                           132 T.C. No. 5



                      UNITED STATES TAX COURT



        JERRY AND PATRICIA A. DIXON, ET AL.,1 Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



    Docket Nos. 9382-83, 15907-84,      Filed March 23, 2009.
               30979-85.


         Ps’ cases were three of the Kersting tax shelter
    test cases that were included in Dixon v. Commissioner,
    T.C. Memo. 1991-614 (Dixon II), vacated and remanded
    sub nom. DuFresne v. Commissioner, 26 F.3d 105 (9th
    Cir. 1994) (DuFresne), on remand Dixon v. Commissioner,
    T.C. Memo. 1999-101 (Dixon III), supplemented by T.C.
    Memo. 2000-116 (Dixon IV), revd. and remanded 316 F.3d
    1041, 1047 (9th Cir. 2003) (Dixon V), on remand T.C.
    Memo. 2006-90 (Dixon VI), supplemented by T.C. Memo.
    2006-190 (Dixon VIII) (on appeal Dec. 28, 2006, and
    Jan. 3, 2007). The protracted and multiplied
    proceedings in these cases stem from the misconduct of
    the Government attorneys in arranging secret
    settlements of the Ts’ and the Cs’ test cases that the

    1
      Cases of the following petitioners are consolidated
herewith: Robert L. DuFresne and Carolyn S. DuFresne, docket
Nos. 15907-84 and 30979-85.
                         - 2 -

Court of Appeals for the Ninth Circuit held in Dixon V
was a fraud on the Tax Court.

     In Dixon III we held that the Government
attorneys’ misconduct did not create a structural
defect and was harmless error but that it had caused
substantial delay in the resolution of Kersting project
cases, and we imposed limited sanctions against R under
Rule 123(a), Tax Court Rules of Practice and Procedure.
In Dixon IV, supplementing Dixon III, we addressed
requests by Ps and other participants in the remand
proceedings for attorneys’ fees under secs. 7430 and
6673(a)(2), I.R.C. We held that Ps and others were not
entitled to fees pursuant to sec. 7430, I.R.C., because
they had not prevailed on the merits against the
underlying deficiency determinations. We held that
they were entitled to fees pursuant to sec. 6673(a)(2),
I.R.C., because the Government attorneys had multiplied
the proceedings unreasonably and vexatiously and the
excess attorneys’ fees were caused by the misconduct.

     In Dixon V the Court of Appeals held that we had
applied the wrong standard in Dixon III and that the
misconduct of the Government attorneys in the test case
proceedings was a fraud on the Tax Court. The Court of
Appeals reversed and remanded our decisions in the
remaining test cases, ordering the Tax Court to enter
decisions on terms equivalent to those provided in the
Ts’ secret settlement agreement. In Dixon VI we
determined the terms and benefits of the Ts’ settlement
and their application to the Kersting project
participants before the Court.

     Early in the Dixon V remand proceedings, R agreed
that reasonable attorneys’ fees should be awarded to Ps
and others participating in those proceedings. R, Ps,
and the Court agreed that sec. 6673(a)(2), I.R.C.,
governed the recovery of attorneys’ fees.

     HB and JI, attorneys with the law firm of P&H,
represented Ps in the Dixon V remand proceedings at no
cost to Ps over the amount of costs, expenses, and fees
that the Court might require R to pay pursuant to sec.
6673(a)(2), I.R.C. On June 29, 2007, JI filed a motion
for attorneys’ fees of $X for services provided in the
Dixon V remand proceedings, accompanied by the
stipulation of R and JI of the reasonableness of the
amounts requested. On Nov. 19, 2007, R and JI filed a
                         - 3 -

supplemental stipulation regarding fees and expenses of
$Y for the preparation of the subject motion. R
concedes that fees and expenses requested on behalf of
P&H are reasonable and were caused by the Government
attorneys’ misconduct.

     R argues that the Court cannot require R to pay
the requested fees and expenses because sec.
6673(a)(2), I.R.C., and the law of the case established
in Dixon IV require that they be paid or incurred by Ps
and they have not been so paid or incurred. R argues
further that we should not invoke our inherent power to
impose the sanction because we did not do so in Dixon
IV, in which we held that sec. 6673(a)(2), I.R.C., was
the statutory authority governing the award of
attorneys’ fees.

1. Held: Reasonable attorneys’ fees are “incurred”,
and may therefore be awarded, under sec. 6673(a)(2),
I.R.C., when they reflect efforts by attorneys on
behalf of their clients to resist or rectify the
unreasonable and vexatious conduct of opposing
attorneys.

2. Held, further, under sec. 6673(a)(2), I.R.C.,
attorneys whose unreasonable and vexatious conduct
multiplies the proceedings incur the excess costs,
expenses, and attorneys’ fees caused by their
misconduct.

3. Held, further, although in Dixon IV we limited the
sanction we imposed under sec. 6673(a)(2), I.R.C., to
the amounts paid by Ps and other participants for
attorneys’ services and expenses during the multiplied
proceeding up to that time, the law of the case
doctrine does not require us to limit additional
sanctions under sec. 6673(a)(2), I.R.C., to the amounts
Ps paid for attorneys’ fees and expenses for services
in the Dixon V remand proceedings.


4. Held, further, the requested attorneys’ fees and
expenses were incurred for purposes of sec. 6673(a)(2),
I.R.C., because (1) R incurred them either when the
Government attorneys commenced their unreasonable and
vexatious conduct or, alternatively, when we held in
Dixon IV that their conduct was unreasonable and
vexatious, (2) Ps were contingently liable for the
                               - 4 -

      fees, and (3) the contingency has been satisfied.

      5. Held, further, our reliance on sec. 6673(a)(2),
      I.R.C., for imposing sanctions in Dixon IV did not
      foreclose recourse to our inherent power in this
      proceeding.

      6. Held, further, pursuant to sec. 6673(a)(2), I.R.C.,
      and the inherent power of the Court, we may and will
      require R to pay to P&H the requested attorneys’ fees
      and expenses.

      7. Held, further, because R incurred the requested
      fees and expenses pursuant to sec. 6673(a)(2), I.R.C.,
      and Dixon IV, we will invoke our inherent power to
      require respondent to pay amounts equal to interest at
      the applicable rates for underpayments under secs.
      6601(a) and 6621(a)(2), I.R.C., on $X from June 29,
      2007, the date JI filed the motion for attorneys’ fees
      and expenses, and on $Y from Nov. 19, 2007, the date R
      and JI filed the supplemental stipulation of facts
      regarding fees and expenses incurred in preparing the
      subject motion.



      John A. Irvine, for petitioners.

      Henry E. O’Neill, for respondent.



                             CONTENTS

                                                                   Page

Background   . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Discussion   . . . . . . . . . . . . . . . . . . . . . . . . .      22

I.    Sources of Tax Court’s Power To Assess Attorneys’ Fees .      22

II.   Authority To Award Fees Under Section 6673(a)(2) . . . .      23

      A.   Positions of the Parties . . . . . .    . . . . . . .    23
      B.   Preliminary Comment . . . . . . . . .   . . . . . . .    24
      C.   Overview of Prevailing Party Statutes   and
           Sanctioning Statutes . . . . . . . .    . . . . . . .    26
                                - 5 -

      D.   Principles of Statutory Construction . . . . . . .     31
      E.   Interpretation of “Excess Costs, Expenses, and
           Attorneys’ Fees Reasonably Incurred Because of
           Such Conduct” . . . . . . . . . . . . . . . . . . .    32
           1.   Threshold Requirement: Attorney-Client
                Relationship . . . . . . . . . . . . . . . . .    34
           2.   Definition of “Incurred” . . . . . . . . . . .    35
           3.   History of Section 6673(a)(2) . . . . . . . .     39
           4.   Purpose of Sanctioning Statutes . . . . . . .     41
           5.   Statutory Title and Heading . . . . . . . . .     44
           6.   Relevant Caselaw: When Attorneys’ Fees Are
                “incurred because of such conduct” Under
                Section 6673(a)(2) . . . . . . . . . . . . . .    45
           7.   Government Incurs the Excess Costs, Expenses,
                and Attorneys’ Fees Attributable to
                Government Attorneys’ Misconduct . . . . . . .    52
           8.   Section 7430 and the Equal Access to Justice
                Act . . . . . . . . . . . . . . . . . . . . .     54
           9.   Law of the Case Doctrine . . . . . . . . . . .    58
      F.   Fees “Incurred” in Pro Bono Representation and
           Contingent Fee Arrangements . . . . . . . . . . . .    64
           1.   Caselaw Under Prevailing Party Statutes . . .     65
           2.   Section 7430(c)(3)(B) . . . . . . . . . . . .     76
      G.   Respondent Must Pay Attorneys’ Fees and Excess
           Expenses Requested on Behalf of Petitioners’
           Attorneys . . . . . . . . . . . . . . . . . . . . .    78

III. Inherent Power To Impose Sanctions . . . . . . . . . . .     79

IV.   Conclusion . . . . . . . . . . . . . . . . . . . . . . .   82



                               OPINION


      BEGHE, Judge:   These cases are part of the Kersting tax

shelter litigation that stemmed from the misconduct of

respondent’s trial counsel in Dixon v. Commissioner, T.C. Memo.

1991-614 (Dixon II), vacated and remanded sub nom. DuFresne v.

Commissioner, 26 F.3d 105 (9th Cir. 1994) (per curiam), on remand

Dixon v. Commissioner, T.C. Memo. 1999-101 (Dixon III), revd. and
                               - 6 -

remanded 316 F.3d 1041 (9th Cir. 2003) (Dixon V).    This is the

first Opinion in our third set of opinions requiring respondent

to pay attorneys’ fees and expenses incurred by or on behalf of

Kersting project taxpayers during the various stages of the

litigation.2   The current set of opinions pertains to fees and

expenses incurred in the proceedings before this Court during the

remand from Dixon V (Dixon V remand proceedings), which resulted

in Dixon v. Commissioner, T.C. Memo. 2006-90 (Dixon VI),

supplemented by T.C. Memo. 2006-190 (Dixon VIII), ascertaining

the terms and benefits of the Thompson settlement.

     Petitioners’ cases were consolidated in the Dixon V remand

proceedings with 24 cases of other Kersting project taxpayers for




     2
      In our first attorneys’ fees opinion, Dixon v.
Commissioner, T.C. Memo. 2000-116 (Dixon IV) (supplementing Dixon
III), we awarded Kersting project taxpayers excess fees and
expenses under sec. 6673(a)(2)(B) for services rendered by
Attorneys Joe Alfred Izen (Izen), Robert Allen Jones (Jones), and
Robert Patrick Sticht (Sticht) during the DuFresne remand.

     In the second set of attorneys’ fees opinions, Dixon v.
Commissioner, T.C. Memo. 2006-97 (Dixon VII), and Young v.
Commissioner, T.C. Memo. 2006-189, we responded to the
supplemental mandate of the Court of Appeals for the Ninth
Circuit to rule on Kersting project taxpayers’ requests for
appellate attorneys’ fees and expenses incurred in the Dixon V
appeal. In Dixon VII we awarded appellate attorneys’ fees and
expenses under sec. 7430 to Kersting project taxpayers
represented in the Dixon V appeal by Attorneys John A. Irvine
(Irvine) and Henry G. Binder (Binder) of Porter & Hedges, L.L.P.
(Porter & Hedges), and Michael Louis Minns (Minns). In Young we
awarded appellate fees and expenses to Kersting project taxpayers
represented in the Dixon V appeal by Attorneys Izen and Jones.
                                - 7 -

purposes of hearing, briefing, and opinion (the Dixon V

taxpayers).   Counsel for all Dixon V taxpayers have requested

attorneys’ fees and expenses for their services in the Dixon V

remand proceedings.    In this Opinion we consider motions for

excess costs and attorneys’ fees under section 6673(a)(2)(B)3 for

services of Attorneys John A. Irvine (Irvine) and Henry G. Binder

(Binder) of Porter & Hedges, L.L.P. (Porter & Hedges), provided

to petitioners, the Dixons and the DuFresnes, in the Dixon V

remand proceedings.4

     Early in the Dixon V remand proceedings, respondent’s

counsel agreed that, pursuant to section 6673(a)(2), respondent

is required to pay attorneys’ fees and expenses incurred in the

Dixon V remand proceedings.    The parties have stipulated that

reasonable attorneys’ fees and expenses totaling $1,101,575.34

are attributable to services of Porter & Hedges in the Dixon V

remand proceedings.    Porter & Hedges agreed to represent

petitioners in the Dixon V remand proceedings at no cost except

for such fees and expenses as might be allowed by the Court.      The

issue for decision is:    when attorneys representing the



     3
      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.
     4
      Subsequent opinions will deal with the pending applications
of Attorneys Jones, Minns, and Izen for fees and expenses
incurred for their services on behalf of other Dixon V taxpayers
in the Dixon V remand proceedings.
                              - 8 -

Commissioner have committed a fraud on the Tax Court that has

multiplied and protracted the proceedings, may the Court,

pursuant to section 6673(a)(2)(B) or under the Court’s inherent

power, require the Commissioner to pay attorneys’ fees and

expenses for services provided during such proceedings by counsel

representing the taxpayer pro bono5 or, as in these cases, for no

fee except for any fees that may be allowed by the Court?




     5
      Although the phrase “pro bono” stems from the Latin phrase
“pro bono publico” (“for the public good”), the definition in the
current edition of Black’s Law Dictionary 1240-1241 (8th ed.
2004) is wider ranging, encompassing “uncompensated legal
services performed esp. for the public good” and, quoting Rhode &
Hazard, Professional Responsibility 162 (2002):

     “a wide range of activities, including law reform
     efforts, participation in bar associations and civic
     organizations, and individual or group representation.
     Clients who receive such assistance also span a broad
     range including: poor people, nonprofit organizations,
     ideological or political causes, and friends,
     relatives, or employees of the lawyer.”

     Sec. 7430(c)(3)(B), titled “Pro bono services”, added by the
Internal Revenue Service Restructuring and Reform Act of 1998,
Pub. L. 105-206, sec. 3101(c), 112 Stat. 728, describes the
covered fees as “fees [that] are less than the reasonable
attorneys’ fees because an individual is representing the
prevailing party for no fee or for a fee which * * * is no more
than a nominal fee.”
                              - 9 -

                           Background6

     The Kersting tax shelter litigation arose from respondent’s

disallowance of interest deductions claimed by participants in

various tax shelter programs promoted by Henry F.K. Kersting

(Kersting) during the late 1970s through the 1980s.   Under the

test case procedure, most of the other Kersting program

participants who had filed Tax Court petitions (non-test-case

taxpayers) entered into “piggyback” agreements in which they

agreed that their cases would be resolved in accordance with the

Court’s opinion in the test cases.7

     Initially, Kersting hired Attorney Brian J. Seery (Seery) to

represent Kersting project participants.   After Seery resigned

because of a perceived possible conflict of interest, Kersting

replaced him with Attorneys Robert J. Chicoine and Darrell D.

