Estate of A Cervin, et al v. CIR

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
m 98-60503
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ESTATE OF ALTO B. CERVIN, DECEASED;
NITA-CAROL CERVIN MISKOVITCH and BENNETT W. CERVIN, Executors,
Petitioners-Appellants,
VERSUS
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.
_________________________
Appeal from the Decision of the United States Tax Court
_________________________
January 24, 2000
Before HIGGINBOTHAM and SMITH,
Circuit Judges, and DUPLANTIER,
District Judge.*
JERRY E. SMITH, Circuit Judge:
As a “prevailing party” in a previous tax
deficiency dispute with the Internal Revenue
Service (the “IRS,” the “government,” or the
“Commissioner”), the taxpayer appeals the
Tax Court’s denial of an award of attorneys’
fees above the $75 per hour limit imposed by
the Internal Revenue Code. Because we agree
with the Tax Court that no “special factor”
existed to justify deviating from the statutorily-
imposed cap, we affirm.
I.
Alto Cervin (the “decedent”) had two chil-
dren, Bennett Cervin and Nita-Carol Cervin
Miskovitch, who were the heirs and co-
executors of the estate.1 In response to the
* District Judge of the Eastern District of
Louisiana, sitting by designation.
1 We refer to the estate and children collectively
(continued...)

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federal tax return filed by the estate, the IRS
issued a notice of deficiency that, in pertinent
part, involved (1) an adjustment of the value of
the decedent’s fractional interests in each of
four real properties (The estate had valued
each property at a 25% discount for the
decedent’s fractional interest.) and (2) the
inclusion in the estate of 100% of the value of
three life insurance policies on the decedent’s
life that had been purchased during his
marriage to his predeceased spouse. In
response to the notice of deficiency,
petitioners filed a petition for redetermination
in the Tax Court.
In an earlier opinion, the Tax Court had
decided that the gross estate included 100% of
the proceeds from the life insurance policies
and that a 20% discount applied in valuing the
real properties. See Estate of Cervin v.
Commissioner, T.C.M. (CCH) 1115 (1994).
The estate then moved for an award of its
litigation costs pursuant to 26 U.S.C. § 7430
on the ground that it had substantially
prevailed with respect to both the amount in
controversy and as to the most significant set
of issues. The Tax Court denied the motion.
The estate appealed on the insurance and
litigation costs issues, asserting that only 50%
of the life insurance proceeds should be
included in the gross estate and claiming
entitlement to an award of reasonable litigation
costs under § 7430. We reversed, holding that
petitioners had substantially prevailed with
respect to the amount in controversy and that
the Commissioner’s position with respect to
the insurance proceeds and the property
valuation was “not substantially justified.”
Thus, we held that the estate was entitled to
recover its reasonable litigation costs, and we
remanded for the Tax Court to determine the
correct tax due and the amount of attorneys’
fees and other litigation costs to be recovered.
See Estate of Cervin v. Commissioner, 111
F.3d 1252 (5th Cir. 1997) (“Cervin I”).
On remand, the Tax Court recalculated the
amount of tax due and found that all the
attorney time resulting in fees sought by the
petitioners should be allowed but that no
“special factor” existed to justify the award of
fees in excess of the statutory $75 cap. See
T.C. Memo 1998-176 (May 12, 1998) at 7.
Thus, the Tax Court awarded $88,963.56 in
fees and costs, rather than the $224,063.55
claimed by petitioners.
II.
Section 7430 of the Internal Revenue Code,
26 U.S.C. § 7430, states that a “prevailing par-
ty” can recover “reasonable litigation costs,”
including reasonable fees paid to attorneys, but
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 fac-
tor, such as the limited availability of qualified
attorneys for such proceeding, justifies a high-
er rate” (emphasis added). See § 7430(C)(1)-
(b)(iii). In support of their contention that
they are entitled to the full amount of fees they
were charged, petitioners assert two distinct
theories that they allege establish a “special
factor.”
First, petitioners argue that their attorney’s
expertise in tax law, combined with his
expertise in Texas community property and
insurance laws, constitutes a special factor,
because it was necessary to the litigation.
Second, they assert, in the alternative, that the
Commissioner’s “untenable” litigation
positions in the Tax Court deficiency (...continued)
as “petitioners.”

