There are four different courts that may be involved in the litigation process. The one that you’ll face will depend on the circumstances of your case. Most cases will be brought before the US Tax Court. You might also involve procedures with the district court, court of claims, and bankruptcy court.
Litigation is your chance to resolve a problem with your tax bill. At the same time, the IRS will be doing its best to maximize the penalties against you. You may also be required to pay the court fees if the judge rules in the favor of the IRS. A lawyer can strategize how to approach the case so that you maximize your chances of an ideal outcome.
In addition, tax attorneys can help you navigate complicated tax issues at the state and local level. If you need to appear before your state’s tax court due to income tax disputes or other tax issues, it’s best to have a lawyer familiar with that state’s specific litigation proceedings.
About the Tax Court
The US Tax Court is the main court used for litigation with federal tax problems. Aside from bankruptcy proceedings, this is the only court that allows you to litigate prior to making your liability payments. If you have a problem with the bill the IRS has given you following an audit, litigation gives you a chance to delay payment.
In other courts, you’re required to pay your back taxes at the beginning. Then you file a civil lawsuit to ask for a tax refund. Your job then is to prove that you overpaid because the IRS made an error or did not count you for exemptions that you should have qualified for.
The Tax Court can handle a large amount of different litigation issues. Some examples include:
- You can make your case if you believe you’re being overbilled for your income taxes.
- You can argue that the IRS needs to use a different collection method or payment plan due to your current financial circumstances.
- The court can review decisions made by the IRS to deny requests for an alleviated tax burden or other compromise.
- You are asking for your penalties to be abated.
These are the most common issues handled. But the court also handles more complex issues, including relief for innocent spouses, the transfer of tax liability from one person to another, the declaration of relief options, the classification of people as contractors or employees, and partnership allocation adjustments related to prior tax judgments.
The US Tax Court includes 19 different judges who are appointed through presidential selection. Each judge in the court is an expert in tax law and is meant to interpret the US tax codes and regulations to pass down fair judgments on taxpayers. It is their responsibility to ensure that taxes are fair and equal for everyone in the US.
The judges reside in the nation’s capital. However, they do travel throughout the country and sometimes conduct trials in cities in other regions. Court trials involve one judge and do not include a jury.
Cases are opened by filing petitions. If the issue is that a person has not paid enough income taxes, they will receive a notice of deficiency from the IRS. They can either choose to pay the back taxes or start the litigation process. Petitions have to be filed in the 90 day period after the notice is mailed. If it’s mailed while they live outside the country, there’s a 150 day period for petitioning instead.
There is a fee to file. After filing, you will not need to make tax payments or pay your penalties until a judge has made a ruling in the case.
If there is a dispute that involves less than 50,000 dollars for every investigated year, you can also choose to conduct your case with a simpler procedure. This is called a small tax proceeding. Small tax proceedings tend to progress more quickly and are less formal. It’s common for a taxpayer in a small tax proceeding to work without an attorney, but an attorney can significantly improve your chances of a favorable ruling.
If you use the small tax procedure for your case, you will not be able to appeal the decision. But regular court cases go through complicated procedures regarding the gathering and display of evidence. Regular cases should definitely involve a licensed tax attorney.
Some litigation can be settled before there’s any need for a trial. The individual and the IRS will have a chance to negotiate terms. Your lawyer can help negotiate more favorable terms for you, which might include a reduction of the tax burden or an alleviation of the tax penalties. Trials are sentenced by one of the court judges.