Attorneys’ Fees in Tax Cases: A Look at Substantial Justification.

Section 7430 of the Internal Revenue Code provides a taxpayer with a potential recovery of attorneys’ fees and other expenses incurred in tax disputes, including both administrative proceedings and judicial proceedings. It isn’t a great fee shifting statute; the presumptive hourly rate for attorneys is ridiculously low at $125 (subject to a cost of living adjustment, which brought this up to $200 for 2015), but at least it’s something.

As with most fee shifting statutes, the fee is available to a prevailing party. The government can escape liability for fees and expenses if its position was “substantially justified.” I.R.C. § 7430(c)(4)(B)(i).… Read More

Nice Work: Taxpayer Wins a Fee Award in a Payroll Tax Dispute.

To help taxpayers vindicate their rights in a dispute with the IRS, Section 7430 of the Internal Revenue Code authorizes an award of attorneys’ fees and costs (such as fees paid to experts) if the taxpayer is a prevailing party. I.R.C. § 7430(a). To qualify, the taxpayer must exhaust his administrative remedies. I.R.C. § 7430(b). There are also limitations on the amount recoverable and the availability of an award for those whose net worth exceeds statutory limits.

Fees are not available, however, if “the position of the United States” in the dispute is “substantially justified.” I.R.C. 7430(c)(4)(B). Since the taxpayer must exhaust administrative remedies by pursuing an administrative appeal to obtain a fee award, you would expect that process to weed out most cases where the government’s position is shaky.Read More