As CPAs and Enrolled Agents (EAs), understanding the standards for awarding administrative and litigation costs under 26 U.S.C. § 7430 is crucial, especially concerning the intricacies of the Qualified Offer Rule. The recent case of Crystal N. Greenwald v. United States of America, Civil Action 2:23-cv-4100 (S.D. Ohio, Oct. 23, 2025), provides a detailed examination of whether a government concession following a qualified offer constitutes a "settlement" that bars the recovery of attorney’s fees.

Factual Background and Taxpayer’s Request for Relief

Plaintiff Crystal N. Greenwald initiated a suit against the United States under 26 U.S.C. § 7422 for a refund related to her 2020 federal tax return. Greenwald filed a 2020 Form 1040, reporting an adjusted gross income of $11,324 and $0 in tax liability. She claimed a total refund of $8,196, comprising a $5,920 earned income tax credit, a $2,050 additional child tax credit, and a $226 credit for federal tax withholdings. While the IRS refunded the $226 withholding, it denied the tax credits.

In June 2022, Plaintiff filed a refund claim for the remaining $7,970, which was denied by the IRS on April 18, 2023. Following a denied appeal on June 14, 2024, Plaintiff filed a complaint in the United States District Court for the Southern District of Ohio on December 13, 2023, seeking recovery of the $7,970 plus statutory interest. Prior to filing suit, Plaintiff contended that she submitted a qualified offer under 26 U.S.C. § 7430(g) by letter dated May 24, 2023.

After participating in discovery and unsuccessful mediation, the parties filed a stipulation for dismissal on April 15, 2025. Subsequently, on May 6, 2025, the Defendant issued a Notice of Adjustment, allocating payment to Plaintiff for the full requested amount of $7,970, plus $2,185.81 in statutory interest, specifically referencing the concession of the government. Plaintiff then filed a Motion for Attorneys’ Fees under 26 U.S.C. § 7430, seeking a minimum of $37,505.00. The Defendant opposed the motion, arguing that the Plaintiff was not a prevailing party, failed to make a qualified offer, and was barred by the settlement exception under § 7430(c)(4)(E)(ii)(I).

Court’s Analysis of Prevailing Party Status Under § 7430(c)(4)(A)–(B)

To be awarded attorney’s fees under 26 U.S.C. § 7430(a), a taxpayer must first qualify as a “prevailing party”. The primary definition requires that the party substantially prevailed on the amount in controversy and demonstrate that the position of the United States was not “substantially justified” (§ 7430(c)(4)(A)–(B)).

The court acknowledged that Plaintiff substantially prevailed by obtaining the full refund amount sought in her Complaint. However, the analysis then turned to whether the IRS’s position was substantially justified. Plaintiff’s entitlement to the Earned Income Tax Credit (26 U.S.C. § 32(a)(1)) and the Child Tax Credit (26 U.S.C. § 24(a), (h)(2)) hinged on whether her children were "qualifying children" under 26 U.S.C. § 156(c), requiring, among other things, that they maintained the same principal place of abode as the Plaintiff for more than one-half of the taxable year (§ 156(c)(1)(B), (D)).

The IRS consistently denied the claim because Plaintiff failed to substantiate the requisite six months of residency. While Plaintiff submitted documentation showing the children were removed from her custody on August 1, 2020, and a lease agreement showing a move-in date of December 23, 2020, this evidence was deemed insufficient to establish the children lived with her for more than six months in 2020. The court concurred, finding that the IRS was substantially justified in denying the refund based on insufficient documentation. Therefore, Plaintiff was not a prevailing party under § 7430(c)(4)(A)–(B).

Analysis of the Qualified Offer Rule Under § 7430(c)(4)(E)

Since Plaintiff did not qualify under the primary standard, the court proceeded to assess whether she qualified as a prevailing party under the Qualified Offer Rule, 26 U.S.C. § 7430(c)(4)(E). This rule treats a party as prevailing if the taxpayer's liability under the judgment is equal to or less than the liability that would have resulted had the United States accepted the qualified offer (§ 7430(c)(4)(E)(i)). A "qualified offer" must be written, made during the qualified offer period, specify the offered amount of liability (here, $0 liability and an overpayment of $7,970), be designated as a qualified offer under § 7430(g), and remain open for the statutory period.

The Defendant did not dispute that the terms of Plaintiff’s offer satisfied the requirements of a qualified offer if it had been received. The central dispute lay in the delivery requirement and proof of receipt.

