Tax Courts

A tax court is an independent, non-Internal Revenue Service (IRS) court that hears and decides on several tax-related matters. The U.S. tax court (formerly the U.S. Board of Tax Appeals and the Tax Court of the United States) is a federal court that Congress created to establish a judicial forum where an entity might appeal an IRS tax deficiency before paying the contested amount.

The U.S. Tax Court, located in Washington, D.C., has 19 members appointed by the president. These judges travel nationally to conduct trials in certain cities.

Its branches are usually in the federal building in each state's biggest city. In many states, monthly hearings occur year-round except in summer. Some states with smaller populations only have hearings for a few weeks each year.

U.S. Tax Court Advantages

Here are the advantages when a tax matter is in the tax court:

• Taxpayers who typically sue the IRS in Tax Court win the case.
• 85% of tax cases settle before trial.
• It helps taxpayers legally reduce or eliminate their assessments.
• Taxpayers who apply for tax court may conclude they don't need a lawyer since presenting a case is straightforward; it's not necessary to file an appeal before requesting a tax court hearing (though some tax consultants may advise it).
• It allows you extra time to negotiate a payment plan for the reassessed amount due.
• You don't have to pay the tax you owe before the court; other U.S. courts do.

U.S. Tax Court Disadvantages

Here are the primary disadvantages of the U.S Tax Court:

• Waiting is one of the main drawbacks of U.S. Tax Court processes. No one knows when a judge will rule. It takes at least six months between filing a petition and a trial date in most circumstances. Small cases may take a year, and regular ones considerably longer.
• Unpaid taxes may accumulate interest throughout the procedures (you can avoid interest from collecting on your balance while waiting for your trial if you make a deposit).

The U.S. Tax Court handles income, inheritance, and gift tax issues. In addition, it resolves tax issues ranging from notices of deficiency and worker classification to reviews of collection processes. But the tax audits are the most prevalent ones.

Here's how a tax court organizes cases:

Small Cases

Small tax cases (S cases) involve less than $50,000 per year. Most taxpayers can use the S case, and you have 90 days from the Notice of Deficiency date to apply for a small tax court if you get an IRS 90-Day Letter.

When the letter comes, you have 150 days to respond. You can visit the U.S. Tax Court website for directions in petitioning S case proceedings.

Filing will cost you $60. Taxpayers should complete the forms as directed and produce three copies each: one for themselves and the others for the website's URL.

Your case will initially go to Appeals, and the IRS may offer a settlement at this point. This settlement offer is up to you.

You'll get three forms after submitting your petition:

• Trial notice
• Pretrial order
• Trial memo

You must complete and submit this paperwork seven or 14 days before the trial starts, depending on whether you filed a small or regular tax case.

Regular Cases

Most regular tax cases settle before trial, like small cases, but it has more complicated processes. Taxpayers can appeal unfavorable decisions in ordinary matters but not in small ones.

The court fulfills en banc to make regular decisions, which can be new or unusual legal decisions.

If taxpayers meet the requirements for a typical tax case, it implies that they skip a hearing at the U.S. Tax Court and go straight to the federal court system.

The taxpayer and the IRS attorney must file official legal briefs—a complicated, technical document. If you can't write or pay for this brief, you can obtain a bench judgment after the trial. A bench judgment does not need briefs, but you'll lose your case if the judge refuses your motion.

Other Federal Courts

If your case qualifies as a typical case, you can appeal a losing judgment to a U.S. District Court or the U.S. Court of Federal Claims. These courts can overrule a U.S. Tax Court decision, but you must pay the audit amount before considering your case.

A District Court hearing needs counsel, but not in the Court of Federal Claims. These courts have high legal costs. A taxpayer can also persuade (rarely) the court to assess their legal bills to the IRS. If you lose in these courts, you can appeal to the U.S. Courts of Appeals. However, you're unlikely to succeed.

To challenge or postpone payment of extra or deficient taxes, U.S. taxpayers must submit a petition with the U.S. Tax Court within 90 days following an IRS Notice of Deficiency. A tax court lawsuit begins with submitting a petition and a $60 filing fee. A single judge handles the case, and taxpayers can choose to represent themselves or by attorneys admitted to the U.S. Tax Court bar.

The presiding judge typically provides a report containing factual findings and an opinion after a trial. The issue will conclude based on the judge's view by entering a ruling.

If you don't file within 90 days, it's like saying you agree with the IRS decision. It means that you have to pay back the money you owe. You can't file your petition online. You have to mail it in.

Can You Use the Small Tax Case Option?

If your deficiency is less than $50,000, submit a small tax case. Pretrial and trial processes are less formal, and the judge may examine any relevant evidence.

If you employ the small case method, neither you nor the IRS may appeal the Tax Court's ruling.

What Evidence Do You Need?

As the plaintiff, you must provide convincing evidence to the court. These instances need records. The IRS must accept your documents or prove them erroneous.

Who Can You Bring to a Tax Court Case?

You can bring anybody, even witnesses, but the best person is someone who can assist you win. A tax lawyer is better than a general lawyer. Your attorney must be tax court-admitted.

What Happens After the Trial?

The court will review your case and provide an opinion to the IRS. You will get a copy of the view through the mail. You can also appeal a non-Small Tax Case If you wish.

When Do You Have to Pay?

You shouldn't pay the disputed amount while your lawsuit is underway. From the due date, unpaid taxes accrue interest. If you wish to halt interest on delinquent tax, pay it.

Can You Deduct Expenses?

If the issue involves your business, you can deduct legal fees and other expenditures. If you mix company and personal taxes, you must apportion expenses between the two as you can't deduct individual costs.

Can You Settle Out of Court?

The taxpayer, their attorney, and the IRS often settle tax matters out of court.

It is why you need a tax attorney. Settlements are better for everyone than going to court. In this approach, you decide the result, and the IRS may settle for less than they demanded.

Having proper records and presenting them during the audit may keep you out of tax court.

Tax Court and District Court can handle Internal Revenue Code (IRC) matters. Both are non-trial settings with just a judge and no jury. Tax court judges know tax law well, but district courts are generic and don't specialize in tax concerns; therefore, their decisions might differ across districts or over time.

In terms of upholding the rules of evidence, the Tax Court is more liberal than the District Court.

This flexibility may allow the taxpayer to introduce partly questionable evidence. Tax Court may not be the best solution if the taxpayer's case relies on banning IRS evidence.

You can use the Case Management System of the U.S. Tax Court to find cases filed on or after May 1, 1986. If you are not involved with a case, you will only see minimal details.

Transcripts

The eScribers, the official reporter, provides transcripts of sessions before the Tax Court to the parties and the public at prices established by contract between the court and the reporter. You can purchase transcripts straight from them by completing a Transcript Order Form.

Copies

Until further notice, you can get copies of court documents from non-parties of the U.S. Tax Court by telephone, and they will process them via email. The court will charge $0.50 per page, with a maximum of $3.00 per document, for copies of these documents. You can reach the Records Department at (202) 521- 4642.

Litigants with current cases who have registered for electronic access (DAWSON) can continue to submit, read, and print documents in their suits from home at no cost.