Hallett, whom he later fired and replaced with Attorney Joe



     6
      The following background statement is based on the existing
record and additional information submitted by the parties in
connection with the attorneys’ fees requests. The facts in these
cases are fully set out in Dixon II, Dixon III, Dixon IV, Dixon
VI, Dixon VII, Young v. Commissioner, supra, and Dixon VIII.
The parties have stipulated additional facts related to the
motion for attorneys’ fees, and they are so found. The
stipulation of facts and the supplemental stipulation of facts
are incorporated herein by this reference. We have not found it
necessary to hold an evidentiary hearing. Cf. Rule 232(a)(2).
     7
      Upon the final disposition of the test cases, respondent
and the relatively few non-test-case taxpayers who did not enter
into piggyback agreements will generally be ordered to show cause
why those cases should not be decided the same way as the test
cases.
                               - 10 -

Alfred Izen, Jr. (Izen), who represented the taxpayers in the

trial of the test cases.    Kersting initially paid the taxpayers’

legal fees in the Tax Court litigation.    Later some Kersting

program participants began contributing to a legal defense fund

created to share the cost of further proceedings (the defense

fund or fund).    Eventually, more than 300 non-test-case

petitioners made periodic and/or lump-sum contributions to the

fund.

     Before trial of the test cases in this Court, respondent’s

trial counsel entered into the then-secret, now notorious,

Thompson settlement, which was not disclosed to the Court until

after the test cases had been tried and decisions entered in

accordance with Dixon II,8 sustaining virtually all respondent’s

determinations.

     On appeal, the Court of Appeals for the Ninth Circuit

vacated this Court’s decisions in the test cases and remanded

them for an evidentiary hearing to determine the full extent of

the Government attorneys’ misconduct and whether that misconduct

was a structural defect voiding the judgment or should be

disregarded as harmless error.    DuFresne v. Commissioner, 26 F.3d

at 107 (citing Arizona v. Fulminante, 499 U.S. 279, 309 (1991)).


     8
      Before the trial of the test cases the Court had rejected
the test case taxpayers’ arguments, advanced by Chicoine and
Hallett, that certain evidence should be suppressed and the
burden of proof shifted to respondent. See Dixon v.
Commissioner, 90 T.C. 237 (1988) (Dixon I).
                              - 11 -

     On remand, in response to a direction by the Court of

Appeals to consider on the merits all motions of intervention

filed by interested parties, we ordered consolidation of the

cases of 10 non-test-case taxpayers with the remaining test cases

for purposes of the evidentiary hearing.   Following that hearing,

we held in Dixon III that the misconduct of the Government

attorneys in the trial of the test cases did not cause a

structural defect in the trial but instead resulted in harmless

error.   However, we sanctioned respondent in two ways for the

Government attorneys’ misconduct during the test-case

proceedings.   First, in Dixon III we held that Kersting project

taxpayers who had not had final decisions entered in their cases

would be relieved of their liabilities for the interest component

of the addition to tax for negligence under former section

6653(a) and for the increased rate of interest provided by former

section 6621(c).   Second, in Dixon v. Commissioner, T.C. Memo.

2000-116 (Dixon IV), pursuant to section 6673(a)(2)(B), we

ordered respondent to pay petitioners’ attorneys’ fees and

expenses incurred by them in the DuFresne remand proceedings in

the Tax Court as a result of the Government attorneys’

misconduct.9   We entered orders requiring respondent to pay a



     9
      In Dixon IV, we rejected the fee requests insofar as they
relied on sec. 7430, on the ground that the movants had not
substantially prevailed on the merits as required by sec.
7430(c)(4)(A)(i).
                                - 12 -

portion of attorneys’ fees and expenses incurred for services

provided by Izen and Attorneys Robert Allen Jones (Jones) and

Robert Patrick Sticht (Sticht) to the taxpayers in the DuFresne

remand proceedings.10    In so doing, sua sponte and relying on our

inherent power, we included in the sanction the obligation of

respondent to pay interest on the awards at the rates provided by

sections 6601(a) and 6621(a)(2) from the dates of our orders

fixing the awards.11    Respondent did not appeal Dixon IV or those

orders.12

     We entered decisions for respondent in the remaining test

cases, which the test-case taxpayers again appealed.    We also

certified for interlocutory appeal the cases of non-test-case


     10
      We substantially reduced the amounts requested in varying
amounts because of insufficient substantiation. Sticht and
respondent thereafter entered into a comprehensive agreement and
submission regarding the fee and expense claims of Kersting
project non-test-case taxpayers represented by Sticht in all
phases of the Kersting project proceedings through the Dixon V
remand proceedings. That agreement and submission superseded our
awards to his clients in Dixon IV.
     11
      We note that Attorney Luis DeCastro’s monthly bills for
legal fees and expenses to the Thompsons provided for interest on
outstanding balances, which were expected to be paid from the
Thompsons’ refunds generated by the secret settlement. See Dixon
III, Findings of Fact IX. Postrial Developments, A. First
Thompson Refund (“Mr. DeCastro advised the Thompsons that,
because the Internal Revenue Service would be paying interest, he
believed it was fair to add interest to the Thompsons’ bill.”);
see also Exhibit 939-ALZ, at 9-13.
     12
      Decisions already entered after the Dixon V remand
proceedings on behalf of taxpayers who initially contributed to
the defense fund have included fee and expense awards pursuant to
our opinion in Dixon IV.
                              - 13 -

taxpayers who had participated in the evidentiary hearing.      The

Court of Appeals accepted the interlocutory appeals of the non-

test cases but held them in abeyance pending resolution of the

appeals of the test cases.

     In January 2001 the defense fund retained Attorney Michael

Louis Minns (Minns) to replace Izen in the appeal.    As a result,

Minns became counsel of record for the Dixons, DuFresnes,

Owenses, and Hongsermeiers.   Izen remained counsel of record for

the appeals of the Youngs, the only other remaining test-case

taxpayers, and the Adairs, who were non-test-case taxpayers.      The

steering committee of the defense fund later became dissatisfied

with Minns and asked Porter & Hedges to take over the appeals.

     Porter & Hedges entered into an agreement with the defense

fund to represent test-case taxpayers through oral argument in

the appeal (the retainer agreement).    Although the retainer

agreement provided for an up-front retainer and monthly billings,

Porter & Hedges received only a small portion of its billed

appellate fees from the defense fund.    When Irvine and Binder

entered into the retainer agreement with the defense fund on

behalf of Porter & Hedges, they did not realize that the steering

committee whose members signed the retainer agreement had the

backing of less than a majority of the participants in the

defense fund, many of whom wished to continue to be represented

by Minns or Izen in the appeal.
                              - 14 -

     In accordance with the retainer agreement, Porter & Hedges

attorneys Irvine and Binder entered appearances in the Court of

Appeals on behalf of the Dixons, DuFresnes, and Owenses.    Minns

remained counsel of record for the Hongsermeiers.    Thus, three

sets of counsel pursued the appeals of the test cases:    Izen on

behalf of the Youngs, Minns on behalf of the Hongsermeiers, and

Porter & Hedges on behalf of the Dixons, DuFresnes, and Owenses.

     In Dixon V the Court of Appeals reversed Dixon III, holding

that the misconduct of the Government attorneys in the trial of

the test cases was a fraud on the Tax Court, for which no showing

of prejudice is required, and that respondent should be more

severely sanctioned.   The Court of Appeals remanded the cases and

ordered this Court to enter judgment in favor of the test-case

taxpayers and non-test-case taxpayers who were before the Court

of Appeals (the Dixon V taxpayers) on terms equivalent to those

provided in the final Thompson settlement agreement.    The Court

of Appeals left to our discretion the fashioning of judgments

that would put the Kersting project taxpayers in the same

position as provided in the Thompson settlement.    Dixon V, 316

F.3d at 1047 n.11.

     Petitioners and other taxpayer appellants requested the

Court of Appeals to award appellate attorneys’ fees and expenses

incurred in the Dixon V appeal.   In a supplemental mandate, the

Court of Appeals sent those appellate fee requests to the Tax
                               - 15 -

Court for a determination of entitlement and, if warranted,

amount.   We responded to that supplemental mandate in Dixon v.

Commissioner, T.C. Memo. 2006-97 (Dixon VII), and Young v.

Commissioner, T.C. Memo. 2006-189, and awarded appellate fees and

expenses under section 7430.   In Young we awarded appellate fees

and expenses incurred in the Dixon V appeal to taxpayers

represented by Izen and Jones.   In Dixon VII we awarded appellate

attorneys’ fees and expenses incurred in the Dixon V appeal to

taxpayers represented by Minns and by Porter & Hedges attorneys

Irvine and Binder, including petitioners herein, the Dixons and

the DuFresnes.   Primarily because of the caps on hourly rates

under section 7430, Porter & Hedges recovered only $248,049.27

(attorneys’ fees of $230,167.75 plus expenses of $17,881.52) out

of its total billings of $514,821.90 (attorneys’ fees of

$494,514.75 plus expenses of $20,307.15).

     The agreement with the defense fund obligated Porter &

Hedges to represent petitioners (the Dixons and the DuFresnes)

and the Owenses only through oral argument in the Dixon V appeal;

it did not extend to the Dixon V remand proceedings in this

Court.    Binder and Irvine discussed with petitioners the decision

of the Court of Appeals in Dixon V and the advisability of Porter

& Hedges representing them in the Dixon V remand proceedings.13


     13
      The record does not disclose whether Binder and Irvine had
similar discussions with the Owenses. The Owenses were
                                                   (continued...)
                              - 16 -

Binder and Irvine told petitioners that the remand proceedings

would be time consuming and expensive.   Binder and Irvine told

petitioners that Henry O’Neill (O’Neill), respondent’s counsel,

had agreed that respondent would be obligated to pay the

taxpayers reasonable attorneys’ fees and expenses in the remand

proceedings.   Binder and Irvine believed that the Court would

require respondent to pay petitioners’ reasonable attorneys’ fees

and expenses incurred in the remand proceedings.   Binder and

Irvine therefore agreed that Porter & Hedges would look only to

respondent for payment of those fees.    They assured petitioners

that Porter & Hedges would not require petitioners to pay any

fees or expenses beyond those awarded by the Court.   In a January

28, 2003, telephone conversation, petitioners agreed to have

Porter & Hedges represent them in the Dixon V remand proceedings

on those terms.   Pursuant to that oral agreement, Irvine and

Binder entered their appearances in these cases in this Court.

     Izen, Minns, Sticht, Jones, and Attorney Declan J. O’Donnell

represented the remaining Dixon V taxpayers.

     On April 30, 2003, respondent filed a motion requesting a

status conference.   On May 30, 2003, the parties filed status

reports with the Court.   Respondent’s status report stated:

“With respect to attorneys’ fees related to Tax Court proceedings



     13
      (...continued)
represented by Izen in the Dixon V remand proceedings.
                             - 17 -

occurring subsequent to the issuance of the Ninth Circuit’s

opinion [Dixon V], respondent’s position is that reasonable

attorneys’ fees should be awarded to the petitioners.”

     Binder sent petitioners engagement letters dated August 27,

2003, memorializing the oral agreement of January 28, 2003.    The

engagement letters, which were signed by Binder, stated:

     Porter & Hedges, and John Irvine and I individually,
     believe that because we represented you in the appeal
     that led to the Appellate Decision [Dixon V], we should
     continue that representation to its conclusion, even
     though (I) the Fund has failed to fulfill its agreement
     to pay our fees under the Letter Agreement and (ii) our
     engagement with the Fund provides only for
     representation through oral argument in the Appellate
     Decision. We are not unmindful that hundreds of non-
     test-case petitioners will be affected by the Appellate
     Decision as that decision is effected on remand. For
     these reasons, John Irvine and I agree to represent you
     with respect to the remand of the Appellate Decision
     without compensation from you.

     * * * We may request payment of fees and expenses from
     the government, as provided by law or by determination
     of a court, for our representation. You agree to
     provide facts, affidavits, testimony, and other
     assistance as reasonably necessary to support such
     requests for fees and expenses.

     Extensive discovery, including petitioners’ interrogatories

and requests for production of documents and motions to compel

responses to interrogatories and production of documents,

preceded the hearings in the Dixon V remand proceedings.    Counsel

for the Dixon V taxpayers informally agreed that Porter & Hedges

would essentially serve as lead counsel in the discovery process,

preparation for the evidentiary hearings, opening statements,
                                - 18 -

examination of many key witnesses, and all significant research

and briefing.   During the Dixon V remand proceedings, the Court

held six telephone conferences with respondent’s and the Dixon V

taxpayers’ counsel, two status conferences on the record, in

Houston and Los Angeles, and three hearings, in Las Vegas, Los

Angeles, and Washington, D.C.    Through Binder, Porter & Hedges

took the lead in conducting and presenting the Dixon V taxpayers’

case.

     On September 3, 2004, the Court and counsel to the Dixon V

taxpayers held a telephone conference on the record.    During that

conference Minns stated that he was concerned about the pressures

on Binder because Porter & Hedges:

     have had apparently little or no fees, and I’m not
     willing to lose him [Binder]. If there is any way to
     keep him around, I don’t want him to have a burden, so
     I would like to give my clients some type of good-faith
     -- I would like to make sure that Mr. Binder is still
     there at the hearing.

Respondent’s counsel said he had no comments.

     In one of the recorded telephone conferences with the

parties, we expressed the view that section 6673(a)(2) is the

applicable section insofar as legal fees for proceedings before

this Court are concerned.

     During the third evidentiary hearing session in Washington,

D.C., we discussed with the parties’ counsel the briefing

schedule and whether the Dixon V taxpayers would file one brief
                              - 19 -

or separate briefs.   During that discussion, Jones stated to the

Court:

          And I would like to hear from Mr. Binder because
     he has been a prolific writer over the last year and a
     half, so I’m sure he has got something to say about
     that possibility [one brief for all remand
     petitioners].

          Your Honor, before any other opinions are
     generated, I think we should recognize the Herculean
     effort that Mr. Binder has produced on behalf of all
     Petitioners’ counsel who have participated to various
     degrees in this process, but the lead dog in this hunt
     from the first day that we started again in Houston has
     been Mr. Binder, who has taken it upon himself to do
     the lion’s share of the work * * *

The Dixon V taxpayers agreed to submit a joint opening brief, for

which Binder was to do the bulk of the work.   Binder noted that

the brief would take hundreds of hours and referred to an earlier

comment by Izen that the opening brief would be a “Herculean

effort”.

     The parties also agreed that attorneys’ fees incurred in

determining the terms of the Thompson settlement should be

awarded under section 6673(a)(2) rather than section 7430.

During the hearing we inquired:   “And I take it, there is no

disagreement that, at least, insofar as the work that was done in

the proceedings before the Tax Court are concerned, that the

legal fees are allowable under Section 6673(a)(2).”   No one

challenged or made any attempt to clarify or qualify our

understanding of the parties’ agreement on attorneys’ fees.
                                - 20 -

     On July 7, 2005, Izen filed a brief regarding the scope of

the mandate of the Court of Appeals.     On July 14, 2005, Binder

filed a 189-page joint opening brief on behalf of all Dixon V

taxpayers.    On July 15, 2005, Jones and Izen submitted a 20-page

joint supplemental opening brief.

