IRS Introduction to IRC 7430 Costs

8.7.1.10  (11-06-2007)
Introduction to IRC 7430 Costs

  1. The provisions of IRC 7430 allow a prevailing party to be awarded a settlement for reasonable administrative costs incurred in connection with an administrative proceeding within the IRS, and reasonable litigation costs incurred in connection with a court proceeding. The costs must be incurred in situations involving administrative or court proceedings connected to the determination, collection or refund of any tax, interest or penalty.

    1. "Administrative proceeding" means any procedure or other action before the IRS.

    2. "Court proceeding" means any civil action brought in a court of the United States, including the Tax Court and the United States Claims Court.

  2. In court proceedings, the prevailing party must exhaust all administrative remedies available before the court can consider awarding reasonable litigation costs. This requires the taxpayer to utilize their right to an Appeals conference, when available. For example -

    1. If the 30-day letter is issued and the taxpayer decides not go to Appeals but instead goes to Appeals when the court is petitioned on the 90-day letter, the taxpayer is not entitled to administrative or legal costs under IRC 7430 because all administrative remedies are not exhausted.

    2. If the Service decides not to issue the 30-day letter and only issues the 90-day letter, IRC 7430 applies because the taxpayer was not given the opportunity to go to Appeals.

  3. For a definition of the terms commonly used in these cases, See Exhibit 8.7.1-1.

  4. See IRM 35.10.1, Awards of Litigation and Administration Costs and Fees, for detailed information about IRC 7430 costs.

8.7.1.10.1  (11-06-2007)
Appeals Involvement in IRC 7430 Cases

  1. Appeals receives three types of cases where a request for IRC 7430 costs may be present. They are as follows:

    1. Claim cases with a request for administrative costs under IRC 7430(a)(1), and neither the substantive issues nor administrative cost issues were ever before a court of the United States with jurisdiction over the issues (including the Tax Court or United States Court of Federal Claims).

      Note:

      If the substantive issue and/or the IRC 7430 costs were previously under the jurisdiction of a U.S. court (including Tax Court or U.S. Court of Federal Claims), Appeals denies the claim and lets the taxpayer know the claim cannot be considered or settled in Appeals. Appeals does not have jurisdiction to settle these cases. Resolution of these cases is governed by Tax Court Rules and Procedures.

    2. Docketed cases in Appeals for settlement of substantive issues where the taxpayer raises the administrative or litigation costs and fees issue. The case is not a claim for refund. It may or may not have a qualified offer.

    3. Pre-90-day cases that include a qualified offer to resolve the substantive issues and the qualified offer was filed after the 30-day letter was issued.

  2. When a case is assigned, the Appeals Officer (AO) needs to determine whether the case has the IRC 7430 cost issue, and if it does, determine if the case meets the statutory and filing requirements of IRC 7430 for granting an award of reasonable administrative and litigation costs and fees.

8.7.1.10.2  (11-06-2007)
Claim Cases Involving IRC 7430

  1. Appeals considers claims for administrative cost awards if the substantive issues or IRC 7430 cost issues are not and have never been before any court of the United States with jurisdiction over these issues.

    Note:

    A claim for refund of administrative costs cannot include a claim for refund of litigation costs.

  2. Once the case is assigned the AO determines the following:

    1. whether the statutory requirements are met;

    2. whether the claim is properly filed and includes required documents; and

    3. whether the costs requested for refund are reasonable.

  3. If the taxpayer is denied an award (in whole or in part), he/she may appeal the decision by filing a petition with the Tax Court in accordance with the Tax Court's Rules of Practice and Procedure.

  4. The IRS is authorized but not required to notify the taxpayer of the decision to grant or deny an award. If the notice is not sent within 6 months of when the request is filed, the IRS’s failure to respond is considered a decision by the IRS to deny the claim.

  5. The taxpayer can Appeal a decision by the IRS to deny the claim, in whole or in part, after the expiration of the 6 month time-frame. An appeal is filed with the Tax Court following the Tax Court Rules of Practice and Procedures. This is a new proceeding requiring the use of Tax Court rules 270 through 274. See Treas. Reg. 301.7430-2(c)(7).

  6. Refer to IRM 35.10.1.2, Actions for Administrative Costs.

8.7.1.10.2.1  (11-06-2007)
AO Procedures for Processing Claim Cases with IRC 7430

  1. Prepare the Appeals Case Memorandum (ACM) recommending the costs be allowed in full, denied in full, or allowed in part.

