Yes, if you have a dispute with the Internal Revenue Service (IRS) about a tax deficiency or other tax issues, you may bring your case to the U.S. Tax Court. This court is a federal court specifically established to handle tax-related disputes. However, before you can file a case with the Tax Court, the IRS must first issue you a “Notice of Deficiency.”
A “Notice of Deficiency,” also known as a “90-day letter”, is a formal written notification from the Internal Revenue Service (IRS) stating that there’s been a deficiency in your income tax. Essentially, it’s a claim by the IRS that you owe more tax than what you reported on your tax return.
The Notice of Deficiency is issued after the IRS has conducted an audit of your tax return and has determined that you owe additional tax. It provides a detailed explanation of the adjustments the IRS has made to your return and the amount of tax you owe as a result. It also explains your right to challenge the deficiency in Tax Court.
The Notice of Deficiency is typically sent via certified or registered mail to your last known address. It is crucial to ensure that the IRS has your current address to avoid missing such important notices.
You’ll have 90 days from the date the Notice of Deficiency was mailed to either agree and pay the proposed deficiency or file a petition with the U.S. Tax Court to dispute it. If you don’t take action within this 90-day period, the IRS will assess the tax, and you’ll lose your right to go to Tax Court. This makes responding to a Notice of Deficiency a time-sensitive matter.
What Types of Cases Does the Tax Court Preside Over?
The U.S. Tax Court presides over various tax-related disputes including, but not limited to, income tax, estate and gift tax, and certain types of employment tax issues. Additionally, the Tax Court also hears cases related to IRS decisions involving tax penalties and interest, tax liens or levies, and certain cases involving claims for relief from joint and several liability on a joint return.
Let’s go through these categories one by one with examples:
- Income Tax: The most common disputes involve disagreements about income tax assessments. For example, a taxpayer may contest the IRS’s determination that they underreported their income or improperly claimed deductions or credits.
- Estate and Gift Tax: These cases may involve disagreements over the valuation of property transferred through an estate or as a gift. For example, the IRS may assert that a piece of real estate or a valuable artwork was undervalued when it was included in an estate, resulting in less estate tax being paid than the IRS believes is due.
- Employment Tax Issues: These disputes might concern whether a worker is an employee or an independent contractor, as this distinction affects who is responsible for paying certain taxes. For instance, a business might disagree with the IRS’s determination that a worker was an employee and that the business, therefore, owes back payroll taxes.
- Tax Penalties and Interest: Disputes can arise when the IRS assesses penalties for late payment, underpayment, or failure to file a return, or calculates interest on unpaid taxes. For instance, a taxpayer might argue that they had reasonable cause for their late payment and that the penalty should be abated.
- Tax Liens or Levies: These are actions the IRS takes to collect unpaid taxes. For example, a taxpayer might challenge an IRS decision to place a lien on their property or to levy (seize) their property, such as money in bank accounts or wages, to satisfy a tax debt.
- Relief from Joint and Several Liability: This is also known as “innocent spouse” relief, which allows one spouse to be relieved of liability for taxes resulting from the underreporting of income on a joint return. For instance, a taxpayer might argue that they didn’t know and had no reason to know, that their spouse underreported income on their joint return, and therefore they should be relieved of the tax liability.
How Do I File a Case in Tax Court?
To file a case in Tax Court, you must submit a Tax Court Petition. The petition should state the facts of your case, the law that supports your position, and the deficiencies or penalties in dispute. You must also pay the applicable filing fee. It’s important to file your petition before the deadline, which is usually 90 days from the date the IRS mailed the notice of deficiency.
What Happens Once My Case Is Filed?
Once your case is filed, it will be reviewed by the court and assigned to a judge. Both you and the IRS will have an opportunity to present your arguments, evidence, and call witnesses. Tax Court operates under its own rules of procedure, known as the Tax Court Rules, which provide guidance on how cases are to be conducted. The court’s decision will be based on the facts presented and the applicable law.
What If My Tax Dispute Involves a Small Amount of Money?
If your tax dispute involves $50,000 or less for any one tax year, you can use the court’s simplified small tax case procedure, also known as “S” cases. These cases generally are resolved more quickly and less formally than regular cases. However, decisions entered pursuant to small tax case procedures are not appealable.
May I Appeal the Court’s Decision?
Yes, if you are not satisfied with the Tax Court’s decision and your case was not processed as a small tax case, you may appeal the decision to a federal court of appeals. The appeal must be filed within 90 days of the Tax Court’s decision.
Do I Need a Tax Attorney?
If you are considering filing a case in Tax Court, it is advisable to consult with a tax attorney. Tax law is complex, and the court procedures can be challenging to navigate without legal aid.
An experienced tax attorney can help you understand your rights, guide you through the tax court petitions process, help formulate your legal arguments, and represent you in court. If your case involves a significant amount of money or complex legal issues, having a tax attorney is particularly important.
A tax attorney can help you navigate the intricacies of tax planning and ensure compliance with relevant tax laws and regulations. They can provide guidance on structuring transactions, minimizing tax liabilities, and taking advantage of available deductions, credits, or exemptions.
If you are facing a tax controversy or dispute with the IRS or state tax authorities, a tax attorney can be a valuable advocate. They can represent you during audits, negotiate with tax authorities on your behalf, and help resolve disputes through negotiation or administrative appeals.
If your tax case reaches Tax Court, it is crucial to have a tax attorney by your side. Tax Court fees and rules are complex, and representing yourself can be challenging. An attorney experienced in Tax Court litigation can navigate the court process, gather evidence, present your case effectively, and protect your rights and interests.
If you need to find a tax attorney, consider using LegalMatch. Our extensive network of tax attorneys can help you find the right professional to handle your case. Let LegalMatch assist you in finding an attorney best suited to your unique situation.