Application of the Qualified Offer Delivery Requirements

Plaintiff was directed by 26 C.F.R. § 301.7430–7(c)(2)(i) to deliver the qualified offer to the office or personnel with jurisdiction over the tax matter. Because Plaintiff could not have known which appeals officer was assigned on May 24, 2023, she was required to deliver the offer to the office that sent the first letter of proposed deficiency. This required office was located at 310 Lowell St., Stop 854, Andover, MA 01810-9045. Plaintiff addressed her offer to the PO Box 9045, Andover, MA 01810-9045.

Despite the PO Box address, United States Postal Service tracking information indicated that the mailing containing the qualified offer was delivered to “IRS, 310 Lowell” on May 27, 2023. The court noted that 26 C.F.R. § 301.7430-7(c)(2)(i)(D) mandates that a qualified offer be delivered to the appropriate address, not necessarily that it be addressed to a particular location. Finding that the evidence suggested Plaintiff delivered the qualified offer to the appropriate office, the court concluded that Plaintiff satisfied all requirements of the Qualified Offer Rule. Because the liability pursuant to the government’s concession ($0) was equal to the liability specified in the qualified offer ($0), Plaintiff met the requirements of § 7430(c)(4)(E).

The “Settlement” Exception Under § 7430(c)(4)(E)(ii)(I)

The final legal hurdle for Plaintiff was the exception stipulating that the Qualified Offer Rule does not apply to "any judgment issued pursuant to a settlement". Defendant argued that the stipulated dismissal reflected a settlement.

The court referenced precedents defining a settlement as a contract requiring an objective manifestation of mutual assent to its essential terms, typically established through offer and acceptance, citing Knudsen v. Comm’r, 793 F.3d 1030, 1034 (9th Cir. 2015). Drawing on both Knudsen and Est. of Lippitz v. Comm’r, 94 T.C.M. (CCH) 330 (T.C. 2007), the court emphasized that a concession made in the absence of a contract between the parties cannot be a settlement for purposes of § 7430(c)(4)(E).

In this case, the government’s own declaration indicated that after deposition and evaluation of evidence, it determined that concession was preferable to continued litigation, lacking any indication of mutual assent or a bargained-for exchange. The court found that no evidence of an agreement between the parties was placed in the record. Consequently, the court concluded that no settlement occurred. Plaintiff was therefore confirmed as a “prevailing party” for purposes of § 7430(a) via the Qualified Offer Rule.

Exhaustion of Administrative Remedies Under § 7430(b)(1)

In addition to prevailing party status, a taxpayer must have exhausted administrative remedies prior to filing suit (§ 7430(b)(1)). Exhaustion generally requires participation in an Appeals office conference (§ 301.7430-1(b)(1)(i)). Participation is deemed satisfied if the party “discloses to the Appeals office all relevant information regarding the party’s tax matter to the extent such information and its relevance were known or should have been known to the party or qualified representative at the time of such conference” (26 C.F.R. § 301.7430-1(b)(2)).

Plaintiff requested and was granted an Appeals conference. The appeals officer denied the claim due to insufficient documentation. Defendant argued that Plaintiff failed to participate by failing to provide documentation to support her claim. The court clarified that the regulation requires disclosure of relevant information known to the taxpayer, not successful persuasion of the appeals officer. Plaintiff had previously represented that she was unable to assemble additional residency records. Critically, Defendant pointed out that Plaintiff produced no new documents during civil discovery, suggesting she disclosed all relevant information known to her during the administrative Appeals office conference. The court determined that Plaintiff complied with 26 C.F.R. § 301.7430-1(a)(2) and exhausted her administrative remedies.

Conclusion and Fee Determination

Having met all statutory requirements under 26 U.S.C. § 7430, the court proceeded to calculate the appropriate award, noting that the fee awarded must be reasonable. The lodestar amount is the proven number of hours reasonably expended multiplied by the court-ascertained reasonable hourly rate. The hourly rate is capped by statute and adjusted for inflation. The court approved the maximum statutory rates requested by counsel for 2023 ($230), 2024 ($240), and 2025 ($250).

Because Plaintiff’s prevailing party status was grounded in the Qualified Offer Rule, 26 U.S.C. § 7430(c)(4)(e)(iii)(II) limits compensation to only those fees "incurred on and after the date of such offer". Consequently, 7 hours and $1,610 in fees incurred prior to the May 24, 2023, offer were disallowed. An additional 17.6 hours and $4,314 were disallowed for insufficient detail in billing entries (e.g., “Internal Case Discussion” or “Research”). The resulting lodestar amount was $31,581.

Given that the Plaintiff obtained 100% of the relief sought, the court did not adjust the lodestar amount downward. Finding the award appropriate despite the discretionary language of § 7430(a), the court granted the lodestar amount plus an additional 10 hours ($2,500) for drafting the reply brief. The Defendant was therefore ORDERED to pay Plaintiff a total of $34,081 in attorney’s fees.

Prepared with assistance from NotebookLM.