), I.R.C., applies to such fees.


     Edward D. Urquhart, for petitioner.

     Janet R. Balboni, for respondent.


                              OPINION


     DAWSON, Judge:   The case was assigned to Chief Special Trial

Judge Peter J. Panuthos pursuant to the provisions of section

7443A(b)(4) and Rules 180, 181, and 183.1     The Court agrees with

and adopts the opinion of the Special Trial Judge that is set

forth below.

               OPINION OF THE SPECIAL TRIAL JUDGE

     PANUTHOS, Chief Special Trial Judge:     This case is before

the Court on petitioner's motion for an award of reasonable

litigation costs2 pursuant to section 7430.

     Respondent concedes that petitioner has satisfied all of the

requirements for entitlement to litigation costs.     Therefore, the

only issue presented for decision is whether the amounts of




     1
        All section references are to the Internal Revenue Code
as amended unless otherwise indicated. All Rule references are
to the Tax Court Rules of Practice and Procedure.
     2
        Petitioner does not request an award of reasonable
administrative costs. See sec. 7430(a)(1).
                               - 3 -

litigation costs claimed by petitioner are reasonable.    Sec.

7430(a)(2), (c)(1).

     Neither party has requested a hearing, and we conclude that

a hearing is not necessary.   Rule 232(a).   Accordingly, we decide

petitioner's motion on the basis of the motion, respondent's

notice of objection to petitioner's motion, petitioner's reply to

respondent's notice of objection, and affidavits submitted by

petitioner.

     Respondent issued a notice of deficiency dated June 27,

1995, determining deficiencies in petitioner's Federal income tax

and accuracy-related penalties as follows:

                                       Accuracy-Related Penalties
          Year           Deficiency          Sec. 6662(a)

          1990            $468,857             $93,771
          1991              67,269              13,454
          1992              36,250               7,250

The adjustments contained in the notice of deficiency relate to

respondent's determination that petitioner failed to report as

income distributions received from Development Southwest

Investments, Inc., his solely owned S corporation; that

petitioner failed to report cancellation of indebtedness income

relating to the activities of Double J & T Ranch (J & T), a joint

venture in which petitioner was a member; that petitioner was not

entitled to claimed losses in connection with the activities of J

& T, pursuant to the "at risk" rules of section 465; and that

petitioner was not entitled to capital losses claimed in
                                - 4 -

connection with the disposition of his interest in J & T.

Petitioner filed a timely petition on September 26, 1995.    At the

time the petition was filed, petitioner resided in Dallas, Texas.

     The case was calendared for trial on November 12, 1996.

Approximately 2 weeks before the date of trial, respondent

conceded all of the determined deficiencies, and the case was

settled.    A stipulation of settlement was filed on December 30,

1996.    On the same date, petitioner filed a motion for award of

litigation costs.

     Petitioner requests an award of total litigation costs in

the amount of $24,060.71.    The costs requested include attorney's

fees in the amount of $16,365.21, attributable to 64 hours billed

by Edward D. Urquhart between July 1995 and April 1997 at a rate

of $250 per hour, as well as out-of-pocket expenses in the amount

of $365.21.    The out-of-pocket expenses are attributable to

postage, delivery fees, photocopying, and computer research.3

     The costs requested by petitioner also include charges

billed by the accounting firm of Werlein & Harris in the total

amount of $7,695.50, consisting of 30 hours billed by Victor E.

Harris at rates of $170 and $175 per hour, and 28.5 hours billed

by Pamela Zimmerman at rates of $90 and $92 per hour.4    Mr.

     3
        Respondent did not contest these out-of-pocket expenses,
and we consider these amounts conceded.
     4
        Mr. Harris billed 26.5 hours at $170 per hour and 3.5
hours at a rate of $175 per hour. Ms. Zimmerman billed 22 hours
                                                   (continued...)
                               - 5 -

Harris and Ms. Zimmerman provided professional services to

petitioner including preparing the tax returns for the years in

issue, assisting in representing petitioner during the

examination of the returns by the Internal Revenue Service (IRS),

assisting counsel in preparation of the petition, and

representing petitioner before the IRS Appeals Office after the

case was docketed.   Mr. Harris, who is a C.P.A., has also

represented many taxpayers before the IRS in the examination of

income tax returns as well as before the Appeals Office.     The

accountant's fees are claimed for the period from July 1995

through December 1996.

     Respondent objects to the motion for litigation costs on the

ground that the claimed fees are excessive.

     A taxpayer has the burden of proving that he or she meets

each requirement before the Court may order an award of

litigation costs under section 7430.   Rule 232(e); Minahan v.

