Prevailing taxpayer entitled to enhanced fee award.

• Author: Scheingold, Daniel

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.

Analysis

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...