Individual Entitled to Reasonable Litigation Costs

J.C. Morreale, TC Memo. 2021-90, Dec. 61,902(M)

I wanted to wait until my client received his check before reporting this.  It is possible to recover “reasonable litigation costs” pursuant to 26 U.S.C. 7430.  As VitalLaw puts it:

“An individual was entitled to reasonable litigation costs. The taxpayer was tied up in litigation relating to his failure to file his tax returns and pay taxes for two years at issue and bankruptcy proceedings. Once the litigation regarding his outstanding tax liabilities concluded, the taxpayer filed a motion for costs in the Tax Court.

At trial, in deciding whether the government’s position was substantially justified, the court relied on United States vs. Johnson, 920 F.3d 639. The IRS contended that its position was substantially justified overall even though, in its initial response to the taxpayer’s motion, it previously conceded that at least one substantive issue and its related costs were not substantially justified. By contrast, the taxpayer argued that applying a holistic approach of Johnson to this case was not appropriate and would create an absurd result.  However, the court believed that the taxpayer’s hyperbole was misplaced.

Nonetheless, the court concluded that the IRS failed to prove that the position of the government was substantially justified under the Johnson standard. Further, since the IRS had otherwise conceded that the taxpayer was a prevailing party, the taxpayer was entitled to an award under Code Sec. 7430.

Additionally, the taxpayer contended that he was entitled to an enhancement of the statutory rate because it would have been impossible to retain qualified counsel at the statutory rate and because of the difficulty of the issues presented in this case. However, this did not justify a departure from the statutory rate and the taxpayer failed to prove his entitlement to such a departure. Accordingly, the taxpayer was entitled to an award at the statutory rate.”