                         T.C. Memo. 2006-140



                       UNITED STATES TAX COURT



   ESTATE OF JOHN L. BAIRD, DECEASED, ELLEN B. KIRKLAND AND J.
            SAMUEL BAIRD, CO-EXECUTORS, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

  ESTATE OF SARAH W. BAIRD, DECEASED, ELLEN B. KIRKLAND AND J.
   SAMUEL BAIRD, CO-EXECUTORS, Petitioners v. COMMISSIONER OF
                  INTERNAL REVENUE, Respondent



     Docket Nos. 8656-99, 8657-99.     Filed July 5, 2006.



     William T.F. Dykes, for petitioners.

     Wanda M. Cohen, for respondent.



                 SUPPLEMENTAL MEMORANDUM OPINION

     GERBER, Judge:    This is the third opinion to be issued in

these related cases.   In the first opinion, we decided a

valuation question with respect to property in each estate.

Estate of Baird v. Commissioner, T.C. Memo. 2001-258 (Estate of
                               - 2 -

Baird I).   The second opinion involved the question of whether

the estates were entitled to litigation costs.   Estate of Baird

v. Commissioner, T.C. Memo. 2002-299 (Estate of Baird II).     In

Estate of Baird II we held that respondent’s position in the

proceeding was substantially justified and, therefore, the

estates were not entitled to litigation costs.   Because we

decided that estates were not entitled to litigation costs, we

did not address the question of whether the litigation costs

claimed by the estates were reasonable, an issue raised by

respondent.

     The estates appealed and the Court of Appeals for the Fifth

Circuit reversed our holding that the estates were not entitled

to section 74301 fees and costs and remanded these cases to this

Court “for a determination of the amount of fees and costs to be

awarded to the * * * [estates].”   Estate of Baird v.

Commissioner, 416 F.3d 442, 455 (5th Cir. 2005).2




     1
       All section references are to the Internal Revenue Code,
as modified and in effect for the periods under consideration.
Rule references are to the Tax Court’s Rules of Practice and
Procedure.
     2
       Following the completion of appellate proceedings there
was a delay in our receipt and consideration of the record in
these cases, due to the effect of Hurricane Katrina upon the
operation of the Court of Appeals for the Fifth Circuit’s Clerk’s
office.
                              - 3 -

                           Discussion3

     The estates, by means of a Second Supplemental Motion for

Award of Reasonable Litigation Costs and Reasonable

Administrative Costs claimed litigation and administrative costs,

as follows:

     Estate of      Litigation costs      Administrative costs

     John Baird       $142,612.47              $622.50

     Sarah Baird       141,191.58               592.40

Because it has been decided that the estates are entitled to

litigation and administrative costs, we must consider

respondent’s arguments concerning the reasonableness of the

claimed costs.

     Section 7430 permits the prevailing party to recover an

award of reasonable litigation costs.    Section 7430(c)(1)(B)(iii)

generally limits the hourly rate for attorney’s fees.    To the

extent that attorney’s fees are part of the estates’ claimed

litigation costs, they are being claimed at the statutory hourly




     3
       To the extent relevant, the findings of fact set forth in
Estate of Baird I and Estate of Baird II are incorporated by this
reference. There is no need for an evidentiary hearing, and
the Court will rule on the amount of fees and costs based on
the parties’ submissions and the existing record. See Rule
232(a)(1) and (2) of the Tax Court’s Rules of Practice and
Procedure.
                               - 4 -

rate (adjusted by the statutorily prescribed cost-of-living

adjustment) as provided under section 7430(c)(1)(B)(iii).4

     Respondent generally contests5 the reasonableness of the

estates’ claim for fees and costs, based on the following

contentions:   (1) Attorney’s fees claimed for services of an

attorney called by the estates as an expert witness are not

allowable; (2) litigation fees and costs appear duplicated

because the issues were the same as to both estates and the

estates were billed similar amounts; (3) the quantity of hours

billed for some of the tasks appears unreasonable for a single

issue (valuation) case.   We address each of respondent’s

contentions separately.

Attorney’s Fee Claimed for Attorney Who Was Initially Called as
an Expert Witness.

                            Background

     The estates intended to proffer at trial Attorney Edward B.

