The United States Tax Court is  a judicial forum for the resolution of a variety of federal tax disputes, including disagreements regarding the results of an IRS audit.

The IRS will send the taxpayer a ’90 day letter’ also called a ‘Notice of Deficiency’ giving the taxpayer the ability to file a petition in US Tax Court following an appeal to IRS in which the taxpayer and IRS cannot settle.

After the filing of the Tax Court petition, the matter is usually sent back to IRS Appeals for resolution without going to trial. If the parties cannot settle at this level, then a trial is held in Tax Court.

The primary advantage to litigating a proposed deficiency in this court  is that a taxpayer may file a petition in the U.S. Tax Court without first paying the proposed tax or penalty in dispute.

Trials before the U.S. Tax Court are subject to ?de novo? review of the IRS determination where the liability is in dispute. This means that taxpayer is afforded a fresh review. In that court, the taxpayer can offer evidence concerning their tax matters, even if that evidence was not submitted during the original income tax audit.

How the U.S. Tax Court System Works

The U.S. Tax Court has its own set of rules of practice and procedure that are distinct from the rules in U.S. District Courts or state courts.

The U.S. Tax Court is based in Washington, D.C., but holds trial sessions in major cities throughout the country. In California, trial sessions are held in San Francisco, Fresno, Los Angeles and San Diego.

The U.S. Tax Court

The Tax Court is currently composed of 19 members appointed by the President. One judge presides over each trial, and there is no jury. Many taxpayers represent themselves, although they may be represented by counsel (and this is generally advised).

Taxpayer Tax Assessment Challenges

A taxpayer may challenge an IRS tax deficiency determination in U.S. Tax Court following receipt of a 90-day letter (statutory notice of deficiency). The petition must be made within the prescribed 90 days, and after filing, the Tax Court will have exclusive jurisdiction over the matter. This means that the taxpayer will not have the option of withdrawing their petition and refiling in the U.S. Court of Federal Claims or in a U.S. District Court.

Advantages U.S. Tax Court litigation

The overwhelming majority of tax cases are filed in the U.S. Tax Court for the following reasons:

• As opposed to the other tax litigation forums, taxpayers are generally not required to pay any disputed amount before litigating it in Tax Court – payment of any tax is usually postponed until the case has been decided. Note, however, that interest will accrue unless a deposit is made, per 26 U.S. Code 6603 or under 26 U.S. Code 6213(b).
• All of the judges are highly knowledgeable experts in tax law and practice.
• The judges travel to cities nationwide.
• There is typically less backlog in the Tax Court than in the other forums, so the taxpayer’s case is likely to be heard sooner (often within 12 months)
• The rules of evidence are relaxed and discovery rules generally favor taxpayers.

Disadvantages of US Tax Court Litigation

Litigation in Tax Court does have its drawbacks as well:

• The Tax Court takes some time to issue its opinions – often for well over a year.
• By filing a petition in Tax Court, the statute of limitations is suspended and the IRS is free to raise new issues that could increase the tax deficiency.

Cases that Must be litigated in US Tax Court

There are some tax disputes that must be heard by the Tax Court, such as an appeal from a collection due process determination (a case involving a lien or levy).

Settlements

Settlement proposals made in appeals may still be considered during Tax Court proceedings and a compromise made through the IRS Appeals Office.

Small Tax Court Cases

In addition, where a tax dispute is valued at $50,000 or less, taxpayers may opt for litigation under the Court’s faster and less formal Small Tax Case proceedings – however, the Court’s decisions in small tax cases cannot be appealed.