  2. Prepare the appropriate decision letter to issue to the taxpayer when the case is closed.

    1. A full disallowance letter - Letter 2600. See Exhibit 8.7.1-2.

    2. A partial disallowance letter - Letter 2602. See Exhibit 8.7.1-3.

  3. Prepare an approval package that includes the following:

    1. Form 9333, Agreement on Administrative Cost Per IRC 7430 (in triplicate), with the taxpayer’s or power of attorney's signature. See Exhibit 8.7.1-4.;

    2. IRS Administrative Cost Data Sheet. An example of what this sheet looks like is located in See Exhibit 8.7.1-5.;

    3. ACM;

    4. Work paper file associated with the administrative cost claim;

    5. Affidavits, statements, documents and information supplied by the taxpayer to support the IRC 7430 award;

    6. Copy of power of attorney;

    7. Copy of Letter; and

    8. Any other pertinent information.

  4. Forward the approval package to the Appeals Director, Tax Policy and Procedures, Exam (TPP Exam) through the Appeals Team Manager. An analyst in TPP Exam reviews the award determination and computation and if acceptable, returns it to the AO for his/her signature on Form 9333.

  5. Secure the signature of the ATM, Area Director or Appeals Team Case Leader on the Form 9333 and return a signed copy to the TPP Exam analyst.

  6. The analyst sends the data sheet and the signed Form 9333 agreement to the Department of Treasury for payment. The check is returned to the analyst to send to the taxpayer. The analyst sends a copy of the check to the AO.

  7. Once received, send a copy of the executed Form 9333 to the taxpayer and close the case following normal procedures.

8.7.1.10.3  (11-06-2007)
Appeals Involvement in Docketed IRC 7430 Cases

  1. When Appeals is considering substantive issues in a docketed case and the taxpayer raises the IRC 7430 costs issue, determine if the IRC 7430 statutory requirements are met and if the costs claimed are reasonable. If they are, determine the proper amount of costs to reimburse.

    Note:

    If the docketed case contains a qualified offer, discuss it with the Field Counsel Attorney to determine whether it meets the requirements of a qualified offer and whether there is a need to expedite the settlement procedures. See IRM 35.10.1.3.1, Requirements for Qualified Offers.

  2. Identify if the 90-day offer period expired. If the case is within 90 days of when the qualified offer was filed, it is an expedite case. Contact the Appeals Director, TPP Exam and request immediate assistance from the analyst responsible for IRC 7430 costs. Also, discuss the expedite nature of the case with the ATM.

  3. Request that Appeals Processing Services (APS) enter "7430 qualified offer" in the notes section of the Appeals Case Summary Record.

  4. Once a determination is made, send the Field Counsel Attorney a memorandum stating the rational for the proposed settlement.

    1. Include both the IRC 7340 costs issue and the substantive issues in the Appeals settlement.

  5. If the Field Counsel Attorney concurs with the recommended settlement, he/she prepares a memorandum stating the reason for accepting the settlement and why the fee is justified. The settlement is included in the decision document/stipulation of agreed issues.

    1. IRM 35.8.2.6, Preparing Decision Documents for Cases Involving Claims for Attorney Fees under IRC 7430, explains when the IRC section 7430 cost issue is raised in settled or litigated cases and the parties agree on the disposition of the issue, the decision document must include either a provision stating the petitioner is not entitled to the cost, or a provision stating the petitioner is entitled and the amount he/she is entitled to under IRC 7430.

    Note:

    When a basis for settlement of the IRC 7430 issue is not reached in Appeals, forward the case to Field Counsel. The taxpayer files a motion for fees under Tax Court Rule 231(a)(2).

  6. If the parties agree to all issues except the IRC 7430 costs, the parties must submit a stipulation of settlement that includes the elements described in TC Rule 231(c). The rule provides the stipulation of settlement accompanies a motion for costs.

8.7.1.10.3.1  (11-06-2007)
Processing Docketed Cases with IRC 7430

  1. Prepare the Appeals Case Memorandum (ACM) recommending settlement to allow the IRC 7430 cost issue in full or in part, or to deny the costs. Include a discussion of the disposition of costs in the ACM.