     The Dixon V taxpayers’ opening brief was drafted primarily

by Porter & Hedges attorneys.    In respondent’s opening brief

respondent stated:

     Although not actually elements of the “Thompson
     settlement,” respondent has also urged the Court * * *
     to award petitioners reasonable attorneys’ fees under
     section 6673(a)(2) in connection with proceedings
     before the Tax Court subsequent to the issuance of the
     Dixon V opinion. Thus, the implementation of the Ninth
     Circuit’s mandate should consist of the following: * *
     * and an appropriate award of reasonable attorneys’
     fees for Tax Court proceedings occurring subsequent to
     the issuance of the Ninth Circuit’s Dixon V opinion.

     The parties filed their reply briefs between October 3 and

10, 2005.

     On May 2, 2006, we issued Dixon VI, determining the terms

and benefits of the Thompson settlement.     On May 10, 2006, we

issued Dixon VII, awarding appellate fees and expense under

section 7430 to Kersting project taxpayers represented in the

Dixon V appeal by Minns and by Porter & Hedges attorneys Binder

and Irvine.    On September 6, 2006, we issued Young v.

Commissioner, T.C. Memo. 2006-189, awarding appellate fees and

expenses to Kersting project taxpayers represented in the Dixon V

appeal by Izen and Jones.
                              - 21 -

     On September 7, 2006, we issued Dixon VIII denying a motion

for reconsideration of Dixon VI filed by Minns and ordered entry

of decisions in the test and non-test cases of the Dixon V

taxpayers.14

     Binder died of cancer on December 15, 2006.

     On June 29, 2007, Irvine filed a motion for attorneys’ fees

and expenses related to services provided to petitioners by

Porter & Hedges during the Dixon V remand proceedings (Irvine’s

application for fees).   That motion is the subject of this

Opinion.   On the same date respondent and Irvine filed their

stipulation of facts with regard to Irvine’s application for

fees, stipulating inter alia that Porter & Hedges’ reasonable

fees and expenses through April 30, 2007, amount to

$1,037,542.58.   On July 27, 2007, respondent filed respondent’s

objection to Irvine’s application for fees.   On September 4,

2007, Irvine filed his response to respondent’s objection to

Irvine’s application for fees.   On October 15, 2007, respondent

filed respondent’s memorandum in support of respondent’s

objection to Irvine’s application for fees.   On November 19,

2007, respondent and Irvine filed a supplemental stipulation of

facts, stipulating that Porter & Hedges’s reasonable fees and



     14
      Such of those test and non-test cases whose taxpayers are
represented by Minns, Izen, and Sticht have appealed our
determinations in Dixon VI (as supplemented by Dixon VIII) of the
terms and benefits of the Thompson settlement.
                              - 22 -

expenses from May 1 to October 31, 2007, related to their

application for fees and expenses on remand, totaled $64,745.26.

     The parties have stipulated that the total amount of

reasonable attorneys’ fees and expenses for services provided to

petitioners by Porter & Hedges in the Dixon V remand proceedings,

including fees and expenses related to Irvine’s application for

fees (the Porter & Hedges fees), is $1,101,575.34.

                            Discussion

I.   Sources of Tax Court’s Power To Assess Attorneys’ Fees

     The Tax Court has power to assess attorneys’ fees against

counsel who willfully abuse the judicial process.    Harper v.

Commissioner, 99 T.C. 533, 543-544 (1992).   These powers derive

from various sources, including the Internal Revenue Code, the

Tax Court Rules of Practice and Procedure, the Federal Rules of

Civil Procedure, and the Court’s inherent power.    See Chambers v.

NASCO, Inc., 501 U.S. 32, 46 (1991); Roadway Express, Inc. v.

Piper, 447 U.S. 752, 766 (1980); Harper v. Commissioner, supra at

543-544.   When an attorney representing the Commissioner has

committed a fraud on the Court, the Court has power to assess

attorneys’ fees against the Commissioner as a sanction pursuant

to section 6673(a)(2)(B) or under the Court’s inherent power.

See Chambers v. NASCO, Inc., supra; Roadway Express, Inc. v.

Piper, supra.
                               - 23 -

      Early in the remand proceedings respondent agreed that

reasonable attorneys’ fees for services in the Dixon V remand

proceedings should be awarded to the Dixon V taxpayers pursuant

to section 6673(a)(2).   Because of that concession and our

statements on the record that legal fees are allowable under

section 6673(a)(2), the parties have focused their arguments on

the Court’s authority under section 6673(a) to require respondent

to pay attorneys’ fees for services by Irvine, Binder, and others

in Porter & Hedges.   We shall first address statutory authority

and then return to inherent power.

II.   Authority To Award Fees Under Section 6673(a)(2)

      If an attorney admitted to practice before the Tax Court has

multiplied the proceedings in any case unreasonably and

vexatiously, section 6673(a)(2)(A) authorizes the Court to

require the attorney to “pay personally the excess costs,

expenses, and attorneys’ fees reasonably incurred because of such

conduct”.    If the attorney is appearing on behalf of the

Commissioner, the Court may require the United States to “pay

such excess costs, expenses, and attorneys’ fees in the same

manner as such an award by a district court.”    Sec.

6673(a)(2)(B).

      A.    Positions of the Parties

      The parties agree that reasonable attorneys’ fees related to

the Dixon V remand proceedings should be awarded to the Dixon V
                                   - 24 -

taxpayers pursuant to section 6673(a)(2).       They also agree that

the reasonable fees and expenses for services provided to

petitioners by Porter & Hedges in the Dixon V remand proceedings,

including those related to the fee request, total $1,101,575.34.

However, respondent asserts that section 6673(a)(2) does not

authorize the Court to require respondent to pay the fees and

expenses of Porter & Hedges because petitioners did not pay and

had no obligation to pay them.       Respondent relies on cases

deciding taxpayers’ entitlement to attorneys’ fees under section

7430 providing for awards of litigation costs to prevailing

parties.15

     B.      Preliminary Comment

     Before embarking on the required analysis, we will summarily

sketch the leading authorities in the Tax Court under section

7430 on which respondent relies.       Frisch v. Commissioner, 87 T.C.

838 (1986), Swanson v. Commissioner, 106 T.C. 76 (1996), and

Grigoraci v. Commissioner, 122 T.C. 272 (2004), are cases

interpreting and applying section 7430, which, like all or most

prevailing party statutes, expressly requires that the award of

attorneys’ fees and expenses be made and paid to the prevailing



     15
      Sec. 7430(a) provides that “the prevailing party may be
awarded a judgment or a settlement for * * * reasonable
litigation costs incurred in connection with * * * [a Tax Court]
proceeding”. Litigation costs include “reasonable fees paid or
incurred for the services of attorneys”. Sec.
7430(c)(1)(B)(iii).
                              - 25 -

party.   In denying fee awards, these cases all state that the

meaning of “incurred” incorporates the requirement that the

prevailing party have already paid or be obligated to pay his

attorney the amount of the fee for which the award is sought.     In

Frisch this condition could not be satisfied because the

prevailing party was acting pro se and there was no attorney-

client relationship.   In Swanson a ground for denial of a portion

of the requested award was that the taxpayers had no obligation

to pay fees to their attorney in excess of an agreed amount.

Grigoraci, interpreting “incurred” as in Frisch, Swanson, and

other prevailing party cases, denied an individual, essentially

acting pro se, an award for late-billed fees of the accounting

firm of which he was a member; the Court was persuaded that he

had no obligation to pay such fees and that they did not reflect

litigation services actually rendered.   Accord Kruse v.

Commissioner, T.C. Memo. 1999-157; Thompson v. Commissioner, T.C.

Memo. 1996-468.

     We amplify our sketch by referring to one of our prior

opinions in these proceedings, Young v. Commissioner, T.C. Memo.

2006-189.   There, pursuant to the supplemental mandate of the

Court of Appeals for the Ninth Circuit in Dixon V, we awarded

appellate attorneys’ fees under section 7430 to clients of Izen

in excess of amounts they had paid or were obligated to pay him

in advance of an award.   In so doing, we relied on Phillips v.
                             - 26 -

GSA, 924 F.2d 1577 (Fed. Cir. 1991), which held that a contingent

fee agreement that can be interpreted or deemed to require the

prevailing party awarded fees to pay them over to the attorney

satisfies the requirement that fees or expenses be “incurred” by

the prevailing party for the purposes of a fee-shifting

prevailing party statute.

     We conclude our sketch by observing that we need not in this

Opinion further consider Swanson v. Commissioner, supra, and

Young v. Commissioner, supra, because the parties agree that the

statute to be applied in this case is section 6673, a sanctioning

statute, not section 7430, a prevailing party statute.16

     C.   Overview of Prevailing Party Statutes and Sanctioning
          Statutes

     The resolution of this controversy depends on whether, when,

and by whom excess costs, expenses, and attorneys’ fees are

deemed to be “incurred” under section 6673(a)(2).   The question

is one of first impression under section 6673(a)(2) and its

statutory parent of general application, 28 U.S.C. sec. 1927

(2006) (the sanctioning statutes).    Resolution of the question

will require detailed description, analysis, and explanation



     16
      However, at pt. II.E.8., infra, we conclude that the term
“incurred” has a broader reach under sec. 6673(a)(2), a
sanctioning statute, then it does under sec. 7430, as interpreted
by Swanson v. Commissioner, 106 T.C. 76 (1996); at pt. II.F.,
infra, we specifically address the subject of fees incurred in
pro bono representation and contingent fee arrangements under
sec. 7430(c)(3)(B) and other prevailing party statutes.
                              - 27 -

because section 7430, its statutory parent of general

application, 28 U.S.C. sec. 2412 (2006), and many of the scores

of other specifically targeted Federal prevailing party statutes

also incorporate the term “incurred” in their requirements for an

award of fees and expenses to the prevailing party.

     We begin the analysis by observing what prevailing party

statues and sanctioning statutes have in common.    The prevailing

party statutes and sanctioning statutes create exceptions to the

American rule that parties to litigation are required to bear the

burden of their own legal fees and are not obligated to pay the

attorneys’ fees and expenses of the representation of their

opponents.   Despite their different emphases--compensation in

prevailing party statutes, punishment in sanctioning statutes--

they have a commonality at the inception of the process that

eventuates in the creation of the duty to pay attorneys’ fees to

the opposing party or his counsel.     The prevailing party statutes

and the sanctioning statutes share a legislative judgment that

the party upon whom the liability to pay the attorneys’ fees and

expenses ultimately must fall has engaged in substandard conduct

that justifies a departure from the American rule.

     Among the conditions to qualification for an award of

litigation costs under section 7430 is the requirement, built

into the definition of a “prevailing party” in section

7430(c)(4), that the Government have taken a position that was
                               - 28 -

unjustified.    Under section 6673(a)(2), among the conditions for

requiring the United States to pay the taxpayers’ attorneys’ fees

and expenses is that the attorney appearing on behalf of the

Commissioner has “multiplied the proceedings * * * unreasonably

and vexatiously”.

     In each case there is substandard conduct on behalf of the

Government that creates a liability on the part of the Government

which has as its correlative the power in the aggrieved party or

his attorney and/or the court to impose a duty or obligation to

pay the fees and expenses reasonably incurred in order to or

needed to respond appropriately to such conduct.17   The process

so initiated and continued is completed by the court, after audit

of the requested attorneys’ fees and expenses and a determination

that all statutory requirements for and limits on the award have

been satisfied, in deciding that the aggrieved party or his

attorney has the right to an award of fees and expenses.18

     We see that the incurring of the fees and expenses is a

process that commences with the substandard behavior by one party

or its counsel and culminates in an obligation by that party or

counsel to pay the fees and expenses reasonably required to

respond appropriately to the substandard behavior.   The process



     17
      See Cook, “Hohfeld’s Contributions to the Science of Law”,
28 Yale L.J. 721, 722-723 (1919) (and works cited at 722).
     18
          Id.
                              - 29 -

commences under the prevailing party statutes when the Government

takes the unjustified position and under the sanctioning statutes

when the attorney commits unreasonable and vexatious acts that

multiply the proceedings.

     The differences between the prevailing party statutes and

the sanctioning statutes reflect and give effect to the degree or

extent of culpability for the substandard behavior that initiates

the process that leads to the duty to reimburse or pay the fees

and expenses as provided by the statutes.   Under section 7430 and

other prevailing party statutes, the substandard behavior

violates a basic generalized duty of care that Congress has

decided Government owes to the citizen; this duty is embodied in

the requirement that the Government’s civil enforcement activity

be substantially justified.   Under section 6673(a)(2) and the

sanctioning statutes, the substandard behavior violates the

attorney’s professional duty not only to the opposing party but

also to opposing counsel and the court;19 it directly adversely


     19
      All attorneys representing clients before this Court are
required by Rule 201(a) to conduct themselves “in accordance with
the letter and spirit of the Model Rules of Professional Conduct
of the American Bar Association” (the Model Rules). An attorney
who unreasonably and vexatiously multiplies the proceeding
violates the Model Rules and breaches his duty to the opposing
parties, their counsel, and the Court to refrain from such
conduct. See Model R. Profl. Conduct 3.2 (“A lawyer shall make
reasonable efforts to expedite litigation consistent with the
interests of the client.”), 3.5(d) (a lawyer shall not “engage in
conduct intended to disrupt a tribunal”), 4.4(a) (“a lawyer shall
not use means that have no substantial purpose other than to
                                                   (continued...)
                              - 30 -

affects the opposing party and his counsel, and also the court

and the judicial process.   Under the sanctioning statutes the

substandard conduct is much more culpable, sinking so low in the

case at hand as to amount to a fraud on the court, a level of

seriousness requiring that the punishment be certain if it is to

have the necessary deterrent effect.

     The different degrees of culpability of the substandard

conduct addressed by the prevailing party statutes and the

sanctioning statutes are reflected in the measures of liability

created by the substandard conduct.    Under section 7430, the

Government’s liability to pay the prevailing party’s attorneys’

fees, created by taking a position that is not substantially

justified, is subject to the cap provided in section

7430(c)(1)(B)--$180 per hour for attorney’s services provided in

2008,20 Rev. Proc. 2008-66, sec. 3.38, 2008-45 I.R.B. 1107,




     19
      (...continued)
embarrass, delay, or burden a third person”).
     20
      Attorneys who are appointed by a court in criminal cases
and paid by the Federal, State, or local government fare far
worse than prevailing parties who qualify for reimbursement of
attorneys’ fees under sec. 7430. A 2007 survey of the rates of
compensation for court-appointed counsel in noncapital felony
cases reported hourly rates ranging from $40 per hour to $100 per
hour. The Spangenberg Group, Rates of Compensation Paid to
Court-Appointed Counsel in Non-Capital Felony Cases at Trial: A
State-by-State Overview (June 2007). Additionally, some States
place a cap on the maximum amount for a case ranging from $445 to
$20,000 depending on the crime and/or the sentence for the crime.
Id.
                               - 31 -

1114.21   Under section 6673(a)(2), the Government’s liability to

pay attorneys’ fees and expenses created by a Government

attorney’s misconduct has no such limitation other than the

requirement that the fees to be paid have been “reasonably

incurred” because of such conduct.      This standard for the more

culpable conduct allows payments of attorneys’ fees to be made at

prevailing market rates, which usually exceed the capped amounts

for the less culpable conduct addressed by section 7430.

     It now becomes necessary to compare and contrast the

purposes and language of section 6673(a)(2) and 28 U.S.C. sec.

