Can a single dollar alter the outcome of a tax dispute? While it may seem improbable, the strategic use of a "Qualified Offer" has proven to be a powerful tool in negotiations with the IRS. Many taxpayers and even seasoned professionals overlook this mechanism, yet recent court rulings affirm that Qualified Offers—as low as $1—can be instrumental in compelling settlements and mitigating legal costs.
This article explores the mechanics of Qualified Offers, their strategic significance, and how they can serve as a cost-recovery tool in tax disputes.

Winning a Tax Dispute and Recovering Costs
Prevailing in a tax dispute against the IRS is a significant relief, but victory often comes at a substantial financial cost. Legal fees can be a burden, yet taxpayers may recover these expenses under specific conditions through the provisions of Code Section 7430.
Understanding Code Section 7430
Enacted to curb governmental overreach, Code Section 7430 enables taxpayers who meet certain criteria to claim reasonable legal and administrative costs. To qualify, a taxpayer must:
Prevail on the most significant issue in dispute.
Meet established net worth thresholds.
Demonstrate that all administrative remedies, such as IRS appeals conferences, were exhausted.
However, the IRS can avoid reimbursement if it proves its position was "substantially justified," meaning its stance was reasonable despite an unfavorable ruling.
The Strategic Leverage of a Qualified Offer
A Qualified Offer is a tactical tool that enhances the likelihood of cost recovery, even when the IRS argues its position was justified. The process is straightforward:
A written settlement proposal is submitted within a designated timeframe.
The offer specifies a precise dollar amount or a percentage of the disputed adjustments.
The IRS has 90 days to accept or reject the offer. If ignored, it is deemed rejected.
If a court determines the final tax liability is equal to or less than the offer, the IRS is obligated to cover the taxpayer’s legal expenses.
This approach eliminates the need for taxpayers to prove they were the "prevailing party" or dispute the IRS’s claim of substantial justification. The key criterion is that the final tax liability does not exceed the offered amount.
The Validity of $1 Offers
Surprisingly, taxpayers can submit a Qualified Offer for as little as $1. Legal precedent supports this strategy, as illustrated by notable cases:
BASR Partnership: The IRS challenged BASR Partnership’s tax position. BASR submitted a $1 Qualified Offer, anticipating a favorable ruling. The IRS ignored the offer, proceeded to litigation, and ultimately lost. As a result, the IRS was required to reimburse BASR’s legal fees.
Mann Construction, Inc.: Mann Construction disputed IRS-imposed penalties and presented a $1 Qualified Offer. The IRS did not respond, and the case proceeded to trial, where the court ruled against the IRS. The result? The IRS was compelled to cover approximately $222,000 in legal costs.
IRS Opposition to $1 Offers
The IRS has attempted to challenge the legitimacy of $1 offers, arguing that they are strategic ploys rather than genuine settlement attempts. However, judicial rulings have consistently upheld these offers, affirming that they need only meet the statutory requirements—not a subjective standard of reasonableness or good faith.
Integrating Qualified Offers into Tax Strategy
Taxpayers facing disputes should consider Qualified Offers as part of their strategic approach, particularly when:
The disputed tax liability is minimal or nonexistent.
They have confidence in their case’s legal standing.
They aim to pressure the IRS into early settlement discussions.
They seek reimbursement of legal expenses in the event of a favorable ruling.
Qualified Offers represent a sophisticated yet underutilized mechanism for managing tax disputes. By compelling the IRS to reassess its stance and opening the door to cost recovery, it serves as a powerful tool for taxpayers. As case law continues to validate the effectiveness of this strategy—even for $1 offers—taxpayers should consult experienced professionals to determine whether a Qualified Offer could be a prudent course of action in their specific situation.
For expert guidance in navigating tax disputes, contact our CPA firm today.
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