26 U.S.C. § 7430 : US Code - Section 7430: Awarding of costs and certain fees

Search 26 U.S.C. § 7430 : US Code - Section 7430: Awarding of costs and certain fees

(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 Internal Revenue
Service, and
(2) reasonable litigation costs incurred in connection with
such court proceeding.
(b) Limitations
(1) Requirement that administrative remedies be exhausted
A judgment for reasonable litigation costs shall not be awarded
under subsection (a) in any court proceeding unless the court
determines that the prevailing party has exhausted the
administrative remedies available to such party within the
Internal Revenue Service. Any failure to agree to an extension of
the time for the assessment of any tax shall not be taken into
account for purposes of determining whether the prevailing party
meets the requirements of the preceding sentence.
(2) Only costs allocable to the United States
An award under subsection (a) shall be made only for reasonable
litigation and administrative costs which are allocable to the
United States and not to any other party.
(3) Costs denied where party prevailing protracts proceedings
No award for reasonable litigation and administrative costs may
be made under subsection (a) with respect to any portion of the
administrative or court proceeding during which the prevailing
party has unreasonably protracted such proceeding.
(4) Period for applying to IRS for administrative costs
An award may be made under subsection (a) by the Internal
Revenue Service for reasonable administrative costs only if the
prevailing party files an application with the Internal Revenue
Service for such costs before the 91st day after the date on
which the final decision of the Internal Revenue Service as to
the determination of the tax, interest, or penalty is mailed to
such party.
(c) Definitions
For purposes of this section -
(1) Reasonable litigation costs
The term "reasonable litigation costs" includes -
(A) reasonable court costs, and
(B) based upon prevailing market rates for the kind or
quality of services furnished -
(i) the reasonable expenses of expert witnesses in
connection with a court proceeding, except that no expert
witness shall be compensated at a rate in excess of the
highest rate of compensation for expert witnesses paid by the
United States,
(ii) the reasonable cost of any study, analysis,
engineering report, test, or project which is found by the
court to be necessary for the preparation of the party's
case, and
(iii) reasonable fees paid or incurred for the services of
attorneys in connection with the court proceeding, except
that such fees shall not be in excess of $125 per hour 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.
In the case of any calendar year beginning after 1996, the dollar
amount referred to in clause (iii) shall be increased by an
amount equal to such dollar amount multiplied by the cost-of-
living adjustment determined under section 1(f)(3) for such
calendar year, by substituting "calendar year 1995" for "calendar
year 1992" in subparagraph (B) thereof. If any dollar amount
after being increased under the preceding sentence is not a
multiple of $10, such dollar amount shall be rounded to the
nearest multiple of $10.
(2) Reasonable administrative costs
The term "reasonable administrative costs" means -
(A) any administrative fees or similar charges imposed by the
Internal Revenue Service, and
(B) expenses, costs, and fees described in paragraph (1)(B),
except that any determination made by the court under clause
(ii) or (iii) thereof shall be made by the Internal Revenue
Service in cases where the determination under paragraph (4)(C)
of the awarding of reasonable administrative costs is made by
the Internal Revenue Service.
Such term shall only include costs incurred on or after whichever
of the following is the earliest: (i) the date of the receipt by
the taxpayer of the notice of the decision of the Internal
Revenue Service Office of Appeals; (ii) the date of the notice of
deficiency; or (iii) the date on which the first letter of
proposed deficiency which allows the taxpayer an opportunity for
administrative review in the Internal Revenue Service Office of
Appeals is sent.
(3) Attorneys' fees
(A) In general
For purposes of paragraphs (1) and (2), fees for the services
of an individual (whether or not an attorney) who is authorized
to practice before the Tax Court or before the Internal Revenue
Service shall be treated as fees for the services of an
attorney.
(B) Pro bono services
The court may award reasonable attorneys' fees under
subsection (a) in excess of the attorneys' fees paid or
incurred if such fees are less than the reasonable attorneys'
fees because an individual is representing the prevailing party
for no fee or for a fee which (taking into account all the
facts and circumstances) is no more than a nominal fee. This
subparagraph shall apply only if such award is paid to such
individual or such individual's employer.
(4) Prevailing party
(A) In general
The term "prevailing party" means any party in any proceeding
to which subsection (a) applies (other than the United States
or any creditor of the taxpayer involved) -
(i) which -
(I) has substantially prevailed with respect to the
amount in controversy, or
(II) has substantially prevailed with respect to the most
significant issue or set of issues presented, and
(ii) which meets the requirements of the 1st sentence of
section 2412(d)(1)(B) of title 28, United States Code (as in
effect on October 22, 1986) except to the extent differing
procedures are established by rule of court and meets the
requirements of section 2412(d)(2)(B) of such title 28 (as so
in effect).
(B) Exception if United States establishes that its position
was substantially justified
(i) General rule
A party shall not be treated as the prevailing party in a
proceeding to which subsection (a) applies if the United
States establishes that the position of the United States in
the proceeding was substantially justified.
(ii) Presumption of no justification if Internal Revenue
Service did not follow certain published guidance
For purposes of clause (i), the position of the United
States shall be presumed not to be substantially justified if
the Internal Revenue Service did not follow its applicable
published guidance in the administrative proceeding. Such
presumption may be rebutted.
(iii) Effect of losing on substantially similar issues
In determining for purposes of clause (i) whether the
position of the United States was substantially justified,
the court shall take into account whether the United States
has lost in courts of appeal for other circuits on
substantially similar issues.
