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Comments Concerning Proposed Treasury Regulation 301.7430-7
Executive Summary

Section 7430 provides that certain taxpayers who are prevailing parties in tax controversies may be reimbursed for reasonable administrative and litigation costs. (Unless otherwise specified, section references are to the Internal Revenue Code of 1986, as amended). Section 3101(e) of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, generally provides that certain taxpayers will be treated as prevailing parties when the United States has rejected an offer to settle a tax case and the ultimate judgment of the court does not exceed the offer (and certain other requirements of section 7430 are met).

On January 3, 2001, the Internal Revenue Service and Department of the Treasury issued Proposed and Temporary Treas. Reg. § 301.7430-7, interpreting sections 7430(c)(4)(E) and 7430(g) which address qualified offers.

These comments address a number of areas we believe could be modified or clarified to further the goals of minimizing litigation regarding disputed issues of a substantive nature, as well as a taxpayer’s entitlement to fees. We believe that the regulations should make it clear that in cases involving multiple years and/or multiple taxes, the taxpayer should have the option to deliver one or more qualified offers relating to a single year and single tax, all years and all taxes, or any combination ( Comment A). We recognize that many of the taxpayers under the maximum net worth ceilings may not have sophisticated means at their disposal to make definitive tax calculations. Accordingly, we recommend that offers may provide for resolution based on a percentage of an adjustment or a fixed dollar amount of adjustment rather than the tax liability ( Comment B). If there are multiple taxpayers involved, such as a whipsaw situation, innocent spouse situation or divorced spouse situation, we believe that each taxpayer may file a qualified offer, irrespective of the existence or content of a qualified offer from the other party ( Comment H).

We have commented on three items which may be more mechanical than substantive. The Regulations provide an exception for cases awaiting other pending court or administrative proceedings ( Comment C); we asked for examples. Where issues are raised by the taxpayer after the 30-day letter is issued, the Regulations require that all relevant facts and law be presented; we believe that a more appropriate standard would be to provide the Service with sufficient information to make a thorough review or to provide the information that the taxpayer would file in support of a refund claim ( Comment D). Example 10 of the Regulation addresses the appropriate party to whom to deliver the qualified offer; we believe it would benefit from clarification ( Comment G).

The comments also address two other examples under the regulations. Example 6 illustrates the viewpoint that no fees are ever reimbursable if an issue is settled, no matter how close to trial the settlement occurs and no matter how much the government conceded. Our view is that as long as one issue is tried, then the taxpayer should be reimbursed for costs incurred after the qualified offer was made, even if some of the issues are settled ( Comment E). Example 9 states that if a case is continued within 30 days of the calendar call that no subsequent offer may be a qualified offer; we believe settlement would be promoted, if the taxpayer were given a "new clock," so that it could make qualified offers until 30 days before the new calendar call. This is the result under Example 8, if the case is continued before 30 days before the calendar call ( Comment F).

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