Court Opinion

ID: 6923
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:22:51+00
Date Added: 2024-06-11T12:36:12.589426
License: Public Domain

United States Court of Appeals,

                              Fifth Circuit.

               Nos. 94-40005, 94-40006 and 94-40007.

               M. Lane POWERS, Petitioner-Appellant,

                                    v.

 COMMISSIONER OF INTERNAL REVENUE SERVICE, Respondent-Appellee.

                              Jan. 26, 1995.

Appeals from the Decisions of the United States Tax Court.

Before GARWOOD, JOLLY and STEWART, Circuit Judges.

     STEWART, Circuit Judge:

     This consolidated appeal from the Tax Court involves the issue

of the sufficiency of an award for litigation costs to prevailing

taxpayer M. Lane Powers under § 7430 of the Internal Revenue Code

as well as the issue of whether Powers made an unequivocal,

irrevocable   election   to    relinquish   the   three-year   carryback

provision of § 172(b) of the Code.       We affirm in part, reverse in

part, and remand in part.

                         Assignments of Error

     On appeal, M. Lane Powers alleges the following assignments of

error:

     (1) That the Tax Court erred in holding that he unequivocally
     elected for the years 1978 and 1979 to relinquish the
     three-year carryback period provided by Internal Revenue Code
     Section 172(b);

     (2) That the Tax Court erred in refusing to award attorney's
     fees for 298.35 hours out of the 559.50 total hours expended
     by Powers' counsel in settling the case on the merits and in
     pursuing the motion for litigation costs; and

     (3) That the Tax Court erred in refusing to award attorney's
     fees at a rate higher than the statutory rate (plus a cost of

                                    1
     living increase) for the hours reasonably expended in the
     case.

                                 BACKGROUND

     This consolidated appeal encompasses three Tax Court cases

commenced by Petitioner-Appellant M. Lane Powers.                Powers timely

filed federal income tax returns for the years 1976 through 1979.

The IRS audited Powers' 1976 and 1977 returns and issued notices of

deficiency.     Powers instituted litigation in the Tax Court in

response to the 1976 and 1977 notices of deficiency.1                    The IRS

requested that Powers sign extensions of the statute of limitations

for assessing additional tax for the years 1978 and 1979.                 Powers

agreed and signed IRS Forms 872A in 1982 and 1983, giving the IRS

open-ended extensions that could be terminated by either party with

90 days' notice.

     Until 1986, the IRS never audited or even contacted Powers

about auditing the 1978 and 1979 returns.                  On March 31, 1986,

Powers   gave   the   IRS   a   90-day       notice   of   termination   of   the

open-ended extension of the statute of limitations for the 1978 and

1979 returns.    Upon receipt of the notice of termination, the 1978

and 1979 tax returns were assigned to an IRS agent who disallowed

$1,853,043 and $4,804,790 of deductions on the 1978 and 1979 tax

returns respectively by eliminating all deductions of $9,000 or

more.    From this report, the IRS issued a timely notice of

deficiency to Powers for approximately $2.3 million for the tax

     1
      On appeal, the 1976 tax deficiency is the subject of Case
No. 94-40005, and the 1977 tax deficiency comprises Case No. 94-
40006.

                                         2
years 1978 and 1979.

     In the 1976 and 1977 litigation, Powers alleged that he had

sustained net operating losses (NOLs) in 1978 and 1979 and was

entitled, by virtue of the normal statutory rules applicable to net

operating losses, to carry back the NOLs to 1976 and 1977.               As a

consequence of these NOL carrybacks, Powers alleged that he was

entitled to refunds in 1976 and 1977.          The IRS filed a motion for

partial summary judgment with respect to Powers' 1976 and 1977 tax

years, taking the position that Powers' 1978 and 1979 returns

contained special elections in which he relinquished the normal

carryback of those losses and elected instead to carry forward the

1978 and 1979 NOLs to subsequent years.         The Tax Court granted the

IRS's    motion    for   summary   judgment,   finding   that   Powers    had

irrevocably elected to relinquish his right to carry the 1978 and

1979 losses back to 1976 and 1977.

     The same day the Tax Court granted the IRS' motion for summary

judgment with regard to years 1976 and 1977, Powers commenced

litigation in the Tax Court to contest the proposed deficiencies

for 1978 and 1979.2         Powers maintained that his 1978 and 1979

returns were correct as filed and that he owed no additional taxes.

He claimed that he sustained NOLs in 1978 and 1979 in the amounts

of $1,054,355 and $2,985,344.         At that point, Powers' bankruptcy

proceeding was restarted, resulting in a stay of all Tax Court

litigation.       Four years later, the cases were reactivated, and in

     2
      On appeal, the 1978 and 1979 tax deficiencies form the
basis for Case No. 94-40007.

                                      3
1990, the 1978-1979 case was set for trial.