Commissioner, 88 T.C. 492, 497 (1987).5   Accordingly, since the

     4
      (...continued)
at $90 per hour 6.5 hours at a rate of $92 per hour.
     5
       In 1996, legislation was enacted which shifted to the
Commissioner the burden of proving whether the position of the
United States was substantially justified, sec. 7430(c)(4)(B), as
amended by the Taxpayer Bill of Rights 2 (TBOR 2), Pub. L. 104-
168, sec. 701, 110 Stat. 1452, 1463 (1996), and raised the hourly
rate for attorney's fees to $110, sec. 7430(c)(1)(B)(iii), as
amended by TBOR 2 sec. 702(a), 110 Stat. 1464. These changes
apply only to proceedings commenced after July 30, 1996. TBOR 2
secs. 701(d), 702(b), 110 Stat. 1464; see National Industrial
Investors, Inc. v. Commissioner, T.C. Memo. 1996-423. Since
                                                   (continued...)
                                   - 6 -

parties agree that petitioner has otherwise satisfied the

requirements for an award of litigation costs, petitioner must

establish the amount of the reasonable litigation costs.

     With respect to reasonable litigation costs, section 7430(c)

provides:

          (1) Reasonable litigation costs.--The term
     "reasonable litigation costs" includes--

                  (A) reasonable court costs, and

                 (B) based upon prevailing market rates
            for the kind or quality of services
            furnished--

     *        *        *       *           *   *        *

                       (ii) The reasonable cost of
                  any study, analysis, engineering
                  report, test, or project which is
                  found by the court to be necessary
                  for the preparation of the
                  party's case, and

                        (iii) reasonable fees paid or
                  incurred for the services of
                  attorneys in connection with the
                  court proceeding, except that such
                  fees shall not be in excess of $75
                  per hour unless the court
                  determines that an increase in the
                  cost of living or a special factor,
                  such as the limited availability of
                  qualified attorneys for such
                  proceeding, justifies a higher
                  rate.

     *        *        *       *           *   *        *

     5
      (...continued)
petitioner filed the petition in Sept. 1995, the proceedings at
issue were commenced before the effective date of TBOR 2, and the
changes enacted by TBOR 2 are not applicable. Maggie Management
Co. v. Commissioner, 108 T.C. 430, 441 (1997).
                              - 7 -

          (3) Attorney's fees.--For purposes of paragraphs
     (1) and (2), 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.

     Petitioner's motion for litigation costs, in support of his

request for an award of attorney's fees with respect to Mr.

Urquhart's services at a rate of $250 per hour, states as

follows:

          The hourly rate of $250.00 charged Petitioner by
     undersigned counsel is a reasonable rate for qualified
     attorneys in the Houston, Texas area to handle a matter
     such as this case. There is a limited availability of
     qualified attorneys to handle a case such as this so as
     to justify the $250 hourly rate over the $75.00 rate
     set forth in I.R.C. Section 7430(c)(1)(B)(iii). * * *

Petitioner submits the affidavit of Larry A. Campagna, an

attorney specializing in tax law, in an attempt to establish that

the hourly rate for attorney's fees sought by petitioner is

consistent with the prevailing billing rate in the Houston area.

Petitioner also submits the affidavits of Mr. Harris and John W.

Storms, C.P.A., to establish that the costs for the accountants'

work are reasonable.

     Respondent contests the hourly rate for attorney's fees

requested by petitioner because it exceeds the $75 cap (adjusted

for inflation) applicable to awards of attorney's fees under

section 7430(c)(1)(B)(iii) for the years in issue.6   In so doing,


     6
        Respondent does not argue that the amount of time billed
by Mr. Urquhart was excessive.
                              - 8 -

respondent contends that the availability of qualified attorneys

to handle cases such as petitioner's was not limited, and that

petitioner has failed to establish the existence of any special

factor that would warrant departure from the statutory cap.

