IRS Pays Taxpayer's Legal Bills - Tax Court Ruling

Chalk one up for the taxpayers.

Penalties—Taxpayer Awarded Attorneys' Fees after IRS Refuses to Abate Incorrect Assessment: A taxpayer, whose son lived with him most of the year, claimed Head of Household (HOH) filing status but did not claim his son as a dependent. (He and the child's mother had agreed that she could claim the dependency exemption.) The IRS issued a math error notice to the taxpayer, indicating that it had changed his filing status to single because the name of the dependent who qualified him for HOH status was not reported on the return. The taxpayer made a timely request for abatement and included the reasons for claiming HOH status. During a collection due process hearing, the IRS refused to abate the assessed tax, despite the taxpayer's support for filing as HOH (e.g., name and Social Security of his son). Upon filing a petition with the Tax Court, the IRS conceded to abate the assessment. The taxpayer requested reimbursement for his attorney's fees under IRC Sec. 7430(a), which the IRS challenged. The Court sided with the taxpayer because the taxpayer was the prevailing party, exhausted all administrative remedies available to him within the IRS, and did not unreasonably delay the proceedings. Michael Swiggart , TC Memo 2014-172 (Tax Ct.).