UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

DIANE W. WOLF,
Petitioner-Appellant,

v.
                                                                   No. 95-1268
COMMISSIONER OF THE INTERNAL
REVENUE SERVICE,
Respondent-Appellee.

Appeal from the United States Tax Court.
(Tax Ct. No. 90-5779)

Argued: December 8, 1995

Decided: January 9, 1996

Before MURNAGHAN, WILLIAMS, and MICHAEL,
Circuit Judges.

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Affirmed by unpublished per curiam opinion.

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COUNSEL

ARGUED: Sandon Lee Cohen, DAVID RODMAN COHAN &
ASSOCIATES, P.C., Baltimore, Maryland, for Appellant. Alice Liz-
beth Ronk, Tax Division, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Loretta C.
Argrett, Assistant Attorney General, Gary R. Allen, Jonathan S.
Cohen, Tax Division, UNITED STATES DEPARTMENT OF JUS-
TICE, Washington, D.C., for Appellee.

_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Petitioner challenges the United States Tax Court's finding that she
and the Internal Revenue Service never fully agreed on the terms of
a proposed settlement agreement, that she had not engaged in yacht-
chartering activity for the primary purpose of making a profit, and
that she was entitled to only a small portion of the award she sought
for costs and attorneys' fees. We reject Petitioner's challenge and
affirm the decision below.

I.

On January 17, 1990, the Internal Revenue Service (IRS) notified
Petitioner Diane W. Wolf1 that it had found her liable for an income
tax deficiency of $8,195 for tax year 1979. The deficiency was
asserted after Petitioner claimed net operating losses for tax year 1982
and carried those losses back to 1979. Proceeding pro se, Petitioner
filed with the Tax Court for a redetermination of her liability.

At a hearing before the Tax Court on October 2, 1990, Deborah
Clark, counsel for the IRS, stated that "[t]he parties ha[d] reached a
basis for settlement in this case," and that the parties were "prepared
. . . to state the basis of settlement on the record." With the court's
permission, she did so:

           The Respondent concedes that the Petitioner is entitled to an
           ordinary loss in the amount of $50,000 in the taxable year
           1982 which affects the net operating loss claimed in 1982
           and carried back to 1979. The Respondent also concedes
           that the Petitioner is entitled to deduct Schedule C loss from
_________________________________________________________________
1 After this litigation had begun, Petitioner remarried and assumed a
different last name.

                     2
          a yacht-chartering activity in the amount of $12,543. The
          Petitioner concedes all other adjustments.

When asked by the court whether she was satisfied with that reci-
tation of the basis of settlement, Petitioner replied:

          I don't know if I'm permitted to say this but I'm going to
          ask you--the largest concession from the government to me
          for the settlement was $30,000 for yacht loss in`81. Yester-
          day they discovered that it wasn't in front of them and they
          didn't have the right to grant that to me. However, as part
          of this they have agreed to recommend to District Counsel
          that they allow me the loss that they were going to give me.
          I realize that doesn't bind District Counsel.

The court stated that it had no jurisdiction over matters concerning the
1981 tax year, then asked Petitioner whether she was"satisfied as to
the matters before the court." Petitioner said that she was. The court
gave the parties thirty days to prepare the necessary decision docu-
ments. Soon thereafter, however, the IRS reported that the parties had
proved unable fully to resolve their differences.

On April 8, 1991, the IRS moved to increase Petitioner's defi-
ciency for 1979 from $8,195 to $79,606. Over Petitioner's objection,
the motion was granted. After her motion for reconsideration was
denied, Petitioner retained an attorney.

Petitioner moved for summary judgment on November 14, 1991,
arguing that remarks made during the October 2 hearing demonstrated
that a settlement had been reached and that only computational issues
remained to be resolved. The IRS abandoned its position that Peti-
tioner owed a deficiency of $79,606 and reverted to its prior conten-
tion that Petitioner owed approximately $8,000, yet argued that no
enforceable settlement agreement had ever been reached. Petitioner
conceded that the parties had signed neither a stipulation of settled
issues nor decision documents. The court denied Petitioner's motion
for summary judgment, finding that, "[b]y their statements and
actions the parties and their counsel have demonstrated that this case
is not settled."

                    3
At the ensuing trial, Petitioner testified that she and her then-
husband, Morris Wolf, had attempted to charter a boat in France in
1980, and discovered that it was difficult to secure a vessel without
at least one year's advance notice. She stated that she and Mr. Wolf
then explored the possibility of entering the chartering business by
talking with various lawyers, brokers, and individuals already work-
ing in the field. Petitioner testified that she and Mr. Wolf acquired a
yacht in 1981, hired a captain, displayed the boat to boat brokers,
notified a travel agency of the boat's availability, and began to accept
chartering appointments beginning in July or August of 1981. They
took in approximately $7,000 in revenue in that year, but sustained
substantial losses. Petitioner testified that, near the end of 1981, she
and Mr. Wolf learned that the French government intended to levy
unanticipated taxes; that fact, together with the demise of Petitioner
and Mr. Wolf's relationship, caused them to put the boat up for sale.

