Taxmap/pubs/p556-001.htm#TXMP044a9bad
Appeal Rights

Taxmap/pubs/p556-001.htm#TXMP7752ef2c Prevailing party.

Generally, you are the prevailing party if:

1. You substantially prevail with respect to the amount in controversy or on the most significant tax issue or set of issues in question, and
2. You meet the net worth requirements, discussed later.

You will not be treated as the prevailing party if the United States establishes that its position was substantially justified. The position of the United States is presumed not to be substantially justified if the IRS:

• Did not follow its applicable published guidance (such as regulations, revenue rulings, notices, announcements, and private letter rulings and determination letters issued to the taxpayer) in the proceeding (This presumption can be overcome by evidence.), or
• Has lost in courts of appeal for other circuits on substantially similar issues.

The court will generally decide who is the prevailing party.

Taxmap/pubs/p556-001.htm#TXMP18621dc9 Reasonable litigation costs.

These include the following costs.

1. The reasonable costs of studies, analyses, engineering reports, tests, or projects found by the court to be necessary for the preparation of your case.
2. The reasonable costs of expert witnesses.
3. Attorney fees that generally may not exceed $150 per hour for calendar year 2004. The hourly rate is indexed for inflation. See Attorney fees, later.

Taxmap/pubs/p556-001.htm#TXMP561154a8 Reasonable administrative costs.

These include the following costs.

1. Any administrative fees or similar charges imposed by the IRS.
2. The reasonable costs of studies, analyses, engineering reports, tests, or projects.
3. The reasonable costs of expert witnesses.
4. Attorney fees that generally may not exceed $150 per hour for calendar year 2004. See Attorney fees, later.

Taxmap/pubs/p556-001.htm#TXMP11ce16f7 Timing of costs.

Administrative costs can be awarded for costs incurred after the earliest of:

• The date the first letter of proposed deficiency is sent that allows you an opportunity to request administrative review in the IRS Office of Appeals,
• The date you receive notice of the IRS Office of Appeals' decision, or
• The date of the notice of deficiency.

Taxmap/pubs/p556-001.htm#TXMP2ffe1c9a Net worth requirements.

An individual taxpayer may be able to recover litigation or administrative costs if the following requirements are met.

• For individual and estate taxpayers — your net worth does not exceed $2 million as of the filing date of your petition for review. For this purpose, individuals filing a joint return are treated as separate individuals.
• For charities and certain cooperatives — you do not have more than 500 employees as of the filing date of your petition for review.
• For all other taxpayers — as of the filing date of your petition for review, your net worth does not exceed $7 million, and you must not have more than 500 employees.

Taxmap/pubs/p556-001.htm#TXMP26401dbe Qualified offer rule.

You can also receive reasonable costs and fees and be treated as a prevailing party in a civil action or proceeding if:

1. You make a qualified offer to the IRS to settle your case,
2. The IRS does not accept that offer, and
3. The tax liability (not including interest) later determined by the court is equal to or less than the amount of your qualified offer.

Taxmap/pubs/p556-001.htm#TXMP4482b513 Qualified offer.

This is a written offer made by you during the qualified offer period. It must specify both the offered amount of your liability (not including interest) and that it is a qualified offer.

To be a qualified offer, it must remain open from the date it is made until the earliest of:

• The date it is rejected,
• The date the trial begins, or
• 90 days from the date it is made.

Taxmap/pubs/p556-001.htm#TXMP60c2a4e1 Qualified offer period.

This period begins on the day the IRS mails you the first letter of proposed deficiency that allows you to request review by the IRS Office of Appeals. It ends 30 days before your case is first set for trial.

Taxmap/pubs/p556-001.htm#TXMP694c8e09 Attorney fees.

For the calendar year 2004, the basic rate for attorney fees is $150 per hour and can be higher in certain circumstances. Those circumstances include the level of difficulty of the issues in the case and the local availability of tax expertise. The basic rate will be subject to a cost-of-living adjustment each year.

Attorney fees include the fees paid by a taxpayer for the services of anyone who is authorized to practice before the Tax Court or before the IRS. In addition, attorney fees can be awarded in civil actions for unauthorized inspection or disclosure of a taxpayer's return or return information.