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proceeding and in Cervin I should also be
considered special factors. In support of this
second argument, petitioners point out that the
position the Commissioner took in the
proposed deficiency was contrary to well-
established Texas law, that the position was in
violation of the IRS’s own regulation and its
revenue ruling, and that it was contrary to
Estate of Cavanaugh v. Commissioner,
51 F.3d 597 (5th Cir. 1995).
We review for abuse of discretion the Tax
Court’s determination that no special factor
existed. See Pierce v. Underwood, 487 U.S.
552, 571 (1988); Powers v. Commissioner,
43 F.3d 172, 179 (5th Cir. 1995). In
determining the meaning of the “special
factor” exception to the statutory cap, this
court has looked to cases interpreting the
identically worded provision of the Equal
Access to Justice Act (“EAJA”), 28 U.S.C.
§ 2412(d). See, e.g., Powers, 43 F.3d at 183.
A.
Petitioners assert that their attorney’s spe-
cial expertise in tax law and Texas community
property and insurance laws constitutes a spe-
cial factor because that expertise was
necessary to the litigation. As further support
for their claim, they point to the limited
availability of attorneys with the required
specialization and to the fact that an increased
award of fees would help alleviate such
shortage. In response, the Commissioner
urges that a speciality in tax law can never be
sufficient to meet the requirements of the
“special factor” analysis and that petitioners
must show, instead, that their attorney
possessed some unique “nonlegal or technical”
abilities that contributed to the limited
availability of attorneys capable of handling the
litigation.
In Underwood, 487 U.S. at 571-72, the
Court interpreted the “limited availability” spe-
cial factor language in the EAJA and explained
that
[i]f the “limited availability of qualified
attorneys for the proceedings involved”
meant merely that lawyers skilled and
experienced enough to try the case are
in short supply, it would effectively
eliminate the $75 cap . . . . We think it
refers to attorneys having some
distinctive knowledge or specialized skill
needful for the litigation in questionSSas
opposed to an extraordinary level of the
general lawyerly knowledge and ability
useful in all litigation. Examples of the
former would be an identifiable practice
speciality such as patent law, or
knowledge of foreign law or language.
As a result of Underwood, this court adopted
a two-pronged test to determine whether lim-
ited availability and specialization can
constitute a “special factor.” Under that test,
a limited-availability special factor exists 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) . . . by increasing the fee, the availability of
lawyers for these cases will actually be
increased.” Perales v. Casillas, 950 F.2d
1066, 1078 (5th Cir. 1992). Thus, petitioners
correctly observe that the special factor inquiry
involves consideration of three criteria:
(1) whether the attorneys had a specialized
skill that was necessary to the litigation;
(2) whether the number of attorneys with such
skill was so limited that litigants with
potentially valid claims were unable to obtain
counsel; and (3) whether an increased fee
award would have reduced this shortage.

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We further delineated the “special factor”
analysis in several cases since Underwood.
First, in Bode v. United States, 919 F.2d 1044
(5th Cir. 1990), we held that “counsel’s
expertise in tax law, in and of itself, is not a
special factor warranting a fee award in excess
of $75 per hour under section 7430.” Id. at
1050. We did note in dictum, however, that
the attorney’s “[s]pecial legal expertise about
the quarterhorse industry may well have
qualified as a special factor,” but that the
taxpayers had failed to establish such
attorney’s limited availability in that case. See
id. at 1051.
Next, in Perales, we focused on the
language of Underwood that provided ex-
amples of the types of expertise that could
qualify as a special factor under the “limited
availability” inquiry. Specifically, we noted
“that patent law appropriately represents a
specialized area because of the specific
technical training required of members of the
Patent Bar,” including “scientific and technical
qualifications, which make them uniquely
qualified to render a valuable service,” and the
fact that “the Patent and Trademark Office
administers a separate examination for
admission to the Patent Bar, further restricting
the pool of potential attorneys.” Perales, 950
F.2d at 1078 & n.15. We concluded that
we believe that the Supreme Court in
Underwood intended to distinguish non-
legal or technical abilities possessed by,
for example, patent lawyers and experts
in foreign law, from other types of
substantive specializations currently
proliferating within the profession. In a
sense, every attorney practicing within a
narrow field could claim specialized
knowledge.
Id. at 1078 (emphasis added).
This articulation of the “limited availability”
standard illustrates this court’s view that this is
a very narrow exception. And under this test,
the skills of petitioners’ attorney do not qualify
as a special factor.
Petitioners do not point to any “nonlegal or
technical abilities” possessed by their attorney,
and none was necessary. Rather, petitioners’
attorney apparently possessed skill in several
legal areas, such as tax law and Texas
community property and insurance laws, that
proved useful, even necessary, for the suc-
cessful litigation of this case. But under the
Perales standard, that is not enough.
Petitioners urge that the standard
articulated in Perales is mere dictum and that
the holding that increased fees were not
available actually was premised on the fact that
the district court had not found a limited
availability of qualified attorneys to handle im-
migration cases. See id. at 1079. On this
point, petitioners are correct that the
discussion of patent law and of “nonlegal or
technical abilities” was not outcome-
determinative.
Three years later, however, we reconfirmed
the approach of Perales in Powers, noting that
Perales had “explained that a ‘special factor’
under the EAJA means nonlegal or technical
abilities possessed by, for example, patent law-
yers and experts in foreign law, as distin-
guished from other types of substantive spe-
cializations currently proliferating within the
profession.” Id. at 183. We also said it was
not enough that “Powers needed the services
of a tax attorney as well as an attorney with
‘an extraordinary level of general lawyerly
knowledge.’” Id.