     On the eve of trial in March 1991, the IRS stipulated that

Powers owed no deficiency in taxes or penalties for 1978 and 1979

and had sustained NOLs that were later agreed to be $87,607 and

$1,597,293.   The IRS also stipulated in the 1976 and 1977 cases

that if the NOLs from 1978 and 1979 were available for carryback,

Powers would owe no taxes for 1976 and 1977 but rather would be

entitled to refunds of $97,228.84 and $5,964.64.   Without the NOL

carryback, the parties stipulated that Powers would owe additional

taxes for 1976 of $61,455.02 and would be entitled to a refund in

1977 of $683.45.

     The Tax Court, in response to Powers' motion to reconsider,

reaffirmed its decision (on the IRS motion for summary judgment)

that Powers had relinquished his right to the carrybacks and

entered judgment based on the parties' stipulations.    Powers has

appealed the Tax Court's grant of the IRS motion for summary

judgment for both 1976 and 1977.

     In March 1991, as soon as the IRS conceded the 1978 and 1979

litigation, Powers filed a claim for an award of litigation costs.

This matter was tried for four days in November 1991.    Upon the

judge's order, a transcript was prepared, and the parties filed

briefs through the first four months of 1992.

     On May 25, 1993, the Tax Court determined that Powers was

entitled to an award of litigation costs.       The Court awarded

$55,709 out of a claim of $148,560.67.   Powers filed a motion for

reconsideration and later a motion to revise the 1978 and 1979

                                   4
decision, claiming that the Court had failed to award attorney's

fees for hours expended on the 1978 and 1979 case.        The court

denied these motions.   Powers has appealed the award of litigation

costs as well.

                               ANALYSIS

A. Motion for Summary Judgment

     As noted above, Powers has appealed the Tax Court's grant of

the IRS's motion for summary judgment.        The court granted the

motion upon a finding that Powers had made an irrevocable, valid

election under § 172 of the Internal Revenue Code to carry forward

his NOLs from 1978 and 1979;    therefore, the Tax Court determined

that Powers could not carry back those losses to 1976 and 1977.

Powers argues that a valid election was not made;         hence, he

contends that he has the right to carry back his 1978 and 1979 NOLs

to 1976 and 1977, entitling him to substantial refunds for those

years.

                        Standard of Review

     We review Tax Court decisions in the same manner in which we

review civil cases decided by the federal district courts.     Grigg

v. Commissioner, 979 F.2d 383, 384 (5th Cir.1992).     We review the

appeal of a grant of a summary judgment de novo to ascertain

whether any genuine issue of fact exists and whether the moving

party is entitled to judgment as a matter of law.           City of

Arlington v. FDIC, 963 F.2d 79, 81 (5th Cir.1992).   The Tax Court's

holding that Powers made an effective election is a conclusion of

law also subject to de novo review.       Branum v. Commissioner, 17

                                  5
F.3d 805 (5th Cir.1994).

                              Discussion

         The Tax Court granted the Internal Revenue Service's motion

for summary judgment based upon its finding that Powers had made an

irrevocable, unequivocal election to relinquish his ability to

carry back his net operating losses for 1978 and 1979.            We

disagree. We find that, on the undisputed facts, the taxpayer made

no such unequivocal, irrevocable election.

     Section 172 of the Internal Revenue Code sets forth rules

under which a taxpayer who incurs a net operating loss3 in one

taxable year may use that loss to offset income of taxable years

prior to or subsequent to the year of the loss.    The Code allows a

NOL deduction in a given taxable year for the aggregate of the NOLs

carried over and back to that year.     See 26 U.S.C. § 172(a).

     For tax years 1978 and 1979, 26 U.S.C. § 172(b)(1) and (b)(2)

provided that a NOL was required first to be carried back to each

of the three years preceding the year of the loss, and then, to the

extent the loss was not fully absorbed by taxpayer's income in the

carryback years, it could be carried forward to each of the seven

years following the loss.4

     A taxpayer, however, may elect to relinquish the 3-year

carryback period, in which event he may use the NOL only by

     3
      The term "net operating loss" for purposes of § 172 means
"the excess of the deductions allowed by this chapter over the
gross income." 26 U.S.C. § 172(c).
     4
      For tax years beginning after December 31, 1981, the
carryover period is 15 years. See 26 U.S.C. § 172(b)(1)(A) as it
currently exists.

                                   6
carrying it forward to offset income in subsequent years.

     During the tax years in question, Section 172(b)(3)(C) of the

Internal Revenue Code provided:

     Any taxpayer entitled to a carryback period ... may elect to
     relinquish the entire carryback period with respect to a net
     operating loss for any taxable year ending after December 31,
     1975. Such election shall be made in such manner as may be
     prescribed by the Secretary, and shall be made by the due date
     (including extensions of time) for filing the taxpayer's
     return for the taxable year of the net operating loss for
     which the election is to be in effect. Such election, once
     made for any taxable year, shall be irrevocable for that year.

     In    1977,   the    Treasury   Department    promulgated     temporary

regulations prescribing the procedure for making elections under,

inter alia, § 172(b)(3)(C). These regulations are still in effect.

They provide, in pertinent part, as follows:

     (d) Manner of making election. Unless otherwise provided in
     the return or in a form accompanying a return for the taxable
     year, the elections ... shall be made by a statement attached
     to the return (or amended return) for the taxable year. The
     statement required when making an election pursuant to this
     section shall indicate the section under which the election is
     being made and shall set forth information to identify the
     election, the period for which it applies, and the taxpayer's
     basis or entitlement for making the election.        (Emphasis
     added.)

