Internal Revenue Code Section 7430(a) provides that the prevailing party in any administrative or court proceeding may be awarded a judgment for (1) reasonable administrative costs incurred in connection with such an administrative proceeding within the IRS, and (2) reasonable litigation costs incurred in connection with such a court proceeding.
In addition to being the prevailing party, to receive an award of reasonable litigation costs a taxpayer must have exhausted all administrative remedies, shows that the position of the United States is not “substantially justified,” and must not have unreasonably protracted the court proceeding.
Section 7430(c)(4)(B)(i) makes it clear that the IRS bears the burden of proving that its position was “substantially justified” (i.e., the IRS’s position has a reasonable basis in both fact and law and is justified to a degree that could satisfy a reasonable person). “Reasonable litigation costs” include reasonable court costs, expert witness fees, the cost of any study, analysis or project which is determined by the court to be necessary for the preparation of a taxpayer’s case, and reasonable attorneys’ fees. IRC Section 7430(c)(1). The amount of reasonable attorneys’ fees are limited. For an interesting Tax Court case deciding against the Internal Revenue Service and awarding fees to the taxpayer’s attorney, read Arthur Dalton, Jr. and Beverly Dalton, Petitioners vs. Commissioner Of Internal Revenue, Respondent.
I found a handy chart that may help determine whether your attorney’s fees will be paid.
Do you qualify to have your attorney’s fees paid by the Internal Revenue Service? A tax litigation attorney can help. Call Mitchell A. Port at (310) 559-5259 to discuss it.