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Again, petitioners seek to distinguish
Powers by arguing that its endorsement of the
Perales standard was not necessary to the
holding. Petitioners are correct that the court
noted that, unlike the estate in the instant case,
“Powers submitted no evidence that there 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.” Id.
But, at a minimum, Bode, Perales, and
Powers evince this court’s assessment that the
Supreme Court intended its listing of the
patent and foreign-language lawyer examples
to be narrow exceptions, and these cases
demonstrate the judicial conclusion that
“Congress thought that $75 an hour was
generally quite enough public reimbursement
for lawyers’ fees, whatever the local or
national market might be.” Underwood, 487
U.S. at 572. Thus, to the extent that Perales
and Powers left any room for doubt about
whether the “special factor” analysis requires
“nonlegal or technical abilities,” we now
conclude that it does so require.
This conclusion is bolstered by the fact that
the award of any attorneys’ fees can happen
only pursuant to a waiver of sovereign
immunity. As a result, such waiver must be
strictly construed. See Fenton v. Federal Ins.
Adm’r, 633 F.2d 1119, 1122 (5th Cir. Jan.
1981) (“[A]s a limited waiver of sovereign
immunity, [EAJA] is to be strictly ob-
served.”).2
Petitioners also assert that because they
presented expert-witness testimony that
established all three of the required criteria,
and because the Commissioner did not
challenge this evidence, the Tax Court’s
finding that no special factor exists violated the
holding of Powell v. Commissioner, 891 F.2d
1167, 1173 (5th Cir. 1990). Specifically, they
argue that the Tax Court abused its discretion
by disregarding the only evidence on the
record regarding an enhanced award.
Essentially this is an argument, based on
Powell and Bode, that by not challenging
petitioners’ evidence, the government has
waived its ability to challenge a conclusion that
higher fees are warranted.
Petitioners misread those cases and imper-
missibly expand the limited waiver contemplat-
ed by either. For example, in Bode the court
held that “because the United States did not
controvert the expert’s opinion on the
unavailability of qualified counsel for this type
of case, the United States . . . has waived this
factual issue and cannot now contend that the
taxpayers could have obtained qualified legal
counsel for less.” Bode, 919 F.2d at 1051
(emphasis added) (citing, inter alia, Powell,
891 F.2d at 1173).
Even if the Commissioner has waived the
right to challenge a factual conclusion that
there were a limited number of attorneys avail-
able in the local or national legal market, this
does nothing to help petitioners with the fact
that they have not established the first of their
three suggested criteriaSSi.e., they have not
shown the requisite “specialty” as that criteria
is understood in Perales and Powers.
Notwithstanding any shortage in the number of
tax attorneys who also have specialized
knowledge of Texas community property or
insurance law, the necessity of engaging such
attorneys can never be a “special factor,” be-
2 Accord Kenlin Indus., Inc. v. United States,
927 F.2d 782, 786 (4th Cir. 1991) (noting that
§ 7430 “must be strictly construed in favor of the
Government”).