1927 with those of section 7430 and the prevailing party statutes

that account for the different limitations on the rights to an

award under those sections and generally under prevailing party

statutes and sanctioning statutes.

     D.    Principles of Statutory Construction

     In interpreting a statute, we begin with the statutory

language and apply the plain meaning of the words in the statute

unless we find the meaning to be ambiguous.      United States v. Ron

Pair Enters., Inc., 489 U.S. 235, 242 (1989); Allen v.


     21
       Paradoxically, although sec. 7430 has a compensatory
purpose “‘to deter abusive actions or overreaching by the [IRS]
and to enable taxpayers to vindicate their rights regardless of
their economic circumstances’”, Cooper v. United States, 60 F.3d
1529, 1530 (11th Cir. 1995) (quoting Weiss v. Commissioner, 88
T.C. 1036, 1041 (1987)), the attorneys’ fees awarded to
prevailing parties often prove inadequate to fully compensate
them for the fees owed or paid to their attorneys at market
rates.
                              - 32 -

Commissioner, 118 T.C. 1, 7 (2002); Woodral v. Commissioner, 112

T.C. 19, 23 (1999).   “When a statute appears to be clear on its

face, there must be unequivocal evidence of legislative purpose

before interpreting the statute so as to override the plain

meaning of the words used therein.”    Fernandez v. Commissioner,

114 T.C. 324, 330 (2000); see also Huntsberry v. Commissioner, 83

T.C. 742, 747-748 (1984).   “Interpretation of a word or phrase

depends upon reading the whole statutory text, considering the

purpose and context of the statute, and consulting any precedents

or authorities that inform the analysis.”    Dolan v. USPS, 546

U.S. 481, 486 (2006); see also King v. St. Vincent’s Hosp., 502

U.S. 215, 221 (1991) (“we * * * follow the cardinal rule that a

statute is to be read as a whole * * * since the meaning of

statutory language, plain or not, depends on context”).   Our

initial inquiry is whether the language of section 6673(a)(2) is

so plain as to permit only one reasonable interpretation that

answers the question.   See, e.g., Robinson v. Shell Oil Co., 519

U.S. 337, 340 (1997).

     E.   Interpretation of “excess costs, expenses, and
          attorneys’ fees reasonably incurred because of such
          conduct”

     The operative phrase of section 6673(a)(2) to be interpreted

is “excess costs, expenses, and attorneys’ fees reasonably

incurred because of such conduct”.
                              - 33 -

     The part of the phrase “excess costs, expenses, and

attorneys’ fees” means only the costs, expenses, and fees

associated with the multiplied proceedings and not the total cost

of the litigation.   See Roadway Express, Inc. v. Piper, 447 U.S.

at 756 n.3 (agreeing with the lower court that the same language

in 28 U.S.C. sec. 1927 provides only for excess costs and not for

the total cost of the appeal); Browning v. Kramer, 931 F.2d 340,

345 (5th Cir. 1991) (the same language in 28 U.S.C. sec. 1927

means “only those fees and costs associated with ‘the persistent

prosecution of a meritless claim’” (quoting Thomas v. Capital

Sec. Servs., Inc., 836 F.2d 866 (5th Cir. 1988))).   The part of

the phrase “because of such conduct” means as a result of the

attorney’s unreasonable and vexatious conduct.

     Respondent agrees that reasonable attorneys’ fees related to

the Dixon V remand proceedings should be awarded to Dixon V

taxpayers pursuant to section 6673(a)(2), conceding that (1) the

Dixon V remand proceedings are multiplied proceedings unrelated

to the merits of the test cases, (2) fees associated with the

Dixon V remand proceedings resulted from the misconduct of

respondent’s attorneys in the test-case proceedings, (3) the

requested fees and expenses are reasonable and attributable to

services provided by Binder and Irvine during the Dixon V remand

proceedings.   Thus, the requested fees and expenses are excess

fees and expenses resulting from the misconduct of the Government
                                - 34 -

attorneys during the test-case proceedings.     The remaining

question is whether those fees and expenses were “incurred”

because of that misconduct.

     We begin by addressing the threshold requirement for

determining whether attorneys’ fees are incurred.

          1.      Threshold Requirement:   Attorney-Client
                  Relationship

     Attorneys’ fees cannot exist, and therefore cannot be

incurred, unless there is an attorney-client relationship.      The

word “attorney” assumes an agency relationship, and an

attorney-client relationship is the predicate for an award of

attorneys’ fees.     Kay v. Ehrler, 499 U.S. 432, 436 (1991)

(denying attorneys’ fees to a pro se attorney-litigant under the

Civil Rights Attorneys Fees Awards Act of 1976, 42 U.S.C. sec.

1988 (2000), a fee-shifting prevailing party statute designed to

encourage private enforcement of civil rights laws).     Thus, pro

se litigants, even those who are attorneys, generally are not

entitled to an award because there is no attorney-client

relationship.22    “An ‘attorney’ is essentially an agent for



     22
      The Court of Appeals for the Federal Circuit has held,
invoking Chambers v. NASCO, Inc., 501 U.S. 32, 55 (1991), that in
proper circumstances a court may invoke its inherent power to
impose attorneys’ fees in favor of a pro se attorney as a
sanction. Pickholtz v. Rainbow Techs., Inc., 284 F.3d 1365,
1377-1378 (Fed. Cir. 2002). “Failure to do so * * * would place
a pro se litigant at the mercy of an opponent who might engage in
otherwise sanctionable conduct, but not be liable for attorney
fees to a pro se party.” Id.
                                 - 35 -

another.   Without the ‘other’ there can be no attorney, merely a

pro se litigant who happens to earn a living as a lawyer.       At any

given time, an individual can be either a pro se litigant or an

attorney, but not both.”     Frisch v. Commissioner, 87 T.C. at 846

(citing Duncan v. Poythress, 777 F.2d 1508, 1518 (11th Cir. 1985)

(Roney, J., dissenting)).

     Attorneys Binder and Irvine were independent counsel

representing petitioners in the Dixon V remand proceeding.

Therefore the threshold requirement of an attorney-client

relationship for an award of attorneys’ fees under Kay v. Ehrler,

supra, is satisfied.

           2.     Definition of “Incurred”

     We consider dictionary definitions of “incurred” to inform

ourselves of the definition that Congress may have intended.

Webster’s Third New International Dictionary (1993) defines

“incur” as to “become liable or subject to: bring down upon

oneself”, which is reflective of the definition in Black’s Law

Dictionary 782 (8th ed. 2004):     “To suffer or bring on oneself (a

liability or expense).”     To become subject to is to become

“vulnerable to.    Subjected”.   Webster’s Tenth Edition Merriam

Collegiate Dictionary (1997).

     The sixth edition of Black’s Law Dictionary contained the

following more expansive definition of “incur”:

     Incur. To have liabilities cast upon one by act or
     operation of law, as distinguished from contract, where
                             - 36 -

     the party acts affirmatively. To become liable or
     subject to, to bring down upon oneself, as to incur
     debt, danger, displeasure and penalty, and to become
     through one’s own action liable or subject to. Com. v.
     Benoit, 346 Mass. 294, 191 N.E. 2d 749, 751. [Black’s
     Law Dictionary 768 (6th ed. 1990); emphasis added.]

The definition in the sixth edition reflects the distinction

between bringing a liability upon oneself by contract (i.e.,

voluntarily agreeing, expressly or impliedly by act, to be

liable--obligated by express or implied-in-fact contract) and

subjecting oneself to a liability by act or operation of law

(i.e., having the liabilities imposed by operation of law without

consent as a result of one’s own action--implied-in-law contract

or quasi-contract).23

     The meaning of “incur” is not limited to “to contract for”

or “to agree to be liable for”, as respondent argues.   While the

concept of incurred costs, expenses, and attorneys’ fees might

include a contractual obligation, it is a broader concept that

includes other obligations not necessarily arising from agreed-

upon contractual relationships.   The word “incur” has a broad

range which can be seen in its synonyms: “sustain, experience,

suffer, gain, earn, collect, meet with, provoke, run up, induce,



     23
      The absence of promise distinguishes a contract implied in
law from a true contract in which the parties’ mutual promises
are express or implied in fact. United States v. P/B STCO 213,
756 F.2d 364, 370 n.7 (5th Cir. 1985) (citing 1 Palmer, The Law
of Restitution, sec. 1.2, at 8 (1978); Keener, The Law of
Quasi-Contracts 3-25 (1893); and Corbin, “Quasi-Contractual
Obligations”, 21 Yale L.J. 533, 544-545 (1912)).
                              - 37 -

arouse, expose yourself to, lay yourself open to, bring upon

yourself”.   Collins Essential Thesaurus (2d ed. 2006).

     Respondent asserts that it is the other party who must incur

the fees and that the proper definition of “incur” is limited to

“to become liable for”.   Under that interpretation, fees

“incurred because of such conduct” would mean fees “for which the

other party has become contractually liable because of the

attorney’s unreasonable and vexatious conduct”.

     It seems to us, in the context of section 6673, a

sanctioning statute, that when an attorney engages in conduct

that unreasonably and vexatiously multiplies the proceedings, the

attorney subjects himself to and becomes liable for the excess

fees and expenses related to the opposing counsel’s efforts to

resist or rectify the misconduct.   If that is so, fees “incurred

because of such action” would mean fees “for which the attorney

has become liable or to which the attorney has subjected himself

through the attorney’s own unreasonable and vexatious conduct”.

See, e.g., Roadway Express, Inc. v. Piper, 447 U.S. at 764

(failure to comply with court order “exposed [attorney]
                                   - 38 -

respondents and their clients to liability under Rule 37(b) for

the resulting costs and attorneys’ fees”).24

     The attorney who acts unreasonably and vexatiously incurs

the fees in the sense that his misconduct creates a power in the

opposing parties, their counsel, and the court to impose the

obligation on that attorney (or his employer, the United States)

to reimburse or pay the opposing party or his counsel the amount

of reasonable fees for the counsel’s services needed to respond

appropriately to the misconduct.

     As the opposing attorney renders the appropriate services to

respond to the misconduct, the fees are also “incurred” by either

(1) the opposing party who is liable to pay his attorney for the

additional services and expenses or (2) by the opposing attorney

who is providing the services pro bono or on a contingent or

fixed fee basis and incurs the fees and expenses if the time and

resources they devote to one case are not available for other

work.        See Wisconsin v. Hotline Indus., Inc., 236 F.3d 363, 365

(7th Cir. 2000) (and cases cited thereat); see also Cent. States,


        24
      Our interpretation is not foreclosed by Manion v. Am.
Airlines, Inc., 395 F.3d 428, 432-433 (D.C. Cir. 2004)
(construing 28 U.S.C. sec. 1927), or Pickholtz v. Rainbow Techs.,
Inc., 284 F.3d at 1374-1376 (construing Fed. R. Civ. P. 37),
which denied sanction awards for attorneys’ fees to pro se
litigants. In Pickholtz, the Court of Appeals for the Federal
Circuit remanded for a determination whether the sanction could
be awarded under the court’s inherent power; in Manion, the Court
of Appeals for the Federal Circuit held that the award could not
be sustained under the court’s inherent power where the lower
court had relied on 28 U.S.C. sec. 1927 in denying the award.
                               - 39 -

Se. & Sw. Areas Pension Fund v. Cent. Cartage Co., 76 F.3d 114,

116 (7th Cir. 1996) (“Lawyers who devote their time to one case

are unavailable for others, and in deciding whether it is prudent

to pursue a given case a firm must decide whether the cost--

including opportunities foregone in some other case, or the price

of outside counsel to pursue that other case--is worthwhile.”).

The liability so incurred matures into an obligation when the

court exercises its discretion to make and fix the amount of the

award.    The last step in our case is truncated because respondent

and Irvine have agreed on the amounts of the reasonable fees and

expenses.

     Section 6673(a)(2) is not plain or clear regarding who must

have incurred the excess costs, expenses, and attorneys’ fees.

Because the statute does not define the term “incurred” and is

silent as to who must incur the fees, we may look to the

statute’s legislative history to determine congressional intent.

See Burlington N. R.R. v. Okla. Tax Commn., 481 U.S. 454, 461

(1987);   Fernandez v. Commissioner, 114 T.C. at 329-330.

            3.   History of Section 6673(a)(2)

     The legislative history of a statute may be helpful in

resolving its ambiguities.   See, e.g., Anderson v. Commissioner,

123 T.C. 219, 233 (2004), affd. 137 Fed. Appx. 373 (1st Cir.

2005).    Congress enacted section 6673(a)(2) in the Omnibus Budget

Reconciliation Act of 1989, Pub. L. 101-239, sec. 7731, 103 Stat.
                                 - 40 -

2400.     The legislative history provides little guidance except to

explain that section 6673(a)(2) “is comparable to the authority

already provided to district courts under 28 U.S.C. section

1927.”25     H. Rept. 101-247, at 1400 (1989).   Section 6673(a)(2)

and 28 U.S.C. sec. 1927 (the sanctioning statutes) “serve the

same purpose, just in different but similar forums, and should

therefore be interpreted similarly.”      Johnson v. Commissioner,

289 F.3d 452, 456 (7th Cir. 2002) (citing Harper v. Commissioner,

99 T.C. at 545), affg. 116 T.C. 111 (2001); see also Takaba v.

Commissioner, 119 T.C. 285, 296-297 (2002).

     Congress enacted the first version of 28 U.S.C. sec. 1927,

in the Act of July 22, 1813, ch. 14 sec. 3, 3 Stat. 21, “‘to

prevent multiplicity of suits or processes, where a single suit

or process might suffice’”.     Roadway Express, Inc. v. Piper,

supra at 759 (quoting 26 Annals of Cong. 29 (1813)).       At the time

certain U.S. attorneys who were paid on a piecework basis were

filing unnecessary lawsuits to inflate their compensation.       Id.

at 759 n.6.     The Act of July 22, 1813, ch. 14 sec. 3,   authorized

the Federal court to consolidate cases “of like nature, or


     25
          Tit. 28 U.S.C. sec. 1927 (2006) provides:

          Any attorney or other person admitted to conduct
     cases in any court of the United States or any
     Territory thereof who so multiplies the proceedings in
     any case unreasonably and vexatiously may be required
     by the court to satisfy personally the excess costs,
     expenses, and attorneys’ fees reasonably incurred
     because of such conduct.
                                - 41 -

relative to the same question” pending before it and to require

any person who multiplied the proceedings in any case so as to

increase costs unreasonably and vexatiously to pay the excess of

costs so incurred.     Roadway Express, Inc. v. Piper, 447 U.S. at

759 (citing H. Doc. 25, 27th Cong., 3d Sess. 21-22 (1842)).

     The sparse legislative histories of the sanctioning statutes

make the provisions difficult to interpret.    See id.   We will

consider the purpose of the sanctioning statutes by “consulting

any precedents or authorities that inform the analysis”.     Dolan

v. USPS, 546 U.S. at 486.

