Awarding of Costs and Fees
TAXPAYER BILL OF RIGHTS II
8. TITLE VII--AWARDING OF COSTS AND CERTAIN FEES
8.1. United States Must Establish That Its Position In Proceeding Was Substantially Justified. The new law provides that, once a taxpayer substantially prevails over the IRS in a tax dispute, the IRS has the burden of proof to establish that it was
substantially justified in maintaining its position against the taxpayer. This will switch the current procedure which places the burden of proof on the taxpayer to establish that the IRS was not substantially justified in maintaining its position.
Therefore, the successful taxpayer will receive an award of attorney's fees unless the IRS satisfies its burden of proof. The new law also establishes a rebuttable presumption that the position of the United States was not substantially justified if the
IRS did not follow in the administrative proceeding (1) its published regulations, revenue rulings, revenue procedures, information releases, notices, or announcements, or (2) a private letter ruling, determination letter, or technical advice memorandum
issued to the taxpayer. This provision only applies to the version of IRS guidance that is most current on the date the IRS's position was taken. The provision is effective for proceedings commenced after the date of enactment. TPBR2 §701. IRC §7430(c). SEC. 701 OF THE BILL
8.2. Increased Limit On Attorney Fees. Under prior law, attorney's fees recoverable by prevailing parties as litigation or administrative costs was originally set at $75 per hour. The new law raises the statutory rate to $110 per hour,
indexed for inflation beginning after 1996. The provision applies to proceedings commenced after the date of enactment. TPBR2 §702. IRC §7430(c). SEC. 702 OF THE BILL
8.3. Failure To Agree To Extension Not Taken Into Account. . To qualify for an award of attorney's fees, the taxpayer must have exhausted the administrative remedies available within the IRS. The IRS has taken the position in regulations
that attorney's fees cannot be awarded if the taxpayer has not agreed to extend the statute of limitations. In Minahan v. Commissioner, 88 T. C. 492 (1987), the Tax Court held that regulation invalid insofar as it provides that a taxpayer's refusal to
consent to extend the statute of limitations is to be taken into account in determining whether the taxpayer has exhausted administrative remedies available to the taxpayer. The new law provides that any failure to agree to an extension of the statute of
limitations cannot be taken into account for purposes of determining whether a taxpayer has exhausted the administrative remedies for purposes of determining eligibility for an award of attorney's fees. The provision applies to proceedings commenced
after the date of enactment. TPBR2 §703. IRC §7430(b). SEC. 703 OF THE BILL
8.4. Award Of Litigation Costs Permitted In Declaratory Judgment Proceedings. . Section 7430(b)(3) denies any reimbursement for attorney's fees in all declaratory judgment actions, except those actions related to the revocation of an
organization's qualification under section 501(c)(3) (relating to tax-exempt status). The new law eliminates the present-law restrictions on awarding attorney's fees in all declaratory judgment proceedings. The provision applies to proceedings commenced
after the date of enactment. TPBR2 §704. IRC §7430(b). SEC. 704 OF THE BILL
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