When a Small Cooperative Prevails in Litigation With the IRS, It May Be Entitled To Recover Some of Its Costs
Under certain limited circumstances, a taxpayer that substantially prevails in a tax dispute with the IRS may be able to recover a portion of its administrative and legal expenses (including attorney’s fees). See, Section 7430 of the Internal Revenue Code.
Taxpayers eligible for recovery include individuals whose net worth at the time the civil action was filed did not exceed $2 million. Relief is also available for unincorporated businesses, partnerships and corporations, provided they are small – namely, which, at the time the civil action was commenced, (i) had a net worth not in excess of $7 million, and (ii) did not have more than 500 employees.
There is a special rule for cooperatives which are described in Section 15(a) of the Agricultural Marketing Act (12 U.S.C. § 1141j(a)). Such associations “may be a party regardless of the net worth of such organization” so long as they did not have more than 500 employees. This special rule is not readily apparent on the face of Section 7430. It is found in Section 7430(c)(4)(A)(ii), which cross references 28 U.S.C. § 2412(d)(2)(B), which, in turn, cross references the Agricultural Marketing Act.
In order to be described in Section 15(a) the Agricultural Marketing Act, a cooperative must (i) serve farmers, (ii) be “operated for the mutual benefit of the members,” (iii) either be organized on a one-member, one-vote basis or limit dividends on stock and membership interests to no more than 8%, and (iv) “not deal in farm products, farm supplies, and farm business services with or for nonmembers in an amount greater in value than the total amount of such business transacted by it with or for members.”
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