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Prevailing taxpayer entitled to enhanced fee award.

M received an assessment notice for payroll tax liabilities under Sec. 6672. After litigation commenced, M's offer to settle the case for a $10,000 lump-sum payment was rejected. The jury later found in M's favor and absolved him of all liabilities. Milled an Application for Allowance of Attorneys' Fees and Costs pursuant to Sec. 7430. The court granted M's application under Sec. 7430(c)(4)(E), because he substantially prevailed at trial after the government rejected his pretrial qualified offer of settlement (See. 7430(g)). M sought a fee award in excess of the statutory rate because of his attorney's (E's) expertise in tax investigation and assessment, tax litigation and experience as an IRS Special Agent.


Under Sec. 7430(c)(1)(B)(iii), an hourly rate in excess of $125 is justified when the court finds that a special factor, such as the limited availability of qualified attorneys, exists. In this case, M submitted fees billed at an $185 hourly rate for services rendered from Jan. 23, 2002 through Nov. 30, 2002, and $195 thereafter. In evaluating alleged special factors, courts have traditionally looked to similar provisions of the Equal Access to Justice Act (EAJA) (28 USC Section 2412(d)). In Pierce, 487 US 552 (1988), the Supreme Court interpreted the special-factor language of the EAJA and concluded:

The exception for "limited availability of qualified attorneys for the proceedings involved" must refer to attorneys "qualified for the proceedings" in some specialized sense, rather than just in their general legal competence. We think it refers to attorneys having some distinctive knowledge or specialized skill needful for the litigation in question--as opposed to an extraordinary level of the general lawyerly knowledge and ability useful in all litigation.

There is a division among the Federal circuit courts interpreting the Supreme Court's holding in Pierce. The Seventh, Ninth and Eleventh Circuits have interpreted it to allow an enhancement when the attorneys have specialized expertise in a particular area of law; see Raines, 44 F3d 1355 1361 (7th Cir. 1995) ("an identifiable practice specialty not easily acquired by a reasonably competent attorney" can be considered a special factor warranting fee enhancement); Pirus, 869 F2d 536 (9th Cir. 1989) (fee enhancement available for specialized expertise in Social Security law); and Jean, 863 F2d 759 (11th Cir. 1988) (special expertise in immigration law may be considered a special factor in favor of fee adjustment). In contrast, the D.C., Fourth and Fifth Circuits have construed Pierce narrowly to make fee enhancement "available only for lawyers whose specialty requir[es] technical or other education outside the field of American law" (FJ Vollmer Co., 102 F3d 591 (DC Cir. 1996); Hyatt, 315 F3d 239 (4th Cir. 2002); and Est. of Cervin, 200 F3d 351 (5th Cir. 2000)). The Third Circuit has been largely quiet.

This court agrees with the Seventh, Ninth and Eleventh Circuits. Under Pierce, special factors that would trigger fee enhancement included "identifiable practice specialt[ies]" and expertise. As the Connecticut district court recognized in an opinion granting enhanced fees for Medicare expertise,"[a]lthough patent law was the only specialty identified by the Court, there is no reason to believe the Court intended the universe of such specialties to be limited exclusively to patent law" (Conn. State Dep't of Social Services v. Tommy Thompson, DC CT, 2/20/03).

In this case, M's attorney, E, had expertise in tax investigation and assessment, tax litigation and a background as an IRS Special Agent. E's expertise in IRS assessment and collection practices played a prominent role in defending this case, beyond his skills as a courtroom litigator. M's defense hinged largely on the theory that the IRS cast too broad a net in assessing the 100% penalty, because M, unlike the owner and the top responsible officer and adviser, bore little responsibility,, if any, for actual management of financial affairs, despite his rifle. At several important junctures, E spoke authoritatively on such matters, which were unknown to co defense counsel, and even to U.S. counsel. The court was continually impressed with E's intimate familiarity with the applicable IRS statutes, regulations, policies and procedures pertaining to responsible person tax liability. Those special insights played no small role in M's victory.

In the words of the Supreme Court in Pierce, 15 has a "distinctive knowledge [and] specialized skill needful for the litigation in question," consisting of Ins knowledge and experience as a former IRS agent and attorney on the assessment and enforcement of responsible person tax liabilities, as well as the trial of such a case in Federal court, extending beyond even "all extraordinary level of the general lawyerly knowledge and ability useful in all litigation" (Pierce, 487 U.S. at 572). Thus, this expertise justifies approval of a higher hourly rate. The rate itself, at $185 and then $195, is reasonable and compares very favorably with rates for experienced practitioners in this area having E's experience.

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Author:Scheingold, Daniel
Publication:The Tax Adviser
Date:May 1, 2004
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