Opinion
28440-21
02-29-2024
AMY E. GRAMMER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Adam B. Landy Special Trial Judge
This deficiency case is before the Court on Ms. Grammer's Motion for Reasonable Litigation or Administrative Costs (Motion), filed March 29, 2023. For the reasons stated below, we will grant the Motion.
Background
The following background information is derived from the parties' pleadings and motion papers. Ms. Grammer resided in Georgia when the Petition was filed.
Ms. Grammer timely filed a Petition with this Court on August 20, 2021, seeking review of two notices of deficiency, both dated May 26, 2021, as follows:
Taxable Year
Deficiency
I.R.C. § 6662(a) Penalty
2017
$109,209
$21,841.80
2018
$23,223
$4,644.60
After the Commissioner filed an Answer on December 21, 2021, the parties worked to reach a resolution of the issues raised in the notices of deficiency.
On March 29, 2023, Ms. Grammer filed the Motion and attached affidavits that she, her accountant, Frank Robertson, and her attorney, H. Greely Joiner, each executed, along with 22 exhibits in support of the Court granting the Motion. In sum, Ms. Grammer seeks recovery of litigation costs of $34,449 and administrative costs of $19,439. Ms. Grammer and her counsel maintain that the litigation and administrative costs incurred are reasonable fees for tax professionals in the Dalton, Georgia geographical location.
On May 30, 2023, the Commissioner filed a Response to Ms. Grammer's Motion conceding that Ms. Grammer has met the statutory requirements for awarding reasonable costs as required by section 7430(b)(1), (3) and (c). The Commissioner contends that the amount of litigation and administrative costs incurred and sought by Ms. Grammer are unreasonable. The Commissioner states that the costs sought exceed the statutory cap allowed for taxable years 2020 through 2023, and this Court should limit those costs to the statutory cap.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure.
By Order served December 26, 2023, the Court sought additional information from Ms. Grammer as to the persons whose initials were FR, MA, and JH on the invoices for administrative costs associated with Robertson & Company Certified Public Accountants (the "CPA Firm") and whether each person is admitted to practice before this Court or the IRS for purposes of the request for administrative costs. The Court also ordered the Commissioner to respond to whether Ms. Grammer is entitled to recover reasonable administrative costs in this proceeding, and for the parties to file a Stipulation of Settled Issues as required by Rule 231(c).
On December 27, 2023, counsel for Ms. Grammer filed a response: (1) stating that he would be retiring on December 31, 2023; (2) providing the names of the persons whose initials were listed on the invoices; (3) further stating that Frank Robertson was the only person admitted to practice before the IRS; and (4) correcting errors in the calculation of litigation and administrative costs sought.
On January 31, 2024, the Commissioner filed a Supplemental Response and stated that Ms. Grammer failed to show that expenses incurred by engaging the CPA Firm were appropriate administrative costs. The Commissioner reiterated his position that the litigation costs should be limited to the statutory cap. On February 5, 2024, the parties filed a Stipulation of Settled Issues agreeing to a reduced deficiency for 2017, no deficiency for 2018, and no penalties for the years in issue.
Discussion
Section 7430 provides to a taxpayer an award of reasonable administrative costs and reasonable litigation costs in a proceeding brought by or against the United States involving the determination of any tax, interest, or penalty. See Corson v. Commissioner, 123 T.C. 202, 205 (2004).
I. Reasonable Litigation Costs
Ms. Grammer seeks $34,449 in reasonable litigation costs. The Commissioner objects to the Court granting reasonable litigation costs on the singular basis that the costs exceed the statutory rate as it relates to attorney's fees.
Reasonable litigation costs include court costs and fees paid or incurred for the services of an attorney. § 7430(c)(1). Attorney's fees are limited by statute and adjusted for cost of living unless the court determines that a special factor, such as the limited availability of qualified attorneys for such proceeding, the difficulty of the issues presented in the case, or the local availability of tax expertise, justifies a higher rate. See § 7430(c)(1)(B)(iii) and flush language.
Section 7430(c)(1)(B)(iii) provides that an award for attorney's fees shall not exceed $125 per hour but is adjusted annually for inflation. For fees incurred during 2021, the statutory rate limitation on attorney's fees awards was $210 per hour. For fees incurred during 2022, the statutory rate limitation was $220. For fees incurred during 2023, the statutory rate limitation was $230.
See Rev. Proc. 2020-45, 2020-46 I.R.B. 1016.
See Rev. Proc. 2021-45, 2021-48 I.R.B. 764.
See Rev. Proc. 2022-38, 2022-45 I.R.B. 445.
Ms. Grammer contends that she is entitled to fees more than the statutory rate because her counsel practiced in an area where there is limited local availability of tax expertise. See Treas. Reg. § 301.7430-4(b)(3)(iii)(C). Ms. Grammer also states that her counsel has more than 50 years of tax practice experience, which reflects that the fees charged were reasonable and required to prosecute this case. Even though Mr. Joiner had significant years of practice in tax law, we find that Ms. Grammer failed to show that Mr. Joiner possessed the requisite "nonlegal or technical abilities apart from his expertise in the field of tax law" to warrant the enhanced fee. See Cozean v. Commissioner, 109 T.C. 227, 233-34 (1997) (citing Powers v. Commissioner, 43 F.3d 172, 183 (5th Cir. 1995)).