          4.      Purpose of Sanctioning Statutes

     Section 6673(a)(2) and 28 U.S.C. sec. 1927 are “rooted in

the same basic goals--protecting the court and the public from

litigation which impedes the administration of justice”.     Byrne

v. Nezhat, 261 F.3d 1075, 1131 n.110 (11th Cir. 2001); see also

F.J. Hanshaw Enters., Inc. v. Emerald River Dev., Inc., 244 F.3d

1128, 1137 n.6 (9th Cir. 2001) (28 U.S.C. sec. 1973 addresses

abuses of the judicial process); Conner v. Travis County, 209

F.3d 794, 800 (5th Cir. 2000) (“The purpose of a court’s

sanctioning power is to enable it to ensure its own proper

functioning.”).    The purpose of the sanctioning statutes “‘is to

deter frivolous litigation and abusive practices by attorneys and

to ensure that those who create unnecessary costs also bear

them.’”   Riddle & Associates, P.C. v. Kelly, 414 F.3d 832, 835
                              - 42 -

(7th Cir. 2005) (quoting Kapco Manufacturing Co. v. C & O

Enters., Inc., 886 F.2d 1485, 1491 (7th Cir. 1989)) (discussing

28 U.S.C. sec. 1927).

     The sanctioning statutes are primarily punitive measures

whereby a “court can punish contempt of its authority, including

disobedience of its process, by [awarding] costs, expenses, and

attorneys’ fees against attorneys who multiply proceedings

vexatiously”.   Chambers v. NASCO, Inc., 501 U.S. at 33, 62; see

also Red Carpet Studios Div. of Source Advantage, Ltd. v. Sater,

465 F.3d 642, 647 (6th Cir. 2006) (28 U.S.C. sec. 1927 sanctions

are penal; the purpose of 28 U.S.C. sec. 1927 is “deterrence and

punishment rather than restitution”); Moriarty v. Svec, 429 F.3d

710, 721 (7th Cir. 2005) (a “district court may impose sanctions

[under 28 U.S.C. sec. 1927] to punish unreasonable and vexatious

litigation”); Lee v. L.B. Sales, Inc., 177 F.3d 714, 718 (8th

Cir. 1999) (28 U.S.C. sec. 1927 is penal); Miera v. Dairyland

Ins. Co., 143 F.3d 1337, 1342 (10th Cir. 1998) (28 U.S.C. sec.

1927 is penal); Peterson v. BMI Refractories, 124 F.3d 1386, 1395

(11th Cir. 1997) (28 U.S.C. sec. 1927 is penal); Stiglich v.

Contra Costa County Bd. of Suprs., 106 F.3d 409 (9th Cir. 1997)

(28 U.S.C. sec. 1927 punishes the multiplication of proceedings);

Republic of the Philippines v. Westinghouse Elec. Corp., 43 F.3d

65, 73 (3d Cir. 1994) (28 U.S.C. sec 1927 punishes attorneys who

vexatiously multiply proceedings); FDIC v. Conner, 20 F.3d 1376,
                               - 43 -

1384 (5th Cir. 1994) (28 U.S.C. sec. 1927 is penal); Langton v.

Johnston, 928 F.2d 1206, 1226 (1st Cir. 1991) (the court may

impose a sanction under 28 U.S.C. sec. 1927 to punish attorney

misconduct).

     Section 6673(a)(2) was designed to discourage unreasonable

and vexatious conduct that multiplies the proceedings.    The Tax

Court’s ability to apply section 6673(a)(2) would be unreasonably

limited if the Commissioner could avoid sanctions under section

6673(a)(2) when a taxpayer is represented by pro bono counsel or

is otherwise not contractually obligated to pay the excess

fees.26   If attorneys should culpably delay the proceedings and

we were to deny sanctions against the attorneys, we would risk

compounding the problem and encouraging misconduct the statute is

intended to deter.   See Guam Socy. of Obstetricians &

Gynecologists v. Ada, 100 F.3d 691, 695 (9th Cir. 1996).

     An attorney who has agreed to represent a taxpayer at a

fixed fee, a reduced fee, or no fee on the basis of the time he

reasonably expected would be necessary to challenge the

taxpayer’s deficiency should not be victimized on account of the



     26
      For example, sanctions may be imposed under 28 U.S.C. sec.
1927 where fees are contingent on recovery of damages. Even
though the unreasonable and vexatious conduct does not increase
the damages in the underlying cause of action, the court may
require the attorney who multiplies the proceedings unreasonably
and vexatiously to pay the plaintiff’s counsel for the excess
hours spent combating the misconduct. See, e.g., In re Osborne,
375 Bankr. 216 (Bankr. M.D. La. 2007).
                               - 44 -

culpable misconduct of opposing counsel by being required to

spend additional time without compensation in order to respond to

that misconduct.    Nor should an attorney who enters a case on

behalf of the taxpayer for the purpose of responding to such

misconduct be denied a reasonable fee for his services merely

because he has agreed to represent the taxpayer for no fee except

for any fees that may be allowed by the Court.    This is

especially true in these case when the Court has already held

pursuant to section 6673(a)(2) that the Commissioner is required

to pay the attorneys’ fees for services provided in the

multiplied proceedings.

     Interpreting fees “incurred because of such conduct” under

section 6673(a)(2) as fees “to which the attorney has subjected

himself through the attorney’s own unreasonable and vexatious

conduct” is consistent with the punitive purpose of the

sanctioning statutes.   It is the bad-acting attorney’s own

unreasonable and vexatious conduct that exposes him to liability

under the statute.   See, e.g., Roadway Express, Inc. v. Piper,

447 U.S. at 765.

          5.   Statutory Title and Heading

     While statutory titles and headings cannot limit the plain

meaning of statutory text, they are tools available for

interpretive purposes when they shed some light on ambiguous

words or phrases.    Bhd. of R.R. Trainmen v. B&O R.R. Co., 331
                                - 45 -

U.S. 519, 528-529 (1947).    Section 6673 is titled “Sanctions and

Costs Awarded by Courts”.    The heading for paragraph (2) of

section 6673(a) is “Counsel’s liability for excess costs”.      The

word “Sanctions” in the title and the words “counsel’s liability”

in the heading support the interpretation that an attorney brings

down upon himself through his unreasonable and vexatious conduct

the liability to pay the excess costs, expenses, and fees.

Section 6673(a)(2) imposes the liability upon the unreasonably

and vexatiously acting attorney as a sanction for his misconduct,

and he incurs the excess costs, expenses, and attorneys’ fees

under section 6673(a)(2).

          6.   Relevant Caselaw: When Attorneys’ Fees Are
               “incurred because of such conduct” Under Section
               6673(a)(2)

     Dixon IV was the first opinion in which the Court applied

section 6673(a)(2) to misconduct of a Government attorney.      We

relied upon cases where the Court had imposed sanctions against

counsel for a taxpayer.     E.g., Harper v. Commissioner, 99 T.C. at

543-552; Matthews v. Commissioner, T.C. Memo. 1995-577, affd.

without published opinion 106 F.3d 386 (3d Cir. 1996); Murphy v.

Commissioner, T.C. Memo. 1995-76.    In Dixon IV, citing Harper v.

Commissioner, supra at 549, 551, we held that “attorneys’ fees

awarded under section 6673(a)(2) are computed by multiplying the

number of excess hours reasonably expended on the litigation by a

reasonable hourly rate” and “that a reasonable hourly rate is the
                               - 46 -

hourly fee that attorneys of similar skill in the area would

typically be entitled to for the type of work in question.”

     In Harper v. Commissioner, supra at 545, noting the dearth

of judicial authority interpreting and applying section

6673(a)(2), we relied on caselaw under 28 U.S.C. sec. 1927 for

guidance on the level of misconduct justifying sanctions and the

proper measure of attorneys’ fees.      Section 6673(a)(2)(B) directs

the Court to sanction the Commissioner for unreasonable and

vexatious conduct by a Government attorney “in the same manner as

such an award by a district court.”

     An attorney’s actual hourly rate is highly probative of the

market rate for his services in the community.     See Natl.

Association of Concerned Veterans v. Secy. of Def., 675 F.2d

1319, 1324 (D.C. Cir. 1982).   Government attorneys, however, are

salaried employees and do not have a billable rate.     In Harper v.

Commissioner, supra at 551 (citing United States v. Kirksey, 639

F. Supp. 634, 637 (S.D.N.Y. 1986) (applying Fed. R. Civ. P. 11)),

we held that the reasonable hourly rate properly charged for the

time of a Government attorney is the hourly fee that attorneys of

similar skill in the area would typically be entitled to for the

type of work in question.   With regard to applying the market

rate to Government attorneys, the Court of Appeals for the Third

Circuit observed:

     At first blush, it seems inappropriate for the services of
     an Assistant United States Attorney to be valued at some
                               - 47 -

     kind of market rate. However, upon reflection, we can
     perceive no difference between the situation of an Assistant
     U.S. Attorney and that of a public interest lawyer whose
     services, the Supreme Court has held, are to be valued at a
     market rate, even though he or she, like Assistant U.S.
     Attorneys, had no regular billing rate. See Blum v.
     Stenson, 465 U.S. 886, 895 * * * (1984). [Napier v. Thirty
     or More Unidentified Fed. Agents, 855 F.2d 1080, 1092-1093
     (3d Cir. 1988) (applying Fed. R. Civ. P. 11).]

     This Court has found hourly rates ranging from $125 to $200

to be reasonable hourly rates to charge for the services of a

Government attorney.   See, e.g., Takaba v. Commissioner, 119 T.C.

at 304-305 ($150 and $200); Nis Family Trust v. Commissioner, 115

T.C. 523, 552-553 (2000) ($125 and $200); Harper v. Commissioner,

supra at 551 ($100); Gillespie v. Commissioner, T.C. Memo.

2007-202 ($150, $125, and $200), affd. 292 Fed. Appx. 517 (7th

Cir. 2008); Krol v. Commissioner, T.C. Memo. 2008-242 ($150);

Edwards v. Commissioner, T.C. Memo. 2003-149 ($200), affd. 119

Fed. Appx. 293 (D.C. Cir. 2005).   The fact that the Government

does not pay the attorneys at that rate--$260,000 per year

($125/hr. x 2,080 hrs.) to $416,000 per year ($200/hr. x 2,080

hrs.)27–is not dispositive.   See Novelty Textile Mills, Inc. v.

Stern, 136 F.R.D. 63, 77 (S.D.N.Y. 1991) (in applying 28 U.S.C.


     27
      The Federal Government pays its attorneys an annual salary
based on 40 hours per week 52 weeks per year. The Government
also provides paid holidays and benefits. On the basis of the
hourly rates awarded by the Court, if the employee benefits equal
50 percent of the total compensation, salaries for Government
trial attorneys would range from $130,000 to $208,000 per year.
The salary for a Federal employee at Grade 15 step 5 for 2008 is
$130,694, and the maximum pay for members of the Senior Executive
Service for 2008 is $172,200.
                              - 48 -

sec. 1927, whether the client has in fact paid his attorneys at

the rate billed is irrelevant to the issue of the amount of the

sanction).

     We perceive no difference between the situation of public

interest attorneys or Government attorneys, whose services are

valued at market rates, and the situation of Irvine and Binder,

who agreed to represent petitioners at no cost over the amount

the Court might allow.   The fact that the taxpayer does not pay

the attorney at the market rate (or at any rate) is no more

relevant than the fact that the Government and litigants

represented by public service agencies do not pay their attorneys

at market rates.   The appropriate sanction to impose on the

Commissioner depends not on what was actually paid, but on what

is a reasonable amount in the circumstances, on the basis of the

time reasonably spent and the prevailing rate in the area for

attorneys of comparable skill, experience, and reputation.

Novelty Textile Mills, Inc. v. Stern, supra at 77.

     The phrase “incurred because of such conduct” in section

6673(a)(2) is similar to the phrase “incurred as a result of the

removal” in the attorneys’ fees sanction of 28 U.S.C. sec.

1447(c) (2006), applicable when a case has been improperly

removed from a State court to a Federal District Court.    Title 28

U.S.C. sec. 1447(c) provides that the order of the District Court

remanding the case to the State court “may require payment of
                             - 49 -

just costs and any actual expenses, including attorney fees,

incurred as a result of the removal.”   28 U.S.C. sec. 1447(c).

The Court of Appeals for the Ninth Circuit has held that the

words “any actual expenses, including attorneys’ fees, incurred

as a result of the removal” does not “remove the discretion of

the district court to award fees in certain cases, such as

contingent fee or pro bono cases, where the client had not

actually ‘incurred’ the obligation to pay her attorneys’ fees”.

Gotro v. R & B Realty Group, 69 F.3d 1485, 1487 (9th Cir. 1995);

see also Huffman v. Saul Holdings Ltd. Pship., 262 F.3d 1128,

1134-1135 (10th Cir. 2001) (“To be compensable, their fees must

be actually ‘incurred,’ that is, they must reflect efforts

expended to resist removal.”); cf. Wisconsin v. Hotline Indus.,

Inc., 236 F.3d 363 (7th Cir. 2000) (actual outlays incurred by

the State as a result of improper removal is the proper measure

of attorneys’ fees allowed for improper removal from State court

to Federal District Court under 28 U.S.C. sec. 1447(c)).

     In computing attorneys’ fees sanctions under 28 U.S.C. sec.

1927, the generic sanctioning statute, Federal District Courts

apply the lodestar method without regard to the client’s

obligation to pay the attorney at the billed rate.   See, e.g.,

Wisconsin v. Hotline Indus., Inc., supra (in applying 28 U.S.C.

sec. 1927, whether the client has in fact paid his attorneys at

the rate billed is irrelevant to the issue of the amount of the
                              - 50 -

sanction); see also Hamilton v. Boise Cascade Express, 519 F.3d

1197, 1207 (10th Cir. 2008) (“the choice belongs to the district

court, in the exercise of its discretion, which method [actual

cost or lodestar amount] to apply in a given case”); Mirch v.

Frank, 266 Fed. Appx. 586, 588 (9th Cir. 2008); Bailey v. Papa

John’s USA, Inc., 236 Fed. Appx. 200, 205 (6th Cir. 2007);

LaPrade v. Kidder Peabody & Co., 146 F.3d 899, 906 (D.C. Cir.

1998); United States v. Nesglo, Inc., 744 F.2d 887, 892 (1st Cir.

1984); Thorpe v. Ancell, No. 03-CV-01181 (D. Colo. Aug. 18,

2006); Amedisys, Inc. v. Natl. Century Fin. Enters., Inc., No.

2:04-CV-493 (S.D. Ohio May 2, 2006); Sony Elecs., Inc. v.

Soundview Techs., Inc., 389 F. Supp. 2d 443, 447 n.4 (D. Conn.

2005) (“The lodestar method is applicable in assessing awards for

attorneys fees under 28 U.S.C. § 1927 as it is when awarding fees

under fee-shifting statutes such as 42 U.S.C. § 1988.”); Ricks v.

Xerox Corp., No. 93-2545 (D. Kan. Sept. 29, 1995).

     A court has “discretion to tailor the sanction to the

violation.”   Napier v. Thirty or More Unidentified Fed. Agents

Employees or Officers, 855 F.2d at 1092.   What constitutes

reasonable attorneys’ fees “must be considered in tandem with the

rule’s goals of deterrence, punishment, and compensation.”

