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COLUMNS I Tax Practice & Procedure
to the IRS’s position on two separate The government’s position also is not to be unjustified when it relied on biased
dates. For purposes of the administrative substantially justified if the IRS did not and incredible witnesses and ignored the
proceeding, the IRS’s position is that reasonably interpret the law. Examples testimony of witnesses in support of the
taken at the earlier of 1) the date the tax- include where the court found that the taxpayer’s position [Snider v. U.S., 468
payer receives the decision of the IRS government’s interpretation of the IRC F.3d 500 (8th Cir. 2006); In re Chambers,
Appeals Office, or 2) the date of the was unreasonable [Hanson v. Comm’r, 140 B.R. 233, 241 (N.D. Ill. 1992)].
notice of deficiency [IRC section 975 F.2d 1150, 1155 (5th Cir. 1992); The fact that the IRS’s position may
7430(c)(7)(B)]. For purposes of litigation, Perry v. Comm’r, 931 F.2d 1044, 1046 have been reasonable at the outset of a
the IRS’s position generally is taken as (5th Cir. 1990)], where the IRS ignored case does not insulate it from a determi-
of the IRS’s “Answer to the Petition or case law supporting the taxpayer’s posi- nation that it was substantially unjustified
Complaint” [IRC section 7430(c)(7)(B)(i) tion [Estate of Baird v Comm’r, 416 F.3d if there were developments in the law or
& (ii); Treasury Regulations section 442 (5th Cir. 2005); Filicetti v. U.S., 2013 new evidence that made the original posi-
301.7430-3(a); Bontrager]. WL 958641, *2 (D. Idaho 2013)], and tion untenable [Grisanti v. U.S., 2006 WL
Thus, the IRS’s position at the admin- where the IRS erroneously interpreted 29086421 (N.D. Miss. Oct. 10, 2006)]. In
istrative level is the “position of the state law [U.S. v. Baker, 2015 WL such a situation, the fee award will include
United States” if that position was upheld 114176, *2 (D. N.H. Jan. 8, 2015)]. fees incurred after the date on which the
by the Appeals Office and included in a The IRS is also required to examine IRS should have conceded.
notice of deficiency, even if it is later information provided by taxpayers before Note that the IRS generally will not
abandoned by IRS Counsel [Treasury be required to pay fees where the under-
Regulations section 301.7430-5(b)]. The lying issue is one of first impression
IRS’s position in a 30-day letter (i.e., a (Bontrager). Furthermore, the IRS may
notice of proposed adjustments/revenue Before attorney’s fees will take inconsistent positions to prevent itself
agent’s report) will not be considered a from being “whipsawed” without incur-
“position of the United States” if it is be awarded, a taxpayer ring attorney’s fees [Walker v. U.S., 64
withdrawn during the Appeals process Fed. Cl. 733, 739-40 (2005)].
[Purciello v. U.S., TC Memo 2014-50]. must exhaust all available Exhaustion of administrative remedies.
As a result, if the IRS concedes at Before attorney’s fees will be awarded, a
Appeals, the taxpayer will not be eligible taxpayer must exhaust all available admin-
for a fee award under IRC section 7430 administrative remedies. istrative remedies [IRC section 7430(b)(1);
for costs incurred prior to the IRS’s con- Treasury Regulations section 301.7430-
cession. The IRS’s position is substan- 1(a)]. For example, a taxpayer must
tially justified if it has a reasonable basis request, and participate in, an Appeals
both in law and fact [Bontrager; taking a position, and its failure or refusal Office conference before filing a Tax
Purciello; Treasury Regulations section to do so can lead to the determination that Court petition or a refund claim [Treasury
301.7430-5(c)(1)]. There is a rebuttable its position was not substantially justified Regulations sections 301.7430-1(b)(1) and
presumption that the IRS was not sub- [Estate of Baird; Nicholson v. Comm’r, 60 301.7430-1(f)(3),(4); Whalen v. U.S., 107
stantially justified if it did not follow its F.3d 1020, 1029 (3d Cir. 1995); Chapman Fed. Cl. 775, 777 (2012); Covert v.
own published guidance, or private letter v. Comm’r, T.C. Summ. Op. 2009-155]. Comm’r, T.C. Memo 2008-90]. These
rulings, or technical advice [IRC sections Courts have also determined that the procedures are not required if the IRS
7430(c)(4)(B)(ii), (iv)]. The IRS’s con- United States was unjustified in its position informed the taxpayer that they are not
cession of an issue does not, by itself, when it repeatedly changed its position in necessary, or if the taxpayer did not receive
establish that its position was unrea- litigation [Beaty v. U.S., 937 F.2d 288, 293 a 30-day letter and therefore is unable to
sonable, but it is a factor to be consid- (6th Cir. 1991)]. file a protest or request an Appeals con-
ered by the court (Bontrager; Han). The IRS also will be viewed as acting ference, or the taxpayer was not offered
This can be seen in U.S. v. Sam Ellis unreasonably when it does not properly an Appeals conference after the case was
Stores (768 F. Supp. 286), in which interpret the information in its possession. docketed in the Tax Court [Treasury
the taxpayer was awarded fees where For example, in Filicetti, the court criti- Regulations section 301.7430-1(f)(2)(i)].
the IRS conducted an “abbreviated cized the government for basing its deci- In cases involving summonses, levies,
audit” because the statute of limitations sion on an erroneous and unreasonable liens and jeopardy assessments, the taxpay-
was about to run and then conceded interpretation of the taxpayer’s divorce er must file a written request for relief with
the case before trial. decree. In addition, the IRS has been found the District Director and wait a “reasonable
64 JUNE 2019 / THE CPA JOURNAL