The United States Tax Court

The United States Tax Court

The United States Tax Court was created by Congress as an independent judicial authority for taxpayers disputing certain Internal Revenue Service (IRS) determinations. The Commissioner of Internal Revenue has the power to determine tax deficiencies for taxpayers, and taxpayers may dispute deficiencies by bringing their issues to the Tax Court. This Tax Court is not controlled by or connected to the IRS.

The United States Tax Court is a federal court of record established by Congress under Article I of the US Constitution. It is made up of 19 presidentially appointed judges. The Court is physically located in Washington, DC. However, the judges travel nationwide and conduct trials in various cities throughout each state. In California, tax cases are heard in Fresno (for small tax cases only), Los Angeles, San Diego, and San Francisco.

Jurisdiction – What can the Court do?

In addition to having the authority to adjust a determined tax liability, the Court can order:

  • abatement of interest
  • award administrative and litigation costs
  • re-determine worker classification
  • determine relief from joint and several liability on a joint return
  • review certain collection actions
  • make certain types of declaratory judgments
  • adjust partnership items
  • review awards to whistleblowers that provided information to the Commissioner of Internal Revenue

What type of cases can be brought before the Tax Court?

A taxpayer can file a regular or a small tax case (“S case”). The main differences are that a regular case is appealable, while an S case is smaller, less formal, and generally a faster process.

Specifically, regular tax cases, unlike S cases, have appeal rights. This means that a decision entered after a regular tax case trial could be appealed by either the taxpayer or IRS representative. Further, unlike with an S case, there is no limit on the disputed amount. Therefore, a taxpayer that has a very large tax liability would most likely have to file a regular case. Also, in step with the formal approach to regular cases, both parties are required to file a pretrial memorandum with the court before the case is heard. This memorandum outlines each party’s case as well as their witnesses, documents, and arguments. The pretrial memorandum is a good display of the dissimilarity between regular and S cases, since petitioners and respondents of S cases do not have to make their witnesses, documents, etc. known until these issues are disclosed at trial.

In contrast, S cases have no appeal rights. Once the case is heard and decided by a judge, the decision is final. The upside is that judges allow simplified procedures (including more relaxed Federal Rules of Evidence), making it easier for taxpayers to represent themselves. Small cases can be heard in an additional 15 cities throughout the US, and are normally resolved faster than regular cases. In California, Fresno is one of the additional cities that can hear S cases.

How is a case started in Tax Court?

Taxpayer files a petition

To start a case in Tax Court, the taxpayer (“petitioner”) must file a timely petition against the IRS Commissioner (“respondent”) in response to either an IRS notice of deficiency or a notice of determination. Alternatively, the taxpayer may file a petition if he or she has submitted a claim to the IRS for innocent spouse relief and waited six (6) months without receiving a determination letter on the claim.

The petition can be filed in person with, or can be mailed to, the Tax Court in Washington, D.C.. E-filing is not available. Taxpayers may request a specific location for the trial. Therefore, a taxpayer located in Sacramento will need to mail his or her petition to the Tax Court in Washington D.C., but can request a hearing to be held in the Tax Court in San Francisco.

Fees and Representation

The taxpayer must pay the filing fee at the time of filing. Once the petition is filed, the payment of the underlying tax is normally postponed until the case has been decided.

The taxpayer can represent himself or hire an attorney. The attorney has to be admitted to practice before the bar of the Court, and is subject to the ABA’s Model Rules of Professional Conduct. The attorney must also apply for admission to the Tax Court. Taxpayers could also look into pro bono programs for legal representation.

The IRS is represented by attorneys from the Office of Chief Counsel of the IRS. These attorneys represent the “respondent,” and are referred to as IRS representatives for purposes of trial.

The Trial

Most cases are settled before the trial begins. However, if the taxpayer and IRS representative cannot agree on a settlement, a trial is scheduled in the order the petition was filed.

If the taxpayer and the IRS representative agree to facts and documents to be presented, they can create a written stipulation; if not, the taxpayer should bring documents to court to be submitted to the judge.

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