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cause the attorney’s skills are not “nonlegal or
technical abilities.” See Perales, 950 F.2d
at 1078; Powers, 43 F.3d at 183. Thus, in
light of this circuit’s consistently narrow
interpretation of what can constitute a
“specialty and limited availability” of qualified
attorneys under the special factor analysis, and
specifically in light of Perales and Powers, pe-
titioners have failed to show entitlement to
enhanced attorneys’ fees.
B.
In addition to their argument that their at-
torney was sufficiently specialized and unique
to warrant a “special factor,” petitioners assert
that the Commissioner’s “untenable” litigation
positions unreasonably complicated and
prolonged this litigation, causing petitioners
significant legal expenses and hardship. As a
result, petitioners urge us to adopt a new
“special factor,” not previously recognized by
this court, that would allow for an increase in
fees where the government’s behavior was
particularly egregious.
In support of this argument, petitioners
urge us to “follow those courts that have indi-
cated that a flagrantly improper litigation posi-
tion may constitute a special factor under
§ 7430,” and they rely most notably on Jean v.
Nelson, 863 F.2d 759 (11th Cir. 1988), aff’d
on other grounds, 496 U.S. 154 (1990).3
There, the court confronted the question
whether the government’s general posture in
the litigation could be a special factor under
the statute and under Underwood.
In analyzing Underwood, the Jean court
opined that the Supreme Court “gives little
guidance as to what can constitute a special
3 Petitioners advance a number of additional
cases that they suggest support recognition of such
a special factor. For example, they cite Baker v.
Bowen, 839 F.2d 1075 (5th Cir. 1988), which
states, in dictum, that the government’s delay in the
payment of attorneys’ fees may be a special factor
within the meaning of the EAJA. Baker, however,
involved a decision by the district court that such
(continued...)
(...continued)
a special factor existed, and this court was
unwilling to call such determination an abuse of
discretion. Moreover, we recognized that
“increases above [the $75] rate, although
permissible, should be awarded sparingly and only
after particularized and careful analysis of the
individual facts of the case.” Id. at 1082.
Two of the other cases cited by petitioners can
also be distinguished in that they involved
discretion to the district courts’ determinations that
special factors existed. See Oklahoma Aerotron-
ics, Inc. v. United States, 943 F.2d 1344, 1350
(D.C. Cir. 1991); Pollgreen v. Morris, 911 F.2d
527, 537-38 (11th Cir. 1990). Another case,
In re Moulton, 195 B.R. 954, 959 (Bankr. M.D.
Fla. 1996), relies entirely on Jean for its
conclusion that “inexcusable and egregious
conduct” can constitute a special factor. Thus,
only Jean engages in any analysis of the issue
presented in this case, and it is enough for us to
consider at length only that decision.

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factor,” and it concluded that, therefore, “the
Court appears to have recognized that judicial
construction of the ‘special factor’ term is like-
ly to evolve with time.” Jean, 863 F.2d
at 776. The Jean court then remanded to al-
low the district court to “approach this
question anew.” Id. Before it did so,
however, the court noted in a footnote that “if
the Government in this case advanced
litigation for any improper purpose such as
harassment, unnecessary delay or increase in
plaintiffs’ expense, then consistent with
[Underwood], its action warrants the
imposition of a special factor.” Id. at 776 n.13.
It is on this footnote that petitioners base the
bulk of their argument.
In response, the Commissioner argues first
that “well-settled” principles of statutory con-
struction counsel that the phrase “such as” is
not a phrase of strict limitation, but is a phrase
of general similitude indicating that there are
includable other matters of the same kind that
are not specifically enumerated by the
standard. The Commissioner urges that in
interpreting the “special factor” term found in
§ 7430(c)(1)(B)(iii), we should be mindful of
the instructive language that followsSS“such as
the limited availability of qualified attorneys
for such proceeding”SSand the Commissioner
concludes that awards of higher fees based on
the IRS’s litigation positions are not of the
“same kind” or “general similitude” as are cri-
teria that relate to the abilities of taxpayer’s
counsel.
Petitioners counter this first argument only
by noting that the ejusdem generis canon as-
serted by the Commissioner is not always con-
trolling or conclusive and that here we should
look to the legislative history of the EAJA (be-
cause legislative history on the instant statute
is sparse) to see that the Commissioner’s use
of this canon of construction is improper. Ac-
cording to the legislative history the petitioners
cite, the award of attorneys’ fees is intended
“to reduce the deterrents and disparity
[between Government and private-party re-
sources] by entitling certain prevailing parties
to recover attorney’s fees,” thereby creating an
additional incentive for private parties to “de-
fend[] against unreasonable Government
action.” See H.R. Rep. No. 96-1418, 96th
Cong., 2d Sess. (1980), reprinted in 1980
U.S.C.C.A.N. 4726, 4974.
Assuming, arguendo, that we should use
legislative history to inform our construction
of the statute, the purposes the petitioners ad-
vance are in no way inconsistent with the
Commissioner’s interpretation. Nothing in the
cited passages supports an award in excess of
the $75 per hour statutory rate. Instead, the
more plausible interpretation of the statute, in
light of these underlying purposes, is that Con-
gress intended the $75 rate to be sufficient to
provide private parties with incentives to “de-
fend against unreasonable Government
action.” Petitioners have done nothing to
demonstrate why the IRS’s “indefensible”
litigation positions would increase the hourly
rate, as opposed to a mere increase in the
number of hours required to litigate the case.4
4 While petitioners respond that the specific liti-
gation positions taken by the Commissioner here
required them to hire an attorney with specialities
in tax law and Texas community property and in-
surance laws, such an argument is a thinly veiled
attempt to relitigate the contention that we
previously rejectedSSi.e., that petitioners’ attorney
was sufficiently specialized and of limited
availability to qualify for a special factor.
Moreover, petitioners’ arguments are
contradictory. It is likely that where the
government’s position is truly so contrary to well-
(continued...)