Accordingly, respondent argues that an award of attorney's fees

in this instance should be calculated at the adjusted statutory

rate of $104 per hour.7

     Respondent also disputes petitioner's claims for the

accountants, Victor Harris and Pamela Zimmerman. Respondent

argues that since the compensation rate for attorneys cannot




     7
        This Court uses the Consumer Price Index (CPI) for all
urban consumers to adjust the $75 hourly limit for increases in
the cost of living. Cassuto v. Commissioner, 93 T.C. 256, 273
(1989), affd. in part and revd. in part 936 F.2d 736 (2d Cir.
1991). We have held that 1981 is the appropriate base year for
calculating cost of living increases under sec.
7430(c)(1)(B)(iii). Bayer v. Commissioner, 98 T.C. 19, 23
(1992); Cassuto v. Commissioner, supra at 269. Nevertheless, the
Court of Appeals for the Fifth Circuit, to which this case is
appealable, has held that the appropriate base year for
calculating cost of living increases is Jan. 1, 1986. Heasley v.
Commissioner, 967 F.2d 116, 125 (5th Cir. 1992), affg. in part
and revg. in part T.C. Memo. 1991-189. We follow that holding
here. Golsen v. Commissioner, 54 T.C. 742, 756-758 (1970), affd.
445 F.2d 985 (10th Cir. 1971).

     We note that the $104 hourly rate utilized by respondent
apparently represents the $75 statutory rate, adjusted by a 39-
percent increase in the C.P.I. from Jan. 1986 to July 1995. The
record indicates that a portion of the fees claimed by petitioner
was billed after July 1995. Nevertheless, petitioner's objection
to respondent's position relates only to the applicability of the
statutory cap, and not to the calculation of the $104 amount.
                                - 9 -

exceed $104 per hour, similar limitations must apply with respect

to the accountants' charges.8

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

Court addressed whether "special factors" existed which entitled

a party, who settled a dispute with the Government, to an award

of attorney's fees in excess of the general statutory cap of $75

per hour (adjusted for inflation).9     The Court explained that in

order for the "limited availability of qualified attorneys" to

constitute a special factor warranting departure from the $75

cap, there must be a limited availability of attorneys who

possess distinctive knowledge or a specialized skill needful to

the particular litigation in question, as opposed to an

extraordinary level of general lawyerly knowledge.10    Id. at 572.

     8
        Since petitioner requests costs with respect to Ms.
Zimmerman's services at a maximum rate of $92 per hour, we fail
to grasp respondent's objection insofar as it pertains to that
amount. Accordingly, since the hourly rate billed by Ms.
Zimmerman did not exceed $104 per hour, and because respondent
does not otherwise contest the costs sought by petitioner with
respect to Ms. Zimmerman's services, we deem respondent to have
conceded petitioner's claim to that extent.
     9
        Although the dispute in Pierce v. Underwood, 487 U.S. 552
(1988), arose under the provisions of the Equal Access to Justice
Act (EAJA), 28 U.S.C. sec. 2412(d)(1994), the relevant provisions
of the EAJA are almost identical to the language of sec. 7430.
Powers v. Commissioner, 43 F.3d 172, 183 (5th Cir. 1995), affg.
in part and revg. in part T.C. Memo. 1993-125 and 100 T.C. 457
(1993). We, therefore, consider the holding in Pierce v.
Underwood, supra, to be applicable to the case before us.
     10
        As examples of attorneys possessing distinctive
knowledge or specialized skill, the Court included patent
attorneys and attorneys with knowledge of foreign law or
                                                   (continued...)
                              - 10 -

Accordingly, the Court cautioned that factors such as the novelty

and difficulty of the issues, the undesirability of the case, the

work and ability of counsel, the results obtained, and the

customary fees and awards in other cases, should not be

considered for the purpose of determining whether an increased

award is warranted.   Id. at 573; see also sec. 301.7430-

4(b)(3)(iii)(B), Proced. & Admin. Regs.

     The Court of Appeals for the Fifth Circuit, citing Pierce v.

Underwood, supra, has explained in similar fashion that the term

"special factor" refers to attorneys who possess nonlegal or

technical abilities, as distinguished from other types of

substantive specializations currently proliferating within the

profession.   Perales v. Casillas, 950 F.2d 1066, 1078 (5th Cir.

1992); see also Powers v. Commissioner, 43 F.3d 172, 183 (5th

Cir. 1995), affg, in part and revg. in part T.C. Memo. 1993-125

and 100 T.C. 457 (1993).   In this regard, the Court of Appeals

for the Fifth Circuit has held that an expertise in tax law, as a

type of "substantive specialization currently proliferating

within the profession", is not a special factor warranting an

hourly fee in excess of that contained in the statute.      Powers v.

Commissioner, supra at 183.   Furthermore, the Court of Appeals

for the Fifth Circuit has noted that the "limited availability"

of attorneys in a particular field cannot, standing alone,

     10
      (...continued)
language. Pierce v. Underwood, supra at 572.
                               - 11 -

constitute a special factor in the absence of any special

expertise or skill demanded of the attorney by the underlying

proceedings.   Perales v. Casillas, supra at 1078 n.16.

