Recovering attorney fees after beating the IRS in court isn’t the easiest of tasks.
Taxpayers can recover their legal costs if they substantially prevail on the issues, unless the government shows that its litigation position was substantially justified.
They also must have exhausted all administrative appeals at IRS before filing the suit. The maximum recoverable lawyer fees incurred in 2023 in tax cases are $230 an hour. Individuals with a net worth of $2 million or more can’t recover their legal costs from the IRS.
You’re out of luck if the IRS’s position in the underlying case is reasonable. Here, an LLC got a partial victory in Tax Court on the issue of whether its donation of a conservation easement on property, including a golf course, is deductible. The LLC then sued the Service for payment of legal costs. According to the Tax Court, the IRS’s position on the easement, although not ultimately correct, was reasonable and substantially justified.
Champions Retreat Golf Founders, TC Memo. 2023-134