Tax Court is a Prepayment Forum of Dispute Resolution
Tax Court jurisdiction is conferred by a timely filed petition challenging the IRS’s Notice of Deficiency.
The taxpayer is not required to first pay the tax and then sue for a refund as is required to confer jurisdiction on a United States’ District Court.
This allows taxpayers of limited means to have their day in court and prevents the IRS from recklessly making assessments that it knows taxpayers cannot pay and, therefore, cannot challenge in court.
How do Cases Get to Tax Court
Most audit cases are resolved on agreed basis at the audit level of the IRS.
The great majority of unagreed audit cases are resolved administratively at the Appeals level of the IRS.
Sometimes, however, there is a dispute over a factual issue or an issue of substantive tax law on which the taxpayer and the IRS simply cannot agree. Generally**, these are the cases that end up before a Tax Court judge.
A tax court case is always begun a taxpayer’s filing of a Tax Court petition stating the facts and the reasons for disagreement with the IRS.
** Frivolous tax protester cases frequently end up before Tax Court judges, too. But they always have the same sad result. A summary dismissal of the case and the imposition of penalties against the tax protester.
Tax Court Procedure
The Tax Court is a different animal than your ordinary, civil court.
Here is a list of the most important differences:
- No Jury Trial – You do not have a right to a jury trial in Tax Court. A single Judge, paid by the United States Government, will decide your case.
- Limited Discovery – The discovery rules are less broad in a Tax Court case and you don’t have the right to depose government witnesses.
- Tax Savvy Judges – Tax Court judges are typically very intelligent people with many years of training and experience in federal tax matters.
- Stipulation of Facts Required – The parties are required, prior to trial, to voluntarily share information with one another and work together to formulate a thorough and complete stipulation the facts of the case.
- Post-Trial Briefing – Unlike civil appeals courts where parties brief the Judges about the facts and law of the case prior to the trial, the Tax Court does not allow pre-trial briefings. Instead, the Tax Court rules require that the taxpayer and the IRS file their briefs at the close of trial after the factual issues have been argued before the Judge.
If you intend to take your case before a Tax Court Judge, you had better thoroughly understand and comply with these rules.
It is very dangerous to have just a little knowledge about the Tax Court trial process.
For instance, with respect to the Stipulation of Facts, it is very dangerous to agree to any factual stipulation proposed by government counsel without fully understanding how the admission of that fact will affect the tax treatment of an item in dispute.
We have seen taxpayers admit seemingly innocent facts only to have it come back to haunt them later when the Judge issues his or her final decision.
The Secret to Winning Tax Court Cases
It shouldn’t be a secret at all, really, but because so many taxpayers are foolish enough to represent themselves in Tax Court, we feel it necessary to say the obvious: Tax Court Cases are won in the preparation before trial not at the trial itself.
There are no Perry Mason moments in Tax Court.
A good tax lawyer will prepare the case so that there are no surprises – none for the taxpayer, none for the Judge and, most importantly, none for himself.
This level of preparation requires an almost rote memorization of the facts and their bearing on the issues involved.
The best tax lawyers, by virtue of meticulous preparation and a complete command of the facts and the issues, put a lot of pressure on IRS counsel to settle the case in a manner favorable to the taxpayer rather than risk taking the case to trial and losing.
No lawyer wants to be on the losing end of a published Tax Court case.
