Can a Tax Attorney Recover Attorney’s Fees from the IRS for their Own Case? – Houston Tax Attorneys

The IRS administrative process is intended to catch incorrect tax returns and make adjustments to fix the returns. This includes false and fraudulent tax returns as well as those with honest errors.

This includes an IRS audit function, and IRS appeals function, and IRS counsel function. And each step has a management oversight function and most have a review function. There are other side functions that can also review the case, such as the taxpayer advocate service and the local taxpayer service centers.

Each of these steps can be an “out” in the administrative process. The process is set up so that taxpayers have to act to get their tax return out of the administrative process. Thus, at the administrative level, the IRS says there is more tax due and the taxpayer has the burden to prove otherwise, basically.

So one would think that the IRS would get it right. This is particularly true where the taxpayer took steps to prove that the IRS was wrong during the administrative process.

When the IRS gets it wrong and litigation is necessary, Congress provided for an award of attorneys fees when taxpayers litigate and substantially prevail. The question addressed in this post is whether any of this changes if the taxpayer whose return is audited happens to be a tax attorney? Should they lose their ability to recover attorneys fees just because they pay their own law firm for the work to correct the IRS’s error? This was the issue in Price v. Commissioner, No. 25989-22 (11th Cir. Dec. 12, 2025).

Facts & Procedural History

Price and her husband, Winkler, received a notice of deficiency from the IRS in September 2022. The IRS claimed they owed $696 in income tax for their jointly filed 2019 return. Winkler is an attorney who operates has his own law firm.

After receiving the deficiency notice, Winkler sent himself and Price a client engagement letter for legal services through his law firm. He then filed a joint petition in U.S. Tax Court challenging the deficiency determination. Winkler signed the petition as attorney for both parties and handed the tax litigation. Eventually, the IRS conceded that Price and Winkler owed no deficiency at all.

Having prevailed completely, Winkler filed a motion on behalf of Price seeking $6,087 in attorney’s fees and $60 for the filing fee under Section 7430. The motion included an invoice dated February 7, 2024, for legal services covering work performed since November 13, 2022. On February 20, 2024, Price wrote a personal check to her husband’s law firm for the invoiced amount.

The U.S. Tax Court denied the request for attorney’s fees but awarded the $60 filing fee. The court reasoned that pro se attorneys cannot recover for self-representation, and that Price did not actually pay any fees because the payment was “back to the same household.” The court found this arrangement “negates any cost she would be expected to bear individually.” Price appealed to the Eleventh Circuit.

The Attorney’s Fee Shifting Statute

Section 7430 of the tax code provides that a prevailing party in a tax court deficiency proceeding may be awarded a judgment for “reasonable litigation costs incurred.” The statute defines reasonable litigation costs to include “reasonable fees paid or incurred for the services of attorneys in connection with the court proceeding.”

Congress enacted this provision to level the playing field between taxpayers and the IRS. The government has unlimited resources and an entire bureaucracy dedicated to tax audits and litigation. Individual taxpayers must pay out of pocket for representation. When the IRS pursues a deficiency that turns out to be wrong, forcing the taxpayer to hire counsel, Section 7430 allows the taxpayer to recover those costs.

The fee-shifting provision serves several purposes. It encourages the IRS to be more careful before issuing deficiency notices and settling cases sooner rather than later. It compensates taxpayers who were wrongly pursued by the government. It removes the economic disincentive to challenge incorrect IRS determinations. Without fee shifting, many taxpayers might simply pay an incorrect tax assessment rather than spend money on attorneys to fight it.

What Does “Paid or Incurred” Actually Mean?

The statute includes language requiring fees to be “paid or incurred.” Courts have read this requirement narrowly. It has been interpreted to mean that Section 7430 compensates only actual out-of-pocket expenses or debts that must be paid.

In United States v. McPherson, 840 F.2d 244, 245 (4th Cir. 1988), the Fourth Circuit explained that the provision was designed to reimburse parties for actual costs incurred. The Ninth Circuit agreed in Corrigan v. United States, 27 F.3d 436, 438-39 (9th Cir. 1994), stating that Section 7430 is designed to reimburse a party for actual costs. The U.S. Tax Court made the same point in Frisch v. Commissioner, 87 T.C. 838, 845-46 (1986), holding that Section 7430 is limited to actual expenditures.

This interpretation led to the rule that pro se attorneys cannot recover fees for the value of their own services. Lost opportunity costs are not fees paid or incurred within the meaning of Section 7430. Minahan v. Commissioner, 88 T.C. 516, 519 (1987). Courts have even reasoned that a lawyer representing herself is not considered an “attorney” in her own case for purposes of fee recovery. The rationale is that a pro se attorney has not actually spent money. She has only invested her own time, which is an opportunity cost rather than a cash outlay. But this logic breaks down when we consider payments between related parties.

What About Related Parties?

For related parties, the tax court in Minahan went further than simply denying recovery for pro se representation. In that case, the taxpayer attorney paid fees to his own law firm in which he had an equity interest. The court found that “payment to the law firm was in fact payment to himself and not a fee actually incurred.” Minahan, 88 T.C. at 519.

This holding established that even when a taxpayer actually writes a check, courts will look beyond the form of the transaction to its economic substance. Courts examine who the payment was rendered to and apply the principle that tax law looks to the objective economic realities of a transaction rather than to the particular form the parties employed.

The Price court extended this reasoning to payments between spouses. The Eleventh Circuit found that Price’s payment to her husband’s law firm did not constitute actual costs under Section 7430. The court noted several factors supporting this conclusion: Winkler performed the exact same work for Price as he did for himself; the invoice was prepared on the same day the fee motion was filed; and the payment went back to the same household.

The court never considered the economic reality from Price’s perspective. Had Winkler not spent time representing the couple in this tax dispute, he could have used those same hours working on paying client matters. The couple would have been financially better off. From this view, the opportunity cost was real and measurable. Price bore half of that economic loss. She effectively paid for her representation through the foregone income her husband could have earned during the hours he spent fighting the IRS’s incorrect deficiency notice. Under this analysis, Price should have recovered at least half of the attorney’s fees—the portion representing her share of the actual economic cost the household absorbed.

The Takeaway

The IRS maintains an expensive, taxpayer-funded process designed to reach correct tax determinations before litigation. When that process fails and taxpayers must go to court to prove the IRS wrong, they should be able to recover their attorney’s fees. Congress recognized this and enacted an attorneys fee statute for this very purpose. The Price decision creates an exception to fee shifting that, ultimately, forgives the IRS for its own mistakes and penalizes taxpayers for making economically rational choices to hire tax attorneys to correct the IRS error. This outcome seems far removed from what Congress intended when it gave prevailing taxpayers the right to shift their costs back to the government that wrongly pursued them. For married attorneys, they should consider whether fee recovery is even possible before taking the case. The solution may be to hire an outside tax attorney.