Making the most of qualified offers.

• Author: Wolbach, Kristine R.

In June 2009, with the issuance of Chief Counsel Notice CC-2009-018, the IRS chief counsel updated internal procedures relating to awarding payment of representation and litigation costs awards where a taxpayer is the prevailing party in any court proceeding that determines tax or penalties under Sec. 7430. One little-used option for resolving tax issues while in IRS Appeals is to submit a qualified offer under Sec. 7430(g). Besides making the taxpayer eligible for an award of costs, the submission of a qualified offer will often focus the IRS's attention on the taxpayer's case and perhaps lead to an acceptable resolution.

The taxpayer has an option to make a qualified offer to settle a case while the case is still in Appeals. If the taxpayer is held to be the prevailing party in a subsequent court proceeding and is held liable to pay an amount equal to or less than the qualified offer amount, the federal government must pay the taxpayer's reasonable litigation fees. Reimbursable costs include costs of representation incurred by the taxpayer after the date of the offer.

Due to the potential litigation costs the government could incur, the IRS has amended its procedures to evaluate qualified offers. The IRS Appeals officer must refer any qualified offers he or she receives to an IRS field counsel. The IRS counsel will then transmit a copy of the offer to the IRS Procedure and Administration Branch for review and approval. If the field counsel believes the IRS should accept the offer, he or she must prepare a memorandum setting forth the reasons for accepting the offer. The field counsel must prepare a formal written acceptance or rejection of the qualified offer.

By submitting a qualified offer under Sec. 7430(g), a taxpayer can make sure that an issue that he or she considers of high significance now has the attention of competent legal authorities within the IRS. What may have been a throwaway issue to an IRS Appeals officer now garners the attention of an attorney. The submission of the qualified offer to Appeals should be considered at the point when negotiations have reached an end. It is an appropriate method of resolving a case when the practitioner determines that the client should have received a more favorable outcome.

Before submitting a qualified offer, the practitioner should consider referring an unresolved case to the Appeals manager or perhaps the manager's supervisor for resolution of issues. In practice areas where a...