Posted by: Robert Horwitz | July 25, 2017

Remember: When Contesting a Proposed Tax Liability, It Doesn’t Hurt to Make a Qualified Offer by Robert Horwitz

We previously blogged about an award of attorney fees by the Court of Federal Claims in the BASR Partnership case – The Tax Court’s recent opinion in Fitzpatrick v. Commissioner, T.C. Memo 2017-88, underlines the importance of making a qualified offer, at least if the taxpayer meets the net worth limitations of the statute, Internal Revenue Code §7430.  The maximum net worth for an individual is $2 million, with individuals who file a joint return being treated as separate individuals.  The net worth limitation for the an unincorporated business, a partnership or a corporation is $7 million.

The IRS sent the taxpayer a letter notifying her of a proposed trust fund recovery penalty. She never received the letter.  Since she did not protest the proposed assessment, the penalty was assessed and the IRS began collection activity.  She filed for a collection due process hearing.  Because she never received notice of the proposed assessment, the Appeals Office considered the liability on the merits.  While the matter was pending in Appeals, she submitted a qualified offer, which Appeals never acted on.   After the Appeals Officer determined the taxpayer was liable for the penalty, she petitioned the Tax Court.  Following a seven day trial, the Tax Court issued an opinion holding that the taxpayer was not liable for the penalty.  She moved for attorney fees and costs under §7430.

Normally, to be awarded attorney fees in a tax case, your net worth may not exceed the statutory limit, you have to be the prevailing party and the Government must fail to establish that its position was substantially justified. The IRS’s position is “substantially justified” if based on all the facts and circumstances and the relevant legal precedents the IRS acted reasonably.  If, however, there is a qualified offer and the taxpayer is forced to go to trial and ultimately prevails, the taxpayer is entitled to attorney fees and costs from the date the offer is submitted.

A qualified offer is in writing and

(A) is made during the qualified offer period;

(B) specifies the amount of the taxpayer’s liability (not including interest);

(C) states that it is a qualified offer for purposes of §7430(g); and

(D) remains open from the date it is made until the earliest of the date the offer is rejected, the date the trial begins, or the 90th day after the date the offer is made.

The qualified offer period begins on the date the IRS first sends a letter proposing a deficiency that can be appealed to IRS Appeals. It ends 30 days before the date the case is first set for trial.

Ms. Fitzpatrick was determined to be the prevailing party. The Court determined that the information available to the IRS when it made the assessment and the Appeals Office made its determination was sufficient for a reasonable person to conclude that she was liable for the penalty.  Thus, she was only entitled to attorney fees that were incurred after the offer was submitted.

Ms. Fitzgerald was awarded fees based on the statutory rate. For 2015-2017, that rate is $200 per hour.  The Court determined that she failed to establish that special factors existed that justified a higher rate.  The fees and costs awarded her were $179,049.70.  so making a qualified offer in Ms. Fitzgerald’s case didn’t hurt.

ROBERT S. HORWITZ – For more information please contact Robert S. Horwitz – or 310.281.3200   Mr. Horwitz is a principal at Hochman, Salkin, Rettig, Toscher & Perez, P.C., a former Assistant United States Attorney of the Tax Division of the Office of the U.S. Attorney (C.D. Cal) and represents clients throughout the United States and elsewhere involving federal and state, administrative civil tax disputes and tax litigation as well as defending criminal tax investigations and prosecutions. Additional information is available at

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