The Tax Court held that Petitioner had "failed to carry her burden
of proving that profit was the objective of the boat chartering activ-
ity." The court observed that, prior to buying the boat, the couple had
wanted to sail the Mediterranean but had been unable to do so, and
that the couple had put the boat up for sale soon after their relation-
ship began to deteriorate. The court found Petitioner's testimony "not
convincing" and concluded that

          even though petitioner and Morris Wolf might have been
          quite willing to make a profit, their actual objective in
          acquiring the [boat] was not profit. Instead, their purpose
          was personal pleasure. Their motive for considering leasing
          was to defray a portion of the cost of the yacht they wished
          to own for their joint personal enjoyment.

Petitioner then filed a motion for costs and attorneys' fees totaling
$35,472.95, claiming that the IRS had taken a substantially unjustified
position when it increased her deficiency from $8,195 to $79,606, and
that it was the IRS's taking of such a position that caused Petitioner
to hire counsel. The IRS conceded that it had taken a substantially
unjustified position, but argued that recoverable costs "should be lim-
ited to those costs allocable to the period of time during which [the
agency] maintained a position not substantially justified." Agreeing

                     4
with the IRS, the court awarded Petitioner $3,194: $2,782 for attor-
neys' fees and $412 for out-of-pocket expenditures.

Petitioner contends that the district court erred when it held (1) that
a settlement had not been reached in late 1990; (2) that she did not
purchase, maintain, and operate the vessel with the primary purpose
of making a profit; and (3) that she was not entitled to a substantial
award for costs and attorneys' fees.

The federal courts of appeals generally have exclusive jurisdiction
to review decisions of the Tax Court. 26 U.S.C.§ 7482(a) (Supp.
1995). We review the Tax Court's factual findings only for clear
error, "unless `there has been an erroneous interpretation of the appli-
cable legal standard.'" Antonides v. Commissioner, 893 F.2d 656, 659
(4th Cir. 1990) (quoting Faulconer v. Commissioner, 748 F.2d 890,
895 (4th Cir. 1984)). "A finding is `clearly erroneous' when although
there is evidence to support it, the reviewing court on the entire evi-
dence is left with the definite and firm conviction that a mistake has
been committed." United States v. United States Gypsum Co., 333
U.S. 364, 395 (1948). We review the Tax Court's decision with
respect to costs and attorneys' fees for an abuse of discretion. Bowles
v. United States, 947 F.2d 91, 94 (4th Cir. 1991).

II.

Petitioner contends that the Tax Court erred when it refused to
enforce the settlement agreement she believes was reached in the fall
of 1990.2 We disagree. It is true that the parties stated at the October
2 hearing that "a basis for settlement" had been agreed upon. It is also
true that counsel for the IRS proceeded to describe key terms of that
settlement. Yet while Petitioner did indicate that she was satisfied
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2 Petitioner also argues that the Tax Court erred as a matter of law by
holding that a writing was required in order to reach a finding that a set-
tlement had been reached. The court below did not so hold. The court
stated that "[b]y their statements and actions the parties and their counsel
have demonstrated that this case is not settled," and that there was "no
stipulation of facts nor any written or oral statement of agreement as to
the facts of the case." While the court did regard the absence of a writing
as significant, it did not regard that absence as conclusive.

                     5
with the recitation of the terms of settlement with respect to tax years
1979 and 1982, it is reasonably apparent that matters concerning tax
year 1981 were crucial to Petitioner's consent to the settlement agree-
ment, but not yet fully resolved to her satisfaction at the time of the
October 2 hearing. We also note that the proposed basis of settlement
described to the Tax Court may not have been sufficiently specific to
enable a court--on the basis of that recitation alone--to determine the
amount of tax owed by Petitioner. In light of such considerations, we
find that the court did not clearly err when it held that no enforceable
settlement agreement had been reached.

III.

Petitioner contends that the Tax Court erred when it found that she
had purchased and operated the yacht primarily for purposes of plea-
sure, rather than profit.

