26 U.S.C. § 7430 — Awarding of costs and certain fees

(a) In general: In an IRS or court proceeding brought by or against the United States about determining, collecting, or refunding a tax, interest, or penalty, the prevailing party may receive a judgment or settlement for reasonable administrative costs and reasonable litigation costs.

(b) Limitations: (1) A court cannot award litigation costs unless the prevailing party exhausted available IRS administrative remedies; failure to agree to extend the assessment period does not count against the party. (2) An award covers only reasonable costs allocable to the United States, not another party. (3) No award covers a part of the proceeding that the prevailing party unreasonably protracted. (4) The party must apply to the IRS for administrative costs before the 91st day after the IRS mails its final decision about the tax, interest, or penalty.

(c) Definitions
(1) Reasonable litigation costs include reasonable court costs; expert-witness expenses at no more than the highest rate the United States pays; necessary studies, analyses, engineering reports, tests, or projects; and reasonable attorney fees based on prevailing market rates. Attorney fees generally may not exceed $125 per hour, unless a special factor justifies more. For calendar years after 1996, the amount is increased by the stated cost-of-living formula and rounded to the nearest $10.
(2) Reasonable administrative costs include IRS administrative fees and similar charges, plus the expenses, costs, and fees in paragraph (1)(B), with the IRS making the paragraph (1)(B)(ii) and (iii) determinations when the IRS decides the administrative-cost award. They include costs only from the earliest of the Appeals decision notice's receipt, the deficiency^* notice, or the sending of the first proposed-deficiency letter that offers Appeals review.
(3) Attorneys' fees: Fees for an individual authorized to practice before the Tax Court^* or IRS count as attorney fees even if the individual is not an attorney. The court may award reasonable fees above those paid or incurred when a representative worked for no fee or only a nominal fee, but only if the award is paid to that representative or the representative's employer.
(4) Prevailing party: This generally means a party other than the United States or a taxpayer's creditor that substantially prevailed on the amount in controversy or the most significant issue or issues and meets the referenced title 28 requirements. A party is not prevailing if the United States proves its position was substantially justified. The position is presumed not substantially justified if the IRS did not follow applicable published guidance, although the presumption may be rebutted; the court also considers losses by the United States in other courts of appeals on substantially similar issues. The guidance includes the listed regulations, rulings, procedures, releases, notices, announcements, and taxpayer^*-issued rulings, memoranda, and determination letters. Special net-worth rules apply to estates, trusts, and joint-return filers. A party meeting the stated requirements is also prevailing if the taxpayer's judgment liability, without interest, is no greater than it would have been if the United States had accepted the party's qualified offer. This qualified-offer rule does not apply to a settlement judgment or to a proceeding in which tax liability is not in issue, including the listed declaratory-judgment, summons, and disclosure actions. When it applies, the comparison uses the last qualified offer for the liability at issue, and reasonable administrative and litigation costs are limited to costs incurred on or after the offer. This rule does not apply to a party prevailing under another provision of this paragraph. The parties, the IRS, or the court determine prevailing-party status as specified in subparagraph (C).
(5) An administrative proceeding is an IRS procedure or other action.
(6) A court proceeding is a U.S. civil action, including one in the Tax Court or Court of Federal Claims.
(7) The United States' position is its position in the judicial proceeding and, administratively, its position as of the earlier of the Appeals decision notice's receipt or the deficiency notice.

(d) Payment: Administrative awards are paid from funds appropriated under section 1304 of title 31. Tax Court litigation awards are paid in the same manner as district-court awards.

(e) Multiple actions: Actions or cases that could have been joined or consolidated, including cases involving returns of the same taxpayer or joint returns, count as one court proceeding unless the court decides that treatment would be inappropriate.

(f) Right of appeal: A court order granting or denying costs may be included in the proceeding's judgment and appealed the same way. An IRS decision on administrative costs may be reviewed by the Tax Court under rules similar to section 7463, without regard to the amount in dispute, if filed before the 91st day after certified or registered mailing of the decision. A Tax Court order on that petition is reviewable like a Tax Court decision, but only as to matters decided in the order.

(g) Qualified offer: A qualified offer is a written offer made by the taxpayer to the United States during the qualified-offer period that states the offered liability without interest, is designated as a qualified offer when made, and stays open until rejection, the beginning of trial, or the 90th day after it was made, whichever comes first. The qualified-offer period begins when the first proposed-deficiency letter allowing Appeals review is sent and ends 30 days before the case is first set for trial.