Temp.Regs. § 7.0, reprinted in 1977-1 C.B. 587, redesignated in

1992 as Temp.Regs. § 301.9100-12T T.D. 8435, reprinted in 1992-2

C.B. 324.

     The    requirement    for   making   an   election   under   §   172   is

discussed in Young v. Commissioner, 783 F.2d 1201 (5th Cir.1986).

Young cited with approval the temporary regulations that prescribe

the manner in which such an election should be made.              Young held

that an election under Section 172(b)(3)(C) must be unequivocal and

unambiguous.

                                      7
     Powers' 1978 return had attached to it a statement that read,

"Pursuant to Section 56(b)(3)(C), Taxpayer elects to carryforward

to 1979 the net operating loss of 1978" (emphasis added).                A

similar statement was attached to the 1979 return.          The Internal

Revenue Code contains no provision with the citation § 56(b)(3)(C).

Section 56 of the Code pertains to alternative minimum tax, not to

the net operating loss deduction.

     Powers argues that the above statement, which refers to § 56,

does not constitute an election under § 172 to waive his right to

carry back the 1978 and 1979 losses.         Powers contends that the

statements attached to his 1978 and 1979 returns fall short of

qualifying as an election under § 172 in two ways.         First, Powers

points out that the above statement contains no language whereby he

elected to "relinquish the carryback period," as § 172 indicates.

Second,   Powers   points   out   that,   under   the   regulations,   the

statement of election must "indicate the section under which the

election is being made."     Powers argues that, because there is no

§ 56(b)(3)(C) of the I.R.C., his statements attached to his returns

are ambiguous and cannot be construed as an unequivocal election

under § 172 to relinquish the right to carryback.

     Alternatively, Powers argues that even if this Court finds

that facially valid § 172 elections were made for 1978 and 1979,

such elections were made based upon mistakes of material facts;

therefore, Powers contends that he should not be bound by such

elections.   He relies upon statements made in Meyer's Estate v.

Commissioner, 200 F.2d 592, 595-97 (5th Cir.1952) to the effect

                                    8
that there is no election without full knowledge of the facts.5

Our finding that Powers' purported election was invalid pretermits

a discussion of whether Powers might also be entitled to relief on

the basis of his alleged material mistake of fact.

     With regard to Powers' first argument, he contends that the

statement attached to his returns contained language whereby he

only elected to carry forward his NOLs, not to relinquish his right

to carryback.      As explained above, under § 172(b), a NOL is

ordinarily required to be first carried back three years and then

forward into subsequent years so long as it is not completely

consumed in the carryback years.             Thus, it is not inconsistent to

both carry back and carry forward a loss.                 The purported election

by Powers merely states that the loss for each year will be carried

forward to the next year.        Thus, Powers contends that he made no

valid election to forego his right to the carryback.                Taken alone,

we are not persuaded that the failure to expressly "relinquish" the

right to carryback would be fatal to a § 172 election.                     The IRS

correctly points out that there is no requirement that any magic

words or incantation be used to effect the election.                     Moreover,

although it is possible absent an election to carry a NOL both

backward first     and   then   forward       until   it    is   fully   absorbed,

whenever   there   is    an   election       to   carry   forward   a    NOL,   that

     5
      Powers points out that the returns he filed for 1975, 1976,
and 1977 showed tax liabilities vastly different from what was
later discovered to be his true tax burden for those years. At
the time his 1978 and 1979 returns were filed, Powers claims he
was mistaken to a substantial degree about his true earnings
and/or losses for earlier years.

                                         9
necessarily operates as a relinquishment of the right to carryback.

A taxpayer who did not wish to avoid the carryback would not be

making an election at all.      Thus, we do not find Powers' failure to

use the magic words "relinquish the entire carryback period"

dispositive of the issue of whether he made a valid election.

         However, with regard to Powers' second argument, we reach a

different conclusion.     We find the failure to cite § 172 fatal to

the election's validity.       The Commissioner argues that the above

statement     unequivocally    expresses    an   election    under     §       172,

notwithstanding the erroneous reference to § 56.            The Commissioner

points out that Subsection (b)(3)(C) is the correct subsection of

§ 172; thus, Powers had the right subsection but the wrong section

number. Nonetheless, the Commissioner contends that the meaning of

the election was clear: Powers elected to relinquish the carryback

period and chose instead to carry forward his NOL's for 1978 and

1979 into subsequent years, as contemplated by § 172. We disagree.

We think, at the very least, an election under § 172 must correctly

cite §     172.   In   this   case,   the   election   referred   to       §   56.