The Tax Code provides that, if an activity is "not engaged in for
profit," then the taxpayer is not entitled to any deduction "attributable
to such activity . . . except as provided in this section."3 26 U.S.C.
§ 183(a) (Supp. 1995). An activity is "not engaged in for profit" if it
is an activity "other than one with respect to which deductions are
allowable for the taxable year under section 162 or under paragraph
(1) or (2) of section 212." Id. § 183(c). Section 162 allows a taxpayer
to deduct "all the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or business." 26
U.S.C. § 162(a) (Supp. 1995). Paragraphs (1) and (2) of § 212 allow
individuals to deduct "all the ordinary and necessary expenses paid or
incurred during the taxable year (1) for the production or collection
of income; [or] (2) for the management, conservation, or maintenance
of property held for the production of income." 26 U.S.C. § 212. To
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3 Section 183(b)(1) allows those deductions "which would be allowable
under this chapter for the taxable year without regard to whether or not
such activity is engaged in for profit." Section 183(b)(2) allows a deduc-
tion equal in amount to those deductions that would be allowable if the
activity were engaged in for profit, "but only to the extent that the gross
income derived from such activity for the taxable year exceeds the
deductions allowable by reason of paragraph (1)." Neither provision is at
issue in the instant case.

                    6
qualify for a deduction under either § 162 or§ 212, a taxpayer must
carry her burden of showing that she engaged in the given activity pri-
marily for the purpose of making a profit. Hendricks v.
Commissioner, 32 F.3d 94, 97 & n.6 (4th Cir. 1994); see also
Faulconer v. Commissioner, 748 F.2d 890, 893 (4th Cir. 1984) (stat-
ing that the taxpayer ordinarily possesses the burden of persuasion).

The Treasury Department's regulations elaborate on the "engaged
in for profit" requirement of § 183:

          The determination whether an activity is engaged in for
          profit is to be made by reference to objective standards, tak-
          ing into account all of the facts and circumstances of each
          case. Although a reasonable expectation of profit is not
          required, the facts and circumstances must indicate that the
          taxpayer entered into the activity, or continued the activity,
          with the objective of making a profit. . . . In determining
          whether an activity is engaged in for profit, greater weight
          is given to objective facts than to the taxpayer's mere state-
          ment of his intent.

26 C.F.R. § 1.183-2(a). The regulations provide a non-exclusive list
of nine factors that "should normally be taken into account" when
making that determination: (1) the manner in which the taxpayer car-
ried on the activity; (2) the expertise of the taxpayer or his advisors;
(3) the time and effort spent by the taxpayer on the activity; (4) the
expectation that assets used in the activity might appreciate in value;
(5) the taxpayer's success in carrying on similar or dissimilar activi-
ties; (6) the taxpayer's record of income or losses attributable to the
activity; (7) the amount of profits earned; (8) the taxpayer's financial
status; and (9) the personal pleasure or recreation derived from the
activity by the taxpayer. 26 C.F.R. § 1.183-2(b).

Petitioner argues that the Tax Court in the instant case erred both
by considering only the ninth factor described in the regulations and
by concluding that Petitioner had not engaged in the chartering activ-
ity with the primary purpose of making a profit.

Our review of the lower court's opinion leads us to conclude that
the court gave due consideration to the factors outlined in the regula-

                     7
tions. The court stated that neither Petitioner nor her former husband
had expertise in the chartering business; this is directly relevant to the
second factor, and might also be relevant to the fifth. The court
observed that Petitioner and Mr. Wolf had suffered"a substantial net
loss"; this is directly relevant to the sixth and seventh factors. The
court stated that, after placing the boat in service in the late summer
of 1981, the parties put the boat up for sale at the end of that year;
this is relevant to the third factor. The court recounted the manner in
which Petitioner and Mr. Wolf attempted to solicit business; this is
relevant to the first and third factors. And, with respect to the ninth
factor, the court found that Petitioner had derived significant pleasure
from the yachting activity. In short, it is clear that the Tax Court con-
sidered all of the relevant facts and circumstances before concluding
that Petitioner had not engaged in the chartering activity with the req-
uisite intent of making a profit.

Moreover, having reviewed the record, we are not"left with the
definite and firm conviction" that the Tax Court erred in reaching its
conclusion. See United States Gypsum Co., 333 U.S. at 395; see also
Thomas v. Commissioner, 792 F.2d 1256, 1260 (4th Cir. 1986)
("`[W]here there are two permissible views of the evidence, the fact-
finder's choice between them cannot be clearly erroneous.'") (quoting
Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985)). We
therefore refuse to disturb the ruling below.

IV.

