Tax litigation is a process by which people resolve tax disputes with the government, either through a settlement or a trial process. Different courts have different procedures and cover different aspects of tax litigation. If you want to dispute a federal tax bill before you pay it, you have to use the US Tax Court. But if you want to litigate for a refund from the IRS after paying your bill, your options are the District Court and the Court of Federal Claims.
With both of these courts, you must pay all of your taxes, fees, and any penalties before initiating proceedings. There are key differences between them, though. The right court for you will depend on your circumstances and goals. By talking to an experienced tax attorney, you can plan out a strategy that will get the best outcome for your situation.
The US Federal Claims court exists to deal with claims made against the federal government. Its jurisdiction is explained by US Code 1491. While the court isn’t built for tax disputes exclusively, tax controversies are some of the most common cases. It’s common for the average American’s only legal dispute with the US government to end up being over taxes.
The federal claims court has national jurisdiction, so it can hear claims from any state in the US. For the most part, it is responsible for claims from large multi-state and international corporations rather than individuals.
There is something to keep in mind about the petition process. You will begin by petitioning the court to hear your case. But if you choose to petition the federal claims court, you cannot then change your mind. There is no way to remove your petition and restart the process using the tax or district court systems.
Because of this, it’s especially vital that you understand your legal options. An attorney can explain how all of the different courts work. They can tell you about the different strategies and advantages that you might use in each one. In addition, they can give you information about practicalities like the timetable for a decision and the likely costs incurred.
It’s vital that you have an attorney you trust prior to filing your petition. You want to be absolutely sure that you’re making the right choice for your case.
Federal claims court differs from the country’s district courts in another important way. With district court proceedings, the plaintiff has the right to a jury trial. With federal claims court, the case is decided by a judge, similar to the litigation procedures in the US Tax Court.
The Petition Process
With both the federal claims court and district court, you’ll need to file a petition to get started. The steps are the same for both courts:
- You will need to pay your alleged tax deficiency in full, including any penalties and interest.
- You will then use an Amended Tax Return to claim the amount you paid as a refund.
- Once the IRS rejects your refund request, you can file your formal petition to start the court proceedings.
There are other steps that you might take before starting the litigation process as well. Your lawyer will be able to tell you whether these are good avenues to pursue.
One example would be filing for an appeal. The IRS Appeals Office is the division that handles federal tax appeals. You can file your appeal after making your payment but before writing your petition. The appeals experts will then go over the facts of your case, including the findings of the audit, and decide whether to uphold the prior decision or not.
There is no one set answer for whether an appeal is right for you. Instead, it will depend on the circumstances of your case.
You have to be mindful of the time limit there is for filing your petition. You only have a certain number of days after receiving and paying your tax bill to file the petition. Similarly, there are time limits and regulations regarding the filing of an appeal.
Some people choose to pursue an appeal without pursuing court litigation. This is an ideal option when you are confident that a review of the case will result in a reversal due to technical errors.
Some people choose to prioritize the court over appealing. This allows you to introduce new evidence, so it’s a good choice if you feel like you haven’t fairly represented your side of the issue. However, this also opens the IRS up to introducing new evidence against you as well, so you have to be cautious.
There is often a backlog of cases in both federal claims and district court. However, federal claims trials do usually start before district court trials. That said, you can expect to need to wait months or even years.
The judges appointed to the US Federal Claims Court don’t need to have a specific background in tax law like the Tax Court judges do. However, most of them have a strong background in tax law due to mediating tax disputes.