Accordingly, we will not construe it as an election under § 172.6

     6
      See and compare, Branum v. Commissioner, 17 F.3d 805 (5th
Cir.1994), in which a taxpayer sought to avoid the consequences
of his election by claiming he did not communicate his
unequivocal wish to relinquish carryback for both his regular NOL
and his alternative minimum tax NOL. The taxpayer's statement
correctly cited section 172 and provided that he elected to carry
forward all losses sustained in 1985 and forego carryback of such
losses to prior years. This Court held that he relinquished the
carryback with respect to both the regular NOL and the minimum
tax. To the extent that the Commissioner relies on Branum as
support for its position that Powers made a valid election, his
reliance is misplaced, as the election in Branum was a "model"
election which correctly cited the Code section and unequivocally

                                      10
Moreover,   we    disagree        with    the   IRS'   characterization    of    the

reference   to    §     56   as    some    sort   of    minor    typographical    or

inadvertent error which we should disregard.                       The statements

attached to Powers' returns for both years referred to § 56,

persuading us that this was not merely a minor typographical

error.7

     Powers      also    points     to     undisputed    facts     concerning    the

circumstances surrounding the making of the purported elections

which support his argument.               The affidavits of Powers and Warren

reflect that the statements in the tax return in question were

intended merely to defer the minimum tax liability that otherwise

would have been imposed on Powers in 1978.                      While the parties'

intent is irrelevant to the issue of whether an election is valid,8

for illustrative purposes we will briefly discuss what Powers seems

to have been trying to do in making an election under § 56 to carry

established Branum's intent to forego the carryback period.
     7
      Cf., Santi v. Commissioner, T.C. Memo 1990-137, 1990 WL
26558, wherein the Tax Court found a valid election where the
taxpayer erroneously referred to § 172(b)(2)(3) rather than §
172(b)(3)(c). Santi is distinguishable from the instant case
because the election there correctly referred to § 172, as the
temporary regulation requires, albeit that the wrong subsection
was cited.
     8
      In Young, supra, we declined to look beyond the face of the
purported election to consider the taxpayers' argument that they
fully contemplated carrying forward their NOL despite the
ambiguity in the tax return. Judge Higginbotham emphatically
noted that "nineteen bishops swearing as to taxpayers' subjective
intent would not carry this argument, because it contends for an
irrelevant fact. The Commissioner did not have access to the
taxpayers' workpapers and was not otherwise informed of their
state of mind." 783 F.2d at 1206. See also, Branum, supra, 17
F.3d at 811.

                                           11
forward his NOL for minimum tax purposes only.

     In the years at issue, § 56 imposed a minimum tax on tax

preference items of taxpayers.         Pursuant to § 56(b), if, in the

year in which a minimum tax liability would otherwise have been

imposed, the tax preference items did not give rise to a tax

benefit because of a NOL, the minimum tax liability could be

deferred.   The    affidavits   establish     that   the   purpose    of   the

statements on Powers' returns was to alert the IRS that Powers was

attempting to take advantage of that deferral provision, first

deferring the minimum tax liability from 1978 to 1979, then from

1979 to 1980.      The reference to Section 56 in the purported

election statements was intended only as a reference to the minimum

tax statute, according to Powers.

     The Commissioner attacks Powers' argument that his election

was intended to apply only for minimum tax purposes.                 He notes

that, before 1982, the I.R.C. did not provide for the carrybacks

and carryovers of alternative minimum tax NOLs.               See Plumb v.

Commissioner,   infra, 97 T.C.    at   636-37,   1991 WL 260735.

Accordingly, the Commissioner asserts that Powers could not have

intended on his 1978 and 1979 returns to relinquish the carryback

period only for minimum tax purposes.        Powers counters by pointing

out that, even though he could not in fact waive the carryback

period only for alternative minimum tax purposes, he thought he

could do so.      Accordingly, Powers asserts that the statements

attached to his returns, wherein he attempted to carry forward his

NOL only for the purposes of the alternative minimum tax, certainly

                                   12
should not be construed as a valid election under § 172 to forego

the carryback for regular tax purposes.

     Plumb v. Commissioner, 97 T.C. 632, 1991 WL 260735 (1991),

supports Powers' position.       Plumb involved a similar situation in

which a taxpayer sought to make a split election.           In Plumb, the

taxpayers' purported election stated that they elected to "forego

the carryback period for the regular NOL in accordance with Section

172(b)(3)(C) and will carryforward this NOL to subsequent years."

The Tax Court found that the purpose of the election was to

relinquish the carryback period with respect to the regular income

tax and to use the carryback period for purposes of an alternative

minimum tax NOL.    The Court found that such a "split" election was

not authorized by the Internal Revenue Code;               therefore, the

election was invalid.      The court noted that an invalid election is

no election at all and held that the taxpayer had not relinquished

the right to carryback.      The same result is in order here.

     We hold that the statements attached to Powers' 1978 and 1979

returns   cannot   be    construed   as   elections   to   relinquish   the

carryback period under § 172 because they do not cite § 172, as the

regulations require. The IRS's argument that we should look beyond

the erroneous citation to § 56 and instead infer a valid § 172

election flies in the face of the temporary regulation, Branum,

Young, and Plumb.       Paraphrasing Judge Higginbotham's statement in

Young and applying it to the instant case, we note that nineteen

IRS agents swearing to what they believe to be Powers' subjective

intent does not carry the argument that Powers made a valid § 172

                                     13
election. The IRS's argument that Powers really must have intended

to make a § 172 election given the unavailability of alternative

minimum tax carrybacks at the time is inapposite given the fact

that the statements attached to his returns for both years referred

to § 56, not § 172.

