CCA 200919037: Cost recovery required taxpayers to use available Appeals process

Plain-English summary

Chief Counsel advised that a taxpayer given appeal rights before a statutory notice had to request an Appeals conference before petitioning the Tax Court to exhaust administrative remedies. A taxpayer who received no earlier appeal rights was excused from doing so before filing. If Counsel later referred the case to Appeals or offered an Appeals conference, however, the taxpayer had to participate to complete exhaustion. Exhaustion was required to recover costs under section 7430. It was not formally required to make a qualified offer, but costs under the qualified-offer rule still could not be recovered without exhaustion.

Ruling snapshot

• Question: When must a taxpayer participate in Appeals to exhaust administrative remedies for section 7430 cost recovery?
• Outcome: Advice given: the taxpayer had to use available prepetition or postpetition Appeals opportunities before recovering costs.
• Key authorities: IRC § 7430, including the qualified-offer rule.

Full text (IRS public release)

ID: CCA_2009032513502645 Number: 200919037
Release Date: 5/8/2009
Office: --------------
UILC: 7430.02-01, 7430.03-04

From: -----------------------
Sent: Wednesday, March 25, 2009 1:50:35 PM
To: ----------------------------------------
Cc: -------------------------------------------------------------
Subject: 7430(g) Question

If appeal rights are given prior to the stat notice then the TP must request a conference with Appeals prior to filing a petition with the tax court to exhaust administrative remedies.

If for varying reasons the TP is not given appeal rights prior to the stat notice then the TP is excused from exhausting administrative remedies prior to petitioning the tax court. However, if after filing a petition with the tax court counsel refers the case to Appeals or gives the TP the opportunity to go to Appeals then the TP must participate in an Appeals conference to exhaust administrative remedies.

Exhaustion of administrative remedies is a requirement to recover costs under 7430. Exhaustion is not a requirement to make a qualified offer although the TP may not recover costs pursuant to the qualified offer rule unless the TP has exhausted administrative remedies. So in reality exhaustion is a requirement although technically it is not.