The opinion of the court was delivered by: Simandle, District Judge
This matter comes before the Court upon motion by defendant Daniel K. Scheingold for attorneys' fees and costs in the amount of $19,054.90 ($18,952.00 plus $102.90) pursuant to 26 U.S.C. § 7430. For the reasons stated herein, the Court will grant this application because Scheingold substantially prevailed at trial after the government rejected his pre-trial qualified offer of settlement under 26 U.S.C. § 7430(c)(4)(E). Further, as to the appropriate hourly rate, Scheingold's attorney has demonstrated that special factors are present, and were instrumental in achieving the victory, justifying a fee award exceeding the $125 statutory limit to the hourly amounts claimed of $185 for services from January 23, 2002 through November 30, 2002, and $195 thereafter, as discussed below.
A number of related cases were initially brought as tax refund suits after defendant Scheingold received notice of an assessment for payroll tax liabilities of IE, Inc. ("IE") and Street Holdings Company ("SHC") on or about June 16, 1998. These responsible person assessments were made pursuant to 26 U.S.C. § 6672 for unpaid payroll tax liabilities of IE and SHC. In early 1999, defendant sent two payments to the Internal Revenue Service ("IRS"), each in the amount of $100, representing one employee's wage taxes for one of the outstanding payroll tax periods for each company. A delegate of the Secretary of the Treasury assessed against Scheingold a penalty under this statute for the last three quarters of 1995, all four quarters of 1996 and the second and third quarters of 1997 in the amount of $1,883,307.95, plus interest thereon, with regards to his involvement with IE. Furthermore, a delegate assessed an additional penalty for all four quarters of 1995 and the last quarter of 1996, in the total amount of $172,679.85, plus interest thereon, with regards to his involvement with SHC. The penalty was assessed in light of federal individual income taxes and Federal Insurance Contribution Act taxes withheld from the employees of IE and SHC, which were not paid to the United States when due.
Defendant Scheingold subsequently filed refund claims with the IRS for the $100 payments. On or about August 18, 1999, the IRS sent defendant a formal notice denying the claims. In response, the instant cases were filed on May 4, 2000. The United States then filed answers to Scheingold's complaints, counterclaimed, alleging that Scheingold was a responsible officer as defined by 26 U.S.C. § 6672 for both companies and therefore responsible for the liabilities, and filed third-party complaints against two other alleged responsible officers of the corporations, Edward Trueblood ("Trueblood") and John Orem ("Orem"). The cases were consolidated for all purposes, including entry of judgment.
On April 27, 2001, defendant submitted an offer to settle the case for $10,000, payable over 40 months at $250 per month. Government counsel acknowledged this offer by letter dated May 10, 2001, but ultimately rejected it on August 29, 2001. On January 23, 2002, defendant submitted a similar settlement offer, designated as a "qualified offer" for purposes of 26 U.S.C. § 7430(g), to settle the case for a lump-sum payment of $10,000. This offer was acknowledged as such by government counsel, and later rejected by letter dated March 4, 2002.
On September 13, 2002, the Court dismissed Scheingold's complaints with prejudice at Scheingold's request. On November 7, 2002, Default was entered against Orem, and on January 30, 2003, the United States moved for a Default Judgment against Orem.
These cases proceeded to trial on the United States's counterclaim against Scheingold and its third-party complaint against Trueblood beginning on February 3, 2003. The jury found that Scheingold was not a responsible officer of either company as defined by 26 U.S.C. § 6672 and absolved him of all liabilities incurred by those companies, while finding Trueblood liable for certain periods. The verdict of the jury has now become final by Order of Court. On March 3, 2003, Scheingold filed the present Application for Allowance of Attorneys' Fees and Costs pursuant to 26 U.S.C. § 7430.
Standard for Attorneys' Fees and Costs in Federal Tax Cases
In an action for the determination, collection or refund of a tax, interest or penalties thereon, in which the IRS is a party to the action, Section 7430 of the Internal Revenue Code provides for the award of litigation costs, including attorneys' fees. That section provides:
(a) In general.-In any administrative or court proceeding
which is brought by or against the United States in connection
with the determination, collection or refund of any tax,
interest, or penalty under this title, the prevailing party
may be awarded a judgment or a settlement for-
(1) reasonable administrative costs incurred in
connection with such administrative proceeding within the