B. Motion for Litigation Costs

     Section 7430 of the Internal Revenue Code provides:

     (a) In any administrative or court proceeding which is brought
     by or against the United States in connection with the ...
     refund of any tax, ... the prevailing party may be awarded a
     judgment or settlement for—

     ....

            (2) reasonable litigation costs incurred in connection
            with such court proceeding.

26 U.S.C. § 7430(a)(2) (1988).

     The    term   "reasonable   litigation   costs"   is   defined   in   §

7430(c)(1)(B)(iii) as follows:

     (iii) reasonable fees paid or incurred for the services of
     attorneys in connection with the [civil] proceeding, except
     that such fees shall not be in excess of $75 per hour unless
     the court determines that an increase in the cost of living or
     a special factor, such as the limited availability of
     qualified attorneys for such proceeding, justifies a higher
     rate.

     Powers contends the Tax Court's award was too low in two

respects:    (1) the number of hours;    and (2) the hourly rate.

                           Standard of Review

     We review the overall amount of a prevailing party's attorney

fee award under the abuse of discretion standard, and we review the

tax court's subsidiary findings of fact for clear error.          Bode v.

United States, 919 F.2d 1044, 1047 (5th Cir.1990).

                                    14
                               Discussion

1. The Number of Hours Awarded

      Powers' first assignment of error is that the number of hours

of billable time the Tax Court awarded was too low.      Powers argues

that the Tax Court failed to award attorney's fees for four

distinct periods of time: (a) 65.35 hours in preparation for trial

and settlement of the 1978 and 1979 cases;         (b) 102.25 hours in

preparation for trial of the motion for litigation costs;          (c) 42

hours for reading and summarizing the transcript of the trial of

the motion for litigation costs and supplementing Powers' proposed

findings of fact and brief;    and (d) 88.75 hours for reviewing the

government's brief on the motion for litigation costs and preparing

and filing objections to the IRS findings of fact and a reply

brief.

(a) Merits of 1978 and 1979 Litigation

      With regard to the work performed on the merits of the 1978

and   1979   litigation,   Powers   sought   reimbursement   for   185.35

billable hours.    The trial court concluded that only 120.00 hours

were reasonable.    Powers argues on appeal that all 185.35 hours

expended on the 1978 and 1979 litigation were reasonable and

necessary.    It points out that the bankruptcy trustee, who had

control of Powers' records, had thrown away all of Powers' books of

account and cancelled checks and most of his records for these

years, and as late as two weeks before trial, the IRS claimed that

Powers owed tax, penalties, and interest totalling $7,145,267 for

these two years.     Within a three-week period in February-March

                                    15
1991,   a   total       of   162.75   hours      were   spent    trying    to   gather

sufficient third-party documentation to support Powers' claims.

Once this preparation was over, the results were disclosed to the

IRS, which soon conceded that Powers owed none of the $7,145,267

and in fact had sustained NOL's in 1978 and 1979.                   Powers contends

that the       record    contains     a   detailed      description   of    the   work

performed and the names of the lawyers involved.                    He argues that

there is no evidence to suggest that any of the time expended was

unnecessary or unreasonable.              Accordingly, Powers asserts that the

Tax Court was clearly erroneous in concluding that 65.35 of the

185.35 hours were unreasonably spent and that it was an absolute

abuse of discretion for the judge to so conclude.

       The IRS points out that the court below cited Cassuto v.

Commissioner, 93 T.C. 256, 270, 1989 WL 98722 (1989), aff'd in part

and rev'd in part, 936 F.2d 736 (2d Cir.1991), in support of its

decision to disallow 65.35 of the hours.                In Cassuto, the Tax Court

refused to allow attorney's fees for some of the hours requested by

the prevailing party because settlement of that case might have

come more quickly, and sizable amounts of litigation costs might

have    been    avoided,      if    the    taxpayer      had    provided   verifying

information to the IRS earlier than he did.                     The Second Circuit

concluded that the reduction constituted a reasonable exercise of

the Tax Court's discretion.

       The IRS argues that because the trial judge cited Cassuto in

support of his decision to disallow 65.35 of the hours, he somehow

must have felt that Powers was to blame for many of the hours

                                            16
expended shortly before trial in trying to secure substantiating

information from third parties after it was learned that the

records   had    been   destroyed   by    the   bankruptcy   trustee.   The

implication is that, had the verifying information been provided

earlier, many of the hours would not have been expended because the

case might have settled or perhaps the records would not have been

destroyed.      Because the trial judge does not explicitly state this

in the opinion, it is difficult to determine if this is in fact why

the award was reduced.     Nonetheless, based on the record, we do not

find that it was clearly erroneous or an abuse of discretion for

the trial judge to have reduced this award.