Benjamin, Jr. as an expert witness on the subject of co-ownership

and partition or real property under Louisiana law.   Respondent

moved in limine to exclude Attorney Benjamin’s report, which was


     4
       The estates’ claim of attorney’s fees is based on the
adjusted statutory hourly rate (as opposed to the actual rate
billed) of $130 for 1999, Rev. Proc. 98-61, 1998-2 C.B. 811; $140
for 2000 and 2001, Rev. Proc. 99-42, 1999-2 C.B. 568 and Rev.
Proc. 2001-13, 2001-1 C.B. 337; and $150 for 2002, Rev. Proc.
2002-59, 2001-2 C.B. 623.
     5
       Respondent also contested the hourly rate claimed in the
estates’ initial motions, but the estates conceded that the rate
should be limited to the adjusted statutory hourly rate.
                                - 5 -

to be offered as his direct testimony under Rule 143(f).     In

ruling that the Attorney Benjamin’s report on a matter of

domestic law would not be received as an expert’s opinion under

Rule 143(f), the Court did not question Attorney Benjamin’s

expertise or review whether he was qualified.    The Court

suggested that Attorney Benjamin’s opinion was in effect a legal

brief that could be attached to the estates’ posttrial briefs in

further support of their position on the legal questions

associated with the partition of Louisiana realty.    The estates

did attach Attorney Benjamin’s report or opinion to their opening

posttrial brief.

     As part of its claim for litigation costs, each estate

included $19,298.50 attributable to the law firm of Jones,

Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P. (Jones

firm) for a “Study Analysis re:    * * * [Louisiana] Co-Ownership

and Partition Law”.    The $19,298.50 represents one-half of the

$38,597.00 for legal work by the Jones firm.    In particular,

$18,470.00 of the $38,597.00 is represented by billings of

Attorney Benjamin representing 25.10 hours at $343.03

($8,610.00), 28.00 hours at $350.00 ($9,800), and .20 hours at

$300.00 ($60).    The remaining $20,127.00 of the $38,597.00 was

attributable, in smaller amounts, to eight other individuals in

the Jones firm.    The hourly billing rates for the eight

individuals, other than
                                - 6 -

Attorney Benjamin, ranged from $120 to $250 per hour, with the

vast majority of billing hours exceeding $150 per hour.6

     Respondent makes a two-part argument with respect to

Attorney Benjamin’s and the Jones firm’s fees.   Respondent first

argues that any costs for expertise (presumably legal or

otherwise) is not reasonable because it is well settled that

expert testimony in the form of legal opinions is generally not

received by courts.   More particularly, respondent argues that

the estates were aware that expert opinions on domestic law are

not admissible by the Tax Court.   The second part of respondent’s

argument is that the Jones firm’s fees should not be allowed as

attorney’s fees because the members of that firm were hired as

“experts” and not used for that purpose.

     In response, the estates contend that 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.”   The estates point out

that all nine of the Jones firm individuals for whom fees are

claimed were either authorized to practice before the Court or

the Internal Revenue Service.



     6
       There is no contention by respondent that any of the
individuals in the Jones firm are not qualified to be included in
a fee claim under the statute or that there is excessive overhead
included in the Jones firm charges.
                               - 7 -

     To the extent that any of the Jones firm fees are not found

to constitute “reasonable litigation costs” under section

7430(c)(1)(B)(iii), the estates contend that they are “reasonable

litigation costs” under section 7430(c)(1)(B)(ii) which include

“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”.

     We agree with the estates that the Jones firm’s fees are

allowable to the extent permissible under section

7430(c)(1)(B)(iii).   We do not agree that the fees would be

allowable as costs under section 7430(c)(1)(B)(ii), to the

extent not allowable as attorney’s fees under section

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

     From the Court’s point of view Attorney Benjamin and the

Jones firm were acting as “attorneys” and not “experts” in the

setting of this case.   That point of view is in accord with our

ruling that Attorney Benjamin’s report was a legal brief and

coincides with the fact that the report was not received as

direct testimony under Rule 143(f).    There was a need for legal

analysis on the legal question of co-ownership and partition in

Louisiana.   Indeed, the subject report was relied upon by the

estates and attached to the estates’ posttrial brief.   As such,

the subject report was considered by the Court and parties in

connection with their legal analysis of the valuation issues,
                                 - 8 -

which included the question of the possibility of the partition

of Louisiana realty.   There is no limitation that permissible

attorney fees under section 7430(c)(1)(B)(iii) can be recovered

only for attorneys who make an entry of appearance in the

controversy.   Nor do we find that it was unreasonable for the

estates to use such expertise.    Accordingly, we hold that the

estates are entitled to recover reasonable attorney’s fees under

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

     Regarding the question of reasonableness under section

7430(c)(1)(B)(iii), the Jones firm’s fees must be subjected to

the adjusted statutory hourly rate unless there is a showing that

the subject matter of this case involved complex matters

requiring special legal skills.    In that regard, Attorney

Benjamin’s qualifications were not tested, and he was not

accepted or rejected as an “expert” by the Court.    Furthermore,

the estates have not established and/or argued that the nine

individuals from the Jones firm had the type of expertise that

would warrant fees in excess of the adjusted statutory hourly

rate.   We accordingly hold that the reasonable or recoverable

fees of the Jones firm must be limited to the adjusted statutory

hourly rate, a task that we leave to the parties under the

operation of Rule 155.

