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finding of a special factor for purposes of section 7430 could be
based on the alleged misconduct of the Commissioner. The Court
agreed with the Court of Appeals for the Second Circuit that, in
a case in which an award of costs is warranted under section
7430, “the Commissioner’s conduct has already been taken into
account”. Id. at 357 (quoting Cassuto v. Commissioner, 936 F.2d
736, 744 (2d Cir. 1991), affg. in part and revg. in part 93 T.C.
256 (1989)). We agree with both courts that the finding of a
special factor based on the alleged misconduct of the
Commissioner would amount to an award of punitive damages,
contrary to the purposes of section 7430. Estate of Cervin v.
Commissioner, supra at 357; Cassuto v. Commissioner, supra at
744.10 We therefore reject petitioner’s contention that we
should treat respondent’s conduct in this case as a special
factor for purposes of section 7430.
B. Adjustments to Claimed Costs
1. Attorney’s Fees Relating to Underlying Dispute
Respondent argues, and we agree, that petitioner is not
entitled to recover fees that are attributable to issues other
10 The version of sec. 7430 at issue in Estate of Cervin
and Cassuto listed only “the limited availability of qualified
attorneys” as an example of a special factor. The subsequent
addition of “the difficulty of the issues presented in the case”
and “the local availability of tax expertise” as special factor
examples reinforces the conclusion of the courts in those cases
that the Commissioner’s conduct is not the type of circumstance
that can qualify as a special factor under sec. 7430.
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