November 12, 2010 12:00 am

No Recovery of Attorney

If a taxpayer fights the IRS and wins, under certain circumstances, the taxpayer is entitled to recover attorney’s fees from the federal government. Conditions for recovery:

  • Be the prevailing party in a civil litigation on a tax matter in any federal court (a U.S. district court, the U.S. Claims Court, or the U.S. Tax Court). This means that a taxpayer substantially prevailed with respect to the amount in controversy or the most significant issue or set of issues presented.
  • Exhaust administrative remedies. Under IRS rules, for example, it is necessary that a taxpayer ask for an appeals office conference prior to commencing a suit for refund or a Tax Court petition in order to satisfy this requirement.
  • Show that the IRS’s position was not “substantially justified.” Generally, this means that the government knows its position is incorrect but continues to pursue it.
  • Request a recovery of attorney fees and litigation costs in a court action; a court will not award such fees on its own initiative.

If a taxpayer represents himself, can he recover costs based on what he would have had to pay an attorney? An appellate court recently said no. The language of the law allows a recovery only for the services of an attorney paid or incurred in connection with the court proceeding. Since a taxpayer representing himself does not pay any fees, there can be no recovery.

Source: Paul S. Hudson; No. 09-3600

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Tax Glossary

Depreciation recapture

An amount of gain on the sale of certain depreciable property that is treated as ordinary income in the case of personal property. Recapture is computed on Form 4797.

More terms