General Litigation

You and the Internal Revenue Service meet in a head-to-head battle over various items on your tax return. The good news is that, under certain circumstances, you are entitled to recover the reasonable litigation or administrative costs that you paid to defend your position to the IRS or to the courts.

In order to recover your expenses, all of the following circumstances must apply:

• You are the prevailing party. You are the prevailing party if you substantially succeed with respect to the amount in controversy or on the most significant tax issue or issues. You are not the prevailing party if the IRS establishes that its position was justified. An IRS position is not justified if it did not follow its own applicable published guidance or if it had lost in courts of appeal for other circuits on basically the same issues. The court will decide who is the prevailing party.

• You exhaust all administrative remedies within the IRS.

• Your net worth is below a certain limit.

• You do not unreasonably delay the proceedings.

• You apply to recover these costs within 90 days of the date on which the final decision was mailed to you.

Reasonable litigation and administrative costs that can be recovered include: any fees charged by the IRS; the reasonable costs of studies, analyses, engineering reports, tests, or projects; the reasonable costs of expert witnesses, and attorney fees not to exceed a set per-hour limit. This amount can be higher based on the level of difficulty of the issues and the local availability of tax expertise.

You are also entitled to recover reasonable costs and fees and to be treated as a prevailing party in a civil action if you made a qualified offer to the IRS that was not accepted, but the court later determined that your tax liability was equal to or less than your offer. A qualified offer is a written offer, and it must remain open until the earliest of the date it was rejected, the date the trial began, or 90 days from the date it was made.

Copyright 2011 LexisNexis, a division of Reed Elsevier Inc.