Thomas v. Capital Sec. Servs., Inc., 836 F.2d at 879 (discussing

Fed. R. Civ. P. 11).   The goals of section 6673(a)(2) are to

deter attorneys from unreasonably and vexatiously multiplying
                                - 51 -

proceedings in this Court, to punish attorneys whose unreasonable

and vexatious conduct has multiplied the proceedings, and to

compensate the other parties’ attorneys for the excess time they

were required to expend in responding to the misconduct.

Reasonable attorneys’ fees are “incurred”, and thus compensable,

when they reflect attorney’s efforts on behalf of their clients

to resist the unreasonable and vexatious conduct or to mitigate

or overcome its effects.   See Huffman v. Saul Holdings Ltd.

Pship., supra at 1134-1135.28   We conclude that the lodestar




     28
      In Huffman v. Saul Holdings Ltd. Pship., 262 F.3d 1128
(10th Cir. 2001), pursuant to 28 U.S.C. sec. 1447(c), the
District Court had awarded attorneys’ fees in full, without
conducting an independent inquiry into the reasonableness of the
fees demanded. The Court of Appeals for the Tenth Circuit
reversed, stating:

     Our holding is that the statute’s limit on actual fees
     to those “incurred as a result of removal” requires the
     district court to conduct some sort of reasonableness
     inquiry. Our balanced emphasis on the terms “actual”
     and “incurred” mirrors the common-sense approaches
     taken in both Hotline and Gotro. We have concluded
     that the phrase “incurred as a result of removal”
     informs and narrows the meaning of “actual expenses,
     including attorney fees.” Nothing in either Hotline or
     Gotro suggests that courts are compelled to award
     unreasonable, if actual, fees to plaintiffs who
     successfully obtain an order of remand. To be
     compensable, their fees must be actually “incurred,”
     that is, they must reflect efforts expended to resist
     removal. As we said above, and repeat here,
     unreasonably high fees are not “incurred” as a result
     of removal; rather, excessive fee requests flow from,
     and accumulate by means of, improper billing practices,
     and will not be recoverable under § 1447(c). [Id. at
     1135.]
                               - 52 -

method is the proper starting point for computing reasonable

attorneys’ fees under section 6673(a)(2).

            7.   Government Incurs the Excess Costs, Expenses, and
                 Attorneys’ Fees Attributable to Government
                 Attorneys’ Misconduct

     The sanctioning statutes look to unreasonable and vexatious

multiplications of proceedings, and they impose “an obligation on

attorneys throughout the entire litigation to avoid dilatory

tactics.”    United States v. Intl. Bhd. of Teamsters, 948 F.2d

1338, 1345 (2d Cir. 1991) (emphasis added).    A Government

attorney who unreasonably and vexatiously multiplies Tax Court

proceedings brings down upon the United States, subjects the

United States to, and makes the United States vulnerable to

liability for the costs, expenses, and fees attributable to the

services of the taxpayer’s attorney’s professional services that

are required as an appropriate response to the misconduct.    The

United States incurs the attorneys’ fees by operation of law

under section 6673(a)(2), just as a taxpayer incurs a penalty for

his own misconduct under section 6673(a)(1).

     Payment for the professional services of the taxpayer’s

attorney required to respond to the misconduct is “the cost of

doing business”--the cost of unreasonably and vexatiously doing

business.    In Dixon IV we observed that “The resulting inquiry

has not had so much to do with the merits of petitioners’ cases

as it has been a cost of Government operations incurred for the
                              - 53 -

purpose of determining the extent of the misconduct of the

Government’s lawyers.”   In the Dixon V remand proceedings the

attorneys’ fees and expenses stemmed from the attorneys’ time

spent investigating the facts relevant to the Thompson settlement

and presenting the matter to the Court at the multiple sessions

of the evidentiary hearing.   The fees and expenses were caused by

the Government attorneys’ misconduct during the test-case

proceedings and are costs of Government operations.    Imposing

those fees and expense on respondent helps to protect the Court

and the public from multiplied litigation that impedes the

administration of justice.

     Under section 6673(a)(2) the Government incurs the

attorneys’ fees and expenses for the efforts expended by the

taxpayer’s attorneys because of the Government attorney’s

unreasonable and vexatious misconduct.   See Huffman v. Saul

Holdings Ltd. Pship., 262 F.3d at 1135 (discussing fees awarded

under 28 U.S.C. sec. 1447(c)).   This interpretation is consistent

with the purpose of section 6673(a)(2)--“‘to deter frivolous

litigation and abusive practices by attorneys and to ensure that

those who create unnecessary costs also bear them.’”    Riddle &

Associates, P.C. v. Kelly, 414 F.3d at 835 (quoting Kapco

Manufacturing Co. v. C & O Enters., Inc.   886 F.2d at 1491)

(discussing 28 U.S.C. sec. 1927).   Any other approach would call
                                 - 54 -

for a fictional formal agreement between the taxpayer and the

attorney.

     8.      Section 7430 and the Equal Access to Justice Act

     Respondent argues that for purposes of section 6673(a)(2)

the Court should give the same meaning to the word “incurred” as

the Court has given to it for purposes of section 7430.        Section

7430 authorizes the Court to award the prevailing party

reasonable litigation costs incurred in connection with the

proceedings, including “reasonable fees paid or incurred for the

services of attorneys”.29     Sec. 7430(c)(1)(B)(iii).   The Tax

Court has held that litigation costs are not incurred for

purposes of section 7430 unless the prevailing taxpayer has a

legal obligation to pay them.     Swanson v. Commissioner, 106 T.C.

76 (1996); see also Grigoraci v. Commissioner, 122 T.C. at 277-

278; Frisch v. Commissioner, 87 T.C. at 846.

     Section 7430 closely resembles 28 U.S.C. sec.

2412(d)(1)(A),30 enacted under the Equal Access to Justice Act


     29
      If an attorney is representing the prevailing party for no
fee or a nominal fee, sec. 7430(c)(3)(B), titled “Pro bono
services”, now permits the Court to award fees in excess of the
attorneys’ fees paid or incurred, provided the award is paid to
the attorney or the attorney’s employer. At pt. II.F. infra, we
rebut any negative implications that might conceivably arise from
the lack of a similar express provision for pro bono services in
sec. 6673(a)(2)(B).
     30
          Tit. 28 U.S.C. sec. 2412(d)(1)(A) (2006) provides:

     Except as otherwise specifically provided by statute, a
                                                   (continued...)
                             - 55 -

(EAJA), title II of the Act of October 21, 1980, Pub. L. 96-481,

secs. 201-208, 94 Stat. 2325 (effective Octber 1, 1981).    EAJA

requires other Federal courts to award attorneys’ fees to

prevailing parties in actions brought in those courts against the

United States unless the position of the Government was

substantially justified or special circumstances make an award

unjust.

     Congress enacted section 7430 “‘to deter abusive actions or

overreaching by the [IRS] and to enable taxpayers to vindicate

their rights regardless of their economic circumstances.’”

Cooper v. United States, 60 F.3d 1529, 1530 (11th Cir. 1995)

(quoting Weiss v. Commissioner, 88 T.C. 1036, 1041 (1987));

Huffman v. Commissioner, 978 F.2d 1139, 1146 (9th Cir. 1992),

affg. in part and revg. in part T.C. Memo. 1991-144; Zinniel v.

Commissioner, 883 F.2d 1350, 1360 (7th Cir. 1989) (Will, J.,

dissenting), affg. 89 T.C. 357 (1987); In re Testimony of Arthur

Andersen & Co., 832 F.2d 1057, 1060 (8th Cir. 1987);   Weiss v.

Commissioner, supra at 1041 (citing H. Rept. 97-404, at 11


     30
      (...continued)
     court shall award to a prevailing party other than the
     United States fees and other expenses, in addition to
     any costs awarded pursuant to subsection (a), incurred
     by that party in any civil action (other than cases
     sounding in tort), including proceedings for judicial
     review of agency action, brought by or against the
     United States in any court having jurisdiction of that
     action, unless the court finds that the position of the
     United States was substantially justified or that
     special circumstances make an award unjust.
                               - 56 -

(1981)).   Attorneys’ fees awarded under section 7430 are intended

to be compensatory rather than punitive.   See Estate of Cervin v.

Commissioner, 200 F.3d 351, 357-358 (5th Cir. 2000), affg. T.C.

Memo. 1998-176.

     By contrast, the primary purpose of the sanctioning statutes

is “deterrence and punishment rather than restitution.”     Red

Carpet Studios Div. of Source Advantage, Ltd. v. Sater, 465 F.3d

at 647.    But see Thomas v. Capital Sec. Serv., Inc., 836 F.2d at

879 (“What constitutes ‘reasonable expenses’ and a ‘reasonable

attorney’s fee’ within the context of Rule 11 [Fed. R. Civ. P.]

must be considered in tandem with the rule’s goals of deterrence,

punishment, and compensation.”).   The sanctioning statutes are

penal and serve a primary purpose different from that of the

prevailing party statutes, which are remedial.   The imposition of

sanctions under section 6673(a)(2) and 28 U.S.C. sec. 1927

“depends not on which party wins the lawsuit, but on how the

parties conduct themselves during the litigation.”    Chambers v.

NASCO, Inc., 501 U.S. at 53 (discussing sanctions under the

bad-faith exception to the American rule).

     Section 7430 is a fee-shifting provision under which

attorneys’ fees are awarded to the prevailing party other than

the United States and requires that the fees be paid to the

prevailing party.   Section 7430 and the EAJA require the fees to

have been incurred by the prevailing party, which prevents a
                                - 57 -

windfall to the prevailing party while furthering the purpose of

the statute.

     By contrast, the sanctioning statutes neither award the fees

to any party nor require the fees be paid to any party, thereby

permitting the court to direct payment directly to the attorney.

The sanctioning statutes do not distinguish between winners and

losers or between the Government and the opposing party or the

taxpayer and the Commissioner.    See Roadway Express, Inc. v.

Piper, 447 U.S. at 762 (discussing 28 U.S.C. sec. 1927).     Neither

section 6673(a)(2) nor 28 U.S.C. sec. 1927 requires that the fees

have been incurred by the other party.    The sanctioning statutes

merely require that the excess fees be incurred because of the

misconduct of the opponent’s attorney.    In this regard, the

sanctioning statutes are more broadly drawn than section 7430.

     Although courts construe a statutory term in accordance with

its ordinary or natural meaning in the absence of a statutory

definition, a single word “may or may not extend to the outer

limits of its definitional possibilities” and must not be read in

isolation.     Dolan v. USPS, 546 U.S. at 486.   The Supreme Court

has “repeatedly warned against the dangers of an approach to

statutory construction which confines itself to the bare words of

a statute, for ‘literalness may strangle meaning.’” Lynch v.

Overholser, 369 U.S. 705, 710 (1962) (citations omitted); see

also Ed. A. Wilson, Inc. v. GSA, 126 F.3d 1406, 1409 (Fed. Cir.
                              - 58 -

1997) (“legislative history of the Act warns against an ‘overly

technical construction * * * resulting in the unwarranted denial

of fees’” (quoting Brewer v. Am. Battle Monuments Commn., 814

F.2d 1564, 1566-1567 (Fed. Cir. 1987))).    For purposes of section

6673(a)(2) the more appropriate meaning of the word “incur”

encompasses the broader definition “to make oneself subject to”

or “vulnerable to” and “to have the liability cast upon one by

operation of law”.

     Reading the statute and considering the purpose and context

of section 6673(a)(2) as a whole, we believe the word “incurred”

extends nearer “to the outer limits of its definitional

possibilities”, Dolan v. USPS, supra at 486, than does its

restricted meaning in section 7430.    The purpose of section

6673(a)(2) is punitive, and in context its reach is broader than

that of section 7430.   Therefore, we do not restrict the meaning

of the word “incurred” in section 6673(a)(2) as the Court did in

Swanson v. Commissioner, 106 T.C. at 101-102, in holding for

purposes of section 7430 that attorneys’ fees are incurred only

if the represented taxpayer has a legal obligation to pay them.

          9.   Law of the Case Doctrine

     Respondent contends that the doctrine of law of the case

prevents us from requiring respondent to pay the excess costs,

expenses, and attorneys’ fees requested on behalf of Porter &

Hedges if petitioners are not liable to pay them.    We disagree.
                                - 59 -

     “As most commonly defined, the doctrine posits that when a

court decides upon a rule of law, that decision should continue

to govern the same issues in subsequent stages in the same case.”

Arizona v. California, 460 U.S. 605, 618 (1983).    However, the

doctrine “‘merely expresses the practice of courts generally to

refuse to reopen what has been decided’”.    Christianson v. Colt

Indus. Operating Corp., 486 U.S. 800, 817 (1988) (quoting

Messenger v. Anderson, 225 U.S. 436, 444 (1912)).

     The law of the case doctrine applies only to issues that

have been previously decided either explicitly or by necessary

implication by the same court or a higher court in the identical

case and does not preclude consideration of issues not previously

presented or decided.   Thomas v. Bible, 983 F.2d 152, 154 (9th

Cir. 1993); Conway v. Chem. Leaman Tank Lines, Inc., 644 F.2d

1059, 1062 (5th Cir. 1981).   It does not apply to meritorious

issues never previously submitted to or passed upon by the court.

Laitram Corp. v. NEC Corp., 115 F.3d 947, 952 (Fed. Cir. 1997);

Conway v. Chem. Leaman Tank Lines, Inc., supra at 1062.

     The doctrine is subject to three exceptions:   If the

decision is clearly erroneous and enforcement would cause

manifest injustice; if intervening controlling authority makes

reconsideration appropriate; or if substantially different

evidence has been introduced.    Minidoka Irrigation Dist. v. Dept.

of Interior, 406 F.3d 567, 573 (9th Cir. 2005).
                               - 60 -

     In Dixon IV, pursuant to section 6673(a)(2) we required

respondent to pay attorneys’ fees petitioners had paid for their

attorneys’ services from June 10, 1992 (the date the Court filed

respondent’s motions to vacate the decisions in the Thompson and

Cravens cases), through March 30, 1999 (the date the Court issued

its opinion in Dixon III following the DuFresne remand

proceedings) (the Dixon III and IV multiplied proceedings).

Respondent contends that because we limited the awards in Dixon

IV to amounts petitioners paid or incurred in the Dixon III and

IV multiplied proceedings, the law of the case doctrine requires

us to limit the awards in these cases to the expenses and

attorneys’ fees petitioners paid or incurred in the Dixon V

remand proceedings.    We disagree.

     In Dixon IV the issue was whether petitioners’ requested

attorneys’ fees should be awarded under section 7430 or section

6673(a)(2).    We held that section 7430 did not apply because

petitioners were not prevailing parties on the underlying merits

of the deficiency determinations.     In Dixon IV we held that the

conduct of the Government attorneys in the test-case proceedings

was unreasonable and vexatious; that misconduct had multiplied

and protracted the proceedings in these cases unreasonably and

vexatiously.    That holding is the law of the case.

     We required respondent to pay the excess costs, expenses,

and attorneys’ fees incurred because of his attorneys’
                               - 61 -

misconduct--costs, expenses, and attorneys’ fees incurred in the

Dixon III and IV multiplied proceedings.   Citing Harper v.

