                 FOR PUBLICATION
 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

BRADLEY K. MORRISON,                 
            Petitioner-Appellants,        No. 06-75332
               v.
                                         Tax Court No.
                                            18140-03
COMMISSIONER OF INTERNAL
REVENUE,                                    OPINION
             Respondent-Appellee.
                                     
         Appeal from the United States Tax Court

                   Argued and Submitted
         July 14, 2008—San Francisco, California

                    Filed May 13, 2009

       Before: Procter Hug, Jr., Richard A. Paez, and
            Marsha S. Berzon, Circuit Judges.

                 Opinion by Judge Berzon




                           5749
                       MORRISON v. CIR                     5751




                         COUNSEL

William E. Taggert, Jr., Taggert & Hawkins, Oakland, Cali-
fornia, for petitioner-appellant Bradley K. Morrison.

Eileen O’Connor, Jonathan S. Cohen, Carol Berthel, United
States Department of Justice, Washington, DC for
respondent-appellee Commissioner of Internal Revenue.


                          OPINION

BERZON, Circuit Judge:

   “ ‘[A] party who chooses to litigate an issue against the
Government is not only representing his or her own vested
interest, but is also refining and formulating public policy.’ ”
INS v. Jean, 496 U.S. 154, 165 n.14 (1990) (quoting H.R.
Rep. No. 96-1418, at 10 (1980)). For this reason, our legal
system has adapted to ensure that, in certain circumstances,
every citizen is able to defend himself against unjustified gov-
ernment action, free from the financial disincentives associ-
ated with litigation. The statute here at issue, 26 U.S.C.
§ 7430, provides such assurance to taxpayers.

   Appellant Bradley K. Morrison successfully challenged a
Notice of Deficiency of income tax issued against him by the
Internal Revenue Service (“IRS”). Morrison applied for, but
was denied, fees. The Tax Court held that because Caspian
Consulting Group, Inc. (“Caspian”), a separate entity and
5752                    MORRISON v. CIR
Morrison’s former employer, paid all fees associated with the
litigation, Morrison did not “pay” or “incur” fees, as required
by § 7430.

   We hold that an individual may “incur” fees even if those
fees are paid initially by a third party. We therefore reverse
the Tax Court’s holding to the contrary and remand for further
proceedings consistent with this opinion.

                       I.   Background

   Morrison and Nariman Teymourian formed an intellectual
property management partnership, later reorganized as Cas-
pian, a California corporation, of which Morrison owned 40%
and Teymourian 60%. Morrison served as an officer and
director at Caspian, and was also employed in a technical
capacity. In July 2002, Morrison and Teymourian executed an
agreement pursuant to which Morrison sold his interest in
Caspian to Teymourian and resigned from both his officer and
director positions and his employment with Caspian.

   In November 2001, before Morrison resigned, the IRS
began an audit of Caspian’s 1999 and 2000 tax returns. Its
examination soon expanded to include separate audits of Mor-
rison’s, Teymourian’s, and Teymourian’s wife’s personal tax
returns for the same time period. Eventually, the IRS issued
Notices of Deficiency to Caspian, Morrison, Teymourian, and
Teymourian’s wife in connection with their 1999 and 2000
tax returns. The notices raised several issues, the most signifi-
cant of which was whether loans made by Caspian to its
shareholders, including Morrison, in 1999 and 2000 were tax-
able as constructive dividends. The parties tried but were
unable to settle this dispute.

  In October 2003, Morrison petitioned the Tax Court for a
redetermination of the deficiencies. Morrison’s case was con-
solidated for trial with Caspian’s related petition for redeter-
mination, and both parties retained the same law firm —
                           MORRISON v. CIR                          5753
Taggart & Hawkins — as counsel for the litigation. The firm
billed all of its hours to an account entitled “Caspian,” and
Caspian paid all of the associated fees. Both Caspian and
Morrison prevailed on their petitions, and each filed a motion
for an award of the litigation costs, including attorneys’ fees,
under 26 U.S.C. § 7430.

   Section 7430 provides: “In any administrative or court pro-
ceeding 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 . . . rea-
sonable litigation costs incurred in connection with such court
proceeding.” Id. § 7430(a)(2). The statute further specifies
that “reasonable litigation costs” include “reasonable fees
paid or incurred for the services of attorneys in connection
with the court proceeding.” § 7430(c)(1)(B)(iii) (emphasis
added).

