Recovering Administrative and Litigation Costs

Reasons for Taxpayers to Have Hope

Mark A. Turner, DBA, CPA, CMA, and Ramon Fernandez, CPA, CFP, CMA, CIA

At a time when many Americans are feeling economic pressure from all directions, there is some consolation in knowing that the tax code helps taxpayers recover administrative and litigation costs when the IRS has been overzealous in pursuing a case. IRC section 7430 permits the courts and the IRS to authorize such payments when the IRS's position is not substantially justified. Two purposes are served by this provision: The IRS is deterred from abusive or overreaching actions, and taxpayers are able to vindicate their rights regardless of economic circumstances (H.R. Report No. 97-404 [1981]). The provisions in IRC section 7430 are carefully worded and require careful scrutiny. Though the possibility of being awarded attorney fees and administrative costs is genuine, some may argue that requirements of the provision make the offer less appealing.