Bankruptcy Lawyers: If You Want Attorneys’ Fees From the IRS, Exhaust Your Administrative Remedies

When creditors violate the rules of bankruptcy, the debtor’s lawyer can make them pay the debtor’s legal fees. This is allowed by the Bankruptcy Code. A new law called 26 U.S.C. §6330 may also affect how the IRS pays legal fees in bankruptcy cases. The IRS sometimes violates the automatic stay in bankruptcy cases, which can result in the court awarding damages and fees to the debtor’s counsel. The 11th Circuit has ruled that attorneys’ fee award procedures for violations apply in bankruptcy cases. In 1998, Congress passed a law giving delinquent taxpayers the right to appeal before the IRS could seize their property, allowing them to challenge the collection actions and present alternative options. This appeal is heard by the IRS Office of Appeals in an informal process. If you disagree with the IRS appeals officer’s decision about your taxes, you can ask a court to review it. The type of tax you owe determines which court you go to. If it’s income or estate/gift tax, you go to the Tax Court in Washington, D.C. If it’s employment taxes or a penalty, you go to a U.S. District Court. These rules started in 1999. In a case in Alabama, the court made the IRS pay damages to people whose bank account it tried to take money from, even though they were in bankruptcy. The court said they could get money for medical costs and other expenses, but not for stress. The U.S. said that people who owe money to the government can’t get money for their lawyers unless they first go through a process called administrative remedies. The court agreed and said that the people didn’t go through this process so they can’t get any money for their lawyers. It’s important for lawyers to consider going through the administrative process before asking for money for their clients. This process could help solve the problem without having to go to court. People can get the forms they need for the administrative process on the IRS website. It’s a good idea to try this process before filing for bankruptcy. A 1997 survey found that six percent of people who filed for bankruptcy said taxes caused their financial troubles. There have been several legal cases related to taxes and bankruptcy, and taxpayers can appeal to the IRS if they have a dispute. Taxpayers are sometimes represented by accountants when dealing with the IRS. There are specific laws and regulations about seeking damages from the IRS, and there are also limits on what can be claimed in court. If a person has a problem with a government agency like the IRS, they can contact the U.S. attorney’s office or the IRS counsel office for help. They should have the documents they received from the IRS, their bankruptcy case number, and their Social Security or tax ID number ready. The author of the article is a lawyer who has worked in different legal roles and is now an assistant U.S. attorney in Alabama. This article is not necessarily the opinion of the U.S. Attorney’s Office, the Department of Justice, or the IRS. It is submitted by the Tax Section.

Source: https://www.floridabar.org/the-florida-bar-journal/bankruptcy-lawyers-if-you-want-attorneys-fees-from-the-irs-exhaust-your-administrative-remedies/