Award of Attorney Fees in Federal Tax Controversies
| Publication year | 1991 |
| Pages | 2089 |
| Citation | Vol. 10 No. 1991 Pg. 2089 |
1991, October, Pg. 2089. Award of Attorney Fees in Federal Tax Controversies
The Internal Revenue Code ("Code"), at 26 U.S.C. § 7430, provides for the award of attorney fees to the prevailing party (other than the United States or a creditor of the taxpayer) 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....
This current provision was enacted in 1988 and applies to all controversies commenced after November 10, 1988, in the Tax Court, Claims Court and U.S. district courts.(fn1) This article addresses the procedures to be followed for a taxpayer to request attorney fees and the factors to be considered in such a request.
Although this article emphasizes the current law as it operates within the Tax Court, it also discusses the fees that are available for actions initiated prior to the effective date of the current law. These fee recovery provisions commenced October 1, 1981, for actions in the Claims Court and the federal district courts under the Equal Access to Justice Act of 1980 ("EAJA")(fn2) and February 23, 1983, under the Tax Equity and Fiscal Responsibility Act of 1982 for actions in the Tax Court.(fn3)
An historical perspective on the present system of attorney fees may help the reader more effectively proceed to obtain such fees. Specifically, two factors should be kept in mind: first, the general rule within the United States is that the prevailing litigant is ordinarily not entitled to collect attorney fees from the loser.(fn4) Second, the government is protected under the doctrine of sovereign immunity from monetary awards unless such immunity is specifically waived in some manner. When a statute (such as § 7430) provides for a waiver of this immunity, the waiver is "strictly construed in favor of the sovereign."(fn5)
Consequently, any burden of proof must be fully met. Specifically, under § 7430--- where the burden is on the taxpayer---the taxpayer must prove that it meets all statutory requirements for such fees. A mere affidavit that a certain fact is true is not sufficient to meet the taxpayer's burden of proof.(fn6)
In enacting Code § 7430, Congress sought to provide relief to taxpayers seeking to litigate a just claim in response to a position unreasonably pursued and to "enable individual taxpayers to vindicate their rights regardless of their economic circumstances."(fn7) Section 7430 differs from the EAJA in that the former applies to all tax controversies, not just those in the federal district courts and Claims Court. Further, unlike the EAJA, § 7430 places the burden of proof on the taxpayer.
The 1988 version of § 7430, unlike its earlier versions, provides for awards of costs incurred in administrative proceedings [for example, in the Appeals Division ("Appeals")], as well as litigation costs. However, it should be noted that fees incurred in actions for declaratory judgments are not eligible for reimbursement, except for those incurred in defending against Code § 501(c)(3) revocations.
The dispute process in the Tax Court is governed procedurally by Tax Court Rules 34 and 230-33 for litigation costs and administrative costs associated with them. The process also is governed by Tax Court Rules 270-74 for administrative costs alone. Claims for fees are not to be included in the Tax Court petition. In fact, premature motions for attorney fees (such as in the petition) are denied.(fn8) The substantive tax case must be resolved before the issue of fee awards can be determined. For that reason, the Tax Court has provided detailed rules as to when it is appropriate to raise the issue.
In agreed cases, there should be a statement regarding the resolution of an award of attorney fees in the stipulated decision. However, the failure to raise the issue of attorney fees in the stipulated decision has not precluded the Tax Court from considering a later motion for attorney fees.(fn9) Indeed, the court has even vacated a decision in order to consider a motion for attorney fee award.(fn10)
In unagreed cases, the taxpayer has thirty days to file a motion for litigation and administrative costs after service of the written opinion or the transcript (if the decision was a bench decision). This motion must be accompanied by a detailed affidavit which sets forth distinctly the nature and amount of each cost claimed. If all issues other than attorney fees are settled, the taxpayer must file a motion for costs accompanied by a stipulation of settlement. If a case is dismissed for lack of jurisdiction, the Tax Court nevertheless has jurisdiction to determine attorney fees.(fn11)
On the Tax Court's request, the government must file a response to the taxpayer's motion within sixty days. However, prior to the filing of the written response, the Tax Court requires the government and the taxpayer to confer in an attempt to settle the issue prior to the date for filing the response.
For cases commenced on or after November 10, 1988, taxpayers may---under certain circumstances---collect costs incurred in the administrative process. These costs may be requested following the final determination of the court, or they may be requested from Appeals after final determination of the tax. Should such a request be denied administratively, the taxpayer may appeal to the Tax Court under Code § 7430(f)(2), following the procedures set forth in the Tax Court Rules 270-74.
To appeal the administrative denial of such costs, the taxpayer must meet the jurisdictional requirements. In particular, the Commissioner must have made a determination denying the costs in whole or in...
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