(iv) Applicable published guidance
For purposes of clause (ii), the term "applicable published
guidance" means -
(I) regulations, revenue rulings, revenue procedures,
information releases, notices, and announcements, and
(II) any of the following which are issued to the
taxpayer: private letter rulings, technical advice
memoranda, and determination letters.
(C) Determination as to prevailing party
Any determination under this paragraph as to whether a party
is a prevailing party shall be made by agreement of the parties
or -
(i) in the case where the final determination with respect
to the tax, interest, or penalty is made at the
administrative level, by the Internal Revenue Service, or
(ii) in the case where such final determination is made by
a court, the court.
(D) Special rules for applying net worth requirement
In applying the requirements of section 2412(d)(2)(B) of
title 28, United States Code, for purposes of subparagraph
(A)(ii) of this paragraph -
(i) the net worth limitation in clause (i) of such section
shall apply to -
(I) an estate but shall be determined as of the date of
the decedent's death, and
(II) a trust but shall be determined as of the last day
of the taxable year involved in the proceeding, and
(ii) individuals filing a joint return shall be treated as
separate individuals for purposes of clause (i) of such
section.
(E) Special rules where judgment less than taxpayer's offer
(i) In general
A party to a court proceeding meeting the requirements of
subparagraph (A)(ii) shall be treated as the prevailing party
if the liability of the taxpayer pursuant to the judgment in
the proceeding (determined without regard to interest) is
equal to or less than the liability of the taxpayer which
would have been so determined if the United States had
accepted a qualified offer of the party under subsection (g).
(ii) Exceptions
This subparagraph shall not apply to -
(I) any judgment issued pursuant to a settlement; or
(II) any proceeding in which the amount of tax liability
is not in issue, including any declaratory judgment
proceeding, any proceeding to enforce or quash any summons
issued pursuant to this title, and any action to restrain
disclosure under section 6110(f).
(iii) Special rules
If this subparagraph applies to any court proceeding -
(I) the determination under clause (i) shall be made by
reference to the last qualified offer made with respect to
the tax liability at issue in the proceeding; and
(II) reasonable administrative and litigation costs shall
only include costs incurred on and after the date of such
offer.
(iv) Coordination
This subparagraph shall not apply to a party which is a
prevailing party under any other provision of this paragraph.
(5) Administrative proceedings
The term "administrative proceeding" means any procedure or
other action before the Internal Revenue Service.
(6) Court proceedings
The term "court proceeding" means any civil action brought in a
court of the United States (including the Tax Court and the
United States Court of Federal Claims).
(7) Position of United States
The term "position of the United States" means -
(A) the position taken by the United States in a judicial
proceeding to which subsection (a) applies, and
(B) the position taken in an administrative proceeding to
which subsection (a) applies as of the earlier of -
(i) the date of the receipt by the taxpayer of the notice
of the decision of the Internal Revenue Service Office of
Appeals, or
(ii) the date of the notice of deficiency.
(d) Special rules for payment of costs
(1) Reasonable administrative costs
An award for reasonable administrative costs shall be payable
out of funds appropriated under section 1304 of title 31, United
States Code.
(2) Reasonable litigation costs
An award for reasonable litigation costs shall be payable in
the case of the Tax Court in the same manner as such an award by
a district court.
(e) Multiple actions
For purposes of this section, in the case of -
(1) multiple actions which could have been joined or
consolidated, or
(2) a case or cases involving a return or returns of the same
taxpayer (including joint returns of married individuals) which
could have been joined in a single court proceeding in the same
court,
such actions or cases shall be treated as 1 court proceeding
regardless of whether such joinder or consolidation actually
occurs, unless the court in which such action is brought
determines, in its discretion, that it would be inappropriate to
treat such actions or cases as joined or consolidated.
(f) Right of appeal
(1) Court proceedings
An order granting or denying (in whole or in part) an award for
reasonable litigation or administrative costs under subsection
(a) in a court proceeding, may be incorporated as a part of the
decision or judgment in the court proceeding and shall be subject
to appeal in the same manner as the decision or judgment.
(2) Administrative proceedings
A decision granting or denying (in whole or in part) an award
for reasonable administrative costs under subsection (a) by the
Internal Revenue Service shall be subject to the filing of a
petition for review with the Tax Court under rules similar to the
rules under section 7463 (without regard to the amount in
dispute). If the Secretary sends by certified or registered mail
a notice of such decision to the petitioner, no proceeding in the
Tax Court may be initiated under this paragraph unless such
petition is filed before the 91st day after the date of such
mailing.
(3) Appeal of Tax Court decision
An order of the Tax Court disposing of a petition under
paragraph (2) shall be reviewable in the same manner as a
decision of the Tax Court, but only with respect to the matters
determined in such order.
(g) Qualified offer
For purposes of subsection (c)(4) -
(1) In general
The term "qualified offer" means a written offer which -
(A) is made by the taxpayer to the United States during the
qualified offer period;
(B) specifies the offered amount of the taxpayer's liability
(determined without regard to interest);
(C) is designated at the time it is made as a qualified offer
for purposes of this section; and
(D) remains open during the period beginning on the date it
is made and ending on the earliest of the date the offer is
rejected, the date the trial begins, or the 90th day after the
date the offer is made.
(2) Qualified offer period
For purposes of this subsection, the term "qualified offer
period" means the period -
(A) beginning on the date on which the first letter of
proposed deficiency which allows the taxpayer an opportunity
for administrative review in the Internal Revenue Service
Office of Appeals is sent, and
(B) ending on the date which is 30 days before the date the
case is first set for trial.