Academic journal article Journal of Accountancy

Accounting Fees Limited

Academic journal article Journal of Accountancy

Accounting Fees Limited

Article excerpt

According to Internal Revenue Code section 7430, if the Internal Revenue Service loses its case against a taxpayer in a tax dispute in which its position was not substantially justified, that taxpayer is entitled to recover reasonable administrative and litigation costs. However, section 7430(c)(1)(B) (iii) limits the recovery of attorney fees to $110 an hour (adjusted for inflation) unless a special factor, such as the limited availability of qualified attorneys for a particular proceeding, justifies a higher rate.

In a recent Tax Court case, Robert T. Cozean v. Commissioner (1 09 TC no. 10), the IRS issued a $700,000 deficiency notice to a taxpayer stating that various items of income had not been reported and that certain deductions had been denied. Two weeks before the trial, the IRS conceded and settled the case. The taxpayer then filed a motion for award of litigation costs in order to recover his attorney's fees of $250 an hour and related accounting fees of $170 an hour. The taxpayer argued that these rates were reasonable because the number of attorneys qualified to handle such a case was limited. The IRS argued that the taxpayer's recovery should be limited to the statutory cap because no special factors existed.

The court ruled in favor of the government. It cited Pierce v. Underwood (487 U.S. 552, 1988) in which the U. …

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