Paul L. Caron

Wednesday, November 17, 2010

2d Cir.: Attorney Who Pevails in Personal Tax Case Cannot Recover Attorneys' Fees From IRS

The Second Circuit has held that an attorney who prevails in his presonal tax case cannot recover attorneys' fees under § 7430. United States v. Hudson, No. 09-3600 (2d Cir. Nov. 10, 2010):

In other statutory contexts, this Court has ruled that a lawyer appearing pro se is not entitled to attorney’s fees. But we have not previously considered whether a lawyer appearing pro se is entitled to fees under § 7430. ...

[J]oining our sister Circuits that have considered this provision of the IRC, see McCormack v. United States, 891 F.2d 24, 25 (1st Cir. 1989) and United States v. McPherson, 840 F.2d 244, 245 (4th Cir. 1988), we  hold that lawyers appearing pro se who prevail in administrative or court proceedings against the United States are ineligible for attorneys’ fees under § 7430. ...

In holding that Mr. Hudson is ineligible to receive attorney’s fees under the plain wording of § 7430, we join our sister Circuits that have addressed this issue, as well as the Tax Court, all of which have held that lawyers appearing pro se "did not pay any fees for legal services nor incur any debts which remain outstanding." McPherson, 840 F.2d at 245; see Frisch, 87 T.C. at 845-47 (“The simple truth is that the plain language of § 7430 cannot be read to include lost opportunity costs, but is limited to actual expenditures . . . . In representing himself,  petitioner did not become liable to another person for attorney fees nor did he bring down upon himself any debt.”).

While Mr. Hudson did expend time and effort to litigate (successfully) the issue of the IRS’s interest assessment on the settlement amount, he paid no out-of-pocket expenses and incurred no obligation for the services of an attorney and therefore is not entitled to attorney’s fees pursuant to § 7430....

The policy underlying statutes such as § 7430 is to incentivize litigants to retain counsel in order to prevent overreaching by the IRS; awarding pro se litigants attorneys’ fees would run counter to that policy by discouraging litigants who are lawyers from obtaining outside, independent counsel.
(Hat Tip: Justin Axelrod.)

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