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Section 7430 was enacted to permit taxpayers to recover
their litigation costs if they prevail in the litigation. To
some extent, the enactment of section 7430 was intended to
encourage the Internal Revenue Service to take a reasonable
approach to settlement and/or litigation. The House report for
section 7430, which was enacted as part of the Tax Equity and
Fiscal Responsibility Act of 1982, Pub. L. 97-248, 96 Stat. 324,
contains the following explanation:
The committee believes that taxpayers who prevail in
civil tax actions should be entitled to awards for
litigation costs and attorneys’ fees up to $50,000 when
the United States has acted unreasonably in pursuing
the case. Fee awards in such tax cases will deter
abusive actions or overreaching by the Internal Revenue
Service and will enable individual taxpayers to
vindicate their rights regardless of their economic
circumstances. [Emphasis supplied.]
H. Rept. 97-404, at 11 (1981).
Interrelated with and complementary to that goal, Congress
required that taxpayers exhaust their administrative remedies.
The exhaustion of taxpayers’ administrative remedies is intended
to ensure that the Commissioner will have an opportunity to
evaluate the quality of taxpayers’ positions. In addition, the
exhaustion requirement is intended to prevent taxpayers from
intentionally presenting superficial information merely to enable
the recovery of costs under section 7430(b)(1). Accordingly, the
exhaustion requirement is integrally tied to the question of
whether the Commissioner’s position is justified.
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