§ 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—
(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—
(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—
(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)—
(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.
(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—
(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—
(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).
(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).
(e)
Multiple actions
For purposes of this section, in the case of—
(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.
(g)
Qualified offer
For purposes of subsection (c)(4)—
(1)
In general
The term “qualified offer” means a written offer which—
(2)
Qualified offer period
For purposes of this subsection, the term “qualified offer period” means the period—