Recovering Attorney’s Fees and Costs from the IRS.

It may be a little known fact, but, in certain circumstances, an audited business or individual may recover attorney’s fees and costs from the IRS/United States if it successfully challenges a case into the Tax Court process.

To do so, the taxpayer must be a “prevailing party” and the government must not have been “substantially justified” in its position. If the taxpayer is a prevailing party it must also satisfy the requirements of Internal Revenue Code section 7430. This means that the taxpayer must have:

(1) exhausted its administrative remedies,

(2) substantially prevailed in the controversy,

(3) satisfied certain net worth requirements at the outset of the case,

(4) not have unreasonably protracted the proceedings and

(5) the amount of the costs must be reasonable.

All of these requirements must be met to recover attorney’s fees. If the taxpayer does not satisfy all of them, it cannot recover fees and costs.