Knudsen v. Commissioner, No. 13-72077 (9th Cir. 2015)
Annotate this CaseThe Tax Court issued its final order and decision, granting taxpayer relief from joint and several income tax liabilities and denied taxpayer’s motion for attorney’s fees and litigation costs. At issue was whether a unilateral concession by the IRS is a settlement, for purposes of the Qualified Offer Rule (QOR) of the Internal Revenue Code, codified at 26 U.S.C. 7430(c)(4)(E). In this case, taxpayer made a qualified offer to settle her tax liability. The IRS's concession that taxpayer was entitled to full relief and owed no tax liability is not a settlement within the meaning of section 7430(c)(4)(E)(ii)(I). The court concluded that the IRS was unwilling to settle this case on the terms and at the times offered by taxpayer, and the IRS cannot sidestep the consequences of such refusal by conceding the issues after taxpayer had effectively presented the case for disposition by the court. Accordingly, the court reversed the Tax Court's decision and found that taxpayer is a prevailing party for purposes of section 7430. The court reversed and remanded for the Tax Court to determine costs and attorney's fees.
Court Description: Tax. The panel held that a unilateral concession by the Internal Revenue Service is not a settlement for purposes of the Qualified Offer Rule, reversed a Tax Court decision denying attorneys’ fees and litigation costs, and remanded for determination of such costs and fees to be awarded to taxpayer as a prevailing party for purposes of 26 U.S.C. § 7430. Taxpayer made a qualified offer to settle her petition for judicial review of the IRS’s denial of innocent spouse relief. The IRS allowed the offer to expire, but later conceded taxpayer’s entitlement to such relief. The panel explained that, given that the purpose of the Qualified Offer Rule is to encourage settlements by imposing litigation costs on the party not willing to settle and that the IRS was unwilling to settle this case on the terms and at the times offered by taxpayer, the IRS cannot subsequently sidestep the consequences of such refusal by conceding the issues after taxpayer had effectively presented her case for disposition by the Tax Court. Accordingly, the panel held that the concession was not a settlement within the meaning of § 7430(c)(4)(E)(ii)(I), and taxpayer was a prevailing party entitled to litigation costs. KNUDSEN V. CIR 3
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