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The full case caption appears at the end of this opinion.

ROVNER, Circuit Judge. New Hope Services is a non-profit organization dedicated to providing rehabilitation and therapeutic services to persons with developmental disabilities, mental retardation, and chronic mental illness. In 1996, New Hope filed a complaint in district court seeking the refund of employment taxes paid with respect to its clients for their work in its sheltered workshops as part of its program to prepare them for regular employment. The IRS eventually conceded the case on the merits, and the parties filed a Stipulation for Dismissal and Entry of Judgment providing that New Hope was entitled to a refund in the amount of $204,593.32 plus interest, and reserving to New Hope the right to file a motion for attorneys’ fees and costs. New Hope then sought attorneys’ fees totaling $56,657.54 pursuant to 26 U.S.C. sec. 7430. Under sec. 7430, New Hope is entitled to a fee award if : (1) it is a prevailing party; (2) the claim is reasonable; (3) it did not unreasonably protract the proceeding; and (4) it exhausted all administrative remedies. The United States concedes that the first three criteria are satisfied and argues only that New Hope failed to exhaust its administrative remedies. The district court held that New Hope had failed to exhaust its administrative remedies because it knew that the IRS had been evaluating its claim and therefore it needed to take some further step before proceeding to court. The court held that “[a] request for an appeals conference– stating that the IRS had already taken more than six months without making a preliminary determination, despite having issued the July 1995 letter that certainly encouraged New Hope to believe that its claim for refund would be honored–would have sufficed, even if it had been denied, to give the IRS an opportunity to make a decision one way or the other and to know that it faced the prospect of a fee award.” Dist. ct. order at 10. We certainly agree that such notice to the IRS might have been the better practice, but the question here is whether that action is required in order for New Hope to exhaust its remedies. In resolving that question, we consider first the procedural background of this case.

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