(b) Motion for Litigation Costs from October 16, 1991 through
     November 5, 1991

      With regard to the preparation for the motion for litigation

costs, Powers claimed 102.25 hours between October 16, 1991, and

November 5, 1991.        At the motion for litigation costs, Powers

presented a daily summary of the number of hours each attorney

worked on the case during this period.              The summary does not

explain how the attorneys had spent their time.              With regard to

time spent in preparation for the motion for litigation costs

during earlier months, i.e., before October 15, 1991, Powers had

submitted detailed computerized reports that specifically showed

how the attorneys had spent their time.           The Tax Court found all

those hours to be reasonable.

     With regard to the time spent between October 15—November 5,

1991, it seems that a computerized report providing a detailed

explanation of hours worked was not ready until November 15, 1991,

                                     17
after the record was closed on the attorney's fee motion.        The Tax

Court declined to award compensation for any of those hours because

Powers presented no detailed explanation of the services provided,

relying on Bode v. Commissioner, supra.

       In Bode, the Court noted that "broad summaries" of work done

and hours logged are insufficient.       However, the Court recognized

that    contemporaneous   billing    records   are   not   an   absolute

requirement.    Bode, supra, and Heasley v. Commissioner, 967 F.2d
116, 123 (5th Cir.1992).      In Heasley, the taxpayer's attorney

merely submitted an affidavit establishing that "substantially all"

of the attorney's time devoted to the case pertained to the penalty

issues, which were the only issues to proceed to trial.         The Tax

Court made an award on the basis of this sole affidavit, and this

Court affirmed.   In Bode, the taxpayer's sole proof consisted of an

expert who merely testified that the firm charged around $119,000

total and that, at one time, one of the attorney's charged $175 per

hour. The taxpayer did not provide evidence on the number of hours

billed, the precise hourly rate charged, or the attorneys who

worked on the file.   In the instant case, the summary provided by

Powers showed on a day-to-day basis the number of hours worked by

each attorney and the hourly rate each charged.      Thus, the summary

provided by Powers does not seem to be the type of "broad summary"

found insufficient in Bode.   In fact, the Bode court noted that the

evidence presented in that case could not have established even a

"ball park" figure of the actual number of hours billed.

       In contrast, the summary provided by Powers was very specific

                                    18
with regard to the hours billed and by whom.          The only information

lacking in the Powers summary was a description of the work done.

In light of the fact that the time period in question was during

the three weeks immediately prior to the hearing on the motion for

litigation costs, it seems unquestionable that significant amounts

of time were indeed spent and that any time expended was in trial

preparation.      The IRS correctly points out that Powers could have

submitted his attorneys' manual billing sheets to support his claim

for litigation costs during the last month before the motion, but

as noted above, contemporaneous billing records are not the only

way to prove the number of compensable hours in a § 7430 claim.

Any type of adequate evidence which permits the Court to determine

the number of hours expended and whether they are reasonable will

satisfy the taxpayer's burden of proof.           Bode, supra.

       Powers argues that the testimony of his attorney, Robert

White, established the nature of the services performed during the

time period in question.          Upon reviewing White's testimony, it

seems that he established to some degree what at least some of the

time    represented,    i.e.,     interviewing    witnesses,     working    on

stipulations, reviewing the file, preparing a legal memorandum that

was filed the day before White testified, etc.                 While Powers

provided very detailed information about the vast majority of work

done in this case, it does not seem that Bode requires the degree

of specificity that the Tax Court seems to have wanted.             Thus, the

less   detailed     information    about   work    performed     during    this

three-week period should not have been disregarded necessarily.

                                      19
       It was clearly erroneous and an abuse of discretion for the

Court to have refused an award for any hours during this period on

the basis of Bode.      It should also be noted that Powers did try to

provide the more detailed computer printouts for the three-week

period along with his motion for reconsideration, but the Court

refused to consider it, stating that the record on the motion for

litigation costs was closed.

(c) After Hearing on Motion for Litigation Costs, from January 17,
     1992, to January 22, 1992

       With regard to the time expended after the hearing on the

motion for litigation costs, Powers claimed 42 hours of services

rendered from January 17, 1992, to January 22, 1992.             The Tax Court

refused to award anything for these hours.          Powers claims that the

presiding judge at the hearing ordered Powers to file proposed

findings of fact within 75 days after the hearing, which Powers

did.    In addition, the judge granted Powers permission to submit

additional   pleadings     claiming   additional     litigation      costs   for

whatever time was expended in the case on post-trial submissions.

Accordingly, Powers filed a supplemental brief on the motion for

litigation costs on January 23, 1992.              That same date, Powers

submitted a fourth amendment to the motion for costs claiming

additional hours expended over and above those proven at the

hearing, i.e.,    the    hours    through   November   5,    1991.     White's

affidavit    accompanied    the   motion    and   included   a   computerized

billing report, similar to those previously submitted, for the

period of November 6, 1991 through the January 15, 1992 cut-off

date.    All time during this period was deemed reasonable by the

                                      20
Court.   Once again, as of the January 23, 1992, affidavit date, no

computer report existed for any time expended after January 15,

1992.    Therefore, in addition to the computerized report covering

the period through January 15, White's affidavit listed daily hours

expended on the case by White and Sherlock from January 17 through

January 22, 1992, a total of 42 hours.       The affidavit did not

contain a description of the services provided during those hours,

but Powers argues that the nature of the services rendered was

obvious given the fact that the Court had ordered the proposed

findings of fact and was aware of the filing of the amended motion

for litigation costs.   Considering that the post-trial submissions

were filed on January 23, 1992, along with White's affidavit which

showed 42 hours expended in the case for the five days preceding

the filing of those documents, we are convinced that the time was

expended in preparing the documents.     We conclude that it was an

abuse of discretion for the Court to have awarded no fees for the

preparation of these documents, particularly with regard to those

the Court itself had ordered Powers to submit.

