Heading to Tax Court? Here’s How to Win

Heading to Tax Court? Here’s How to Win

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With the IRS more aggressively pursuing delinquent taxpayers in an effort to close the Tax Gap, we expect to see more cases tried in Tax Court.

Here is a brief primer on the peculiarities of Tax Court procedure and how to navigate them to your advantage.

Tax Court is a Prepayment Forum for 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 an 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.

** 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

A tax court case is usually begun when a taxpayer files a United States’ Tax Court Petition stating the facts and reasons for his or her disagreement with the IRS.

The Tax Court is a different animal than your ordinary, civil court.

Here is a list of the most important differences:

  1. 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.
  2. Limited Discovery – The discovery rules are less broad in an Tax Court case and you generally don’t have the right to depose government witnesses.
  3. Tax Savvy Judges – Tax Court judges are typically very intelligent people with many years of training and experience in federal tax matters.
  4. 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 of the facts of the case.
  5. 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, 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 could be fatal 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.


About Peter Pappas

Peter is a tax attorney and certified public acccountant with over 20 years experience helping taxpayers resolve their IRS and state tax problems.

He has represented thousands of taxpayers who have been experiencing difficulty dealing with the Internal Revenue Service or State tax officials.

He is a member of the American Association of Attorney-Certified Public Accountants, the Florida Bar Association and The Florida Institute of Certified Public Accountants and is admitted to practice before the United States Tax Court, the United States Supreme Court, U.S. District Courts - Middle District of Florida

Comments

  1. Do you have knowlage of the term “General Welfare Exception” and how it applies to individuals that receive Social Security Act Title XIX; Section 1915(c) issues…? THX!

  2. John Lowe says:

    Is it anything like a Kangaroo court?
    What is the percentage of wins and losses?
    Obviously the American system of justice favors
    wins by large corporations even when they are dead wrong.
    Is it a case of the IRS is never wrong, the court is just
    a tool of the IRS?

  3. John,

    Tax Court judges are impartial, intelligent and fair minded. The reason the IRS wins more often than taxpayers is because many of the cases brought by taxpayer are either frivolous and/or handled without the assistance of an experienced tax attorney.

  4. We have received a Notice of Deficiency for the year 2005. We were teaching English in a poor country in Asia that year. As a family of four, we made 15,000, and we just thought it was ridiculous to file and get money back that we didn’t earn (being against welfare of any type). We didn’t file and now they are saying we owe one third of what we made that year- $5,000. Is there any way we wouldn’t win in tax court? It sounds like some kind of joke. The IRS has way too much time on their hands.

  5. Renee,

    You are required to file a tax return. Since the IRS had income reported in your names and no return to match it with, it prepared a return for you.

    It is still probably not too late to file a return. I suggest you do so immediately, before the notice of deficiency expires.

    Don’t forget to check out the foreign earned income exclusion. It seems that applies to your situation. You need to file a return to claim it, however.