   Morrison supported his motion with, among other docu-
ments, an affidavit from his attorney, William E. Taggart, Jr.,
who stated that he had provided legal services on behalf of
both Caspian and Morrison. The Tax Court found Caspian eli-
gible to recover fees under § 7430 and awarded Caspian fees
equal to the proportion of time Taggart & Hawkins spent on
its case. The court denied Morrison’s motion, however, rea-
soning that “[b]ecause Caspian, a separate entity, paid all liti-
gation costs in issue, petitioner did not . . . actually pay or
incur any litigation costs.” Morrison v. Comm’r, T.C. Memo.
2006-103 (2006).

   Morrison filed a motion for reconsideration of his request
for attorneys’ fees, submitting additional evidence along with
the motion.1 The Tax Court denied the motion, finding that
  1
   We discuss Morrison’s specific assertions regarding his arrangement
with Caspian in greater detail later in this opinion. See discussion infra
Part III.
5754                      MORRISON v. CIR
Morrison “did not introduce newly discovered evidence that
could not have been introduced before the filing of [the]
Opinion,” and, further, that the new evidence “simply contra-
dicted earlier filings.”2 The Court then entered its final order
denying Morrison’s recovery under § 7430. Morrison timely
appealed.

                            II.   Analysis

   [1] The U.S. Tax Code permits a discretionary award of lit-
igation costs, including attorneys’ fees, to the prevailing party
in any civil tax proceeding brought by or against the United
States. 26 U.S.C. § 7430(a).3 A “prevailing party” is a party
that “has substantially prevailed with respect to the amount in
controversy” or “with respect to the most significant issue or
set of issues presented.” § 7430(c)(4)(A)(i). A party is not
treated as a “prevailing party,” however, if “the United States
establishes that the position of the United States in the pro-
ceeding was substantially justified.” § 7430(c)(4)(B)(i). The
purpose of § 7430 is two-fold: “[(1)] to ‘deter abusive actions
and overreaching by the Internal Revenue Service and . . . [(2)
to] enable individual taxpayers to vindicate their rights
regardless of their economic circumstances.’ ” Huffman, 978
F.2d at 1146 (quoting H.R. Rep. No. 97-404, at 11 (1981)).

   [2] Not all “prevailing part[ies]” are eligible to receive fees
under § 7430, however. To qualify for a fee award, the peti-
tioner must be “(i) an individual whose net worth did not
  2
     The Tax Court was apparently concerned that Morrison’s original
motion for fees suggested that the fees were paid as consideration for a
separate stock buyout agreement, while the later motion for reconsidera-
tion suggested that Morrison remained obligated to repay the fees at a
future date. See discussion infra Part III.
   3
     A decision by the Tax Court denying an award of attorneys’ fees is
reviewed for abuse of discretion. Huffman v. Comm’r, 978 F.2d 1139,
1143 (9th Cir. 1992). The Tax Court’s conclusions of law are reviewed de
novo. First Charter Fin. Corp. v. United States, 669 F.2d 1342, 1345 (9th
Cir. 1982).
                        MORRISON v. CIR                      5755
exceed $2,000,000 at the time the civil action was filed, or (ii)
any owner of an unincorporated business, or any partnership,
corporation, association, unit of local government, or organi-
zation, the net worth of which did not exceed $7,000,000 at
the time the civil action was filed, and which had not more
than 500 employees at the time the civil action was filed . . . .”
See     § 7430(c)(4)(A)(ii)    (referring   to    28     U.S.C.
§ 2412(d)(1)(B), (2)(B) (1986)). In addition, the prevailing
taxpayer must have “exhausted the administrative remedies
available to [him] within the Internal Revenue Service,”
§ 7430(b)(1), and cannot have “unreasonably protracted” the
proceedings that generated the attorneys’ fees. § 7430(b)(3).
If each of these prerequisites is met, the taxpayer “may be
awarded . . . reasonable fees paid or incurred for the services
of attorneys in connection with the court proceeding.”
§ 7430(a), (c)(1)(B)(iii).

