Making the Most of Qualified Offers

By Kristine R. Wolbach, CPA, McDirmid, Mikkelsen & Secrest, P.S., Spokane, WA

Editor: John L. Miller, CPA

In June 2009, with the issuance of Chief Counsel Notice CC-2009-018, the IRS chief counsel updated internal procedures relating to awarding payment of representation and litigation costs awards where a taxpayer is the prevailing party in any court proceeding that determines tax or penalties under Sec. 7430. One little-used option for resolving tax issues while in IRS Appeals is to submit a qualified offer under Sec. 7430(g). Besides making the taxpayer eligible for an award of costs, the submission of a qualified offer will often focus the IRS’s attention on the taxpayer’s case and perhaps lead to an acceptable resolution.

The taxpayer has an option to make a qualified offer to settle a case while the case is still in Appeals. If the taxpayer is held to be the prevailing party in a subsequent court proceeding and is held liable to pay an amount equal to or less than the qualified offer amount, the federal government must pay the taxpayer’s reasonable litigation fees. Reimbursable costs include costs of representation incurred by the taxpayer after the date of the offer.

Due to the potential litigation costs the government could incur, the IRS has amended its procedures to evaluate qualified offers. The IRS Appeals officer must refer any qualified offers he or she receives to an IRS field counsel. The IRS counsel will then transmit a copy of the offer to the IRS Procedure and Administration Branch for review and approval. If the field counsel believes the IRS should accept the offer, he or she must prepare a memorandum setting forth the reasons for accepting the offer. The field counsel must prepare a formal written acceptance or rejection of the qualified offer.

By submitting a qualified offer under Sec. 7430(g), a taxpayer can make sure that an issue that he or she considers of high significance now has the attention of competent legal authorities within the IRS. What may have been a throwaway issue to an IRS Appeals officer now garners the attention of an attorney. The submission of the qualified offer to Appeals should be considered at the point when negotiations have reached an end. It is an appropriate method of resolving a case when the practitioner determines that the client should have received a more favorable outcome.

Before submitting a qualified offer, the practitioner should consider referring an unresolved case to the Appeals manager or perhaps the manager’s supervisor for resolution of issues. In practice areas where a practitioner is likely to deal with a manager on a repeat basis, the practitioner may wish to consider the potential for later retribution before referring the matter to the manager’s supervisor. Referring the matter to the Appeals manager for review is the primary remedy for improper processes within Appeals.

The qualified offer must meet specified criteria governing the applicant and the application. The individual applicant must have a net worth of less than $2 million ($4 million for a joint return), and businesses are restricted to a net worth of $7 million. The applicant must have exhausted his or her administrative remedies. The taxpayer must make the offer during the qualified offer period, which begins when the first letter of the proposed deficiency is sent and ends 30 days before the case is scheduled for trial. The taxpayer may make multiple offers; however, any new offer will supersede the prior offer.

The qualified offer must clearly state that it is being made for purposes of Sec. 7430(g).The amount of the offer must be one that would fully satisfy the tax liability. The taxpayer can express the offer as a dollar amount or as a percentage of the proposed adjustment. The specific requirements for making a qualified offer are in Regs. Sec. 301.7430-7.

While most contacts with Appeals satisfy the taxpayer’s rights to an independent review, not all Appeals cases result in a satisfactory outcome. Appeals officers may rely on their instructions to “decline to settle some cases or issues . . . in order to achieve greater uniformity and enhance overall voluntary compliance with the tax laws” (IRM Section, particularly in the area of penalty relief. Taxpayers may assert that settlement relief is available due to various tax theories, such as mitigation principles or that a payment is equivalent to a payment of a cash bond. If an Appeals officer inappropriately discounts a taxpayer’s application of the law, the practitioner should consider the use of a qualified offer to facilitate settlement of the case.

The Appeals officers can be the tax professional’s last recourse for justice for the taxpayer. Service Center correspondence auditors and underreported units are trained to issue the accuracy penalty but not to examine the unique situations that govern the reasonable cause exceptions relative to the individual taxpayer. Practitioners’ use of the qualified offer may provide a balance to the current system, which too often does not consider the unique facts and law that apply to a taxpayer’s circumstances.


John Miller is a faculty instructor at Metropolitan Community College in Omaha, NE. Kristine Wolbach is a CPA with McDirmid, Mikkelsen & Secrest, P.S., in Spokane, WA. Mr. Miller and Ms. Wolbach are members of the AICPA Tax Division’s IRS Practice and Procedures Committee. For further information about this column, contact Mr. Miller at

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