8.7.15. Administrative Cost and Qualified Offer Cases

(1) Appeals receives the following four types of cases where a request for IRC 7430 costs may be present. The first three types are discussed in this IRM.

1. Claim cases with a request for administrative costs under IRC 7430(a)(1), and neither the substantive issues nor administrative cost issues were ever before a court of the United States with jurisdiction over the issues (including the Tax Court or United States Court of Federal Claims).

   Note: If the substantive issue and/or the IRC 7430 costs were previously under the jurisdiction of a U.S. court (including Tax Court or U.S. Court of Federal Claims), Appeals denies the claim and lets the taxpayer know the claim cannot be considered or settled in Appeals. Appeals does not have jurisdiction to settle these cases.

2. Docketed cases in Appeals for settlement of substantive issues where the taxpayer raises the administrative or litigation costs and fees issue. The case is not a claim for refund. It may or may not have a qualified offer.

3. Pre-90-day cases that include a qualified offer to resolve the substantive issues and the qualified offer was filed after the 30-day letter was issued.

4. Collection Due Process hearings under IRC §§6320 and 6330. See IRM 8.22.8.22, Qualified Offers.

(2) When a case is assigned, the Appeals Technical Employee (ATE) needs to determine whether the case has the IRC 7430 cost issue, and if it does, determine if the case meets the statutory and filing requirements of IRC 7430 for granting an award of reasonable administrative and litigation costs and fees.

(1) Appeals considers claims for administrative cost awards if the substantive issues or IRC 7430 cost issues are not and have never been before any court of the United States with jurisdiction over these issues. If the claim does not state that the substantive issues or IRC 7430 costs have not been before a court, contact the taxpayer to confirm these facts.

(2) Once the case is assigned the ATE determines the following:

1. whether the statutory requirements are met;

2. whether the claim is properly filed and includes required documents; and

3. whether the costs requested for refund are reasonable.

(3) If the taxpayer is denied an award (in whole or in part), he/she may appeal the decision by filing a petition with the Tax Court in accordance with the Tax Court's Rules of Practice and Procedure.

(4) The IRS is authorized but not required to notify the taxpayer of the decision to grant or deny an award. If the notice is not sent within 6 months of when the request is filed, the IRS’s failure to respond is considered a decision by the IRS to deny the claim.

(5) The taxpayer can appeal a decision by the IRS to deny the claim, in whole or in part, after the expiration of the 6 month time-frame. An appeal is filed with the Tax Court following the Tax Court Rules of Practice and Procedures. This proceeding requires the use of Tax Court rules 270 through 274. See Treas. Reg. 301.7430-2(c)(7).

(6) Refer to IRM 35.10.1.2, Actions for Administrative Costs.

(1) When Appeals is considering substantive issues in a docketed case and the taxpayer raises the IRC 7430 costs issue, determine if the IRC 7430 statutory requirements are met and if the costs claimed are reasonable. If they are, determine the proper amount of costs to reimburse.

(2) Determine if the 90-day offer period expired. If the case is within 90 days of when the qualified offer was filed, it is an expedite case. Contact the Appeals Director, TPP Exam and request immediate assistance from the analyst responsible for IRC 7430 costs. Also, discuss the expedite nature of the case with the ATM.

(3) Request that Account and Processing Support (APS) enter "7430 qualified offer" in the notes section of the Appeals Case Summary Record.

(4) Once a determination is made, send the Field Counsel Attorney a memorandum stating the rationale for the proposed settlement.

1. Include both the IRC 7430 costs issue and the substantive issues in the Appeals settlement.

(5) If the Field Counsel Attorney concurs with the recommended settlement, he/she prepares a memorandum stating the reason for accepting the settlement and why the fee is justified. The settlement is included in the decision document/stipulation of agreed issues.

1. IRM 35.8.2.6, Preparing Decision Documents for Cases Involving Claims for Attorney Fees under IRC 7430, explains when the IRC section 7430 cost issue is raised in settled or litigated cases and the parties agree on the disposition of the issue, the decision document must include either a provision stating the petitioner is not entitled to the cost, or a provision stating the petitioner is entitled and the amount he/she is entitled to under IRC 7430.

(6) If the parties agree to all issues except the IRC 7430 costs, the parties must submit a stipulation of settlement that includes the elements described in TC Rule 231(c). The rule provides the stipulation of settlement accompanies a motion for costs.

(1) Qualified offers are another way for the taxpayer to be a prevailing party. If an offer meets the criteria in IRC 7430(g) it is considered a qualified offer.

(2) Qualified offers must be expedited if they are received during the period the offer remains open. Make every attempt to resolve the issues within 90 days of when the qualified offer is filed. With the assistance of the ATM, decide if the substantive issues can be resolved within 90 days of receipt of the qualified offer.

(3) This time frame can be extended by the taxpayer. Since there is no specific form to do this, any written request is acceptable. The request must be faxed to the Appeals Director, TPP Exam, who ensures it is submitted to Counsel for immediate review.

(4) If the issue is not resolved within 90 days of when the qualified offer is filed, the taxpayer has a valid qualified offer for consideration by the court in awarding administrative costs and litigation costs, unless the case is subsequently settled before the court makes a determination or the taxpayer files a subsequent qualified offer. If either of these occurs, the qualified offer under consideration by Appeals is no longer a valid qualified offer.

(5) All other requirements under IRC 7430 dealing with administrative costs and litigation costs apply to qualified offer cases. However, IRC 7430(c)(4)(E) places additional limitations on qualified offer cases not placed on other administrative and litigation cost cases.

(6) If the taxpayer references qualified offer or IRC 7430(g) in the protest or in a separate letter in response to the 30-day letter or statutory notice of deficiency, contact the Appeals Director, TPP Exam. An analyst in TPP Exam immediately determines if it is a qualified offer and discusses required actions with the ATE.