   The Tax Court denied Morrison’s request for fees solely on
the grounds that he had not “actually pa[id] or incur[red]”
such fees because Caspian paid them on his behalf, and did
not address § 7430’s other eligibility requirements. Morrison
had indisputably not “paid” the fees at the time he sought to
recover them. Thus, the question before us is whether Morri-
son had “incurred” the fees. Determining whether, and, if so,
under what circumstances a taxpayer who has not yet paid any
attorneys’ fees has nonetheless “incurred” them is an issue of
first impression in this Circuit.

   As always, “[o]ur analysis begins with the language of the
statute.” Leocal v. Ashcroft, 543 U.S. 1, 8 (2004). Because
§ 7430 does not provide a definition for the word “incur,” we
look to other sources to discern its “ordinary or natural”
meaning. Id. at 9.

  Black’s Law Dictionary defines incur as to “become liable
or subject to, to bring down upon oneself, as to incur debt,
danger, displeasure and penalty, and to become through one’s
own action liable or subject to.” Black’s Law Dictionary at
5756                    MORRISON v. CIR
768 (6th ed. 1990). Using this definition, the Tax Court held
that Morrison “did not ‘bring down upon’ himself any debt,”
and therefore did not “incur” fees, because Caspian, not Mor-
rison, had paid all of the litigation costs at issue. The court so
held despite its recognition that Morrison asserted an obliga-
tion to pay Caspian any fees awarded.

   This interpretation of the statute, and of the Black’s defini-
tion of “incur,” is too narrow to give effect to the statute as
a whole. Black’s definition does not tell us whether an obliga-
tion to pay later, either absolute or contingent, can result in
“incurring” a debt. Nor does it tell us whether an obligation
to pay a third party who has undertaken to pay one’s debts
counts.

   [3] Further, the Tax Court’s emphasis on the fact that Cas-
pian had fronted the fees largely conflates “paid” and “in-
curred,” by effectively barring recovery to any prevailing
party who cannot demonstrate that he paid his attorneys’ fees
directly. See Azure v. Morton, 514 F.2d 897, 900 (9th Cir.
1975) (“As a general rule, the use of a disjunctive in a statute
indicates alternatives and requires that they be treated sepa-
rately.”). We hold instead that a taxpayer can “incur” attor-
neys’ fees if he assumes either: (1) a noncontingent obligation
to repay the fees advanced on his behalf at some later time;
or (2) a contingent obligation to repay the fees in the event of
their eventual recovery.

   The first half of this definition is straight-forward: where a
party assumes an obligation to repay fees that are advanced on
his behalf regardless of whether those fees are ultimately
recovered, he certainly “becomes liable or subject to” the
lender and “brings down upon” himself a debt. In such a situ-
ation, therefore, the taxpayer has certainly “incurred” fees.
That the debt is to a third party who has fronted the fees rather
than to the attorneys who provided the services fully comports
with the statutory language, which does not specify to whom
the debt for reasonable fees must be paid or owed. See
                            MORRISON v. CIR                            5757
Thompson v. Comm’r, 72 T.C.M. (CCH) 1036 (1996) (hold-
ing that where a petitioner does not pay her attorney directly,
she can still “incur” fees so long as she assumes an obligation
to repay the party who advanced the fees on her behalf).