We also find that Ms. Grammer failed to show that the number of competent attorneys in the area was so limited that she and other taxpayers with valid claims were otherwise unable to secure representation. See id. at 233. In fact, Ms. Grammer attached an affidavit of another tax attorney in the Dalton, Georgia legal community which stated that $300 was a reasonable hourly fee in calendar years 2020 through 2023 in the region. This Court has held "that the prevailing community rate is not a special factor justifying a higher rate." Tolin v. Commissioner, T.C. Memo. 2018-29, *51; see Huffman v. Commissioner, 978 F.2d 1139, 1149-1150 (9th Cir. 1992), aff'g in part, rev'g in part, T.C. Memo. 1991-144 (citing Pierce v. Underwood, 487 U.S. 552, 572 (1988)). Furthermore, the affidavit supports the fact that more than one attorney is practicing tax law in the locale, and we find that this fact also does not support a departure from the statutory rate. Ms. Grammer has failed to establish that a special factor existed which justifies an award more than the maximum rate provided in section 7430(c)(1)(B)(iii).
During 2021, Ms. Grammer's attorney billed 71.3 hours. Ms. Grammer's attorney billed 23.9 hours in 2022, and the attorney billed 23 hours in 2023 to prosecute this case. Based on the facts of this case, we find these amounts to be reasonable. We will award Ms. Grammer a total of $25,521 in reasonable litigation costs consisting of $14,973 (71.3 hours at $210 per hour) for 2021, $5,258 (23.9 hours at $220 per hour) for 2022, and $5,290 (23 hours at $230 per hour) for 2023.
II. Reasonable Administrative Costs
Ms. Grammer seeks $19,439 in reasonable administrative costs. The Commissioner objects to the Court granting reasonable administrative costs because Ms. Grammer has not shown that the fees incurred "are reasonable administrative costs as that term is defined in the statute and regulations."
The CPA Firm's hourly rate did not exceed the statutory cap in calendar years 2020 or 2021.
Where the underlying substantive issues or the issue of reasonable administrative costs has become the subject of the Tax Court's jurisdiction, the award of administrative costs is made by the Court rather than by the Commissioner. Treas. Reg. § 301.7430-2(b)(2). Reasonable administrative costs include administrative fees imposed by the IRS and other expenses, costs, and fees as described in section 7430(c)(1)(B). § 7430(c)(2). "Reasonable administrative costs" include only those costs incurred on or after the earliest of the following: (1) the date of receipt by the taxpayer of the notice of the decision of the IRS Independent Office of Appeals; (2) the date of the notice of deficiency; or (3) the date on which the first letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the IRS Office of Appeals is sent. See § 7430(c)(2)(B) (flush language); Treas. Reg. §§ 301.7430-3(c); 301.7430-4(a), (b)(1).
On April 9, 2020, the Commissioner sent Ms. Grammer IRS Letter 915 (and Letter 3402 for taxable year 2018) and an examination report showing the changes that the IRS made to her 2017 and 2018 taxable years. Letter 915 explicitly provided Ms. Grammer with the opportunity to request a conference with an IRS Appeals Officer. Consequently, the Court determines that April 9, 2020, is the earliest date for Ms. Grammer's request for reasonable administrative costs.
The reasonable administrative costs of $19,439 are sought for services performed by Frank Robertson, Michelle Anderson, or Jennifer Hand in representing Ms. Grammer before the IRS and this Court between April 19, 2020, and October 17, 2021. Ms. Grammer provided the Court with a copy of the engagement letter executed with Mr. Robertson, on behalf of the CPA Firm, on June 8, 2020. This engagement letter detailed the scope of the engagement between Ms. Grammer and the CPA Firm. However, the engagement letter specifically stated that the CPA Firm's services concluded upon the earlier of, in pertinent part, (1) the filing of a protest with the Tax Agency, or your indication that you intend to appeal the findings in the final RAR, written notification by either party that the engagement is terminated, or (2) the issuance of a statutory notice of deficiency … by the Tax Agency.
The engagement letter provided to the Court does not define the term "Tax Agency." Since the protest was filed after the issuance of the notice of deficiency, the need to define such term is moot.
The notice of deficiency was issued on May 26, 2021, and the protest was filed by Mr. Robertson on June 2, 2021. Ms. Grammer has not provided the Court with any engagement letter addendums or other evidence to show that the CPA Firm's engagement continued after the issuance of the notice of deficiency for the taxable years at issue. Therefore, the Court will award only reasonable administrative costs between April 9, 2020, and May 26, 2021. Moreover, Ms. Grammer has not shown that Michelle Anderson or Jennifer Hand, two people employed by Mr. Robertson, were admitted to practice before the IRS. Though, Ms. Grammer has shown that Mr. Robertson is admitted to practice before the IRS, and we will only award reasonable administrative costs of $10,025 incurred by Mr. Robertson between April 9, 2020, and May 26, 2021.
Upon due consideration of the foregoing, and for cause, it is
ORDERED that, sua sponte, H. Greely Joiner, Jr. is withdrawn as counsel for Ms. Grammer. It is further
ORDERED that, sua sponte, the address of record in this case for Ms. Grammer is changed to the address listed in part I of the Petition in Dalton, Georgia. It is further
ORDERED that Ms. Grammer's Motion for Reasonable Litigation or Administrative Costs, filed March 29, 2023, is granted, in that Ms. Grammer is entitled to an award of reasonable litigation costs of $25,521 and reasonable administrative costs of $10,025, pursuant to section 7430.