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Tax Audit Exams & Appeals | Tax Practice

Tax Court

Filing a Petition

  1. Small Case Procedure Election
    1. Eligibility. In a deficiency case, the amount of the deficiency and any additional penalties must not exceed $50,000. In a collection action, the total unpaid tax, including penalties and interest, cannot exceed $50,000. In a request for spousal relief, the relief sought cannot exceed $50,000. In a worker classification case, the amount of employment taxes in dispute cannot exceed $50,000.
    2. Small Case Procedure cases are heard in about 15 more cities than regular proceedings.
    3. Pretrial and trial proceedings are less formal than in regular Tax Court proceedings. The Federal Rules of Evidence are not strictly followed. Instead, a judge may admit any evidence deemed relevant.
    4. There is no right to appeal a Small case to the Court of Appeals. All decisions and decided issues by the Tax Court are final and cannot be appealed by either the taxpayer or the IRS.
  2. Timely Filings. The IRS deficiency or determination will state the number of days that the taxpayer has to file a petition with the Tax Court, counting from the date the IRS mailed the notice. In a deficiency case, filings must be sent made 90 days after mailing. In a collection action, filings must be made 30 days of the mailing of the notice of determination.
  3. Not Pay-to-Play
    1. The taxpayer does not have to pay the deficiency or determination made by the IRS for a case to proceed in front of the Tax Court.
    2. But if the Tax Court determines that the taxpayer owes some amount, or if the taxpayer settles with the IRS and agrees to some amount of tax liability, interest will generally run from the date the tax was due.
  4. Checklist. A Completed Petition should include:
    1. Name and signature of petitioner, including mailing address and telephone number
    2. If filing jointly, must include name and signature of spouse
    3. $60 filing fee
    4. Completed Statement of Taxpayer Identification Number
    5. All required information on petition form, including a statement of error made by the IRS, and a statement of facts that support the claim
    6. Completed request for place of trial
  5. Notice of Receipt of petition.
    After filing a petition, the taxpayer will receive a notice of receipt. The notice will contain the docket number of the case. An answer will next be filed by the IRS within 60 days of receiving the taxpayer’s petition, where the IRS will either admit or deny material allegations. The IRS rarely will make affirmative allegations, but if they do, the taxpayer must respond to the affirmative allegations within 45 days from the date of service of the answer.

Status of the Court (Jurisdiction)

  1. Article I court (Legislative powers)
  2. The main function of the Tax Courts is to hear cases involving deficiencies. The payment of the deficiency by the taxpayer is not a jurisdictional prerequisite to a suit, unlike refund cases in front of a federal district court or a US Court of Federal Claims.
  3. The Tax Court has jurisdiction over these types of cases:
    1. deficiencies;
    2. matters subject to review from collection due process proceedings;
    3. determination of employment status;
    4. innocent spouse appeal
  4. Tax Court Collateral Jurisdiction. The Tax Court’s jurisdiction has been expanded to carry out the following functions:
    1. restraining premature assessments of taxes over which the Tax Court has jurisdiction;
    2. enforcing a decision that a taxpayer petitioner has made an overpayment;
    3. reviewing IRS determinations to make jeopardy assessments and levies;
    4. redetermining interest on deficiencies;
    5. modifying a decision in estate tax cases;
    6. declaratory judgment relating to the value of certain gifts;
    7. declaratory judgment on the eligibility of an estate to pay estate tax in installments; and
    8. due process review of lien or levy.

The Nature of Proceedings

  1. It is the burden of the taxpayer to prove the IRS has made an invalid deficiency determination by a preponderance of evidence. Unlike a refund suit, the taxpayer does not need to prove the correct amount of tax.
    In some limited circumstances, the burden of proof will shift to the IRS on factual issues. The taxpayer must introduce credible evidence in court with respect to that issue, must comply with substantiation and record keeping requirements under tax law, and show that he cooperated with reasonable requests from the IRS for witnesses, information, documents, meetings, and interviews.
  2. The Tax Court has its own rules for procedure, similar but separate from the Federal Rules of Civil Procedure.
    1. The Tax Court allows appearance before the court of nonlawyers
    2. Rules of Discovery. The Tax Court Rules on discovery are generally the same as the rules of discovery from the Federal Rules of Civil Procedure. The Tax Court’s rules address written interrogatories in Rule 71, production of documents or things in Rule 72, depositions in Rules 74, 80-84, and requests for admissions in Rule 90. But, before a discovery motion, the taxpayer must attempt to attain the information of discovery from the IRS, and vice versa. If a party fails to participate in this informal process, under Branerton v. Commissioner, that party will not be allowed to engage in formal discovery. The purpose of the contact is to stipulate as many facts and issues as possible under Rule 91.

Appellate Review

  1. Within 30 days after the written opinion was mailed to the taxpayer, either party may file a motion for reconsideration with the Tax Court.
  2. To make an appeal to the US Court of Appeals, a notice of appeal must be filed with the Clerk of the Tax Court within 90 days after the decision is entered by the Tax Court. Issues of law are fully reviewable by the Court of Appeals, but issues of fact are generally not allowed to be under review on appeal.
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