What can you do when the IRS is misbehaving and it directly affects you?
You will have to fight them, but the law allows you to recover your litigation costs if you win.
As many know, the IRS has had a very troubled recent past (i.e. Lois Lerner). Those problems keep getting worse, especially with IRS budget cuts. Anecdotal stories lead me to believe that IRS employee morale is at all time low.
The new U.S. v. Baker case out of New Hampshire came out in the taxpayer’s favor because the IRS tried to foreclose on a property which they had no rights to do so.
The gist of the case is that the district court granted an ex-wife’s request for an award of litigation costs because it found that IRS’s argument—that it had a lien against her ex-husband with respect to real property that he had transferred to her pursuant to the couple’s divorce—was based on an untenable reading of First Circuit precedent and New Hampshire law.
So what do you need to provide to get your fees paid?
Section 7430 of the Internal Revenue Code provides that a taxpayer who is the “prevailing party” in any administrative or court proceeding regarding the:
- determination of any tax, penalty, or interest under the Internal Revenue Code.
- collection of any tax, penalty, or interest under the Internal Revenue Code.
- refund of any tax, penalty, or interest under the Internal Revenue Code.
Recovery of such costs is subject to limitations:
- the taxpayer must have “exhausted administrative remedies”
- the taxpayer must not have “unreasonably protracted” the proceedings
- the taxpayer must meet financial eligibility requirements.
- the taxpayer will not be treated as a prevailing party where IRS proves its position in the proceeding was “substantially justified.”