  2. If a settlement is reached between the petitioner and Appeals, prepare a docketed IRC 7430 package for the Field Counsel Attorney to use in processing the costs. This package includes the following:

    1. IRS Administrative Cost Data Sheet.

    2. ACM.

    3. Work paper file associated with administrative cost claim including affidavits, statements, documents and information supplied by the taxpayer to support the IRC 7430 award.

    4. Memorandum to the field counsel attorney requesting concurrence with the settlement of the IRC 7430 costs.

    5. Memorandum from the field counsel attorney indicating agreement with the settlement.

  3. Send the package to the Field Counsel Attorney with the request to prepare the decision document. Also send an information copy of the package to the Appeals Director, TPP Exam.

  4. Follow normal closing procedures for docketed cases when the Field Counsel Attorney is required to prepare the decision documents.

  5. Payment of the award is processed by the Field Counsel Attorney.

8.7.1.10.4  (11-06-2007)
Pre-90-Day Cases with a Qualified Offer

  1. Qualified offers are another way for the taxpayer to be a prevailing party. If an offer meets the criteria in IRC 7430(g) it is considered a qualified offer.

  2. Qualified offers must be expedited if they are received during the period the offer remains open. Make every attempt to resolve the issues within 90 days of when the qualified offer is filed. With the assistance of the ATM, decide if the substantive issues can be resolved within 90 days of receipt of the qualified offer.

  3. This time frame can be extended by the taxpayer. Since there is no specific form to do this, any written request is acceptable. The request must be faxed to the Appeals Director, TPP Exam, who ensures it is submitted to Counsel for immediate review.

  4. If the issue is not resolved within 90 days of when the qualified offer is filed, the taxpayer has a valid qualified offer for consideration by the court in awarding administrative costs and litigation costs, unless the case is subsequently settled before the court makes a determination or the taxpayer files a subsequent qualified offer. If either of these occurs, the qualified offer under consideration by Appeals is no longer a valid qualified offer.

  5. All other requirements under IRC 7430 dealing with administrative costs and litigation costs apply to qualified offer cases. However, IRC 7430(c)(4)(E) places additional limitations on qualified offer cases not placed on other administrative and litigation cost cases.

  6. If the taxpayer references qualified offer or IRC 7430(g) in the protest or in a separate letter in response to the 30-day letter or statutory notice of deficiency, contact the Appeals Director, TPP Exam. An analyst in TPP Exam immediately determines if it is a qualified offer and discusses required actions with the AO.

  7. If the requirements for a qualified offer are met and it is considered valid, request that Appeals Processing Services (APS) input "IRC section 7430 Qualified Offer" in the notes section of the Appeals Case Summary Record.

  8. Appeals assumes jurisdiction of the case even if the taxpayer fails to prepare a proper protest.

  9. If the requirements for a qualified offer are not met, inform the taxpayer that the offer is not valid. Explain how to correct the offer in case the taxpayer wishes to file another qualified offer. Proceed with resolving the substantive issues in the case. Identify the qualified offer as an issue that was considered.

  10. If the case is received with a qualified offer that is not within the 90 day time frame, continue with the normal case resolution procedures.

    Note:

    When considering the issues for settlement, remember if issues raised in the qualified offer are not settled by Appeals or Counsel, and subsequently there is a judgment entered by the court equal to or less than the amount in the qualified offer for the identified issues, the government is liable for IRC 7430 costs.

  11. If it is determined a SND or a notice of claim disallowance needs to be issued, the position taken must be a position the government can defend if the case is litigated, otherwise the government is liable for IRC 7430 costs from the date the last qualified offer was filed. The IRC 7430 costs are those incurred for the issues identified in the qualified offer and only if the judgment is equal to or less than the amount the taxpayer offered.

  12. For detailed information on qualified offers, see IRM 35.10.1.3, Qualified Offer Rule and IRM 35.10.1.3.1, Requirements for Qualified Offers.

8.7.1.10.5  (11-06-2007)
Recovering IRC 7430 Administrative Costs

  1. The costs the taxpayer is allowed to recover in an administrative proceeding are the administrative costs beginning after the earlier of the issuance of the 30 day letter, the NODA or the SND. The following represents some examples:

    For example: If the case comes to Appeals in pre-90-day status, the costs incurred by the taxpayer to have the protest prepared and a qualified representative present the taxpayer’s position in Appeals is included in administrative costs. If Appeals decides that the taxpayer’s position is correct on all but one issue, a notice of deficiency is prepared for the issue not substantially justified. If the taxpayer later files a claim for administrative costs, only the costs incurred for the issue in the SND is an administrative costs for purposes of an award under IRC section 7430. Since the government conceded the other issues before the receipt of the NODA, the taxpayer cannot recover these administrative costs in any future claim for IRC 7430 costs. Since the taxpayer received a NODA regarding one issue, the taxpayer is entitled to claim the costs for preparing the protest and qualified representation in Appeals for that one issue.

