What Is the 7430 Tax Credit and How Can You Qualify for It?

The 7430 tax credit helps taxpayers recover costs incurred in IRS disputes, providing financial relief to individuals and businesses that successfully challenge the agency’s position in administrative or court proceedings.

Qualifying Costs

Expenses eligible for reimbursement must be directly related to contesting an IRS decision and reasonably incurred during the process.

Administrative Expenses

Recoverable out-of-pocket costs include postage for mailing documents, photocopying fees, and expenses for obtaining IRS transcripts or reports. Fees for administrative hearings and Freedom of Information Act (FOIA) requests necessary for case preparation may also qualify.

Hiring a tax professional to draft correspondence or prepare appeals can be included, provided detailed records such as receipts and invoices are maintained. The IRS requires thorough documentation to substantiate any claim.

Professional Fees

Legal and tax advisory costs, including fees for attorneys, certified public accountants (CPAs), and enrolled agents, are often reimbursable. Fees for expert witnesses, such as forensic accountants, may also be covered.

The IRS requires that these fees be reasonable and directly tied to the dispute. Excessive or unrelated charges will not qualify. Invoices should clearly outline services provided, hourly rates, consultation hours, and case-related expenses to strengthen a reimbursement claim.

Court-Related Charges

If a dispute escalates to litigation, eligible expenses may include filing fees in U.S. Tax Court, U.S. District Court, or the Court of Federal Claims. Costs for certified copies of court records, hearing transcripts, and depositions may also qualify.

Travel costs for attending court proceedings may be considered if necessary and reasonable. Expenses for expert testimony, such as financial analysts or valuation specialists, may also be reimbursed. Since courts impose strict rules on eligible costs, taxpayers should review court orders and relevant tax code provisions before filing a claim.

Eligibility Criteria

To qualify for reimbursement, a taxpayer must be the prevailing party, meaning they substantially won their argument against the IRS through an administrative resolution or court ruling. However, if the IRS can prove its position was “substantially justified”—meaning it had a reasonable basis in fact and law—the taxpayer may be ineligible for reimbursement.

Financial eligibility also applies. Individuals must have a net worth below $2 million when filing, while businesses and certain organizations face a $7 million threshold. Partnerships, estates, and trusts must meet specific ownership and asset requirements. Exceeding these limits automatically disqualifies a taxpayer, regardless of the case’s outcome.

The IRS’s conduct during the dispute is another factor. If the agency acted in bad faith, caused unreasonable delays, or failed to follow proper procedures, it strengthens a taxpayer’s claim. Courts have ruled in cases like Kenney v. United States (2011) that excessive delays or unjustified legal positions can justify cost recovery. Conversely, if a taxpayer engaged in frivolous arguments or failed to provide necessary documentation, their claim may be denied.

Steps for Filing

Submitting a claim requires thorough documentation and adherence to IRS procedures. Taxpayers must compile a detailed record of reimbursable expenses, supported by invoices, receipts, and billing statements. Without proper documentation, the IRS may deny or reduce the claim. A written explanation linking each expense to specific dispute-related actions helps demonstrate necessity and reasonableness.

Claims are typically submitted with IRS Form 843, “Claim for Refund and Request for Abatement,” specifying that the request pertains to costs under 26 U.S. Code 7430. The form should include a statement outlining the dispute, its resolution, and why the IRS’s position was not substantially justified. If court-related expenses are involved, taxpayers may need to file a motion for costs with the court that handled the case, following jurisdiction-specific deadlines and evidentiary requirements.

The IRS reviews claims and determines reimbursement eligibility, a process that can take months, especially if additional documentation is requested. If a claim is denied, taxpayers can appeal through the IRS Appeals Office or petition the appropriate court. A tax professional can help navigate procedural complexities and present a stronger case for reimbursement.