(d) Preparation of Reply Brief, March 30, 1992, through April 28,
     1992

     For the period from March 30, 1992, through April 28, 1992,

Powers claimed a total of 89.25 hours spent in preparation of a

reply brief that the Tax Court ordered Powers to file.   In White's

affidavit, he estimated he and Sherlock would spend a total of 35

hours in preparing the reply brief.    In actuality, they billed for

89.25 hours.   Powers claims that the extra time required was due to

the fact that the IRS brief was 156 pages long, contained 155

                                 21
separate proposed findings of fact, 55 separate objections to

Powers' proposed findings, and lengthy legal argument on the five

points the IRS contested.     The Tax Court refused to award any time

for the preparation of the reply brief, stating that much of

taxpayer's reply brief was duplicative or was not responsive to the

IRS's brief.    While it seems that the Tax Court would have been

within its discretion to reduce the number of hours awarded on this

basis, it was an abuse of discretion for the Court to have refused

to   award   anything   for   the   preparation   of   the   reply   brief,

particularly given the fact that the Court had ordered Powers to

submit it.

(e) Tax Court's Refusal to Consider Billing Reports Submitted with
     the Motion for Reconsideration

       Powers final argument is that the Tax Court erred in not

considering the computerized billing reports submitted with the

motion for reconsideration.     As this Court recognized in Lavespere

v. Niagra Machine & Tool Works, Inc., 910 F.2d 167, 175 (5th

Cir.1990), upon which Powers relies, the trial court may, without

abusing its discretion, refuse to reopen the record when the moving

party fails to provide a suitable explanation for providing tardy

evidence.     In this case, Powers could have produced adequate

evidence in a timely manner, i.e., through the production of the

attorneys' manually prepared billing sheets.            While we do not

necessarily agree with the Tax Court's decision not to at least

consider the computerized billing statements provided with the

motion for reconsideration (consideration of the statements might

have avoided an appeal on this issue), we cannot say it was an

                                    22
abuse of the Tax Court's discretion to refuse to consider the

additional evidence.          Of course, the fact that the Tax Court had

discretion to refuse to consider additional evidence submitted

after the record was closed does not mean that the Court did not

abuse its discretion in not making awards for the time periods

discussed above based on billing information that was in the record

and which appears to satisfy the requirement of Bode.

2. The Hourly Rate

        With regard to the hours the Tax Court found were reasonably

expended, the Court awarded fees at the statutory rate of $75 per

hour    and   added    a    cost    of   living    adjustment,     as   the   statute

authorizes, bringing the hourly rate awarded up to approximately

$92.00. The Court rejected Powers' request that he be awarded fees

at the normal hourly rate charged by his attorneys.

       Section    7430(c)(1)(B)(iii),            quoted   above,    provides    that

attorney's fees should not be awarded in excess of the statutory

rate unless some special factor, "such as the limited availability

of qualified attorneys for such proceeding" justifies a higher

rate.    The Tax Court found no special factor.                The trial court's

determination     in       this    regard   is    reviewed   only   for   abuse   of

discretion.      Pierce v. Underwood, 487 U.S. 552, 571, 108 S. Ct.
2541, 2553, 101 L. Ed. 2d 490 (1988).

       Powers cites cases arising under the Equal Access to Justice

Act (EAJA), 28 U.S.C. § 2412(d) to illustrate what a "special

factor" is.      The EAJA contains identical language to § 7430.

       In Pierce, supra, the Court held that a special factor under

                                            23
the EAJA may be present with respect to attorneys who are qualified

in some specialized sense, rather than just in their general legal

competence.    Powers argues that his attorneys' tax specialization

qualifies them for a higher reward.     An expertise in tax law, in

and of itself, is not a special factor warranting a higher hourly

fee.    See Bode.

       The Supreme Court in Pierce emphasized that departure from the

$75 cap is to be the exception rather than the rule.       The Court

cautioned that the "special factor" formulation suggests that

Congress thought $75 an hour (plus cost-of-living increases) was

generally quite enough public reimbursement for lawyers' fees.

       In Perales v. Casillas, 950 F.2d 1066 (5th Cir.1992), this

Court recently explained that a "special factor" under the EAJA

means nonlegal or technical abilities possessed by, for example,

patent lawyers and experts in foreign law, as distinguished from

other types of substantive specializations currently proliferating

within the profession.      An expertise in tax law is a type of

"substantive specialization currently proliferating within the

profession" and thus is not a special factor under the reasoning of

Perales.    In Perales, this Court held that a special factor exists

only if (1) the number of competent attorneys who handle cases in

the specialized field is so limited that individuals who have

possibly valid claims are unable to secure representation; and (2)

that by increasing the fee, the availability of lawyers for these

cases will actually be increased.