     We first address petitioner's request for an award of costs

relating to attorney's fees.   Although the issues presented in

the notice of deficiency may have required petitioner to secure

the services of a competent tax attorney, this finding does not,

standing alone, demonstrate the presence of a special factor

which would justify an increased award under section 7430.

Powers v. Commissioner, supra at 183.11   In accordance with

Pierce v. Underwood, supra, we do not consider the complexity of

the underlying tax issues, nor do we consider whether the fees

requested by petitioner are "reasonable" in comparison to the


     11
        We consider the following example, provided in sec.
301.7430-4(b)(3)(iii)(D), Proced. & Admin. Regs., to be
applicable in this regard. While this regulation refers to
administrative costs, it is clear that it is also applicable to
litigation costs. Sec. 7430(c)(2)(B).

          Taxpayer A is represented by B, a CPA and attorney with
     an LL.M. Degree in Taxation with Highest Honors and who
     regularly handles cases dealing with TEFRA partnership
     issues. B represents A in a * * * proceeding involving
     TEFRA partnership issues and subject to the provisions of
     this section. Assuming the taxpayer qualifies for an award
     of reasonable * * * costs by meeting the requirements of
     section 7430, the amount of the award attributable to the
     fees of B may not exceed the $75 per hour limitation * * *,
     absent a special factor. Under these facts alone, B is not
     a specially qualified representative since even
     extraordinary knowledge of the tax laws does not constitute
     distinctive knowledge or a unique and specialized skill
     constituting a special factor. [Sec. 301.7430-
     4(b)(3)(iii)(D), Proced. & Admin Regs.]
                                - 12 -

fees charged by attorneys with similar experience.     Petitioner

has failed to establish that Mr. Urquhart possessed any nonlegal

or technical abilities apart from his expertise in the field of

tax law.     Powers v. Commissioner, supra at 183.   Petitioner,

therefore, has failed to establish that a special factor existed

which justifies an award in excess of the maximum rate provided

in section 7430(c)(1)(B)(iii).

     We now turn to petitioner's request for an award of costs

with respect to the accounting fees.     Respondent's argument that

the accounting fees are not reasonable appears to be directed to

the limitation under section 7430(c)(1)(B)(iii) as applied to

attorneys.12    It is clear that section 7430(c)(1)(B)(iii) relates

to fees paid to attorneys.     Petitioner did not direct the Court

to a specific statutory authority for an award of accountant's

fees.     Moreover, petitioner did not respond to respondent's

argument that the limitation of section 7430(c)(1)(B)(iii) should

apply to the accountant's fees.     Respondent, on the other hand,

suggests that the limitation applies without the citation of any

authority.

     Section 7430(c)(3) 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


     12
        As previously noted, since the hourly fee charged to Ms.
Zimmerman is less than the cap (adjusted for inflation), we deem
that portion of the accountants' fees to be conceded.
                               - 13 -

Service shall be treated as fees for the services of an attorney

for purposes of section 7430(c)(1) and (2).    The clear statutory

provision requires that fees claimed by nonlawyers who are

authorized to practice before the Internal Revenue Service are

subject to the same limitations applicable to attorney's fees.

     From a review of this record, it is uncontroverted that     Mr.

Harris fits within section 7430(c)(3).    Mr. Harris, who is a

C.P.A., represented petitioner as well as other taxpayers before

the IRS.    As an individual who is authorized to practice before

the IRS, his fees are to be treated as the fees of an attorney.

As such, the fees paid or incurred for Mr. Harris' professional

services are subject to the same limitations under section

7430(c)(1)(B)(iii) as those applicable to the attorney in this

case.   Similarly, Mr. Harris has not shown a special factor which

would warrant a departure from the statutory cap.

     In summary, we hold that petitioner is entitled to an award

of litigation costs in the amount of $6,656 with respect to the

legal fees paid or incurred for services provided by Mr. Urquhart

at the limited rate set forth in section 7430(c)(1)(B)(iii),

adjusted for inflation.   Petitioner is also entitled to an award

of costs of $365.21 with respect to Mr. Urquhart's out-of-pocket

expenses.   Finally, we hold that petitioner is entitled to an

award of litigation costs for the accountant's fees paid or

incurred for services provided by Ms. Zimmerman and Mr. Harris,
                              - 14 -

at the limited rate set forth in section 7430(c)(1)(B)(iii), in

the total amount of $5,698.

     To reflect the foregoing,

                                          An order with respect to

                                       petitioner's motion will be

                                       issued and a decision will

                                       be entered.
