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COLUMNS I Tax Practice & Procedure

Recovering Fees from the IRS

By Megan L. Brackney

lthough some are unaware of the fact, taxpayers can Fee awards are currently limited to a maximum of $200 per
recover fees and costs from the government if the IRS hour, unless the court finds that a higher rate is necessary
Ahas taken an unreasonable position against them. The because of higher cost of living, or because of a “special factor,”
IRS may be responsible for fees due to unreasonable positions such as limited availability of qualified practitioners [IRC section
that it took during audit, on appeal, in connection with a refund 7430(c)(1); Treasury Regulations section 301.7430-4(b)(2);
claim or collection matter, or as related to a summons. Revenue Proceeding 2018-57]. Several courts have found a
Internal Revenue Code (IRC) section 7430 permits courts to special factor permitting an upward adjustment in complex
award “reasonable litigation costs” and “reasonable administrative cases that required the services of a practitioner who specializes
costs” to the “prevailing party” in any “administrative or court in tax cases [e.g., BASR Partnership v. U.S., 130 Fed. Cl. 286,
proceeding … brought by or against the United States in con- 306 (2017)], but other courts have been skeptical of these claims
nection with the determination, collection, or refund of any tax, on the ground that virtually all cases to which section 7430
interest, or penalty” under the IRC. These costs can include applies will be handled by practitioners with “tax expertise”
[e.g., Fitzpatrick v. Comm’r, T.C. Memo 2017-
88; see also Treasury Regulations section
301.7430-4(b)(2)(iii) (example)]. Even if the fee
award is capped at $200 per hour, being able to
recoup some amount of fees helps remediate the
damage when the IRS acts unreasonably.

Statutory Requirements
In order to qualify for an award of reasonable
litigation costs under IRC section 7430, a taxpayer
must show that—
n the taxpayer meets the net worth requirements;
n the taxpayer substantially prevailed;
n the position of the United States was not sub-
stantially justified;
n the taxpayer exhausted administrative remedies;
and
n the taxpayer did not unnecessarily protract the
proceeding. [IRC section 7430(a)-(c)]
These elements are discussed below, but CPAs
administrative fees, costs of analyses and studies “necessary for should keep in mind that even if each is satisfied, an award of
the preparation of the party’s case,” and attorney’s fees [IRC sec- fees is within the court’s discretion [Zinniel v. Comm’r, 883 F.2d
tion 7430(a), (c); Treasury Regulations section 301.7430-4(a) & 1350, 1355 (7th Cir. 1989)].
(b)]. Attorney’s fees may be awarded for the fees of any prac- Net worth requirement. To be eligible for an award of attor-
titioner authorized to practice before the IRS, even if not an attor- ney’s fees, the taxpayer must be 1) an individual whose net worth
ney [IRC section 7430(c)(3)(A)]. As CPAs are authorized to at the time of the proceeding does not exceed $2 million; 2) a
practice before the IRS (31 CFR. section 10.3), the fees of a nonprofit organization or an agricultural cooperative, regardless
CPA for handling an audit, appeal, refund claim, or collection of net worth; or 3) a partnership, corporation, association, local
matter, or for assisting with a Tax Court case or other litigation, governmental unit, or the owner of an unincorporated business
may be awarded [Ragan v. Comm’r, 135 F.3d 329, 337 (5th Cir. that, at the time of the proceeding, has a net worth of $7 million
1998); Han v. Comm’r, T.C. Memo 1993-386]. or less and no more than 500 employees [28 USC section

62 JUNE 2019 / THE CPA JOURNAL