   [4] The more difficult question, and the one we face today,
arises when a party’s obligation to repay fees is contingent
upon the party’s successful recovery of fees under the statute.
Courts are divided on the issue. Compare, e.g., Ed A. Wilson,
Inc. v. General Servs. Admin., 126 F.3d 1406, 1407 (Fed. Cir.
1997) (holding that the petitioner “incurred” fees and
expenses paid on his behalf by a third party even though the
petitioner’s obligation to repay that third party was contingent
on a recovery of those fees),4 with SEC v. Comserv Corp., 908
F.2d 1407, 1414 (8th Cir. 1990) (holding that a contingent
obligation to repay fees does not constitute “incurr[ing]”
fees). We find more persuasive the reasoning of courts that
have awarded fees where the repayment obligation is contin-
  4
    The plaintiff in Wilson sought fees under the Equal Access to Justice
Act (“EAJA”), 28 U.S.C. § 2412. Because of the similarity between the
language of EAJA and the language of § 7430, we have repeatedly held
that “[t]he reasoning employed by the courts under the attorney’s fees pro-
vision of the Equal Access to Justice Act applies equally to review under
section 7430.” Huffman, 978 F.2d at 1143; see also Estate of Merchant v.
Comm’r, 947 F.2d 1390, 1393 (9th Cir. 1991) (“[M]ost of the Supreme
Court’s reasoning [under the EAJA] applies equally to review under
[§ 7430].”); Oliver v. United States, 921 F.2d 916, 922 (9th Cir. 1990)
(“There is little dispositive difference between section 7430 and the
EAJA.”).
   The language of the two statutes does differ slightly as here relevant,
but this difference supports rather than detracts from the interpretation we
adopt today. Unlike EAJA, § 7430 does not specify that the fees “in-
curred” must be “incurred” by the prevailing party. Compare 26 U.S.C.
§ 7430(c)(1)(B)(iii) (“reasonable fees paid or incurred for the services of
attorneys”), with 28 U.S.C. § 2412(d)(1)(A) (EAJA) (the prevailing party
is entitled to “fees . . . incurred by that party”) (emphasis added). If any-
thing, § 7430’s deviation from the limiting language of EAJA suggests
that Congress intended for § 7430 to apply more broadly than EAJA with
regard to the collection of fees initially paid by third parties.
5758                    MORRISON v. CIR
gent, and so hold that a taxpayer can “incur” attorneys’ fees
under § 7430 even if he assumes only a contingent obligation
to repay them.

   Although Wilson involved an award of fees under EAJA
rather than § 7430, the Federal Circuit’s cogent explanation of
the reasons for permitting recovery in the contingent-
obligation context is equally applicable to § 7430. In that
case, the plaintiff, a government contractor, sought recovery
of attorneys’ fees that had been paid by its insurance com-
pany. Wilson, 126 F.3d at 1407-08. Although the contractor
was required to repay the insurance company only in the
event it recovered fees, the court nonetheless held that the
contractor had incurred those fees within the meaning of the
statute and so could collect fees from the government defen-
dant. Id. at 1407, 1411.

   In reaching this holding, the court concluded that
“[d]isallowing Wilson attorney fees would neither remove the
financial disincentives of litigating against the government
nor deter the government’s unreasonable denial of minor
claims filed by its small businesses contracting partners.” Id.
at 1410. With respect to the first point, the court noted that,
without the possibility of fee recovery, insurance companies
would raise their premiums. Id. As a result, “[t]he small busi-
ness would have to decide whether it is worth the increased
premiums, which it will incur regardless of whether it pre-
vails, to challenge the government.” Id. at 1411. “[T]he denial
of attorney fees would[, in other words,] reintroduce the cost
of litigation as a factor in the small business’ decision whether
to contest governmental action it deems unreasonable.” Id.

   In addition, the court was concerned that a refusal to award
fees would provide the government with an “incentive to deny
meritorious claims, thereby requiring the small business to lit-
igate.” Id. at 1410. This incentive would arise, the court
observed, because the government would know that any time
a small business had insurance, it could “deny the [small busi-
                           MORRISON v. CIR                           5759
ness’] claim and litigate any appeal of the denial without any
pecuniary risk.” Id. Thus, “[t]he government could act unrea-
sonably not only in its initial denial of the small business’
claim but also during the litigation of the appeal, confident in
the knowledge that it will be exposed to no attorney fee
award.” Id. To avoid these adverse results, the court in Wilson
awarded fees to the insured petitioner who was obligated to
repay the fees to the insurer, bolstered by its desire to ensure
that “a party [never has] to choose between acquiescing to an
unreasonable Government order [and] prevailing to his finan-
cial detriment.” Id. at 1411 (quoting INS v. Jean, 496 U.S.
154, 165 n.14 (1990)).

