Fighting the IRS can be extremely time-consuming and expensive. A qualified offer to the IRS can help you recover attorney fees if you prevail against the IRS. But if you prevail against the IRS, it is possible to get the court to make an award of attorney fees so you don’t have to pay them all out of your own pocket.
When You Can Make a Qualified Offer to the IRS
It’s not easy to get a court to award attorney fees against the IRS. Ordinarily, you must not only win your case, but also show that the IRS’s position was not “substantially justified”—something that is very hard to do in most cases.
How a Qualified Offer to the IRS Works
But there is a way to get around the substantially justified requirement: make a “qualified offer” to the IRS. This is an offer to settle the case for a specified amount. When you do this, you can get an award of attorney fees if you ultimately prevail in the case—that is, if the IRS’s final result is no better than your offer.
You can make a qualified offer
- during the IRS examination (audit) after a 30-day letter,
- while the case is being appealed,
- after filing a Tax Court petition,
- during Tax Court litigation, or
- in a refund suit in the district court or the Court of Federal Claims.
Real Tax Court Case: How a $7,970 Case Cost the IRS $34,081
A recent Tax Court case shows how powerful a qualified offer can be.
Crystal Greenwald claimed a $5,920 earned income tax credit and a $2,050 additional child tax credit on her tax return. When the IRS denied the credits because she couldn’t prove the children involved lived with her for more than six months during the year, she appealed to the IRS Office of Appeals. Her attorney made a qualified offer to the office for the full amount of the credits.
Appeals disregarded the offer—apparently because it was misplaced—but ultimately chose to pay Crystal the credits rather than continue the dispute in district court.
Because her attorney had made a valid qualified offer and Crystal ultimately prevailed, the district court awarded her $34,081 in attorney fees. She was not required to prove that the IRS’s position lacked substantial justification—something she likely could not have established, since she never provided evidence that her children lived with her for more than six months.
Most IRS cases settle, so even with a qualified offer, you can’t get attorney fees following a settlement unless you show that the IRS’s position was not substantially justified (which is very difficult to show). Even so, making a qualified offer is worthwhile because it encourages the IRS to settle, knowing it could be on the hook for attorney fees if it doesn’t settle and loses the case.
Despite these benefits, taxpayers underuse qualified offers.
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