Tax Court

Last Updated :

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Blog Author :

Merwin Tauro

Edited by :

Ashish Kumar Srivastav

Reviewed by :

Dheeraj Vaidya, CFA, FRM

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What is the Tax Court?

Tax Court is a different court of justice that promulgates issues, cases & appeals about tax disputes. The tax court in North American countries is a union or state court that the political establishment formed to conduct judicial or legal proceedings where an entity could challenge a tax dispute determined by the tax authorities before paying the due amount as tax payments.

Tax Court

Tax court judges provide credible recourse to someone against the IRS as the panel of judges in a tax court who are well versed with the legal proceedings in court, which will provide a fair verdict which often proves to be a boon to taxpayers. Tribunals or appellate authorities adjudicate decrees on a broad spectrum of tax appeals or case-lets.

Table of contents

Tax Courts Explained

The US Tax Court, distinct from the IRS, adjudicates income, property, or gift tax-related appeals. Taxpayers may elect to contest tax cases in various legal structures, excluding bankruptcy; it is the only channel where a tax litigant may do so sans paying the contentious tax in Toto.

If one has got an alarming report by the tax auditor and the appellant wishes to take the case to appeals; they may have been given some respite from the tax decrees in the form of adjustments, rebates, or reliefs observed by the auditor. But if the appellate body didn't concur with the appellant or a marginal relief is adjudged, the appellant has legal recourse available in court. Although other judicial courts exist, the US Tax court would be the ideal first choice.

Benches of this Court are generally situated in the state-building of the most populous city in every state. There is no bench of judges in it, barring only one. In several states, periodic hearings are conducted yearly, excluding the summer. Although, this may not be the issue in states with lesser population density, where hearings may be held for some weeks every year. The president selects the judges for more than ten years terms for up to 15 years.

Most of them are solicitors and generally are from the IRS or have previous experience in law matters. It is excluded from the IRS & gives impartial decrees to almost every extent. It is bifurcated into two parts:

1) Small tax cases for litigation amounting to less than $ 50,000 for any given tax calendar year.
2) Regular tax cases for more significant amounts.

Rules

The rules pertaining to tax court cases can be illustrated by answering a few questions, which are as follows:

1) When does the Tax Court consider a Dispute with the IRS? Who Determines it and Timing of Dispute?

Solution:

When the appellant is pulled up for an audit, they have two options. Either concur with the IRS or resent. If he concurs, the case is closed. If one resents, a “notice of deficiency” is sent to the plaintiff, declaring the changes the IRS seeks to make to the plaintiff’s tax statement. The plaintiff is given 90 days to file a plea with the tax court. If the plaintiff fails to file within 90 days, he provides tacit consent that he agrees with the IRS. In other words, the taxpayer is contesting a legal petition against the IRS.

2) What does the Tax Court consist of? Is it a Single Judge or Bench/Panel of Judges?

Solution:

The court is a bench of 19 judges who serve the 50 states in the USA. These cases are not presented before a jury.

3) What is the Importance of Evidence in Court?

Solution:

The appellant must bring substantive evidence before the tax court to defend his case. E.g., suppose the IRS accuses the taxpayer that he didn’t incur a particular expense shown in his tax return. In that case, the appellant must present credible evidence that he incurred these expenses. He can bring records to uphold his position. Records are interpretive in tax cases. The IRS may either accept them or prove that they are false.

Procedure

The procedures followed by tax court judges can be explained by answering a few pertinent questions:

1) Who can Contest My Case in Court?

Solution:

An attorney or CPA accustomed to the tax court processes can defend one's case. The appellant can bring witnesses to defend his case. He must be a person who has been inducted into the bar.

2) What are the Different Kinds of Tax Courts? When does the court Pronounce the Verdict?

Solution:

Most of the procedures in a tax court are akin to other kinds of courts. The only distinction is that you don’t get a verdict at the end of the case. It may take more than a year to conclude the case.

Solution:

In a minor case, there is no further appeal. In a significant case, one can go to the federal court of appeals in a particular district in the USA. The time limit to file the case is 90 days.

Advantages

Let us understand the advantages of contesting tax court cases through the points below.

  • The leading edge of filing a tax court case is not paying back taxes if the appellant has successfully proven his case. In most other cases, when contesting a case with the IRS, there is some form of adjustment when deciding the payment amount against his taxes.
  • The judges have years of knowledge and experience in their field, which will give the appellant a fair judgment. If the case is complicated, it may be difficult for other courts to dispense the verdict without the assistance of the tax court judge.

Disadvantages

Despite the various advantages, there are a few causes for concerns. Let us understand them through the points below.

  • The IRS gives only a 90-day window to file a case in the Tax court. It is a disadvantage as it does not allow the appellant sufficient time to gather evidence to defend his case.
  • Tax court proceedings are generally matters of public record, potentially exposing sensitive financial information to public scrutiny. This lack of privacy can be a drawback for individuals or businesses seeking to keep their financial affairs confidential.
  • Tax court judges often have to follow lengthy processes, from filing to resolution. This extended timeline can be burdensome for taxpayers, causing delays in the resolution of tax disputes and imposing additional stress.