AWARDING OF COSTS AND CERTAIN FEES IN ADMINISTRATIVE AND COURT PROCEEDINGS.

SEC. 6239. AWARDING OF COSTS AND CERTAIN FEES IN ADMINISTRATIVE AND COURT PROCEEDINGS. (a) In General.—Section 7430 of the 1986 Code is amended to read as follows: “SEC. 7430. AWARDING OF COSTS AND CERTAIN FEES. “(a) In General.—In any administrative or court proceeding which is brought by or against the United States in connection with the determination, collection, or refund of any tax, interest, or penalty under this title, the prevailing party may be awarded a judgment or a settlement for— 102 STAT. 3744 “(1) reasonable administrative costs incurred in connection with such administrative proceeding within the Internal Revenue Service, and “(2) reasonable litigation costs incurred in connection with such court proceeding. “(b) Limitations.— “(1) Requirement that administrative remedies be exhausted.—A judgment for reasonable litigation costs shall not be awarded under subsection (a) in any court proceeding unless the court determines that the prevailing party has exhausted the administrative remedies available to such party within the Internal Revenue Service. “(2) Only costs allocable to the united states.—An award under subsection (a) shall be made only for reasonable litigation and administrative costs which are allocable to the United States and not to any other party. “(3) Exclusion of declaratory judgment proceedings.— “(A) In general.—No award for reasonable litigation costs may be made under subsection (a) with respect to any declaratory judgment proceeding. “(B) Exception for section 501(c)(3) determination revocation proceedings.—Subparagraph (A) shall not apply to any proceeding which involves the revocation of a determination that the organization is described in section 501(c)(3). “(4) Costs denied where party prevailing protracts proceedings.—No award for reasonable litigation and administrative costs may be made under subsection (a) with respect to any portion of the administrative or court proceeding during which the prevailing party has unreasonably protracted such proceeding. “(c) Definitions.—For purposes of this section— “(1) Reasonable litigation costs.— The term ‘reasonable litigation costs’ includes— “(A) reasonable court costs, and “(B) based upon prevailing market rates for the kind or quality of services furnished— “(i) the reasonable expenses of expert witnesses in connection with a court proceeding, except that no expert witness shall be compensated at a rate in excess of the highest rate of compensation for expert witnesses paid by the United States, “(ii) the reasonable cost of any study, analysis, engineering report, test, or project which is found by the court to be necessary for the preparation of the party’s case, and “(iii) reasonable fees paid or incurred for the services of attorneys in connection with the court proceeding, except that such fees shall not be in excess of $75 per hour unless the court determines that an increase in the cost of living or a special factor, such as the limited availability of qualified attorneys for such proceeding, justifies a higher rate. “(2) Reasonable administrative costs.— The term ‘reasonable administrative costs’ means— “(A) any administrative fees or similar charges imposed by the Internal Revenue Service, and 102 STAT. 3745 “(B) expenses, costa, and fees described in paragraph (1)(B), except that any determination made by the court under clause (ii) or (iii) thereof shall be made by the Internal Revenue Service in cases where the determination under paragraph (4)(B) of the awarding of reasonable administrative costs is made by the Internal Revenue Service. Such term shall only include costs incurred on or after the earlier of (i) the date of the receipt by the taxpayer of the notice of the decision of the Internal Revenue Service Office of Appeals, or (ii) the date of the notice of deficiency. “(3) Attorney’s fees.—For purposes of paragraphs (1) and (2), fees for the services of an individual (whether or not an attorney) who is authorized to practice before the Tax Court or before the Internal Revenue Service shall be treated as fees for the services of an attorney. “(4) Prevailing party.— “(A) In general.—The term ‘prevailing party’ means any party in any proceeding to which subjection (a) applies (other than the United States or any creditor of the taxpayer involved)— “(i) which establishes that the position of the United States in the proceeding was not substantially justified, “(ii) which— “(I) has substantially prevailed with respect to the amount in controversy, or “(II) has substantially prevailed with respect to the most significant issue or set of issues presented, and “(iii) which meets the requirements of the 1st sentence of section 2412(d)(1)(B) of title 28, United States Code (as in effect on October 22, 1986) except to the extent differing procedures are established by rule of court and meets the requirements of section 2412(d)(2)(B) of such title 28 (as so in effect). “(B) Determination as to prevailing party.—Any determination under subparagraph (A) as to whether a party is a prevailing party shall be made by agreement of the parties or— “(i) in the case where the final determination with respect to the tax, interest, or penalty is made at the administrative level, by the Internal Revenue Service, or “(ii) in the case where such final determination is made by a court, the court. “(5) Administrative proceedings.—The term ‘administrative proceeding’ means any procedure or other action before the Internal Revenue Service. “(6) Court proceedings.—The term ‘court proceeding’ means any civil action brought in a court of the United States (including the Tax Court and the United States Claims Court). (7) Position of United States.— The term ‘position of the United States’ means— “(A) the position taken by the United States in a judicial proceeding to which subsection (a) applies, and “(B) the position taken in an administrative proceeding to which subsection (a) applies as of the earlier of— 102 STAT. 3746 “(i) the date of the receipt by the taxpayer of the notice of the decision of the Internal Revenue Service Office of Appeals, or “(ii) the date of the notice of deficiency. “(d) Special Rules for Payment of Costs.— “(1) Reasonable administrative costs.—An award for reasonable administrative costs shall be payable out of funds appropriated under section 1304 of title 31, United States Code. “(2) Reasonable litigation costs.—An award for reasonable litigation coats shall be payable in the case of the Tax Court in the same manner as such an award by a district court. “(e) Multiple Actions.—For purposes of this section, in the case of— “(1) multiple actions which could have been joined or consolidated, or “(2) a case or cases involving a return or returns of the same taxpayer (including joint returns of married individuals) which could have been joined in a single court proceeding in the same court, such actions or cases shall be treated as 1 court proceeding regardless of whether such joinder or consolidation actually occurs, unless the court in which such action is brought determines, in its discretion, that it would be inappropriate to treat such actions or cases as joined or consolidated. “(f) Right of Appeal.— “(1) Court proceedings.—Ad order granting or denying (in whole or in part) an award for reasonable litigation or administrative costs under subsection (a) in a court proceeding, may be incorporated as a part of the decision or judgment in the court proceeding and shall be subject to appeal in the same manner as the decision or judgment. “(2) Administrative proceedings.—A decision granting or denying (in whole or in part) an award for reasonable administrative costs under subsection (a) by the Internal Revenue Service shall be subject to appeal to the Tax Court under rules similar to the rules under section 7463 (without regard to the amount in dispute).” (b) Conforming Amendment.—Section 504 of title 5, United States Code, is amended by adding at the end thereof the following new subsection: “(f) No award may be made under this section for costs, fees, or other expenses which may be awarded under section 7430 of the Internal Revenue Code of 1986.” (c) Clerical Amendment.—The table of sections for subchapter B of chapter 76 of the 1986 Code is amended by striking out “court” in the item relating to section 7430. (d) Effective Date.—The amendments made by this section shall apply to proceedings commencing after the date of the enactment of this Act.