When you’re in a tax dispute with the IRS, the costs of litigation can add up quickly. Fortunately, Congress created a tool called the Qualified Offer under IRC §7430(g)(1). If used correctly, it can not only help you settle your case but also shift the burden of attorney’s fees to the IRS if they reject your reasonable offer and you later prevail.
What Is a Qualified Offer?
A Qualified Offer is a written settlement proposal made by a taxpayer during an IRS dispute. If the IRS rejects it and the court later rules in your favor with a result equal to or better than your offer, you may be entitled to recover your reasonable attorney’s fees and litigation costs from the date of the offer onward.
Requirements Under IRC §7430(g)(1)
For an offer to qualify, it must meet all of the following statutory requirements:
- Written Form – The offer must be in writing.
- Specific Amount – It must specify the taxpayer’s liability (not including interest) that they are willing to settle for.
- Proper Recipient – It must be made to the United States (i.e., the IRS or Department of Justice attorney handling the case).
- Timing – It must be made during the “qualified offer period,” which begins on the date the IRS issues a notice of deficiency and ends 30 days before the case is first set for trial.
- Open Period – The offer must remain open until either the IRS rejects it, or 90 days have passed, whichever comes first.
If these requirements are not met, the offer will not be treated as a Qualified Offer under the statute.
Attorney Fee Reimbursement Rate
If you prevail under the Qualified Offer rule, the IRS must pay your reasonable attorney’s fees. However, there is a statutory hourly cap:
- For 2025, the cap is $250 per hour, adjusted annually for inflation.
- Courts may approve higher rates if “special factors” apply, such as the need for specialized tax expertise.
- Reimbursement only covers fees and costs incurred on or after the date of the Qualified Offer.
This means that even if your attorney charges $400/hour, you may only be reimbursed at $250/hour unless you can prove that a higher rate is justified.
Example: How a Qualified Offer Works
Imagine you receive a Notice of Deficiency stating you owe $100,000 in additional taxes. You and your attorney believe the correct liability is closer to $40,000.
- You submit a Qualified Offer to settle for $40,000.
- The IRS rejects your offer.
- You go to Tax Court, and the judge rules your liability is $35,000.
Because the court’s judgment ($35,000) is equal to or less than your Qualified Offer ($40,000), you are treated as the prevailing party. Under IRC §7430, the IRS must reimburse your reasonable attorney’s fees (at the statutory rate) and litigation costs incurred from the date of your offer onward.
Why This Matters
- A Qualified Offer can level the playing field in disputes with the IRS.
- It gives you leverage in settlement negotiations.
- It can dramatically reduce your out-of-pocket legal costs if the IRS refuses a reasonable settlement.
Final Takeaway
The Qualified Offer is one of the most powerful—but underused—tools available to taxpayers. By meeting the strict requirements of IRC §7430(g)(1), you not only strengthen your negotiating position but also protect yourself from runaway legal costs. If you’re facing a serious IRS dispute, consulting a tax attorney about whether to make a Qualified Offer could save you thousands.
Disclaimer:
This post does not constitute legal advice and does not create an attorney-client relationship, it is merely a general discussion of points of the law and may not be complete or up to date. Please contact our office for a consultation to discuss how tax laws may be relevant to your specific situation.