When a taxpayer is the "prevailing party" in a court proceeding
brought by or against the United States concerning"the determina-
tion, collection, or refund of any tax," she may be awarded a judg-
ment for "reasonable litigation costs incurred in connection with such
court proceeding." 26 U.S.C. § 7430(a)."Reasonable litigation costs"
include reasonable court costs, reasonable expenses of expert wit-
nesses, reasonable costs of studies, analyses, tests, or reports neces-
sary for the preparation of the taxpayer's case, and reasonable
attorneys' fees. Id. § 7430(c)(1). Recoverable attorneys' fees cannot
exceed $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 a proceeding, justifies a higher rate."
Id. § 7430(c)(1)(B)(iii). A taxpayer is the "prevailing party" within

                     8
the meaning of § 7430(a) if, inter alia , she "establishes that the posi-
tion of the United States in the proceeding was not substantially justi-
fied" and she shows that she either "substantially prevailed with
respect to the amount in controversy" or "substantially prevailed with
respect to the most significant issue or set of issues presented." Id.
§ 7430(c)(4)(A).

The Tax Court divided the issues in the instant case into two cate-
gories: the substantive issues (including all matters affecting the
amount of the 1982 net operating loss) and the computational issues
(including all matters affecting the computation of the tax owed for
1979). The court found that Petitioner had prevailed only with respect
to the computational issues, then observed that the IRS had conceded
that it had taken a substantially unjustified position when it increased
the amount of the deficiency owed from $8,195 to $79,606. The court
therefore held that Petitioner was entitled to reimbursement for rea-
sonable costs and fees that were attributable to resolution of the com-
putational issues and that were "incurred from April 8, 1991, the date
on which [the IRS] asserted the increased deficiency, through April
13, 1992, the date on which [the IRS] conceded the computational
issues."

Because Petitioner and her attorneys had entered an agreement
under which she was to pay a maximum fee of $10,000 for their han-
dling of the case, and because the attorneys had logged a total of
472.5 hours, the court calculated the attorneys' hourly rate as $21.16,
then multiplied that amount by the number of hours worked during
the April 1991-April 1992 time period (35.4). Because it was not
clear how many of those hours had been spent addressing the compu-
tational issues, the court awarded Petitioner 67 percent of the total:
$502. The court further noted that Petitioner had agreed to pay her
attorneys $2,500 for their handling of the motion for costs. Because
30.4 hours had been spent on that motion, for an hourly average of
$82.24, and because Petitioner had not shown that a special factor
required the court to exceed the statutory maximum of $75 per hour,
the court multiplied $75 by 30.4 hours and awarded Petitioner $2,280.
The court awarded Petitioner various other costs as well, but denied
her reimbursement in the amount of approximately $12,000 for on-
line research that she personally performed, because Petitioner failed
to show that the research was related to the computational issues and

                     9
because the research may have duplicated research performed by her
attorneys.

Petitioner claims that the Tax Court abused its discretion when it
computed the amount of recoverable costs and fees because it (1) lim-
ited those costs and fees to those incurred in combatting the IRS's
substantially unjustified position; (2) failed to"take into account" the
IRS's refusal to abide by the settlement agreement purportedly
reached in the fall of 1990; (3) improperly calculated the amount of
attorneys' fees for which Petitioner was entitled to reimbursement by
dividing the total fee paid by the total number of hours worked; and
(4) denied Petitioner reimbursement for the on-line research she per-
formed.

Petitioner's arguments are without merit. First, we do not believe
that the Tax Court abused its discretion when it separately reviewed
the positions taken by the agency on each issue and awarded Peti-
tioner only those fees paid and costs incurred in challenging the sub-
stantially unjustified positions. An identical, issue-by-issue approach
has been taken by courts in this and other circuits. See, e.g., Heasley
v. Commissioner, 967 F.2d 116, 119-24 (5th Cir. 1992); McConaughy
v. United States, 833 F. Supp. 534, 538-39 (D. Md. 1993). Because
we are sustaining the Tax Court's finding that the parties never fully
settled their differences, we must also reject Petitioner's second argu-
ment. With respect to Petitioner's final contentions--that the Tax
Court abused its discretion when it determined the amount of attor-
neys' fees for which she was entitled to reimbursement4 and when it
refused to reimburse her for on-line research that she had performed
--we similarly find no abuse of discretion.
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4 Petitioner maintains that she had agreed to pay her attorneys a maxi-
mum fee of $10,000 and an hourly rate of approximately $130 up until
that ceiling had been reached, and that by April 1992 her attorneys had
charged her $4,579 for 35.4 hours. Because that amount exceeds the stat-
utory maximum of $75, and because Petitioner believes the case was
resolved (by way of the purported 1990 settlement) before the $10,000
ceiling was reached, Petitioner contends that the Tax Court should have
multiplied $75 by 35.4 hours. Whatever merits it might otherwise pos-
sess, Petitioner's argument is substantially weakened by our finding that
the Tax Court did not err when it held that a settlement agreement was
not reached in the fall of 1990.

                    10
We have reviewed all of Petitioner's other arguments, and find
them unpersuasive as well.

The decision of the Tax Court is accordingly

AFFIRMED.

                    11