   Similar concerns have motivated this and other courts to
award attorneys’ fees to petitioners represented by pro bono
counsel in related legal contexts.5 See, e.g., Dennis v. Chang,
611 F.2d 1302, 1306 n.12 (9th Cir. 1980) (42 U.S.C. § 1988)
(“Legal services organizations often must ration their limited
financial and manpower resources. Allowing them to recover
fees enhances their capabilities to assist in the enforcement of
congressionally favored individual rights.”); see also Cornella
v. Schweiker, 728 F.2d 978, 986-87 (8th Cir. 1984) (EAJA)
(“If attorneys’ fees to pro bono organizations are not allowed
in litigation against the federal government, it would more
than likely discourage involvement by these organizations in
such cases, effectively reducing access to the judiciary for
indigent individuals.”); Hairston v. R&R Apartments, 510
F.2d 1090, 1092 (7th Cir. 1975) (awarding fees to pro bono
counsel under 42 U.S.C. § 3612(c), the Fair Housing Act’s fee
shifting provisions) (“When free legal services are provided
there may be no direct barrier to the courtroom door, but if no
  5
    Section 7430 expressly permits a court to award reasonable fees to an
attorney who represented a qualifying “prevailing party” pro bono. See
§ 7430(c)(3)(B). The fact that § 7430, unlike EAJA and other fee shifting
statutes, expressly allows for such recovery further demonstrates that Con-
gress was concerned with broadly assuring that the taxpayer has access to
representation.
5760                    MORRISON v. CIR
fees are awarded, the burden of the costs is placed on the
organization providing the services, and it correspondingly
may decline to bring such suits and decide to concentrate its
limited resources elsewhere, thereby curtailing the forceful
application of the [Fair Housing] Act that Congress sought.
Thus, the denial of fees in this situation indirectly cripples the
enforcement scheme designed by Congress.”).

   The logic of Wilson and the pro bono cases applies with
equal force in situations in which a third party has agreed to
pay a taxpayer’s attorneys’ fees with the expectation that it
will be reimbursed from any recovery. First, just as the denial
of fees would discourage insurance companies and pro bono
organizations from assisting individuals and small businesses,
so too would denial discourage third parties from helping
those with lesser resources. In this case, for example, Caspian
may have been less inclined to pay the litigation costs of its
employees had it known that it could not recover those fees
either directly as a co-litigant or indirectly through a fee
award to Morrison. Alternatively, it may have required Morri-
son to pay advance consideration in exchange for the compa-
ny’s agreement to pay his fees. Either way, “the denial of
attorney fees would reintroduce the cost of litigation as a fac-
tor in [Morrison’s] decision whether to contest governmental
action [he] deems unreasonable.” Wilson, 126 F.3d at 1411;
see also Comserv, 908 F.2d at 1415-16 (noting that the mate-
rial inquiry is not whether the litigation costs were paid by
someone other than the litigant, but rather, whether “the bur-
den of attorneys’ fees would have deterred [the litigant from
bringing] the litigation challenging the government’s
actions”).

   In addition, the denial of fees in this case, like the denial
of fees in Wilson, would provide an incentive for the IRS to
deny administratively and then unreasonably litigate meritori-
ous claims. Id. at 1410. Whenever the IRS knew that an indi-
vidual or small business had a third-party backer, it could
reject the petitioner’s claim and litigate any appeal “without
                            MORRISON v. CIR                             5761
any pecuniary risk.” Id. In other words, the fact that a third-
party had chosen to help an individual taxpayer would gener-
ate a windfall for, and encourage non-meritorious litigation
by, the IRS. This outcome runs directly counter to one of the
principal goals of § 7430: the “deter[rence of] abusive actions
and overreaching by the Internal Revenue Service . . .” H.R.
Rep. No. 97-404, at 11 (1981).

   Those courts that have denied fees to litigants with third-
party backers have relied on a single rationale, the so-called
“stand-in litigant” problem. Comserv, 908 F.2d at 1416
(“Focusing on deterrence sheds light on the problem of the
‘stand-in’ litigant who seeks fees under EAJA that, if
received, would be passed on to an ineligible litigant.”); see
also Unification Church v. INS, 762 F.2d 1077, 1083 (D.C.
Cir. 1985) (“The possibility of one client using another to
obtain fees otherwise unavailable under the Act, absent in the
cases involving legal-service organizations, is present here.”).
These cases reflect a concern that awarding fees to a peti-
tioner whose fees have been paid by a third party will encour-
age “straw-man” litigation, in which a third party that does
not qualify for an award will go in search of a plaintiff who
does and bring suit in that person’s name.6 This fear is
unfounded as applied to § 7430 generally and, more specifi-
cally, to the case before us.
  6
    For example, in Unification Church, a church paid attorneys’ fees on
behalf of several of its employees who challenged the government’s
refusal to allow them to remain in the United States. 762 F.2d at 1079. The
employees ultimately prevailed on appeal and moved for a fee award
under EAJA. The court denied recovery. It concluded that the church was
the real party in interest with regard to the fees, and, because its net worth
exceeded the statutory limit, a fee award was inappropriate. Id. at 1092.
In so holding, the court reasoned that, “[i]n a wide variety of circum-
stances, organizations obviously not qualified for an award [under EAJA’s
fee shifting provision] would be able to persuade individuals to be among
the parties, and the organization would then receive free legal services if
its side were to prevail.” Id. at 1082.
5762                    MORRISON v. CIR
    As a preliminary matter, the party seeking recovery of
attorneys’ fees under § 7430 has been specifically selected by
the IRS for an audit. In other words, the litigation that gener-
ated the attorneys’ fees was initiated, at least in the first
instance, by the government, not by the party who later pre-
vailed and sought fees. The government identified the target,
not any third party. The risk that awarding fees to a third party
will create an incentive for fee-ineligible parties to bring liti-
gation against the government through self-selected stand-in
litigants is thus simply not present.