(7) If the requirements for a qualified offer are met and it is considered valid, request that Account and Processing Support (APS) input "IRC section 7430 Qualified Offer" in the notes section of the Appeals Case Summary Record.

(8) Appeals assumes jurisdiction of the case even if the taxpayer fails to prepare a proper protest.

(9) If the requirements for a qualified offer are not met, inform the taxpayer that the offer is not valid. Explain how to correct the offer in case the taxpayer wishes to file another qualified offer. Proceed with resolving the substantive issues in the case. Identify the qualified offer as an issue that was considered.

(10) If the case is received with a qualified offer that is not within the 90 day time frame, continue with the normal case resolution procedures.

(11) If it is determined a SND or a notice of claim disallowance needs to be issued, the position taken must be a position the government can defend if the case is litigated, otherwise the government is liable for IRC 7430 costs from the date the last qualified offer was filed. The IRC 7430 costs are those incurred for the issues identified in the qualified offer and only if the judgment is equal to or less than the amount the taxpayer offered.

(12) For detailed information on qualified offers, see IRM 35.10.1.3, Qualified Offer Rule and IRM 35.10.1.3.1, Requirements for Qualified Offers.

(1) The costs the taxpayer is allowed to recover in an administrative proceeding are the administrative costs beginning after the earliest of the issuance of the 30 day letter, the NODA or the SND. The following represents some examples:

For example: If the case comes to Appeals in pre-90-day status, the costs incurred by the taxpayer to have the protest prepared and a qualified representative present the taxpayer’s position in Appeals are included in administrative costs. If Appeals decides that the taxpayer’s position is correct on all but one issue, a notice of deficiency is prepared for the issue on which the taxpayer's position is not correct. If the taxpayer later files a claim for administrative costs, only the costs incurred for the issue in the SND are administrative costs for purposes of an award under IRC section 7430. Since the government conceded the other issues before the receipt of the NODA, the taxpayer cannot recover these administrative costs in any future claim for IRC 7430 costs. Since the taxpayer received a NODA regarding one issue, the taxpayer is entitled to claim the costs for preparing the protest and qualified representation in Appeals for that one issue.

(2) To recover administrative costs, the taxpayer must file a written claim with the IRS function that has jurisdiction over the tax matter underlying the claim for costs. See Treas. Reg. 301.7430-2(c)(3) for details of the contents of the request.

1. If the taxpayer does not know the IRS function with jurisdiction of the issue, he/she sends the request to the IRS office that considered the substantive issue.

(3) The request for administrative costs must be filed within 90 days after the final decision of the IRS is issued or otherwise furnished to the taxpayer. The final decision is the document that resolves the tax liability for the taxpayer including tax, additions to tax and penalties in the administrative proceeding such as Form 870 agreement or notice of assessment (if received earlier).

(1) Prepare the documents for consideration and payment of administrative and litigation cost awards. IRM 8.7.15.1.2.1. The payment is made by the Department of the Treasury Financial Management Services Judgment Fund.

(2) Send the documents to the TPP Exam analyst who handles administrative costs and processes the payment. Verify the payment is processed and the check issued is sent to the Appeals Technical Employee. Once received, close the case following normal closing procedures.

(3) The Field Counsel Attorney prepares the documents for payment of administrative and litigation costs when the case is docketed or the substantive issue or IRC 7430 issue is now or previously has been before a U.S. Court. After the decision to award litigation costs is made and Counsel processes the award, return the case to Account and Processing Support for closing.

(4) Non-docketed qualified offer cases and docketed qualified offer cases do not involve payment of awards at the Appeals Technical Employee level.

(1) If the request is disallowed the taxpayer is given the opportunity to go to Tax Court. If the taxpayer doesn't petition or the Tax Court denies the request, close the case off ACDS following the instructions in paragraph (4).

(2) If the request is allowed the case is processed in this manner:

1. Appeals Technical Employee completes Form 9333, Agreement as to Administrative Costs Under Section 7430 - Exhibit 8.7.15-2.

2. Appeals Technical Employee completes IRS Administrative Cost Data Sheet - Exhibit 8.7.15-3

3. The administrative cost claim agreement package (as described in IRM 8.7.15.1.2.1 (3) above) is forwarded to the TPP Exam analyst who handles administrative cost claims. The analyst will forward approved claims to the Treasury Judgment Fund for processing and payment. See below for ACDS update.

4. No costs are paid unless the taxpayer or the representative signs the agreement form.

(3) When the Form 9333 and IRS Administrative Cost Data Sheet are forwarded to Director, TPP update ACDS:

1. LACTION = Enter FLDSVCS.

2. LTODATE = Enter the date information sent.

3. LFROMDATE = Enter the date information is received back from Director, TPP (Exam).

(4) When the agreement is signed and forwarded to TPP (Exam) for payment and payment notification is received from the Judgment Fund, follow general instructions for closing ACDS. In addition:

1. CLOSINGCD =
   14 - if the request was disallowed
   15 - if the request was allowed
   16 - if the request was partially allowed.

2. DATECLSD =
   If allowed - enter the date agreement (Form 9333) is signed by the Area Director, Appeals Team Manager or Appeals Team Case Leader.
   If disallowed - enter the date of the letter to the taxpayer.

3. ACTION – ACKCLS.

4. TODATE – Enter the date mailed to Collection, Campus and Appraisal Services for payment or the date a partial or full disallowance letter is issued.

5. FROMDATE – Enter the date receipt is acknowledged.

6. Paycode = 7.

7. APPEALS AMTDIS – Enter the amount disallowed. (If the full amount of the claim is allowed, no entry is made on the return information screen.)