Fees for CPAs and attorneys are recovered by taxpayers at the same rate.

The Tax Court has held that under Sec. 7430, the rate of an accountant's fees recoverable by taxpayers prevailing in a tax controversy is the same rate of fees that may be recovered for their attorney's services. In Cozean, 109 TC No. 10 (1997)--a case filed before changes made to the fee schedule by the Taxpayer Bill of Rights 2 (TBOR2)--the court concluded that the taxpayer's recovery of fees for services of both his attorney and accountant was limited to an adjusted rate of $104 per hour.

In 1995, after the Service determined deficiencies in Robert Cozean's returns for 1990-1992, Cozean filed a petition with the Tax Court. After the case was docketed but before trial, an IRS Appeals conference was held; eventually, the Service conceded the case. Cozean then filed a motion for an award of litigation costs. During the IRS's examination and at Appeals, Cozean had been represented by both an attorney and an accountant.

The parties agreed that Cozean had met the criteria--including the net worth limitation and prevailing party requirements--for an award of fees under Sec. 7430; the only question was the correct amount of fees recoverable. Cozean requested the court to award total litigation costs of about $24,000; of this amount, 65 hours were attributable to attorney's fees (at an hourly rate of $250) and 30 hours were for the CPA's fees (billed at an hourly rate of $170).

The Service contested the fees because they exceeded the adjusted $104 hourly rate cap then in effect. According to the IRS, Cozean had not shown that there were special circumstances warranting more than this hourly rate for his attorney's services. Moreover, the Service claimed that since the compensation rate for attorneys could not exceed $104 per hour, a similar limitation applied to the accountant's charges.

The Tax Court agreed with the IRS. The Tax Court explained that an expertise in tax law was not a special factor warranting an enhanced rate of attorney's fees. Concerning the accountant's fees, the Tax Court pointed out that, under Sec. 7430(c)(3), the same rates apply to any person authorized to practice in the Tax Court or before the Service. Because the CPA was authorized to practice before the IRS, his fees were to be treated as fees of an attorney and were subject to the same statutory cap. In reaching this conclusion, the Tax Court noted that the accountant had similarly not shown any special factors warranting a departure from the then-applicable $104 per hour rate.

Comments

After Cozean initiated this Tax Court proceeding, the rate of fees was increased to $110 per hour by the TBOR2, effective for proceedings commenced after July 30, 1996. Specifically, TBOR2 provided that the statutory rate will be adjusted automatically for inflation under a formula, rather than at the court's discretion. For calendar year 1997, the Service has determined that the formula did not require an adjustment for the cost of living; i.e., the hourly limit remains $110, absent a "special factor."