Galedrige Construction, Inc. - Page 16

          billed, the rate at which those hours were billed, and the                  
          miscellaneous costs are reasonable as claimed by petitioner.                
               A.   Attorney's Fees                                                   
               Petitioner submitted an itemized statement from its                    
          attorney, Mr. John P. McDonnell (McDonnell), for the hours that             
          were spent, reflecting costs incurred from September 26, 1995,              
          through August 29, 1997.  McDonnell billed his time at an hourly            
          rate of either $195 or $220.                                                
               Section 7430(c)(1) defines reasonable litigation costs in              
          part as reasonable fees paid or incurred for the services of                
          attorneys in connection with the court proceeding.  Section                 
          7430(c)(1)(B)(iii) limits the hourly rate for attorney's fees to            
          $75, with allowances for increase in the cost of living and other           
          special factors.  An issue exists as to whether the cost of                 
          living adjustment (COLA), which applies to an award of attorney's           
          fees under section 7430, should be computed from October 1, 1981,           
          or from January 1, 1986.                                                    
               Our position on this issue was stated in Bayer v.                      
          Commissioner, 98 T.C. 19, 23 (1992), where we concluded that                
          Congress, in providing for cost of living adjustments in section            
          7430, intended the computation to start on the same date the                
          COLA's were started under the Equal Access to Justice Act, 5                
          U.S.C. sec. 504 (1982).  Citing Lawrence v. Commissioner, 27 T.C.           
          713 (1957), revd. on other grounds 258 F.2d 562 (9th Cir. 1958),            
          we stated that we would continue to use 1981 as the base year for           

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