What Is The United States Tax Court And What Happens When The Tax Court Hears A Case?

The United States Tax Court is a federal trial court established by Congress under Article I of the U.S. Constitution, section 8. The Tax Court specializes in adjudicating disputes over federal income tax, generally prior to the time at which formal tax assessments are made by the Internal Revenue Service. The U.S. Tax Court is not an agency of, and is independent of, the executive branch. The U.S. Tax Court is the only forum in which taxpayers may file a case without having first paid the disputed tax in full. Tax Court judges are appointed for a term of 15 years, subject to presidential removal for actions related to neglect, inefficiency, or malfeasance.

Cases in Tax Court usually arises after the IRS examines a taxpayer’s return and there is some dispute over income tax and penalties between the agency and the taxpayer. The IRS will then issue a series of preliminary written notices and if no resolution and agreement between the taxpayer and the IRS is reached, the IRS formally “determines” the amount of the “deficiency” and issues a formal notice called a “statutory notice of deficiency,” (also known as “ninety-day letter”).

In this context, the term “deficiency” is more of a legal term of art and not always, although it is usually, equal to the amount of unpaid tax. The deficiency is generally the excess of the amount the IRS contends is the correct tax over the amount the taxpayer indicated on the return. This amount usually is therefore stated without regard to how much tax has actually been paid.

Upon issuance of the statutory notice of deficiency, which is before the formal IRS assessment of the tax, the taxpayer generally has 90 days to file a Tax Court petition for a redetermination of the deficiency. If the taxpayer does not timely file a petition, the IRS may then statutorily “assess” the tax. To “assess” the tax in this sense means to administratively and formally record the tax on the books of the U.S. Treasury.

Procedurally, a taxpayer sues the “Commissioner of Internal Revenue,” with the taxpayer as “petitioner” and the Commissioner as “respondent” in Tax Court. This rule is an exception to the general rule that the proper party defendant in a U.S. tax case brought by a taxpayer is the “United States of America.” The Commissioner is not named personally in a Tax Court case. The “Secretary of the Treasury”, the “Department of the Treasury” and the “Internal Revenue Service” are not proper parties. The petition must be timely filed within the allowable time as the Tax Court cannot extend the statutorily-dictated time for filing.  It cannot be overstressed that a taxpayer who fails to timely file a Tax Court case within the period indicated in the ninety-day letter automatically forfeits his or her right to file an action against the IRS in Tax Court.

Small tax case trials are generally less formal and disposed of more expediently. It is important to note that decisions entered pursuant to small tax case procedures are not appealable and are not precedential, meaning another taxpayer involved in a tax matter with a similar set of circumstances may not necessarily rely on the decision reached in such case. Cases are calendared for trial on a first come, first served basis with parties given notice of the date, time, and place of trial. Trials are conducted before one judge, without a jury, and taxpayers may represent themselves if they so choose, or may be represented by an attorney.  CPAs and enrolled agents are not allowed to appear on behalf of taxpayers in Tax Court.

The vast majority of cases are settled by mutual agreement without the necessity of a trial. If a trial is conducted, the presiding judge renders findings of fact and an opinion and the case is then closed in accordance with the judge’s opinion by entry of a decision. Either the petitioner (the taxpayer) or the respondent (the Commissioner of Internal Revenue) may appeal an adverse decision of the Tax Court to the appropriate United States Court of Appeals. In the case of an appeal by the taxpayer, a bond is normally required in order to avoid enforcement action during the pendency of the appeal.

If you have received a statutory notice of deficiency or “90-day letter” and are potentially faced with an appearance in the United States Tax Court, call THE TAX EXPERTS AT THE Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704. What Is The United States Tax Court And What Happens When The Tax Court Hears A Case?

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