                        T.C. Memo. 2000-119



                      UNITED STATES TAX COURT



                 EUGENE P. KREMER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4916-99.                 Filed April 5, 2000.



     Benjamin C. Sanchez and Rebecca A. Walden, for petitioner.

     Wendy Abkin, for respondent.



                        MEMORANDUM OPINION

     GERBER, Judge:   Petitioner moved for an award of fees and

costs under section 7430.1   Petitioner alleges that he is the

prevailing party, has exhausted administrative remedies, did not

unreasonably protract the administrative or court proceeding, and


     1
       Section references are to the Internal Revenue Code as
amended and in effect for the period under consideration.
                               - 2 -

meets the net worth test.   Respondent does not dispute

petitioner’s allegations and agrees that petitioner is entitled

to costs and fees.   The dispute between the parties concerns the

reasonableness of petitioner’s claim for costs and fees.

                            Background

     During 1993, respondent examined the Federal tax returns of

disability retirees (including petitioner) of the City of

Oakland, California, and, as of 1995, petitioner’s counsel

represented more than 300 similarly situated taxpayers.    During

1995, a test or lead case approach was agreed to, and a group of

taxpayers agreed with respondent to be bound by the outcome of

that case.   The policy was not uniform, however, and petitioner

and other taxpayers were not afforded agreements to be bound to a

test case.   During January 1996, a case with the same issue,

Picard v. Commissioner, T.C. Memo. 1997-320, was submitted to the

Court, resulting in a 1997 decision adverse to the taxpayer.

     On December 10, 1998, respondent determined a deficiency for

petitioner’s 1996 tax year attributable to the disability income.

On January 26, 1999, the Court of Appeals for the Ninth Circuit

reversed this Court’s holding in Picard v. Commissioner, 165 F.3d

744 (9th Cir. 1999), revg. T.C. Memo. 1997-320.   On February 5,

1999, before incurring the expense of filing a petition in

response to the December 10, 1998, deficiency notice, petitioner

advised that he would agree to an extension of the period of
                                - 3 -

assessment and requested respondent to rescind the deficiency

notice.    Respondent’s agent agreed that it would be mutually

beneficial to rescind, but the agent could not secure

petitioner’s internal file, and, accordingly, petitioner

requested respondent’s Appeals Office to rescind.    In early March

1999, respondent refused to rescind the December 10, 1998,

deficiency notice, and so petitioner, through his counsel, filed

the petition to commence this proceeding.    At about this time, it

was evident that the Government would not seek a writ of

certiorari with respect to the Picard case, a fact admitted by

respondent in his May 7, 1999, answer.

     This case was set for trial by this Court’s August 19, 1999,

trial notice.    By letter dated November 18, 1999, respondent

notified petitioner’s counsel that respondent would concede the

Picard issue, but would not agree to any costs or fees.

Thereafter, petitioner and respondent negotiated concerning the

case, and, as of January 13, 2000, the parties reached an

impasse.    On January 12, 2000, respondent’s counsel wrote a

letter to petitioner agreeing to pay the fees up to that point at

an hourly rate of $125.    Petitioner, however, rejected the offer.

Respondent did not concede the substantive or underlying

disability income issue until January 20, 2000, 4 days before the

scheduled trial session.    It appears that respondent withheld the

concession until petitioner’s counsel had to prepare the case for
                               - 4 -

presentation; i.e., stipulation of facts, etc.    Petitioner seeks

$1,587 in administrative costs from the March 3, 1999, request to

respondent’s Appeals Office to rescind the deficiency notice

until the March 9, 1999, mailing of his petition.    Petitioner

also seeks $14,824.50 in litigation costs from the time of the

petition to the filing of his motion seeking fees.    Petitioner’s

counsel is a specialized tax lawyer and is seeking $250 per hour,

while respondent contends that, to the extent any such fees are

recoverable, they should be paid at the modified statutory rate

of $130 per hour.   In the alternative, if the Court is not

disposed to grant more than the statutory fee, petitioner seeks

reduced fees at the statutory rate.    A summary of petitioner’s

fee claims and the amounts to which respondent agrees is as

follows:

             Claim for Administrative Fees and Costs

Attorney’s fees, 3/3/99 through 3/9/99,
 5.91 hours at $250 per hour                        $1,477.50
Filing fee and clerical costs                         +109.50
   Total administrative fees and costs claimed       1,587.00
Amount agreed to by respondent                        -248.30
   Difference between the parties                    1,338.70