Fees can be awarded in excess of the actual amount charged if:

• You are represented for no fee, or for a nominal fee, as a pro bono service, and
• The award is paid to your representative or to your representative's employer.

Taxmap/pubs/p556-001.htm#TXMP35ff193f Jurisdiction for determination of employment status.

The Tax Court can review IRS employment status determinations (for example, whether individuals hired by you are in fact your employees or independent contractors) and the amount of employment tax under such determinations. Tax Court review can take place only if, in connection with an audit of any person, there is an actual controversy involving a determination by the IRS as part of an examination that either:

1. One or more individuals performing services for that person are employees of that person, or
2. That person is not entitled to relief under Section 530(a) of the Revenue Act of 1978 (discussed later).

The following rules also apply to a Tax Court review of employment status.

• A Tax Court petition to review these determinations can be filed only by the person for whom the services are performed,
• If you receive a Notice of Determination by certified or registered mail, you must file a petition for Tax Court review must be filed within 90 days of the date of mailing of that notice (150 days if the notice is addressed to you outside the United States),
• If during the Tax Court proceeding, you begin to treat as an employee an individual whose employment status is at issue, the Tax Court will not consider that change in its decision,
• Assessment and collection of tax is suspended while the Tax Court review is taking place,
• There can be a de novo review by the Tax Court (a review which does not consider IRS administrative findings), and
• At your request and with the Tax Court's agreement, small tax case procedures (discussed later) are available to simplify the case resolution process when the amount at issue (including additions to tax and penalties) is $50,000 or less for each tax period involved.

For further information, see Publication 3953, Questions and Answers About Tax Court Proceedings for Determination of Employment Status Under IRC Section 7436.

Taxmap/pubs/p556-001.htm#TXMP0d086529 Section 530(a) of the Revenue Act of 1978.

This section relieves an employer of certain employment tax responsibilities for individuals not treated as employees. It also provides relief to taxpayers under audit or involved in administrative or judicial proceedings.

Taxmap/pubs/p556-001.htm#TXMP1960b920 Tax Court review of request for relief from joint and several liability on a joint return.

As discussed later, at Relief from joint and several liability on a joint return under Claims for Refund, you can request relief from liability for tax you owe, plus related penalties and interest, that you believe should be paid by your spouse (or former spouse). You also can petition (ask) the Tax Court to review your request for innocent spouse relief or separation of liability if either:

• The IRS sends you a determination notice denying, in whole or in part, your request, or
• You do not receive a determination notice from the IRS within 6 months from the date you file Form 8857.

If you receive a determination notice, you must petition the Tax Court to review your request during the 90-day period that begins on the date the IRS mails the notice. See Publication 971 for more information.

Taxmap/pubs/p556-001.htm#TXMP15407a97
Note.Your spouse or former spouse may file a written protest and request an Appeals conference to protest your claim of innocent spouse relief or separation of liability.

Taxmap/pubs/p556-001.htm#TXMP7e86e683 Tax Court

You can take your case to the United States Tax Court if you disagree with the IRS over:

• Income tax,
• Estate tax,
• Gift tax, or
• Certain excise taxes of private foundations, public charities, qualified pension and other retirement plans, or real estate investment trusts.

For information on Tax Court review of a determination of employment status, see Jurisdiction for determination of employment status, earlier.

For information on Tax Court review of an IRS refusal to abate interest, see Failure to abate interest may be reviewable by Tax Court, earlier under Examination of Returns.

For information on Tax Court review of Appeals determinations with respect to lein notices and proposed levies, see Publication 1660.

You can take your case to the Tax Court before the IRS sends you a notice of deficiency. You can only appeal your case if you file a petition within 90 days from the date the notice is mailed to you (150 days if it is addressed to you outside the United States).

The notice will show the 90th (and 150th) day by which you must file your petition with the Tax Court.