       In the instant case, Powers submitted no evidence that there

                                  24
was a shortage of lawyers who could have handled this case, nor did

he show that the field of available lawyers would be enlarged by

increasing the fee award. Although the Tax Court found that Powers

needed the services of a tax attorney as well as an attorney with

"an extraordinary level of general lawyerly knowledge," these

findings do not justify an increased award under § 7430.          Moreover,

the Tax Court found that the resolution of the case was brought

about more by the taxpayer's accountant than the lawyers.             Powers

argues   that   the   case   was   much   more   complex   than   a   routine

substantiation case because the primary records had been lost,

through no fault of his own.9         While it is true that the lost

records presented a problem, the fact is that the case was resolved

fairly quickly once the secondary records were presented and

explained to the IRS.

     In Pierce v. Underwood, supra, the district court granted a

fee in excess of $75 per hour based upon the novelty and difficulty

of the issues, the undesirability of the case, the work and ability

of counsel, the results obtained, and the customary fees and awards

in other cases.       The Supreme Court held it was an abuse of

discretion to rely on any of those factors.          Thus, in the instant

case, Powers is not entitled to an increased award on any of these

     9
      When a trustee was appointed in Powers' bankruptcy case,
the trustee directed Powers and his employees to vacate the
premises of Powers' business and not to remove any records. The
bankruptcy trustee, as owner of his business records,
subsequently allowed the management company of Powers' office
buildings to discard some of Powers' records, including all his
books of account and cancelled checks and most business records
for 1978 and 1979.

                                     25
bases.

     Moreover,    a   point   raised    by     the   IRS   has   special    merit.

Sixty-seven   percent    of    the     hours    for    which     taxpayer   seeks

attorney's fees (i.e., 374.15 out of 559.5 hours) were incurred in

connection with his motion to recover fees and costs.               Even if some

special factor existed to merit a higher award with regard to the

underlying claim, there has been no showing that any special factor

justifies an increased rate for litigating the attorney's fees

motion.    For example, an expertise in tax law is not required to

litigate such an issue.

     Also, a point noted in Bode merits mention here. Section 7430

pertains specifically and exclusively to tax cases.                If a special

expertise in tax law qualifies as a "special factor" under Section

7430, the exception would wholly swallow the rule because almost

all attorneys seeking compensation under section 7430 possess an

expertise in tax law.         (In Bode, a special factor was found to

exist partly because the tax case there also required a special

knowledge of the quarterhorse industry.              Bode, 919 F.2d at 1050.)

     In light of these facts, we hold that the Tax Court did not

abuse its discretion in refusing to find a "special factor" and

refusing to award attorney's fees at a higher hourly rate than the

statute calls for.      We therefore affirm this portion of the Tax

Court's ruling.

3. Attorney's Fees for this Appeal

         Powers has also requested attorneys' fees for the time

devoted to this appeal.        In order to analyze Powers' eligibility

                                       26
for   such   an    award,    we    must    determine    whether     Powers   is   a

"prevailing party" on appeal.             Heasley, supra, 967 F.2d at 125.

      Powers has not prevailed on every issue raised during this

appeal.   He has prevailed on the issue of the carryback of the NOL,

and we have found in his favor on the number of billable hours

awarded for three of the four time periods in question.                  He did not

prevail on the issue of whether a "special factor" existed to

warrant hourly rates for his attorneys higher than the statutory

rates (plus the cost-of-living adjustment), and he lost on one of

the time periods for which he sought additional hours to be awarded

for work performed on the 1978 and 1979 litigation.

      On balance, these two losses are "not of such magnitude as to

deprive [him] of prevailing party status." Ibid., citing Bode, 919
F.2d at 1052.     (internal quotation omitted).              Consequently, to the

extent that Powers prevailed on this appeal, he is entitled to

reimbursement for fees that relate to his success on appeal. Ibid.

Accordingly,      Powers    is    directed     to   submit   to   this   court   his

application for fees incurred on these issues during this appeal,

together with supporting documents, prior to the issuance of the

mandate in this case.        See Fed.R.App. P. 41.

                                    Conclusion

      We REVERSE the Tax Court with respect to Powers' right to

carryback the NOL's from 1978 and 1979.              We AFFIRM the Tax Court's

award of 120.00 billable hours spent on the merits of the 1978 and

1979 litigation.      We REVERSE the Tax Court's refusal to make any

award for work performed on the motion for litigation costs during

                                          27
the following three time periods:    (1) between October 16, 1991,

and November 5, 1991;   (2) between January 17, 1992, and January

22, 1992;   and (3) between March 30, 1992, and April 28, 1992.   We

REMAND to the Tax Court to make an award for reasonable litigation

costs and fees during these time periods based upon the billing

summaries that are a part of the record.   We AFFIRM the Tax Court's

determination that no "special factor" existed to warrant an hourly

rate higher than the statutory rate (plus the cost-of-living

adjustment).   Powers is also entitled to an award of attorneys'

fees from this appeal, to be determined by this court after

submission of the necessary documentation.

                                28