House Study Bill 541 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON JUDICIARY BILL BY CHAIRPERSON HOLT) A BILL FOR An Act relating to the costs of litigation in administrative 1 hearings or court proceedings involving the collection of 2 tax penalties and interest by the department of revenue. 3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 4 TLSB 5427YC (2) 90 jm/jh

H.F. _____ Section 1. Section 421.60, subsection 4, paragraph a, Code 1 2024, is amended by striking the paragraph and inserting in 2 lieu thereof the following: 3 a. (1) A prevailing taxpayer in an administrative hearing 4 or a court proceeding related to the determination, collection, 5 or refund of a tax, penalty, or interest may be awarded 6 reasonable litigation costs by the department or a court that 7 are incurred subsequent to the issuance of the notice of 8 assessment or denial of claim for refund in the proceeding, 9 based upon the following: 10 (a) Reasonable court costs. 11 (b) Reasonable prevailing market rates based upon the 12 services provided including but not limited to: 13 (i) Expert witnesses. 14 (ii) The cost of a study, engineering report, test, 15 analysis, or project that is found by the director of revenue 16 or court to be necessary for the preparation of the case of the 17 taxpayer. 18 (iii) Fees paid or incurred by the taxpayer for the services 19 of an independent attorney or accountant including fees paid or 20 incurred in obtaining costs under this subsection. 21 (2) The dollar amount of the award for reasonable litigation 22 costs shall be determined by the director of revenue or the 23 court within its discretion. 24 Sec. 2. Section 421.60, subsection 4, paragraph c, Code 25 2024, is amended to read as follows: 26 c. For purposes of this section , “prevailing taxpayer” means 27 a taxpayer who establishes that the position of the state was 28 not substantially justified and who has substantially prevailed 29 with respect to the amount in controversy or has substantially 30 prevailed with respect to the most significant issue or set of 31 issues presented. The determination of whether a taxpayer is 32 a prevailing taxpayer is to be determined in accordance with 33 chapter 17A . If the taxpayer establishes that the taxpayer 34 has substantially prevailed with respect to the amount in 35 -1- LSB 5427YC (2) 90 jm/jh 1/ 2

H.F. _____ controversy or has substantially prevailed with respect to the 1 most significant issue set of issues presented, the burden of 2 proof shifts to the department of revenue to prove that the 3 position taken by the department was substantially justified. 4 If the department meets the burden by proving the position of 5 the department was substantially justified, the taxpayer shall 6 not be considered a prevailing taxpayer. 7 EXPLANATION 8 The inclusion of this explanation does not constitute agreement with 9 the explanation’s substance by the members of the general assembly. 10 This bill relates to the costs of litigation in 11 administrative hearings or court proceedings involving the 12 collection of tax penalties and interest (dispute) by the 13 department of revenue (department). 14 The bill changes the costs allowed to be recovered in the 15 dispute. The costs allowed to be recovered under the bill 16 include reasonable court costs; reasonable prevailing market 17 rates for expert witnesses, studies, tests, analysis, or 18 special projects; and reasonable attorney or accountant fees 19 including fees related to the recovery of costs allowed under 20 the bill. 21 The bill strikes the current $25,000 cap recoverable by a 22 taxpayer in a dispute and provides that the dollar amount of an 23 award in a dispute be determined within the discretion of the 24 director of revenue or court, as applicable. 25 Under the bill, if the taxpayer substantially prevails in 26 the dispute relating to the amount in controversy or issues 27 involved, the burden of proof shifts to the department to 28 prove that the position of the department was substantially 29 justified. If the department proves the position of the 30 department was substantially justified, the bill prohibits 31 the taxpayer from recovering an award in the dispute. Under 32 current law, the taxpayer must prove the position of the 33 department was not substantially justified in addition to the 34 amount in controversy and issues involved. 35 -2- LSB 5427YC (2) 90 jm/jh 2/ 2