               Claim for Litigation Fees and Costs

Attorney’s fees, 3/10/99 to 1/27/00,
 59.14 hours at $250 per hour                      $14,785.00
Clerical and office costs                              +39.50
   Total litigation fees and costs claimed          14,824.50
Amount agreed to by respondent                      -1,970.30
   Difference between the parties                   12,854.20
                               - 5 -

                            Discussion

     The discrepancy between the parties is attributable to two

aspects:   (1) Whether petitioner is entitled to attorney’s fees

at $250 per hour or whether he is limited to the statutory rate;

and (2) whether petitioner is entitled to fees and costs after

respondent’s January 12, 2000, offer to settle petitioner’s fee

and cost claims.

     Petitioner argues that he is entitled to attorney’s fees

greater than the statutory limit because his attorney is uniquely

qualified to practice tax law and that such specialized knowledge

was needed to aid him through his procedural dilemma.   Neither

respondent nor this Court questions the qualification of

petitioner’s counsel; the focus here is on the need, if any, for

specialized expertise that would justify payment above the

statutory limit.   The circumstances here were “cut and dried”,

and petitioner had favorable appellate court precedent.    The

legal quest was to cause respondent to acknowledge that

petitioner was entitled to a no-deficiency resolution of his case

and to compensate petitioner for his costs incurred in pursuing

that result.   We cannot agree that such “lawyering” would warrant

a variation from the statutory limit.    See, e.g., Huffman v.

Commissioner, 978 F.2d 1139, 1149-1150 (9th Cir. 1992), affg. in

part, revg. in part and remanding T.C. Memo. 1991-144; see also

Estate of Cervin v. Commissioner, 200 F.3d 351 (5th Cir. 2000),
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affg. T.C. Memo. 1998-176.   Accordingly, to the extent that

petitioner is entitled to administrative or litigation fees, they

shall be at the rate respondent determined under section

7430(c)(1)(B)(iii) to be $130 per hour.2

     The other disagreement between the parties concerns the

reasonableness of fees vis-a-vis the period for which fees should

be awarded.   Petitioner contends that he is entitled to claim

fees from the time respondent refused to rescind the notice until

the matter of his deficiency and claim for fees and costs was

resolved.   Respondent, however, contends that petitioner is

entitled to claim fees only until January 13, 2000.   Most of the

fees were incurred after the parties reached an impasse and while

petitioner’s counsel prepared for trial.   Respondent focuses on

the January 13 cutoff because of a January 12, 2000, letter

written by respondent’s counsel agreeing to pay the fees up to

that point, but at a $125 hourly rate instead of the $250 rate

sought by petitioner.   Petitioner rejected that offer, and his

attorney continued trial preparation (preparation of stipulations

of fact, etc).   It was not until January 20, 2000, that

respondent’s counsel conceded the substantive issue, leaving the




     2
       The parties do not contend that the 1998 amendments to
sec. 7430(c)(1)(B)(iii) warrant a different result. See sec.
3101(a) and (b), Internal Revenue Service Restructuring and
Reform Act of 1998, Pub. L. 105-206, 112 Stat. 727, 728.
                                 - 7 -

parties’ disagreement about the fees and costs for presentation

to the Court.

     Respondent contends that the facts we consider here are

similar to those in Mearkle v. Commissioner, 90 T.C. 1256 (1988).

In that case, the taxpayers refused to accept the Commissioner’s

full concession for 4 months before trial, and we held that the

taxpayers had protracted the litigation and were not entitled to

fees for the protracted 4-month period.       Here, however,

respondent did not concede the substantive issue until January

20, 2000, whereas he argues that petitioner should not be allowed

to recover fees for work performed preparing the case for trial

between January 13 and the concession date.       We cannot agree with

respondent’s cutoff date because respondent made an offer to

resolve the fee issue but had not conceded the underlying issue

for trial.   Accordingly, respondent’s analogy to Mearkle v.

Commissioner, supra, is inapposite.

     In view of the foregoing, petitioner is entitled to fees for

5.91 hours plus 59.14 hours, or 65.05 hours, at $130 per hour, or

$8,456.50, and costs of $149.

     To reflect the foregoing,

                                         An appropriate order and

                                 decision will be entered.
