Unveiling Injustice: An Analysis of IRC Section 7430 and the Quest for Fairness in Taxpayer Administrative and Judicial Proceedings with the IRS

The American rule and doctrine of sovereign immunity are serious barriers affecting access to justice for individuals and small businesses. In this Article, we explore the legislative history of and evolution of the amendments to section 7430 of the Internal Revenue Code, which allows prevailing taxpayers in tax proceedings who meet certain substantive and procedural requirements to recover their attorneys’ fees and costs. We also examine in depth the requirements under section 7430 for recovering administrative and litigation costs, looking at select judicial decisions at how these requirements have been applied, including decisions applying the statutory limitations on attorneys’ fees recoverable, limiting the recoverability of fees by pro se litigants, determining the effect of the bifurcation requirement on recoverability, applying the substantially prevailed standard in the context of both the amount in controversy and significant issues presented, determining whether the position of the government is substantially justified, and imposing the net worth requirement for standing. We conclude with recommendations to improve section 7430 with needed clarity and fairness to further level the playing field between the prevailing taxpayer and the government in tax proceedings when it comes to the taxpayers’ recovery of attorneys’ fees and costs.