Taxpayer Prevails in Recovering Almost 100% of Attorney Fees and Costs

(Parker Tax Publishing December 2025)

A district court held that a taxpayer, who won a suit against the IRS in which she eventually received tax refunds and interest relating to earned income and child tax credits, satisfied the requirements under Code Sec. 7430 for an award of almost all of the attorney's fees and costs relating to the litigation. The court rejected the IRS's argument that it should use its discretion inherent in the permissive language of Code Sec. 7430(a) to deny the taxpayer's request for attorney's fees in its entirety. Greenwald v. U.S., 2025 PTC 356 (S.D. Ohio 2025).

Background

Crystal Greenwald filed a 2020 Form 1040 reporting an adjusted gross income of $11,324 and $0 in tax liability. She claimed a total refund of $8,196, representing a $5,920 earned income tax credit, a $2,050 additional child tax credit, and a credit of $226 for federal tax withholdings. The IRS refunded the $226 but not the earned income or additional child tax credits. The IRS denied these credits on grounds that Greenwald failed to substantiate that she was the custodial parent of both children and that they lived with her for more than six months in the tax year.

Greenwald appealed this decision and filed another refund claim in June 2022, again claiming the credits that the IRS disallowed from her 2020 return. On June 14, 2024, her appeal was denied. According to Greenwald, a few days after she began her appeal, she submitted a qualified offer under Code Sec. 7430(g) to the IRS by letter dated May 24, 2023. Postal Service tracking information indicated that this letter was delivered on May 27, 2023, to the IRS, P.O. Box 9045, Andover, MA 01810-9045. The signature of the recipient indicated that the mailing was received at "IRS, 310 Lowell." However, the IRS denied receiving Greenwald's qualified offer.

Greenwald then filed a complaint in a district court seeking a recovery of $7,970 plus statutory interest. Subsequently, Greenwald and the government filed a stipulation for dismissal of the case and, on May 6, 2025, the government issued to Greenwald the full requested amount of $7,970, plus $2,186 in statutory interest. In the notice, the government indicated that the payment was in accordance with the government's concession in Greenwald's district court case.

On May 30, 2025, Greenwald filed a motion for attorney's fees, seeking a minimum of $37,505 in attorney fees as a prevailing party under Code Sec. 7430. The IRS opposed the motion, arguing that Greenwald was not a prevailing party, did not make a qualified offer, and was not entitled to attorney's fees due to the settlement exception under Code Sec. 7430(c)(4)(E)(ii)(I).

Under Code Sec. 7430, a "prevailing party" may be awarded attorney's fees and costs against the government, provided that the prevailing party exhausted available administrative remedies before the IRS prior to beginning a civil proceeding and providing that the fees and costs are reasonable and not payable by any other party. Under Code Sec. 7430(c)(4)(A), the "prevailing party" must have "substantially prevailed" with respect to the amount in controversy and, under Code Sec. 7430(c)(4)(B), the position of the government must not have been "substantially justified."

Alternatively, under Code Sec. 7430(c)(4)(E), a party is treated as a "prevailing party" if the liability of the taxpayer pursuant to the judgment in the proceeding is equal to or less than the liability of the taxpayer which would have been so determined if the government had accepted a qualified offer of the party.

Analysis

The district court held that, while Greenwald was not a prevailing party under Code Sec. 7430(c)(4)(A) and Code Sec. 7430(c)(4)(B), she was a prevailing party under Code Sec. 7430(c)(4)(E).

Greenwald's refund claim, the court observed, turned on whether she was entitled to the earned income tax credit and the child tax credit for 2020. To be eligible for these credits, the court said, Greenwald needed to demonstrate that each one of her two children was a "qualifying child" under Code Sec. 156(c), which requires, among other things, that the children lived with Greenwald for more than one-half of the tax year. The IRS denied these credits on grounds that Greenwald failed to substantiate that she was the custodial parent of both children and that they lived with her for more than six months in the tax year.

In response, Greenwald had submitted documentation demonstrating that the two children in question were removed from her custody on August 1, 2020, by court order. The district court thus found that the IRS was substantially justified in concluding that Greenwald had not substantiated that her children lived with her for more than half the year and in denying her refund on that basis as she was not a prevailing party under Code Sec. 7430(c)(4)(A) and Code Sec. 7430(c)(4)(B).

The court then discussed whether Greenwald was a prevailing party as a result of her contention that she sent a qualified offer to the IRS. Under the qualified offer rule of Code Sec. 7430(c)(4)(E), the court noted, Greenwald would be a prevailing party if certain rules were met, including specific rules on the address to where the offer must be delivered. The court found that, on balance, the evidence suggested that Greenwald delivered a qualified offer to the appropriate office as required by the relevant statute and regulation. Although Greenwald's qualified offer was addressed to PO Box 9045 instead of 310 Lowell Street, the court noted that both addresses involve the same ZIP+4 code, and the USPS tracking records reflected that the letter was delivered to "IRS, 310 Lowell." Thus, the court concluded that Greenwald was a prevailing party under Code Sec. 7430(c)(4)(E).

Finally, the court addressed the last hurdle Greenwald needed to clear to obtain prevailing-party status - the provision in Code Sec. 7430(c)(4)(E)(ii)(I) that the qualified offer rule does not apply to any judgment issued pursuant to a settlement. In Greenwald's case, the court observed, the IRS did not accept her qualifying offer and the government's concession was not grounded in an agreement between the parties. Thus, the court said, Greenwald was a prevailing party under the Qualified Offer Rule for purposes of Code Sec. 7430(a).

The court then addressed the government's contention that Greenwald did not exhaust her administrative remedies prior to filing suit to obtain an award of attorney's fees because she failed to participate in the Appeals conference and provide documentation to substantiate her claim for credits. This failure, the IRS argued, showed her failure to actually participate in the appeals process. The court concluded that the pertinent regulation, Reg. Sec. 301.7430-1(b)(2), does not require Greenwald to have successfully persuaded the appeals officer that she was entitled to a refund in order to have participated in an Appeals office conference; it requires only that she provide the relevant information that was known, or should have been known, to her at the time of the conference.

Finally, the court found that Greenwald's request for the maximum statutory rate for her attorney's fees for legal services were reasonable considering her lawyer's credentials and many years of experience. However, the court noted that some hours were not compensable. For example, the court said, because Greenwald's prevailing party status was grounded in her qualified offer, Code Sec. 7430(c)(4)(e)(iii)(II) limits the compensable fees to only those fees incurred on and after the date of such offer. Second, the court agreed with the IRS that many of the billing entries contained insufficient detail to assess their reasonableness and subtracted the amounts relating to those entries. But, the court also observed that the results obtained by Greenwald's counsel are an important consideration and, where a plaintiff has obtained excellent results, the attorney should recover a fully compensatory fee. As a result, the court found a fee of $10,000 for drafting a Motion for Attorney's fees reasonable. Lastly, the court rejected the IRS's argument that it should use its discretion inherent in the permissive language of Code Sec. 7430(a) - that a "prevailing party may be awarded" attorney's fees - to deny Greenwald's request for attorney's fees in its entirety.

For a discussion of the rules for recovering litigation and administrative fees, see Parker Tax ¶263,540.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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