   Furthermore, other safeguards built into § 7430 assure that
any award of fees, once paid, will serve the statute’s fee-
shifting purposes even if that fee is later passed onto a third
party. First and foremost, to qualify for a fee recovery, the
small business or individual petitioner must be a “prevailing
party,” meaning that the taxpayer “substantially prevailed
with respect to the amount in controversy, or . . . with respect
to the most significant issue[s].” § 7430(c)(4)(A)(i). Second,
fees are not available if the government can show that it was
“substantially justified” in its position. § 7430(c)(4)(B)(i).
Third, litigation costs may only be awarded if the petitioner
has “exhausted the administrative remedies available . . .
within the Internal Revenue Service.” § 7430(b)(1). These
requirements, combined, mean that a fee award will only be
available if the IRS: (a) erroneously targeted an individual
taxpayer or small business; (b) was not substantially justified
in taking its incorrect position; and (c) failed to correct its
error via its own internal procedures. In such a case, the pub-
lic benefit that derives from successful litigation against the
IRS remains substantial, obviating any need for an unduly
narrow reading of the word “incurred.” See Jean, 496 U.S. at
165 n.14 (noting that a “party who chooses to litigate an issue
against the Government is not only representing his or her
own vested interest but is also refining and formulating public
policy” (internal citation and quotation marks omitted)).

   [5] In addition, the specific facts of this case surely raise no
“stand-in” litigant concern. Although Caspian was the subject
                            MORRISON v. CIR                           5763
of a separate IRS investigation, it had no direct interest in the
resolution of Morrison’s related, but independent, petition.
Furthermore, Caspian itself qualified for recovery under
§ 7430, so it did not need to use Morrison to circumvent the
statute’s financial limitations. To the contrary, by requiring
that the IRS pay Caspian only its pro rata share of fees and
not pay the rest of the fees to anyone, the Tax Court sanc-
tioned a windfall to the IRS because of the manner in which
the parties arranged for payment of fees. These facts, com-
bined with the general differences between tax litigation and
other litigation against the government, dispel any concern
that Caspian was motivated by an improper purpose in choos-
ing to advance fees on Morrison’s behalf. We therefore find
no reason to deny Morrison recovery of attorneys’ fees, pro-
vided that he remained at least contingently liable for repay-
ment to Caspian.

   In sum, we agree with those courts that have awarded attor-
neys’ fees to individuals and small business litigants even
where a third party paid those fees and the litigant’s obliga-
tion to repay was contingent on his recovery under the statute.
Such a rule encourages third parties to help taxpayers vindi-
cate their rights and avoids creating an incentive for the IRS
to deny meritorious claims. This reasoning applies with spe-
cial force in situations, such as here, in which the third-party
backer is itself a small business that meets § 7430’s financial
requirements.

   [6] We therefore hold that when a third party who has no
direct interest in the litigation pays fees on behalf of a tax-
payer, the taxpayer “incurs” the fees so long as he assumes:
(1) an absolute obligation to repay the fees, regardless of
whether he successfully moves for an award under § 7430; or
(2) a contingent obligation to pay the fees in the event that he
is able to recover them under § 7430.7
  7
    We do not decide whether there are circumstances in which a prevail-
ing taxpayer who did not himself pay fees and is not liable for repayment
of fees to a third party, contingently or otherwise, can nonetheless “incur”
fees under § 7430 and become entitled to collect fees from the govern-
ment.
5764                   MORRISON v. CIR
              III.   Application to Morrison

  On the record before us, we find it difficult to discern the
exact nature of the agreement between Caspian and Morrison
regarding the repayment of attorneys’ fees, or even determine
whether such an agreement exists.