Commissioner, 99 T.C. at 549, 551, we stated in Dixon IV that

“attorneys’ fees awarded under section 6673(a)(2) are computed by

multiplying the number of excess hours reasonably expended on the

litigation by a reasonable hourly rate” (the lodestar method) and

“that a reasonable hourly rate is the hourly fee that attorneys

of similar skill in the area would typically be entitled to for

the type of work in question.”   In Dixon IV, however, although we

had issued orders directing the attorneys to comply with Rule

231(d), we were presented with “less than an ideal record”.

Izen, Jones, and Sticht failed to provide the Court with

sufficient information to determine the number of excess hours

that they had reasonably expended during the Dixon III and IV

multiplied proceedings, and Jones and Sticht had neither

addressed the reasonableness of their hourly rates nor furnished

detailed billing statements.   Consequently we could not apply the

lodestar method in computing the section 6673(a)(2) sanction.

     We went on to recognize that petitioners and the other

Kersting project taxpayers participating in the Dixon III and IV

multiplied proceedings had incurred substantial attorneys’ fees

and costs that warranted imposition of the attorneys’ fees

sanction.   We believed that petitioners and the other Kersting

project taxpayers should not be overly penalized for their
                              - 62 -

counsel’s poor documentation efforts and required respondent to

pay an approximation of the amount of the excess attorneys’ fees

and costs.   We imposed substantial percentage reductions in our

fee awards that were attributable to the attorney’s various

failures to substantiate their claims in their entirety.   In so

doing, we further reduced the awards to Izen’s clients, making it

clear that under no circumstances would we require respondent to

pay attorneys’ fees and costs for services to Kersting that

appeared to have been rendered by various attorneys.

     Respondent argues that our statement in Dixon IV that “our

decision to award attorneys’ fees and costs in Dixon IV is

intended to compensate petitioners for the additional fees and

costs that they incurred as a direct consequence of that [the

Government attorneys’] misconduct” is the law of the case.    To

the contrary, that statement was made in response to respondent’s

contention that an award of attorneys’ fees and costs was not

justified because petitioners had already been compensated by the

sanctions imposed upon respondent in Dixon III.   We rejected that

argument because the sanctions that we imposed in Dixon III

compensated petitioners for different costs resulting from the

misconduct of the Government attorneys--the time-sensitive

additions to tax and increased interest items of liability that

were indirectly compounded by the delay in the resolution of the

cases.
                               - 63 -

      The meaning of the word “incurred” was not at issue in Dixon

IV.   In Dixon IV we did not examine or discuss whether

petitioners or the other Kersting project taxpayers had or were

required to have a contractual obligation to pay the requested

fees.   Moreover, we issued our opinion in Dixon IV after having

held in Dixon III that the misconduct of the Government attorneys

did not result in a structural defect but rather resulted in

harmless error and before the Court of Appeals for the Ninth

Circuit held in Dixon V that the misconduct of the Government

attorneys in Dixon II was a fraud on the Court.

      The intervening holding of Dixon V would make

reconsideration appropriate.   Moreover, denying Porter & Hedges

attorneys’ fees for the services provided by Irvine and Binder in

the Dixon V remand proceedings would cause manifest injustice.

See Castro v. United States, 540 U.S. 375, 384 (2003); Arizona v.

California, 460 U.S. at 619 n.8.   In addition, substantially

different evidence, an accurate description of the hours expended

by Binder and Irvine and reasonable rates of compensation, has

been introduced, and respondent has agreed that it is accurate

and reasonable.   The doctrine of law of the case does not limit

our power to require respondent to pay the expenses and

attorneys’ fees requested on behalf of Porter & Hedges, which

resulted from the misconduct of the Government attorneys.
                              - 64 -

     In Dixon IV we held, pursuant to section 6673(a)(2)(B), that

respondent was required to pay the excess costs, expenses, and

attorneys’ fees incurred in the DuFresne remand proceedings

because the proceedings resulted from the Government attorneys’

misconduct during the test case proceedings.   Respondent’s

liability for excess attorneys’ fees and expenses related to any

further proceedings resulting from the Government attorneys’

misconduct, including the Dixon V remand proceedings, is implicit

in the Dixon IV holding.   Early in the proceedings respondent

agreed that reasonable attorneys’ fees related to the Dixon V

remand proceedings “should be awarded to the petitioners”

pursuant to section 6673(a)(2).   Respondent has incurred those

fees as a result of the Government attorneys’ misconduct in the

test-case proceedings and the Court’s holding in Dixon IV.

     F.   Fees “Incurred” in Pro Bono Representation and
          Contingent Fee Arrangements

     For purposes of completeness, we will now put to rest any

concern that a negative implication arises from the lack of an

express provision in section 6673(a)(2)(B) for payment of fees

for pro bono services, similar to the provision in section

7430(c)(3)(B).   We therefore address caselaw under prevailing

party statutes generally and the genesis of the specific

provision added to section 7430 in 1998.
                               - 65 -

          1.     Caselaw Under Prevailing Party Statutes

     Section 7430 and 28 U.S.C. sec. 2412 are two of more than

100 prevailing party statutes that oblige the losing party to

reimburse the winner for his attorneys’ fees.31    Pennsylvania v.

Delaware Valley Citizens’ Council for Clean Air, 478 U.S. 546,

562 (1986).    “[A]lthough these [prevailing party] provisions

cover a wide variety of contexts and causes of action, the

benchmark for the awards under nearly all of these statutes is

that the attorney’s fee must be ‘reasonable.’”    Id.

     [T]he aim of such statutes was to enable private
     parties to obtain legal help in seeking redress for
     injuries resulting from the actual or threatened
     violation of specific federal laws. Hence, if
     plaintiffs * * * find it possible to engage a lawyer
     based on the statutory assurance that he will be paid a
     “reasonable fee,” the purpose behind the fee-shifting
     statute has been satisfied. [Id. at 565.]

     Courts have awarded attorneys’ fees under prevailing party

statutes, including the more narrowly drawn statutes requiring

that fees be “incurred”, when the prevailing party is represented

by a legal services organization, labor union, or counsel

appearing pro bono.32   See New York Gaslight Club, Inc. v. Carey,



     31
      See Marek v. Chesny, 473 U.S. 1, 44-51 (1985) (Brennan,
J., dissenting), for an extensive list of separate statutes
providing for the award of attorneys’ fees.
     32
      The legislative history of the EAJA, H. Rept. 1418,
10-11, 15 (1980), supports the conclusion that pro bono awards
were contemplated from its inception:

                                                     (continued...)
                             - 66 -

447 U.S. 54, 70 n.9 (1980) (pro bono awards available under 42

U.S.C. sec. 2000e-5(k)); Ed. A. Wilson, Inc. v. GSA, 126 F.3d at

1409 (EAJA); Yankton Schl. Dist. v. Schramm, 93 F.3d 1369, 1377

(8th Cir. 1996) (pro bono award under the Handicapped Children’s

Protection Act, 20 U.S.C. sec. 1415(e)(4)(B)); AARP v. EEOC, 873

F.2d 402, 406 (D.C. Cir. 1989) (“[U]nder the EAJA, [the

prevailing party] should be able to recover ‘reasonable fees and

expenses’ of attorneys for their independently retained pro bono

counsel despite the fact that, if we denied fees, they [the

prevailing party] would not pay any fees to counsel.”); Eggers v.

Bullitt County School Dist., 854 F.2d 892, 899 (6th Cir. 1988);

Watford v. Heckler, 765 F.2d 1562, 1567 n.6 (11th Cir. 1985)

(“[I]t is well-settled that, in light of the act’s legislative

history and for reasons of public policy, plaintiffs who are

represented without charge are not generally precluded from an

award of attorneys’ fees under the EAJA.”); DeBold v. Stimson,

735 F.2d 1037, 1043 (7th Cir. 1984); Cornella v. Schweiker, 728



     32
      (...continued)
          In general, consistent with the above limitations
     [statutory caps], the computation of attorney fees
     should be based on prevailing market rates without
     reference to the fee arrangements between the attorney
     and client. The fact that attorneys may be providing
     services at salaries or hourly rates below the standard
     commercial rates which attorneys might normally receive
     for services rendered is not relevant to the
     computation of compensation under the Act. In short,
     the award of fees is to be determined according to
     general professional standards. [Emphasis added.]
                             - 67 -

F.2d 978, 986 (8th Cir. 1984) (legislative history of EAJA

support conclusion that pro bono awards were contemplated);

McLean v. Arkansas Bd. of Educ., 723 F.2d 45, 47 (8th Cir. 1983);

Falcone v. IRS, 714 F.2d 646, 647 n.3 (6th Cir. 1983); Clarkson

v. IRS, 678 F.2d 1368, 1371 n.3 (11th Cir. 1982); Cunningham v.

FBI, 664 F.2d 383, 385 n.1 (3d Cir. 1981); Crooker v. U.S. Dept.

of Treasury, 634 F.2d 48, 49 n.1 (2d Cir. 1980) (pro bono awards

available under Freedom of Information Act); Oldham v. Ehrlich,

617 F.2d 163, 168 (8th Cir. 1980) (pro bono awards available

under 42 U.S.C. sec. 1988); Rodriguez v. Taylor, 569 F.2d 1231,

1244-1246 (3d Cir. 1977) (pro bono awards available under Age

Discrimination in Employment Act).

     In Gaskins v. Commissioner, T.C. Memo. 1996-268, the

taxpayers sought attorneys’ fees for counsel who had agreed to

provide representation pro bono.   The Court noted that whether

attorneys’ fees could be awarded under section 7430 for pro bono

representation was an issue of first impression in the Tax Court

and expressed the view that pro se taxpayers could not recover

attorneys’ fees because they had not incurred them.   However, the

Court had no occasion to decide the case on that ground because

the taxpayers and their counsel had unreasonably protracted the

proceeding and the Commissioner’s position was substantially

justified at all times throughout the proceeding.
                               - 68 -

     In Thompson v. Commissioner, T.C. Memo. 1996-468, the Court

noted, in the light of the legislative history of the EAJA and

for reasons of public policy, that representation by a legal

services organization or by an attorney pro bono does not

preclude an award of fees and costs under the EAJA.     Id. n.9

(citing Phillips v. GSA, 924 F.2d 1577, 1582-1583 (Fed. Cir.

1991).    The Court went on to observe that awards are routinely

made in those circumstances even though the claiming party did

not pay or incur fees.    Id. (citing SEC v. Comserv Corp., 908

F.2d 1407, 1415 (8th Cir. 1990), AARP v. EEOC, supra at 406, and

Watford v. Heckler, supra at 1567 n.6).

     Courts have held that allowing fee awards for pro bono

representation furthers the purpose of all attorneys’ fees

statutes by ensuring that legal services groups and other pro

bono counsel have a strong incentive to represent indigent

claimants.    See, e.g., Cornella v. Schweiker, supra at 986

(quoting Ceglia v. Schweiker, 566 F. Supp. 118, 123 (E.D.N.Y.

1983)).    Not allowing attorneys’ fees for pro bono representation

in litigation against the Government “would more than likely

discourage involvement by these organizations in such cases,

effectively reducing access to the judiciary for indigent

individuals”.    Id. at 986-987.   The Court of Appeals for the

District of Columbia Circuit has observed that if a party must

make himself liable to pay for the services of an attorney in an
                                - 69 -

action that awards attorneys’ fees, awards could be made only

when the party could afford to pay for legal representation.

AFGE, AFL-CIO, Local 3882 v. FLRA, 944 F.2d 922, 933 (D.C. Cir

1991) (addressing awards to employees under the Back Pay Act).

     Some courts have finessed the question of whether there is

an exception for pro bono representation by looking at the

arrangement between the attorney and his client as a contingent-

fee agreement.   Some have held that fees are incurred by a

litigant represented by counsel working pro bono when, although

the litigant is not personally liable for the fees, he is subject

to an obligation to turn over any fees awarded.     Phillips v. GSA,

supra at 1582-1583 & n.4; accord Raney v. Fed. Bureau of Prisons,

222 F.3d 927, 933 n.4 (Fed. Cir. 2000) (en banc); Preseault v.

United States, 52 Fed. Cl. 667, 674 (2002) (a plaintiff who has

obtained representation on the condition that he seek fees for

his attorneys has incurred an obligation that can be reimbursed

by a fee-shifting statute).     “When an agreement exists to support

the conditional obligation, a plaintiff is not viewed as simply

having been given legal aid; instead, this condition is the cost

to the plaintiff of obtaining those services.”     Preseault v.

United States, supra at 673.    At least one court has held that an

implied agreement that the fee will be paid over to “can be said

to exist as a matter of law.”    Wasniewski v. Grzelak-Johannsen,

549 F. Supp. 2d 965, 971 (N.D. Ohio 2008).    Other courts have
                                - 70 -

held that when a pro bono attorney “forgives” a fee to a client

unable to afford legal expenses, the client is eligible for an

award on the basis of that arrangement with the attorney.      See,

e.g., AARP v. EEOC, 873 F.2d at 406; Watford v. Heckler, 765 F.2d

at 1567 n.6.

       Courts have not summarily denied an award for fees that are

subject to a contingency.    Rather, the courts consider whether

the contingency has been satisfied in discerning whether, and in

what amount, attorneys’ fees have been incurred.

       In United States v. 122.00 Acres of Land, 856 F.2d 56, 58

(8th Cir. 1988), the Court of Appeals for the Eighth Circuit

denied an award of attorneys’ fees under 42 U.S.C. sec. 4654(a)

to a condemnee who had entered into a contingent fee contract

with his attorney under which the condemnee would bear no expense

for attorneys’ fees if there were no recovery.    Because the

Government abandoned its condemnation action, the condemnee did

not receive payment for his land.    Consequently, under his

agreement with his attorney, the attorney was not entitled to a

fee.    The Court of Appeals held that the condemnee party

“actually incurred” only the amount owed under a contingency fee

agreement.    The failure to fulfill the contingency was fatal, and

the condemnee was not entitled to an award of attorneys’ fees

under 42 U.S.C. sec. 4654(a).
                              - 71 -

     In Marre v. United States, 38 F.3d 823, 828-829 (5th Cir.

1994), the District Court had awarded a taxpayer who succeeded in

his suit for wrongful disclosure of tax return information

attorneys’ fees in an amount greater than those required under

his contingent fee agreement with his attorneys.    The Court of

Appeals for the Fifth Circuit reversed, holding that the taxpayer

could not recover attorneys’ fees in an amount greater than those

required under his contingent fee agreement with his attorneys,

because the applicable attorneys’ fees statute, section 7430,

limits attorneys’ fees to those actually incurred.    By contrast,

in Blanchard v. Bergeron, 489 U.S. 87, 93-94 (1989), the Supreme

Court held that 42 U.S.C. sec. 1988, which allows courts to award

prevailing parties reasonable attorneys’ fees as part of the

costs without any requirement that those fees be incurred,

“contemplates reasonable compensation * * * for the time and

effort expended by the attorney”, and that “a contingent-fee

contract does not impose an automatic ceiling on an award of

attorneys’ fees.”

     Some cases discuss contingent obligations to pay fees where

the fees are paid by a third party.    A litigant does not incur

payments made by third parties if the litigant has no obligation

to repay the third party.   See, e.g., United States v. Paisley,

957 F.2d 1161, 1164 (4th Cir. 1992) (litigant who was entitled to

full indemnification of attorneys’ fees by her employer did not
                             - 72 -

“incur” any expenses under EAJA); Kruse v. Commissioner, T.C.

