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Defending Your Tax Rights in the United States Tax Court

How Do Cases End Up in Tax Court?

The U.S. Tax Court provides taxpayers with a judicial forum to dispute tax issues with
the Internal Revenue Service (IRS).  The Tax Court is not connected in any way to the
IRS.  Although the great majority of cases before the Tax Court are the result of audits
and disputes with the IRS over the denial or treatment of tax items on income, estate
or gift tax returns, other cases may be presented to the Tax Court.   Typical cases the
Tax Court hears are tax disputes concerning:

□ Notices of deficiency
□ Notices of transferee liability
□ Failure to abate interest
□ Worker classification
□ Declaratory relief (generally as to tax exempt status)

What are the Advantages of Tax Court?

Tax Court offers several advantages over federal District and Claims Court litigation.  
The more salient advantages include:

□  The dispute may be heard before the tax is paid.
□  All collection activity by the IRS is stopped throughout the duration of Tax Court.
□  Time is extended to gather evidence and information to reduce a tax deficiency.
□  Payment of assessed amounts is delayed until the claim is resolved by the Court.
□  The taxpayer is afforded the ability to recovery legal and accounting fees while  
seeking a judicial review vs. an audit review of sometimes very technical disputes.
□  Taxpayers are afforded a “2nd bit at the apple” so to speak, as all claims are
required to be reviewed by the IRS’s Appeals Division (see below).

What Procedures are Involved in Filing a Case with the Tax Court?

Cases are filed in the Tax Court by preparing and filing by mail or courier a Petition.  
The Commissioner of the Internal Revenue Service is the defendant.  When filing a
Petition in the Tax Court you must follow specific time frames.  For example, those
petitions which result from Notices of Deficiencies must be filed on or before the
ninetieth (90) day from the date of the Notice of Deficiency.  If the Notice of Deficiency
is mailed to the taxpayer outside of the United States, the time to file a Petition to Tax
Court is enlarged to one-hundred and fifty days (150).  Failure to do so in order to
protect your legal rights can be devastating.  However, contrary to the widely held
belief, it is possible to have deficiencies re-evaluated as it is the government’s policy
to not collect taxes that are not legitimately owed to it.  Generally, any filing placed in
the hands of the United States Postal Service within the timeframes is deemed filed,
even though it may not reach the Tax Court until a day or more after mailing.  Certain
other authorized couriers may also be used in lieu of the Postal Service and are
granted similar rights regarding the timely filing rules of the Tax Court.

Are You Afraid of Courtroom Procedures?

If the relief claimed by the taxpayer (including penalties and interest) is $50,000 or
less, the case may be designated a Small Tax Case and relaxed rules of procedure
will be used in an informal setting for the adjudication of the case.  Generally, small
tax cases are less formal, require less evidence, and you will receive a decision in
less time.  If, after the Petition is filed, you wish to have your case tried as a small tax
case, you may request the change. However, Small Tax Case decisions are not
appealable.

Who May File a Tax Court Petition?

Taxpayers are allowed to represent themselves before the Tax Court, though it is
generally not advisable.  The IRS is represented in Tax Court by the District Counsel
for the IRS. Attorneys licensed to practice in a state and in good standing therein, may
be admitted to practice before the Tax Court upon application. Non-attorneys,
including CPAs, may only be admitted upon the passing of an examination proving
their competence to represent taxpayers before the Tax Court.  All applicants must be
sponsored by two (2) members of the Tax Court Bar.

What Happens Once Your Case Is Filed?

When a Petition is filed, a taxpayer must pay a filing fee and choose a city to have the
case heard.  The Tax Court is physically located in Washington, D.C., but has trials
around the country on a rotating basis.  While your case is pending, your taxes owed
will be suspended until a decision is reached.  Once you file the Petition, a date will
be set for your trial.  You will be notified of the date, time and location of the trial.  Your
case will be conducted before one judge without jury, and you can represent yourself
or have a representative.  However, if a trial is conducted, in due course a report will
be issued by the presiding judge covering the facts and decision.

Also, as a matter of course, the IRS will send a taxpayer a letter (referred to as a
“Branerton Letter”) requesting that the case be reviewed by its Appeals Division prior
to its calendaring with the Tax Court.  This is significant because it affords the
taxpayer a “second bite at the apple” if the deficiency is the result of a dispute at the
audit level which was not properly appealed.  Because most Tax Court cases are
settled by mutual agreement, you may not need a trial.
 

Appealing a Court’s Decision?

You may file an appeal within 90 days of receiving the court’s decision.  However, as
noted, small tax cases may not be appealed.  Appeals from Tax Court are made to
the appropriate circuit of the United States Court of Appeals.  However, collection
activity is not tolled during the appellate proceedings unless an appeals bond
guaranteeing payment of the decided amount is filed.