    At various times, Morrison asserted (1) that “under the
arrangement pursuant to which CASPIAN paid [Morrison’s]
litigation costs, [Morrison] is obligated to pay over any recov-
ery to CASPIAN”; (2) that “[a]s part of the consideration to
be paid to [Morrison] by CASPIAN for the purchase of his
stock, CASPIAN agreed to advance on behalf of [Morrison]
the costs and fees incurred by [Morrison] in connection with
this case,” and “[Morrison] in exchange agreed to pursue the
recovery of his litigation costs, and to pay over to CASPIAN
any recovery of such costs”; (3) that the payment of fees by
Caspian “were treated as loans to [Morrison]”; (4) that “CAS-
PIAN’s payment of [Morrison’s] attorneys was part of an
[arm’s-length] business transaction in which the cost to CAS-
PIAN of the payment was treated by the parties to the
arrangement as part of the consideration paid to [Morrison]”;
and (5) that Morrison “indirectly paid for the services of an
attorney when CASPIAN assumed his share of the cost of the
then pending tax disputes with Appellee as part of the consid-
eration in the buy-out transaction.”

   The government and the Tax Court suggest that these state-
ments are contradictory. We are not so sure. Although the
statements are not models of clarity, they are all consistent
with the idea that Caspian agreed to advance Morrison’s attor-
neys’ fees as consideration for the purchase of Morrison’s
Caspian stock, but that, as part of that agreement, Morrison
agreed to repay any fees he recovered. Such an arrangement
closely parallels the contractual arrangement in Wilson, where
the petitioner paid insurance premiums in exchange for the
insurance company’s agreement to pay any potential attor-
neys’ fees, but also agreed to seek recovery of those fees on
                            MORRISON v. CIR                            5765
behalf of the insurance company. See Wilson, 126 F.3d at
1407-08. For the reasons outlined above, Morrison, like the
petitioner in Wilson, would be entitled to attorneys’ fees if he
took on a contingent obligation to repay the fees to Caspian.

   As the government points out, however, there is little direct
evidence of the fee arrangement between Caspian and Morri-
son. Morrison submitted an affidavit from his attorney, Wil-
liam E. Taggert, in which Taggert asserted that the parties’
joint engagement and disclosure agreement established the fee
arrangement among the parties. Our independent review of
the written agreement, however, reveals that it is silent on pre-
cisely how the payment and reimbursement of fees was to be
handled. In addition, Morrison did not produce any documen-
tary evidence of the stock-buyout agreement between himself
and Caspian. It is therefore possible, though perhaps unlikely,
that Morrison was under no obligation to repay any fee recov-
ery to Caspian.8

   [7] Because the Tax Court took the view that a litigant can
never “incur” fees if the fees are first paid by a third party, it
did not sort out the precise nature of the relationship between
Caspian and Morrison, and so did not determine whether Cas-
pian agreed to pay some or all of Morrison’s fees as consider-
ation for an earlier transaction, or whether Morrison assumed
a contingent or noncontingent repayment obligation. We
therefore remand to the Tax Court to apply the definition we
have adopted of “incurred,” after determining the precise
nature of the fee agreement, if any, between Caspian and
Morrison.
   8
     Even if Morrison was not obligated to repay any fee recovery to Cas-
pian, he might still qualify for a fee award if he paid full consideration in
exchange for Caspian’s agreement to pay his fees. In such a case, the con-
sideration paid by Morrison could amount to a prepayment of his attor-
neys’ fees. He would therefore have “paid” attorneys’ fees under § 7430.
Of course, Morrison would be entitled to, at most, only the amount of con-
sideration he pre-paid.
5766                  MORRISON v. CIR
                     IV.   Conclusion

   In sum, we hold that the Tax Court applied the wrong legal
standard when it determined that Morrison did not “incur”
attorneys’ fees simply because it was Caspian who paid Mor-
rison’s fees in the first instance. We reverse and remand for
further proceedings.

  REVERSED and REMANDED.