Memo. 1999-157 (taxpayer wife was not entitled to an award for

fees and costs paid by taxpayer husband’s employee benefit plan);

Republic Plaza Props. Pship. v. Commissioner, T.C. Memo. 1997-239

(no award for fees paid by parent company of corporate tax

matters partners); Thompson v. Commissioner, T.C. Memo. 1996-468

(taxpayer wife cannot be awarded litigation costs that were paid

by taxpayer husband, who did not meet the net worth requirement).

Some of these decisions reflect taxpayers’ attempts to avoid net

worth limitations under prevailing party statutes.   E.g.,

Thompson v. Commissioner, supra.

     Courts have specifically held that a contingent fee

agreement that requires any awarded fees to be paid to the

attorney satisfies the requirement that fees or expenses be

“incurred” within the meaning of fee-shifting statutes.    See,

e.g., Phillips v. GSA, 924 F.2d 1577 (Fed. Cir. 1991); Young v.

Commissioner, T.C. Memo. 2006-189.

     In Phillips v. GSA, supra, the Court of Appeals for the

Federal Circuit held that a fee agreement that requires any

awarded fees to be paid to the attorney meant such fees were

incurred, even if the client would not be liable for fees if

there should be no such award.   The Court of Appeals construed

the fee arrangement between the litigant and her attorney to mean

that if an award of attorneys’ fees was obtained on her behalf,
                              - 73 -

she was obligated to turn it over to her attorney.   The court

held that the litigant incurs the attorneys’ fees that may be

awarded her.   On the other hand, if no fee is awarded, the

litigant would not have any obligation to pay any further fees to

her attorney from her own resources.   Id. at 1582-1583.     Other

courts have followed the reasoning in Phillips in allowing fees

subject to a contingency.   See, e.g., Preseault v. United States,

52 Fed. Cl. at 673; Seay v. United States, 369 Bankr. 423,

429-431 (Bankr. E.D. Ark. 2007).

     In Young v. Commissioner, supra, we awarded appellate fees

and expenses under section 7430 to Kersting project taxpayers

represented in the Dixon V appeal by Izen and Jones.   We found

that Izen’s flat-fee appellate contracts encompassed an implied

agreement that any fee award would be paid over to Izen to the

extent the client’s share of the award exceeded the amount the

client had paid pursuant to the contract.   In accord with

Phillips v. GSA, supra, we held that the contracts supplied

additional payment obligations that supported an award of the

potentially recoverable amount in its entirety.

     We believe that petitioners’ arrangement supports the same

result in this case.   Petitioners and their counsel believed that

the Court would require respondent to pay petitioners’ reasonable

attorneys’ fees and expenses incurred in the remand proceedings,

and respondent’s counsel had agreed that respondent would be
                                - 74 -

obligated to pay petitioners’ reasonable attorneys’ fees and

expenses incurred in the remand proceedings.    Binder and Irvine

agreed, therefore, that Porter & Hedges would not require

petitioners to pay any fees or expenses beyond those awarded by

the Court.   Pursuant to that oral agreement, Irvine and Binder

entered their appearances in these cases.

     Under written engagement letters Irvine and Binder agreed to

represent petitioners in the Dixon V remand proceedings without

compensation from them but explained that Porter & Hedges would

“request payment of fees and expenses from the government, as

provided by law or by determination of a court, for our

representation”.   Petitioners agreed to provide necessary facts,

affidavits, testimony, and other assistance to support the

requests.

     The engagement letters are consistent with the parties’ and

the Court’s interpretation of section 6673(a)(2)--that it does

not require petitioners to be contractually obligated to pay the

fees.   The oral agreements reflect and clarify that petitioners

agreed to pay and are liable to pay Porter & Hedges any fees

awarded to them by the Court.    We construe petitioners’ fee

arrangement with Porter & Hedges to encompass the parties’ oral

agreement that petitioners would not be liable to pay Porter &

Hedges any fees in excess of those awarded to them by the Court.
                               - 75 -

     A court’s decision to grant or deny attorneys’ fees is

reviewed for abuse of discretion.    See, e.g., Liti v.

Commissioner, 289 F.3d 1103, 1104 (9th Cir. 2002) (citing Huffman

v. Commissioner, 978 F.2d at 1148).     A court’s discretion to

award attorneys’ fees “is not without limit: the prevailing party

‘should ordinarily recover an attorney’s fee unless special

circumstances would render such an award unjust.’”     Blanchard v.

Bergeron, 489 U.S. at 89 (quoting Newman v. Piggie Park Enters.,

Inc., 390 U.S. 400, 402 (1968), and Hensley v. Eckerhart, 461

U.S. 424, 429 (1983)).    Once a litigant has satisfied the

statutory requirements entitling the litigant to attorneys’ fees,

it would be an abuse of discretion for a court to deny an award

of the fees.    When an attorney agrees to accept the fees awarded

by the court as full compensation for representing a litigant,

the condition is satisfied and the litigant incurs the fees when

the statutory requirements are met.

     The Dixon V remand proceedings were caused by Government

attorneys’ misconduct that was so unreasonable and vexatious that

it sank to the level of fraud on the Court.    In Dixon IV we

decided that requiring respondent to pay attorneys’ fees under

section 6673(a)(2) was an appropriate sanction for that

misconduct.    Petitioners’ obligation to pay any fees awarded

under section 6673(a)(2) was not contingent on a subsequent
                               - 76 -

event.    The requirements for awarding fees under section

6673(a)(2) have been satisfied.

            2.   Section 7430(c)(3)(B)

     Section 7430(c)(3)(B), enacted by the Internal Revenue

Service Restructuring and Reform Act of 1998, Pub. L. 105-206,

sec. 3101(c), 112 Stat. 728, specifically provides for awards of

attorneys’ fees for pro bono services as follows:

          (B) Pro bono services. The court may award
     reasonable attorneys’ fees under subsection (a) in
     excess of the attorneys’ fees paid or incurred if such
     fees are less than the reasonable attorneys’ fees
     because an individual is representing the prevailing
     party for no fee or for a fee which (taking into
     account all the facts and circumstances) is no more
     than a nominal fee. This subparagraph shall apply only
     if such award is paid to such individual or such
     individual’s employer.

The legislative history of section 7430(c)(3)(B) explains the

reason for the change as follows:33

          The Committee believes that the pro bono publicum
     representation of taxpayers should be encouraged and
     the value of the legal services rendered in these
     situations should be recognized. Where the IRS takes
     positions that are not substantially justified, it
     should not be relieved of its obligation to bear
     reasonable administrative and litigation costs because
     representation was provided the taxpayer on a pro bono


     33
      The statement of the then Executive Director of the
Community Tax Law Project, Richmond, Va., Nina Olson (now the
National Taxpayer Advocate), before the House Ways and Means
Committee Sept. 26, 1997, suggests that the provision was enacted
in response to Gaskins v. Commissioner, T.C. Memo. 1996-268, as
an anticipatory measure to ensure that the Tax Court would not
deny attorneys’ fees under sec. 7430 for pro bono representation.
See Hearings on H.R. 2292 Before the House Ways and Means Comm.,
105th Cong., 1st Sess. 145-154 (1997).
                              - 77 -

     basis. [S. Rept. 105-174, at 47-48 (1998), 1998-3 C.B.
     537, 583-584.]

     There was no need to amend section 6673(a)(2) because this

Court had consistently held in cases where the Court had imposed

sanctions against counsel for a taxpayer that attorneys’ fees

awarded under section 6673(a)(2) are to be computed by

multiplying the number of excess hours reasonably expended on the

litigation by a reasonable hourly rate and that a reasonable

hourly rate is the hourly fee that attorneys of similar skill in

the area would typically be entitled to for the type of work in

question.   Harper v. Commissioner, 99 T.C. 533 (1992); Matthews

v. Commissioner, T.C. Memo. 1995-577; Murphy v. Commissioner,

T.C. Memo. 1995-76.   The fees were never computed on the amount

the Commissioner paid for the attorneys’ services; they were

computed under the lodestar method without any inquiry into the

Commissioner’s obligation or liability to pay the Government

attorneys those amounts.

     When imposing the section 6673(a)(2) sanction on the

Commissioner, the Court may compute the lodestar amount without

regard to the taxpayer’s obligation to pay the attorney.    Where

Government attorneys unreasonably and vexatiously multiply the

proceedings in this Court, the Commissioner should not be

relieved of his liability to pay the excess costs, expenses, and

attorneys’ fees because representation was provided the taxpayer

pro bono.
                              - 78 -

     G.   Respondent Must Pay Attorneys’ Fees and Excess Expenses
          Requested on Behalf of Petitioners’ Attorneys

     The Court may require respondent to pay the excess costs,

expenses, and attorneys’ fees incurred because of the

unreasonable and vexatious conduct of respondent’s counsel.    When

attorneys’ fees, expenses, and costs relate to the time for

attorney services caused by the unreasonable and vexatious

conduct of the Commissioner’s attorneys, the Court should

ordinarily require the Commissioner to pay those excess fees,

expenses, and costs, “unless special circumstances would render

such an award unjust.”   Blanchard v. Bergeron, supra at 89.    It

would be an abuse of discretion not to do so.   Once the

unreasonable and vexatious conduct occurs, the excess fees,

expenses, and costs are incurred as the services are performed

and the expenses and costs accrue.

     The requested attorneys’ fees and expenses were incurred for

purposes of section 6673(a)(2) because (1) respondent incurred

them either once respondent’s attorneys commenced their

unreasonable and vexatious conduct or once we held in Dixon IV

that their conduct was unreasonable and vexatious, (2)

petitioners were contingently liable for the fees, and (3) the

contingency has been satisfied.   The Court may require respondent

to pay the excess attorneys’ fees and expenses requested on

behalf of Porter & Hedges.
                              - 79 -

III. Inherent Power To Impose Sanctions

     During the Dixon V remand proceedings we stated that section

6673(a)(2) was the applicable statutory provision regarding legal

fees for attorneys’ services performed in the remand proceedings.

That statement reflected our understanding that section 7430 did

not apply--the reasonableness of respondent’s position in the

remand proceedings, the statutory cap on the attorneys’ hourly

rates, and the Dixon V taxpayers’ net worths would not be at

issue.   Our reference to the appropriate statutory provision did

not foreclose recourse to our inherent power.

     This Court has inherent power to regulate and supervise its

proceedings to ensure the integrity of its process.   Williams v.

Commissioner, 119 T.C. 276, 282 (2002) (citing Freytag v.

Commissioner, 501 U.S. 868, 891 (1991), and Chambers v. NASCO,

Inc., 501 U.S. 32, 43-46 (1991)).   A primary aspect of the

Court’s discretion to invoke its inherent power is the ability to

fashion an appropriate sanction for conduct that abuses the

judicial process.   Chambers v. NASCO, Inc., supra at 44-45.    “In

this regard, if a court finds ‘that fraud has been practiced upon

it, or that the very temple of justice has been defiled,’ it may

assess attorneys’ fees against the responsible party”.   Id. at 46

(quoting Universal Oil Prods. Co. v. Root Refining Co., 328 U.S.

575, 580 (1946)).
                                - 80 -

     The Tax Court may, in its informed discretion, rely on

inherent power rather than section 6673(a)(2).     See Chambers v.

NASCO, Inc., supra at 50; Fink v. Gomez, 239 F.3d 989, 994 (9th

Cir. 2001).   We may rely on our inherent power to impose a

sanction where other sources of the power to sanction are not “up

to the task” to do so.     Chambers v. NASCO, Inc., supra at 50; see

also Toon v. Wackenhut Corr. Corp., 250 F.3d 950, 952 (5th Cir.

2001) (“When a party’s deplorable conduct is not effectively

sanctionable pursuant to an existing rule or statute, it is

appropriate for a district court to rely on its inherent powers

to impose sanctions.” (citation and quotation marks omitted)).

     The Court can invoke its inherent power to sanction conduct

that defiles the Court even if existing statutes or procedural

rules sanction the same conduct.    Chambers v. NASCO, Inc., supra

at 49.

     [The inherent] power is both broader and narrower than
     other means of imposing sanctions. First, whereas each
     of the other mechanisms reaches only certain
     individuals or conduct, the inherent power extends to a
     full range of litigation abuses. At the very least,
     the inherent power must continue to exist to fill in
     the interstices. * * * [Id. at 46.]

     Respondent asserts:    “Throughout the course of the

protracted proceedings following the Dixon III opinion, the Court

has consistently and expressly eschewed ‘inherent power’ as a

basis for awarding attorneys’ fees.      There is no reason for the

court to now decide to take a different approach.”     We disagree.
                               - 81 -

     In Dixon IV, decided before the Court of Appeals held in

Dixon V that the Government attorneys had committed a fraud on

this Court, we considered whether attorneys’ fees should be

awarded to petitioners under section 7430 or section 6673(a)(2).

We held that section 7430 did not apply because petitioners were

not prevailing parties in the underlying merits of the deficiency

determinations.    We held that the Government attorneys’ conduct

had multiplied the proceedings unreasonably and vexatiously and

imposed the sanction under section 6673(a)(2).    We believed that

sanction to be sufficient and denied motions for additional

sanctions filed by Izen, Jones, and Sticht.    However, we did

invoke our inherent power in Dixon IV and required respondent to

pay interest on the award from the date of the decisions at the

applicable rates for underpayments under sections 6601(a) and

6621(a)(2).

        During the test-case proceedings the Government attorneys

committed a fraud on the Court that undermined the integrity of

the Court’s proceedings and the confidence of all future

litigants and violated the rights of petitioners, other test-case

petitioners, and non-test-case taxpayers in more than 1,300 cases

bound by the outcome of the test cases.    Dixon V, 316 F.3d at

1047.    We properly invoke our inherent power to impose sanctions

on respondent for the fraud committed on the Court by the

Government attorneys.
                                - 82 -

IV.   Conclusion

      We hold, pursuant to section 6673(a)(2) and the inherent

power of the Court, that we may and will require respondent to

pay to Porter & Hedges $1,101,575.34 for reasonable attorneys’

fees and expenses attributable to services provided to

petitioners by Binder and Irvine during the Dixon V remand

proceedings.   Further, because respondent incurred the fees and

expenses pursuant to section 6673(a)(2) and Dixon IV, we will

invoke our inherent power to require respondent to pay additional

amounts equal to interest to Porter & Hedges at the applicable

rates for underpayments under sections 6601(a) and 6621(a)(2) on

$1,037,542.58 from June 29, 2007, the date Irvine filed the

motion for attorneys’ fees, and on $64,745.26 from November 19,

2007, the date respondent and Irvine filed the supplemental

stipulation of facts regarding fees and expenses incurred in

preparing the subject motion.    In so doing, we give effect to the

spirit of the direction of the Court of Appeals in Dixon V to

fashion judgments that would put taxpayers in the same position

as provided in the Thompson settlement; in augmenting the award
                               - 83 -

of fees and expenses with interest equivalents, we do no more

than mimic DeCastro’s fee arrangement with the Thompsons.34



                                         An appropriate order will

                                    be entered.




     34
          See supra note 11.