  2. To recover administrative costs, the taxpayer must file a written claim with the IRS personnel who has jurisdiction over the tax matter underlying the claim for costs. See Treas. Reg. 301.7430-2(c)(3) for details of the contents of the request.

    1. If the taxpayer does not know the IRS personnel with jurisdiction of the issue, he/she sends the request to the IRS office that considered the substantive issue.

  3. The request for administrative cost must be filed within 90 days after the final decision of the IRS is issued or otherwise furnished to the taxpayer. The final decision is the document that resolves the tax liability for the taxpayer including tax, additions to tax and penalties in the administrative proceeding such as Form 870 agreement or notice of assessment (if received earlier).

8.7.1.10.6  (11-06-2007)
Payment of Awards for IRC 7430 Costs

  1. Prepare the documents for consideration and payment of administrative and litigation cost awards. See IRM 8.7.1.11.2.1. The payment is made by the General Accounting Office (GAO) from the General Judgment Fund.

  2. Send the documents to the Appeals Director, TPP Exam who approves the administrative costs and processes the payment. Verification the payment is processed and the check issued is sent to the AO. Once received, close the case following normal closing procedures.

  3. The Field Counsel Attorney prepares the documents for payment of administrative and litigation costs when the case is docketed or the substantive issue or IRC 7430 issue is now or previously has been before a U.S. Court. After the decision to award litigation costs is made and Counsel processes the award, return the case to APS for closing.

  4. Non-docketed qualified offer cases and docketed qualified offer cases do not involve payment of awards at the Appeals Officer level.

8.7.1.10.7  (11-06-2007)
Appeals Procedures for Closing IRC 7430 Administrative Cost Cases

  1. If the request is disallowed the taxpayer is given the opportunity to go to Tax Court. If the taxpayer doesn't petition or the Tax Court denies the request, close the case off ACDS following the instructions in paragraph (4).

  2. If the request is allowed the case is processed in this manner:

    1. AO completes Form 9333, Agreement on Administrative Costs Per IRC 7430 - See Exhibit 8.7.1-4.

    2. AO completes IRS Administrative Cost Data Sheet - See Exhibit 8.7.1-5.

    3. Both forms are forwarded to the Director, Tax Policy and Procedure (TPP) (Exam). See below for ACDS update.

    4. After the agreement is reviewed, it is returned to the office for signature of the Area Director, Appeals Team Manager or Appeals Team Case Leader.

    5. No costs are paid unless the taxpayer or the representative signs the agreement form.

    6. A copy of the signed agreement and data sheet is returned to the Director, TPP (Exam) who forwards the signed agreement and data sheet to the General Accounting Office (GAO) for payment.

  3. When the Form 9333 and IRS Administrative Cost Data Sheet are forwarded to Director, TPP update ACDS:

    1. LACTION = Enter FLDSVCS.

    2. LTODATE = Enter the date information sent.

    3. LFROMDATE = Enter the date information is received back from Director, TPP (Exam).

  4. When the agreement is signed and forwarded to Director, TPP (Exam) for payment, follow general instructions for closing ACDS. In addition:

    1. CLOSINGCD =
      14 - if the request was disallowed
      15 - if the request was allowed
      16 - if the request was partially allowed.

    2. DATECLSD =
      If allowed - enter the date agreement (Form 9333) is signed by the Area Director, Appeals Team Manager or Appeals Team Case Leader.
      If disallowed - enter the date of the letter to the taxpayer.

    3. ACTION – ACKCLS.

    4. TODATE – Enter the date mailed to Collection, Campus and Appraisal Services for payment or the date a partial or full disallowance letter is issued.

    5. FROMDATE – Enter the date receipt is acknowledged.

    6. Paycode = 7.

    7. APPEALS AMTDIS – Enter the amount disallowed. (If the full amount of the claim is allowed, no entry is made on the return information screen.)


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