How Does Tax Court Work?
Filing a Petition or Responding to an IRS Notice
Most taxpayers never have a reason to go to tax court. Going to tax court may be intimidating because the other party to the case is the IRS. Here's how the tax court works, and how to get through the process with minimum pain.
What is the U.S. Tax Court?
The tax court is a federal trial court that hears only tax cases. It's an independent judicial forum, not connected to the IRS. This court was set up by Congress to have jurisdiction over tax disputes and other related cases.
Tax Court cases aren't decided by juries. Special judges preside at trials in 60 U.S. cities, and there are special trial judges who hear cases in those cities and15 additional cities.
How Does a Tax Court Case Begin?
The two parties to a Tax Court case are the taxpayer, called the "petitioner," and the Commissioner of Internal Revenue (of the IRS), the "respondent." Tax Court cases almost always begin with the taxpayer petitioning the Court because of a disagreement over an IRS ruling.
The most common type of Tax Court case is the result of a tax audit. The IRS may send you a notice of deficiency (CP3219N Notice) or another notice saying that you owe taxes. If you want to challenge the deficiency determination, you must file a petition (and other documents) with the Tax Court within 90 days after you receive the notice (no extensions allowed).
You must also pay a $60 filing fee. If you don't file within 90 days, you basically say you accept the IRS determination. This usually means you must pay the money you owe. You must file your petition by mail (not online).
You can file a petition yourself or represent before the Tax Court, without an attorney. If you want to do that, you must pay close attention to all Tax Court notices and orders and you must abide by the tax court rules.
Can I Use the Small Tax Case Option?
If your deficiency is $50,000 or less you may file your petition as a small tax case. These cases can be handled under a simpler, less formal procedure. The pretrial and trial procedures are less formal, and Federal Rules of Evidence are relaxed, so the judge can consider any relevant evidence.
If you choose to use the small case procedure, you can't appeal the Tax Court's decision to a Court of Appeals (the IRS can't appeal either).
You can select the small tax case option by checking that box on Item 4 of the petition.
What Evidence Do I Need?
Because the taxpayer as the plaintiff has the burden of proof, you must give credible evidence to convince the Court. Records are critical in these cases. If you have records to support your position, the IRS must accept them or prove them false or wrong.
Who Can I Bring to a Tax Court Case?
You can bring anyone you like, including witnesses, but the best person to bring is someone who is familiar with to help you successfully defend your case. An attorney who has expertise with the Tax Court is better than someone who is just a general attorney. The person who represents you must be admitted to practice before the Tax Court.
What Happens After the Trial?
The judge will consider your case and give you and the IRS its opinion. You'll receive a copy of the opinion in the mail. If you want to appeal a case (not a Small Tax Case), you can do that.
When Do I Have to Pay?
You usually don't need to pay the amount that's in dispute while your case is pending. But interest runs on unpaid taxes from the time they are due. If you want to stop the interest on the unpaid tax from adding up, you might want to pay it.
Can I Deduct Expenses?
Yes, you can deduct your attorney fees and other expenses as a business expense for this case, if the case is only related to your business. If the business case is combined with your personal taxes, you will have to allocate fees between personal and business since you can't deduct personal expenses.
Can I Settle Out of Court?
Many tax cases are settled out of court, by agreement between the taxpayer (and their attorney) and the IRS.
This is why it's important to get a good Tax Court attorney to help you. A settlement is better for everyone, for a variety of reasons, including the cost of bringing a case to court. In a settlement, you can control the outcome, and the IRS may agree to settle for less than they originally asked for.
Tax audits and Tax Court sessions are an emotional issue for everyone - taxpayers, attorneys, and the IRS. They are nerve-wracking and expensive, and the attorneys are the only ones who win. Having good records and presenting them at audit can in many cases keep you out of Tax Court.
The U.S. Tax Court website has answers to many common questions. Check the sections of their Taxpayer Information Site to see if they have answered your question.
U.S. Tax Court. "About the Tax Court" What is the United States Tax Court? Accessed Feb. 13, 2020.
IRS. "Understanding Your CP3219N Notice." Accessed Feb. 13, 2020.
U.S. Tax Court. "About the Tax Court" Answer #12. Accessed Feb. 13, 2020.
U.S. Tax Court. "Information About Filing a Case in the United States Tax Court." (PDF Download) Accessed Feb. 13, 2020.
U.S. Tax Court. "During Trial." Answer #7. Accessed Feb. 13, 2020.
U.S. Tax Court. "Starting a Case." Answer #3. Accessed Feb. 13, 2020.
U.S. Tax Court. "Starting a Case." Answer #26. Accessed Feb. 13, 2020.
IRS. "Publication 535 Business Expenses. " Legal and Professional Fees. Page 46. Accessed Feb. 13, 2020.
U.S. Tax Court. "About the Court." Life Cycle of a Tax Court Case. Accessed Feb. 13, 2020.