Order in the Court: What is Tax Court and How Does it Work?

Chad Silver

Chad Silver

Managing Partner of Silver Tax Group, author of the book "Stop the IRS". Practicing a variety of tax issues, regulations, laws and rights. Specializing exclusively on tax matters involving IRS audits, negotiation, settlements & compromises.

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The IRS audited 1.1 million tax returns in 2016.

But did you know that out of these audits, 34,000 resulted in additional refunds for the taxpayer?

Getting audited by the IRS is a fear of many Americans. Few Americans understand that if the IRS finds an issue with their tax return, they do have recourse. American taxpayers can dispute the findings of the IRS in tax court.

You might be wondering, “What is tax court?” and that’s understandable.

Keep reading for more information on how tax court works and how it can help ensure you are treated fairly by the IRS.

What Is Tax Court?

You may have heard of tax court, but you probably don’t know much about it. Tax court is not somewhere most people will find themselves in their lifetime.

The idea of going to tax court can be daunting, but it doesn’t have to be. Tax court exists to give you a fair means to present your side of the story. 

Most people who end up in tax court do so after being audited by the IRS. If you are audited by the IRS and they determine that you owe additional taxes, you have the right to legally disagree.

The IRS will send you a “notice of deficiency” that states what you still owe and gives you 90 days to remedy the problem with your tax return. If you agree with the findings of the IRS, you will settle your case by paying your owed taxes and you will not need to go to tax court.

However, if you disagree with the findings of the IRS, you have 90 days to file a petition with the tax court stating your disagreement. Filing this petition is essentially the same as suing the IRS. 

A Bit of a Misnomer

Tax court is not much like regular court at all. There is no single judge and no trial by jury. Rather, tax court is essentially just 19 different judges who travel the 50 states. 

The purpose of tax court is for the taxpayer to dispute the findings of the IRS by presenting credible evidence. Most tax court cases come down to the taxpayer providing records to prove that they did incur expenses that were deducted on their tax return.

This might include mileage records, expense reports, receipts, medical bills, etc. If you can provide records and evidence to prove your assertion, the IRS has the burden of proving them false. If they cannot do so, then they must accept them. 

Do You Need a Lawyer?

If you want to be represented during your tax court hearing, you may wish to retain an attorney. While you could consult your CPA or another financial advisor, in order for them to represent you in tax court they must be a licensed attorney admitted to the bar of the tax court.

This means that you should look for an attorney who specializes in tax law. Most attorneys will not be admitted to practice in tax court as this is a highly specialized area of expertise. You’ll want to have your general practice attorney sit out on this one. 

You’re also allowed to bring witnesses to help prove your case, just like in other types of court cases. You can bring character witnesses such as friends or family, but they won’t be particularly helpful in this court of law. You’ll want to find employers or business associates who can verify the expenses you are presenting in court. 

Types of Cases

There is more than one type of case that can go to tax court.

If you are representing yourself, you will most likely go to what is called Small Case Court. This specialized court only takes cases with a value of less than $50,000.

Small cases are much more informal and the decision is final. There is no chance of appeal if your case is decided in Small Case Court. 

You can decide whether you want to file in Small Case Court when you file your petition. Petitions are filed on the tax court’s website.

You are the one who decides whether you want to file a Small Case Court designation. The IRS cannot file this designation. Remember, you are the one filing against the IRS in tax court. 

We mentioned that you cannot appeal a Small Case but you can appeal a regular tax court case. If you lose your case, you can file an appeal with the US Court of Appeals in the district where you reside.

The 90-day rule applies here as well. Failing to appeal the decision within 90 days signifies an acceptance of the verdict. 

After the Case

One of the biggest differences between tax court and regular court is the length of time that it takes to make a decision.

While Small Cases can take less time, regular tax court cases can take years to decide. The judge may take at least a year or two to make their decision. 

If you lose your case and the judge decides your evidence is not sufficient, you may also be assessed a fine.

The judge who decides your case will decide whether you owe a penalty separately. If you do owe additional taxes you may or may not owe a penalty as well. It just depends on the judge and the circumstances of the case.

If the judge feels that your case was a waste of the court’s time, you may be fined an additional penalty. 

As a business owner, you can deduct your legal and other expenses incurred during the case as they are related to your business. 

Consult an Attorney

Hopefully, we answered your basic questions, including “What is tax court?”

If you are considering taking your IRS case to tax court, it is in your best interest to consult a tax attorney.

Only an attorney who specializes in tax cases will be able to represent you in tax court. Since tax court can be confusing, having an attorney on your side will make the process stress-free.

Contact us today for a free case evaluation. 

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