     The estates’ secondary or alternative approach is to claim

that any portion of the Jones firm’s fees not allowed as attorney
                               - 9 -

fees under section 7430(c)(1)(B)(iii), should be allowable as

“reasonable litigation costs” under section 7430(c)(1)(B)(ii).

In effect, the estates’ contention is that to the extent that the

Jones firm’s fees are not recoverable as attorney fees, they

should be allowed as expert witness fees or costs of a study,

analysis, engineering report, test, or project which was

necessary for the preparation of the estates’ cases.

     We have held that the Jones firm’s fees are allowable as

attorney’s fees under section 7430(c)(1)(B)(iii) and that such

fees were limited to the adjusted statutory hourly rate.   To hold

that amounts in excess of the adjusted statutory hourly rate are

permissible under section 7430(c)(1)(B)(ii) would thwart the

statutory limit and circumvent the intent of that limitation.

Although we hold that the Jones firm’s fees were necessary to the

estates’ preparation and presentation of their case, they are

attorney fees and not recoverable as other costs associated with

the litigation.   In other words, the estates cannot have it both

ways.   We therefore hold that no portion of the Jones firm’s fees

that exceed the adjusted statutory hourly rate are permissible as

costs under section 7430(c)(1)(B)(ii).

Has There Been a Duplication of Litigation Fees?

     Respondent next contends that because the valuation issue

involved the same assets and issues in both estates, the

attorney’s fees and litigation costs were duplicated.
                                - 10 -

Respondent’s contention appears to rest on his supposition that

the legal work and litigation costs were generated by one estate

and then doubled without performing the same work for the second

estate.   The estates, however, point out that the work was

performed in connection with the preparation for and trial of

both estate tax cases, which were consolidated for purposes of

trial, briefing, and opinion.    The estate contends further, that

certain of the issues in both estates were the same, so that the

legal work could be performed once and one-half the cost charged

to each estate.   The estates have shown, by means of affidavits

and explanations, that there was no double billing for the same

legal work.

     There is nothing in the materials before the Court that

would support respondent’s contention.   Nor is it apparent that

the amount of the attorney fees and costs are disproportionate to

the quantity of work described in the billing statements.

Conversely, the uncontradicted affidavits provided in support of

the estates’ position on this aspect of the controversy are

unequivocal on this point.

     Accordingly, we hold that the amounts claimed for attorney’s

fees and costs are not duplicate billings.
                             - 11 -

Whether Amount of Hours Billed or Costs for Litigation Are
Reasonable in Relation to the Nature of the Issues or the Amount
in Controversy?

     Respondent’s final contention regarding reasonableness of

the fees and costs is presented as the generality that the

quantity of hours billed for some of the tasks appears

unreasonable for a single issue (valuation) case.    On this point,

respondent does not provide any explanation that would

demonstrate why the amount of hours is excessive and/or the time

spent was unnecessary.

     The estates have provided detailed explanations of the need

for the hours incurred and billed to the estates.    The estates

also satisfactorily addressed each of respondent’s speculations

about the purpose underlying particular costs or fees.

     Finally, the estates argue that it was respondent’s

contentious litigating position (holding out for a nominal

discount) that protracted the proceeding and, to some extent,

caused increased litigation costs and fees.

     We have reviewed respondent’s general and specific

contentions and the estates’ response and hold that the

estates have adequately shown the claimed costs and fees are

reasonable.

     Respondent also makes the observation that the amount of

fees approaches or approximates the amount of the estate tax

deficiencies in the notices of deficiency.    We note, however,
                               - 12 -

that any tax liability would have been larger due to the interest

factor.    In that regard, we reiterate that it was the huge spread

between the parties’ positions that may have protracted the

litigation and exacerbated the amount of the claimed fees and

costs.    The Court is unable to reach the conclusion that the

number of hours billed was unreasonable.    There is no per se rule

that would limit the amount of fees claimed to the amount in

controversy.    Certainly, as a matter of good judgment and

practical economics, a litigant would ordinarily be reluctant to

spend more for attorney’s fees and costs than is at stake.    In

that regard, however, the estates argue that it was respondent’s

approach to these cases and his unreasonable position that there

should be a nominal discount that protracted the proceedings and,

to some extent, pushed the fees closer to the amounts in dispute.

It is that very principle, the estates contend, that was the

basis and intent for the enactment of section 7430; i.e., to

reimburse a litigant’s fees and costs incurred in defending

against an unreasonable position.

     Accordingly, with the exception of the need to reduce

claimed attorney’s fees to the statutory adjusted rate, we hold

that the estates’ claims for fees and costs are reasonable.
                        - 13 -

To reflect the foregoing,

                                 Appropriate orders and

                            decisions will be entered under

                            Rule 155.