Taxmap/pubs/p556-001.htm#TXMP11fff5c5
Note.If you consent, the IRS can withdraw a notice of deficiency. Once withdrawn, the limits on credits, refunds, and assessments concerning the notice are void, and you and the IRS have the rights and obligations that you had before the notice was issued. The suspension of any time limitation while the notice of deficiency was issued will not change when the notice is withdrawn.

After the notice is withdrawn, you cannot file a petition with the Tax Court based on the notice. Also, the IRS can later issue a notice of deficiency in a greater or lesser amount than the amount in the withdrawn deficiency.

Generally, the Tax Court hears cases before any tax has been assessed and paid; however, you can pay the tax after the notice of deficiency has been issued and still petition the Tax Court for review. If you do not file your petition on time, the proposed tax will be assessed, a bill will be sent, and you will not be able to take your case to the Tax Court. Under the law, you must pay the tax within 21 days (10 business days if the amount is $100,000 or more). Collection can proceed even if you think that the amount is excessive. Publication 594 explains IRS collection procedures.

If you filed your petition on time, the court will schedule your case for trial at a location convenient to you. You can represent yourself before the Tax Court or you can be represented by anyone admitted to practice before that court.

Taxmap/pubs/p556-001.htm#TXMP5c73565b Small tax case procedure.

If the amount in your case is $50,000 or less for any one tax year or period, you can request that your case be handled under the small tax case procedure. If the Tax Court approves, you can present your case to the Tax Court for a decision that is final and that you cannot appeal. You can get more information regarding the small tax case procedure and other Tax Court matters from the United States Tax Court, 400 Second Street, N.W., Washington, DC 20217. More information can be found on the Tax Court's website at www.ustaxcourt.gov.

Taxmap/pubs/p556-001.htm#TXMP06faab6f Motion to request redetermination of interest.

In certain cases, you can file a motion asking the Tax Court to redetermine the amount of interest on either an underpayment or an overpayment. You can do this only in a situation that meets all of the following requirements.

1. The IRS has assessed a deficiency that was determined by the Tax Court.
2. The assessment included interest.
3. You have paid the entire amount of the deficiency plus the interest claimed by the IRS.
4. The Tax Court has found that you made an overpayment.

You must file the motion within one year after the decision of the Tax Court becomes final.

Taxmap/pubs/p556-001.htm#TXMP15d2ca7b District Court and Court of Federal Claims

Generally, the District Court and the Court of Federal Claims hear tax cases only after you have paid the tax and filed a claim for a credit or refund. As explained later under Claims for Refund, you can file a claim with the IRS for a credit or refund if you think that the tax you paid is incorrect or excessive. If your claim is totally or partially disallowed by the IRS, you should receive a notice of claim disallowance. If the IRS does not act on your claim within 6 months from the date you filed it, you can then file suit for a refund.

You generally must file suit for a credit or refund no later than 2 years after the IRS informs you that your claim has been rejected. However, you can file suit if it has been 6 months since you filed your claim and the IRS has not yet delivered a decision.

You can file suit for a credit or refund in your United States District Court or in the United States Court of Federal Claims. However, you cannot appeal to the United States Court of Federal Claims if your claim is for credit or refund of a penalty that relates to promoting an abusive tax shelter or to aiding and abetting the understatement of tax liability on someone else's return.

For information about procedures for filing suit in either court, contact the Clerk of your District Court or of the United States Court of Federal Claims. For information on District Court review of Appeals determinations with respect to lien notices and proposed levies, see Publication 1660.

Taxmap/pubs/p556-001.htm#TXMP213f1839 Refund or Credit of Overpayments Before Final Determination

Credit, Refund

Any court with proper jurisdiction, including the Tax Court, can order the IRS to refund any part of a tax deficiency that the IRS collects from you during a period when the IRS is not permitted to assess that deficiency, or to levy or engage in any court proceeding to collect that deficiency. In addition, the court can order a refund of any part of an overpayment determined by the Tax Court that is not at issue on appeal to a higher court. The court can order these refunds before its decision on the case is final.

Generally, the IRS is not permitted to take action on a tax deficiency during:

1. The 90-day (or 150-day if outside the United States) period that you have to petition a notice of deficiency to the Tax Court, or
2. The period that the case is under appeal if a bond is provided.

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