2002 Tax Ct. Memo LEXIS 291">*291 Motion for costs and attorney fees granted in part.
MEMORANDUM OPINION
COLVIN, Judge: This matter is before the Court on petitioners' motion for litigation costs under
1. Whether respondent's position in the underlying proceeding was substantially justified. We hold that it was not.
2. Whether petitioners are entitled to an award of attorney's fees at an hourly rate higher than $ 140. We hold that they are not.
The parties submitted memoranda and affidavits supporting their positions. We decide the motion based on those memoranda and affidavits. We conclude that a hearing is not necessary to decide this motion. Rule 232(a)(2).
Section references are to the Internal Revenue Code in effect for the years in issue. Rule references are to the Tax Court Rules of Practice and Procedure.
Background
Petitioners are husband and wife who resided in California when they filed the petition.
Petitioners owned a grocery store (Manwah) that was failing in 1995, 1996, and 1997. About half of the purchases at Manwah were made with food stamps. Manwah was located in an economically depressed area of Los Angeles. Six of the seven grocery stores in that area had closed by the time of trial.
Petitioners gave respondent's agent daily summaries or tapes of Manwah's sales for 331 days for 1995, 6 months for 1996, 9 months for 1997, and all of 1998.
The following table shows the costs of goods sold and gross receipts petitioners reported, and the amount of gross receipts determined by respondent:
Costs of goods Gross receipts Gross receipts
sold reported reported by determined by
Year by petitioners petitioners respondent
____ ______________ ___________ __________
1995 $ 869,270 $ 1,088,298 $ 1,123,087
1996 862,277 1,074,289 1,111,182
1997 881,352 1,077,288 1,118,467
Respondent determined that petitioners2002 Tax Ct. Memo LEXIS 291">*293 understated Manwah's gross receipts solely by applying Dun & Bradstreet average gross profit percentage data for U.S. grocery stores with annual gross receipts of up to $ 1 million to their reported costs of goods sold. Respondent's agent also estimated Manwah's gross receipts by annualizing the amounts shown on daily records that petitioners had given him, but the record does not show the results of that analysis. Finally, respondent's agent used some of petitioners' records to estimate the markups of an unknown number of unspecified products sold in Manwah in 1998. However, as stated above, respondent's determination was based solely on Dun & Bradstreet average gross profit data. In
Petitioners incurred attorney's fees for services performed in the underlying case from January 20, 2000, to July 8, 2001, as follows:
2002 Tax Ct. Memo LEXIS 291">*294 Date Attorney services Attorney hours
____ _________________ ______________
Jan. 20, 2000 Filed petition 2.46
July 2, 2000 Developed case 6.00
Mar. 4, 2001 Prepared for trial 2.00
Apr. 3, 2001 Prepared for trial 6.00
May 2, 2001 Tried case 4.00
June 4, 2001 Prepared brief 10.00
July 8, 2001 Prepared brief 4.00
Total hours 34.46
Multiplied by the attorney's hourly rate $ 285.00
Total hourly fees 1 9,821.10
Client costs for copying respondent's files $ 151.00
Client costs for filing petition 60.00
Total costs 10,032.10
2002 Tax Ct. Memo LEXIS 291">*295 Discussion
Generally, a taxpayer who has substantially prevailed in a Tax Court proceeding may be awarded reasonable litigation costs.
1. Exhaust administrative remedies.
2. Substantially prevail with respect to the amount in controversy.
3. Be an individual whose net worth did not exceed $ 2 million when the petition was filed.
4. Not unreasonably protract the proceedings.
5. Establish that the amount of costs and attorney's fees claimed are reasonable.
The taxpayer is not entitled to an award for reasonable litigation costs if the Commissioner shows that the position of the United States in the proceeding was substantially justified.
1. Background
The parties dispute whether respondent's position in the underlying proceeding was substantially justified.
The Commissioner's position is substantially justified if that position could satisfy a reasonable person.
2. Whether Respondent Had a Reasonable Basis in Fact
Respondent contends that respondent reasonably used statistical data to estimate Manwah's gross receipts because petitioners lacked complete records for the years in issue, and that the Dun & Bradstreet average gross receipts data provided a reasonable basis for respondent's estimate of Manwah's gross receipts. It is clear that the Commissioner may, in the absence of records, use a reasonable method to reconstruct a taxpayer's income.
Respondent relies on
3. Conclusion
We conclude that respondent lacked a reasonable basis in fact for respondent's position that petitioners understated Manwah's gross receipts for the years in issue. The substantially justified standard requires that respondent's position have a reasonable basis in both law and fact.
C. Whether the Attorney's Fees and Costs2002 Tax Ct. Memo LEXIS 291">*299 Claimed Are Reasonable
Petitioners seek an award of attorney's fees and miscellaneous costs totaling $ 10,032.
1. Applicable Hourly Rate for Attorney's Fees
The parties dispute whether "special factors" are present which warrant reimbursement at an hourly rate above $ 140.
2. Whether a Special Factor Is Present
A special factor, such as the limited availability of qualified attorneys for the proceeding, the difficulty of the issues in the case, or the local availability of tax expertise, 2 may justify payment of a higher hourly rate.
Tax expertise, in itself, is not necessarily a special factor in a tax case.
Neither Rebhun's education nor the fact that she has been recognized as a "tax therapist" in several magazine and newspaper articles warrants our finding that a special factor is present. This case did not appear to require those skills in order for petitioners to prevail. Publicity that Rebhun received from the articles apparently did not play any role in the underlying litigation. The issues in the underlying case were not particularly difficult. We do not minimize Rebhun's accomplishments in this case, but winning a case does2002 Tax Ct. Memo LEXIS 291">*302 not automatically mean a special factor is present. We find that no special factor is present which justifies an award of attorneys' fees at an hourly rate greater than $ 140.
Respondent concedes that Rebhun spent a reasonable amount of time on the underlying case. We award petitioners attorney's fees of $ 4,824.40 (34.46 hours at $ 140 per hour), and costs of $ 60 for filing the petition and $ 151 for photocopying of respondent's files.
To reflect the foregoing,
An appropriate order and decision will be entered.
1. Petitioners attached to their motion a document entitled "Billing Schedule" which erroneously stated that the total hourly costs of 34.46 hours at $ 285 per hour was $ 9,761.↩
1. We apply
2. There is no evidence relating to whether there is limited availability of qualified attorneys for the proceeding or the local availability of tax expertise, nor do petitioners make any argument based on those factors.↩