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Seen in this light, then, the Commissioner’s
position is correct that imposition of a special
factor in these circumstances essentially would
amount to an impermissible award of punitive
damages, contrary to the statute and to
principles of sovereign immunity. Instructive
is another court’s rejection of a taxpayer’s
argument that the Commissioner’s improper
behavior in issuing a notice of deficiency
should be considered a special factor:
We note, however, that the Commis-
sioner’s conduct has already been taken
into account by the Tax Court’s
determination that his positions in the
1980 and 1982 Notices was [sic] “not
substantially justified.” The justification,
or lack thereof, for the commissioner’s
position is a threshold question that
must be first examined to determine
whether a litigant even has a case for
fees under § 7430. To also qualify this
query as a “special factor” in the
calculation of the amount of the fee
award is inappropriate; otherwise a
“special factors” analysis would amount
to a vehicle for assessing punitive
damagesSSa notion that receives no
support in the structure or language of
the statute.
Cassuto v. Commissioner, 936 F.2d 736, 744
(2d Cir. 1991).
Petitioners criticize this logic by urging that
they do not advocate that “lack of substantial
justification” should be a special factor, but,
instead, that only in the limited circumstances
where the government’s position is also
“untenable” or “unable to be defended” does
the conduct qualify as a special factor. They
also argue that the award of fees would be
compensatory, not punitive, because it is based
on actual fees incurred. Moreover, they assert
that the award of increased fees is not punitive
in nature, because it is not designed to punish
and deter improper conduct, but, rather, is
based on equitable principles that will
encourage taxpayers to stand up for their
rights in the face of egregious government
action and improper conduct.
But once again, petitioners’ argument sup-
ports the award only of some fees, and in this
(...continued)
established law (as suggested by petitioners here),
the quality of lawyers needed to defend against
such a position should be at least marginally lower.
And at any rate, the government’s alleged
protraction and delay in this case only serve to
increase the ultimate cost it will have to pay in the
event of any award of fees.

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case only of the statutorily allowed maximum
of $75. As we have said, petitioners have not
demonstrated why a higher hourly rate is nec-
essary to combat the government’s allegedly
egregious conduct. While the calculation of
damages would be compensatory in nature, the
enhancement of fees above the statutory rate
can be justified only under punitive damages
principles.5 And the Commissioner correctly
points out that § 7430 in no way waives
sovereign immunity for punitive damages.
Therefore, in light of the Commissioner’s
superior construction of § 7430 and of the pu-
nitive nature of the remedy suggested by peti-
tioners, we conclude that the government’s lit-
igation position cannot be a “special factor”
warranting an increase above the statutorily al-
lowed $75 per hour. This is so regardless of
how “untenable” that position might be. While
this holding is in conflict with Jean, it is
consistent with Cassuto and is correct as a
matter of statutory interpretation and in light
of the principle of sovereign immunity.
AFFIRMED.
5 For these reasons, we decline petitioners’ invi-
tation to adopt the analysis employed in Jean.
There, the court employed similarly-flawed
reasoning that “improper purpose,” “harassment,
unnecessary delay, or increase in the plaintiffs’
expense” should warrant imposition of a special
factor and increased attorneys’ fees, rather than
merely justifying the award of statutorily-allowed
attorneys’ fees for all the additional time necessary
to defend against the government’s positions.

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