The United States Tax Court is not part of the Department of the Treasury, which oversees the IRS. Instead, it is an independent judicial body where taxpayers can dispute the IRS’s decisions before paying the disputed amount. Tax Court decisions can be appealed to the United States Court of Appeals.
Tax Court Procedure
Tax Court proceedings are conducted like other federal courts. The taxpayer and the IRS can present evidence, call witnesses and make arguments. The court’s judges are tax law experts who decide the cases.
Unlike other federal courts the Tax Court is not bound by the Federal Rules of Evidence. Instead it follows its own rules which are designed to allow for the fair and efficient resolution of tax disputes. These rules cover everything from filing petitions to trials.
Common Reasons Cases Escalate to Tax Court
During IRS audits, disputes often arise over:
- Overzealous Enforcement: IRS revenue agents sometimes deny deductions based on technicalities. For example, they may require both a canceled check and an invoice to allow a deduction. If one is missing—even if the expense is clearly valid—the deduction may be denied.
- Legal Disagreements: Disputes may also arise over the interpretation of tax laws. While the IRS’s mission is to collect the correct legal tax liability, some agents focus on collecting the maximum amount possible. This leads to disputes where the taxpayer believes their interpretation of the law is correct, but the IRS disagrees.
Tax Court in IRS Audits
When the IRS determines a taxpayer owes additional tax it sends a notice of deficiency to the taxpayer. The taxpayer then has 90 days to file a petition with the Tax Court to dispute the deficiency.
If the taxpayer files a petition the Tax Court will hear the case. The court’s decision is based on the evidence presented by the taxpayer and the IRS. If the court agrees with the IRS the taxpayer must pay the deficiency. If the court agrees with the taxpayer the IRS must adjust its records.
Filing a Tax Court petition is a strategic move in IRS Audits because it gives the IRS Appeals officer more flexibility in negotiations. In my work as a tax attorney assisting clients with IRS audits, we often use this approach to gain better settlement opportunities, even if we expect to settle before trial.
The petition also signals to the IRS that the taxpayer is committed to their position. This often encourages the IRS to engage in more reasonable negotiations to avoid trial.
The Bottom Line
Tax Court is where you can dispute the IRS’s determinations, and knowing when to escalate a case can significantly impact the outcome. If you are facing an IRS dispute and want to explore your options, schedule a consultation today to get the guidance you need to protect your financial future.
