D. Awards of Attorneys Fees and Court Costs

PRESENT LAW

Present law generally provides that taxpayers who prevail in civil tax actions in which the position of the United States was unreasonable may be awarded reasonable litigation costs (including attorney's fees) up to a maximum of $25,000. An award of reasonable litigation costs to the prevailing party in a civil tax action is discretionary with the court hearing the action. The determination of whether the position of the United States was unreasonable is made by the court or by agreement of the parties. A taxpayer is considered to have prevailed in an action if the taxpayer has established that the position of the United States was unreasonable and has prevailed (1) with respect to the amount in controversy of (2) has substantially prevailed with respect to the most significant issue or set of issues in the action.

Litigation costs may be awarded in civil actions or proceedings brought by or against the United States (or any agency, officer, or employee of the United States acting in his or her official capacity) in any United States court, including the Tax Court, in connection with the determination, collection, or refund of any tax, interest, or penalty. Civil actions and proceedings include proceedings to enforce a summons, jeopardy assessments, wrongful levies, and interpleaders (i.e., generally, a proceeding to enable a person to compel parties making the same claim against him or her to litigate the matter between them).

Most parties who are plaintiffs or defendants in actions brought in connection with the determination, collection, or refund of any tax, interest, or penalty imposed by the Internal Revenue Code may be eligible for these awards. However, under present law, no award can be made to the United States or to any creditor of the taxpayer. Thus, for example, awards would not be made to creditors of a taxpayer in interpleaders, wrongful levy actions, and lien priority cases.

EXPLANATION OF PROVISIONS

The bill would make mandatory the award of attorneys fees and court costs to taxpayers who prevail in civil actions and proceedings against the Internal Revenue Service. Awards of these fees and costs would be made in all cases where the position of the United States was not "substantially justified." The definition of prevailing party would remain the same as under present law except the burden of proving that the United States was not substantially justified in its position would not be specifically placed upon the taxpayer. (Under present law, taxpayers are specifically required to demonstrate that the position of the United States was unreasonable.)