A Day In Tax Court
People, hearing the word tax, sometimes turn around and walk away from me. Just the idea of taxes frightens them so! It is a daunting subject. Especially when you are having problems with the tax system, yourself. (In fact, at my very first television interview on Good Day L.A., the host, Mario Machado, did exactly that. Talk about scaring me to death. How could I ever talk to him during the interview???!! But, it all worked out – and he even invited me to be a guest on his radio show – more than once.)
[Note: This is a reprint from an April 28, 2000 article]
Some issues get so involved, or so complicated, or emotionally frustrating, that they end up in Tax Court.
As a tax professional, I have always heard about how meticulously I must prepare my case before I even file my tax court petition. So, I’ve always pressured my clients to get me everything I need in order to be thorough before I sent in the request for our day in court.
I’ve always done such a good job, in fact, that during the automatic resolution hearing with an Appeals officer, we were always able to settle the case. So, I never had to actually go to Tax Court.
Well, a while back, some friends and I decided to go visit and see what really goes on. You’re going to love what we found out!
The people I went with were Enrolled Agents (EAs), like myself. This is a special license granted by the U.S. Treasury Department, held by a small population of tax professionals. Since it’s granted by the Federal Government, it allows the EA to practice as a tax professional in any state in the Union. CPAs and attorneys are licensed by their state and have to re-certify in each state.
Why am I telling you this? Well, there is a provision in the law that permits Enrolled Agents to sit for the Tax Court Exam and gain the right to practice before the Tax Court, just like attorneys. Since the exam is only offered every other year, there’s quite a scramble to study for it and pass it the first time. My friends are studying for that exam.
Myths and Fairy Tales
After all the studying they’ve done, they were curious to see just how daunting the process really is. We were all a bit nervous and excited, even though we didn’t have a case pending.
We’d all heard that if you are filing case in Tax Court, you’d better have all your ducks in a row before you even file the petition (application).
Although it may take 6–18 months to get docketed (placed on the court’s calendar), when you do show up, you’d better have everything you need the first time – there is no second chance.
You darn well better know the rules of the court or you’ll get kicked out. The Tax Court is a strict, harsh, humorless place – and it operates quickly, efficiently and by the book.
Moving On Up On The Eastside
A little after 10:00 a.m. the Honorable Judge Jacobs enters the courtroom and proceedings begin. The room that was so hauntingly empty at 8:00 a.m. is full to bursting. Attorneys are even sitting on the floor! We’ve scored a row of seats on a bench in the very back row, where we’d be out of the way. But we were apparently also out of earshot. Despite having microphones at each table, podium and before the judge, he never used it and didn’t insist on anyone else using it either. So, as soon as we could, we grabbed some seats up front. Well! That made all the difference. Now we could actually hear what was going on.
Just so you understand, when you file a petition in Tax Court, you are suing the United States Government (the Commissioner of the Internal Revenue Service). So at least half the people in the courtroom were members of the IRS‘s District Counsel’s office. And since the Tax Court is a circuit court the Judge only appears to be in Los Angeles about 3 or four times a year. He needs to be able to hear and settle as many cases as possible, quickly. As a result, about two dozen of the people there were IRS attorneys presenting the cases they had been working.
The procedure worked like this. The clerk called the case. The IRS attorney came up and said it was either:
a) Settled, and they either had signed documents or would have them withing 30-60 days, or
b) In process and they or the taxpayer needed more time to gather or present data in order to arrive at a settlement, or
c) The taxpayer was not present and had not been responsive and they requested that the taxpayer’s case be dismissed for “Lack of Prosecution,” or
d) Set it Trial. District Counsel presented a brief synopsis of the status (no description of the facts or circumstances, darn!) and the taxpayers’ actions on the case up to that point.
If the Petitioner or their attorney was there, they would confirm the statements of District Counsel and add any relevant information. Usually, when the attorneys were present, it went quickly.
Many of the cases were already settled – so I got to see how the Court handled the kinds of cases I usually worked. It appears that if the Petitioner or their representative does not show up, a vindictive District Counsel could get away with saying that the case was unresolved and since the taxpayer wasn’t here, ask for dismissal. Quite a danger – though it’s never happened on one of my cases. Of course, in my cases, I made sure we had signed documents that spelled out the agreement with IRS counsel and my client.
In each instance where a dismissal was requested, Judge Jacobs said that he would accept the paperwork, but would wait until the last day this Court would be in session to give the Petitioner time to appear and change his mind. I don’t know if that was his procedure or standard operating procedure, but it felt fair.
It was interesting to see the presentations of District Counsel. The ones we heard all seemed to give a fair break to the taxpayer. In a few instances when the taxpayer was not present, District Counsel told the Court that they had been advised that this would be the case and had agreed to give the taxpayer more time – they did not ask the case to be dismissed.
In two cases, they told the Judge that they had come to partial settlement with the taxpayer, but it had been refused. The Petitioner didn’t bother to show up in court. I didn’t understand that at all! Excuse my bewilderment, but, by not showing up, you lose your whole case and owe all the money, plus penalties and interest, that the IRS originally assessed. By showing up, you could reduce that tax assessment AND correspondingly reduce the penalties and interest. Why wouldn’t you show up?
If the Petitioner was present, it was typically because they were representing themselves, with no attorney. You can file in Tax Court Pro Se and speak before the judge. We were very curious to see how this worked. Well, in Judge Jacobs courtroom, it operated with great courtesy and patience. In every instance, the Pro Se was unprepared or had incomplete information. In one instance, a man showed up over an hour late, blaming traffic, another man started “tax protester” tactics and demanded (nay, insisted on) a jury trial.
In each instance, Judge Jacobs was gracious and accommodating. He set new dates for those people who were unprepared, and indulgently tried to fit in into their schedules. He informed them of the Pro Bono (free) consultation offered by the Bar Association and pointed out the attorney in the courtroom who was there to guide them that day. He was immeasurably polite to the man who wanted the jury trial and explained that this was a civil case and that there was ample legal precedent to confirm that this was not available to him in Tax Court.
Under the Wire
One tactic that appeared common with Pro Se’s was to get information to District Counsel at the VERY last minute. The juried gentlemen gave a sloppy, disorganized sheaf of papers to the IRS during the lunch break after the calendar was read. He was offended because he had tried to make arrangements to give it to them on Saturday and they refused to come into the office for his benefit.
A few others didn’t provide information until after 3:00 p.m. or 4:00 p.m. on Friday. It seems they must have been coached by the same party or book on how to buy time. Regardless, the Court was accommodating and gracious. Frankly, I expected the Judge to tell them it was too late. He didn’t.
Biding My Time
We learned that not only was it not crucial to be prepared by the Court date, some people had been continuing (postponing) trial for over two years! Granted, at about that point, the Judge got firm and gave them one last court date in December – then it was all or nothing.
The Court was far less terrifying than we’d anticipated. And if all Tax Court judges are like Judge Jacobs, it is likely that people fighting the tax system would be given a fair opportunity to present their case.
Clearly, all it takes is knowing the law, getting your facts straight and having really good documentation. Hmmm, with all that, I could settle it in Appeals – so who needs Tax Court?
For more information about Enrolled Agents Go Visit:
National Association of Enrolled Agents
California Society of Enrolled Agents
Learn about the Court System:
The Gate links – U.S. Tax Court
Understanding the Courts
Eva Rosenberg, MBA, EA, is the publisher of TaxMama.com, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.