In a previous contribution, I discussed using the Tax Court when taxpayers are unable to resolve audit disputes within the IRS. In this column, I’ll provide more details about the court.
It’s often worthwhile for taxpayers to fight back when they disagree with IRS examiners who say they’re liable for additional taxes, interest charges and an array of substantial penalties.
What are your options when you think you have a case and aren’t able to reach an agreement through appeals within the agency? One is to have the dispute resolved by the Tax Court.
The court is entirely separate from and independent of the IRS. There, you’re able to dispute the agency’s assessments for taxes, interest and penalties without first paying them. The law doesn’t require you to pay anything until you reach a settlement with the agency, or the court sides with it.
It’s even easier to go to the Tax Court when your case involves no more than $50,000 in taxes and penalties (but not interest) for all years. The court settles “small tax cases” with as little formality, expense or delay as possible.
This choice of action is particularly worthwhile for those who want hearings but decide that not enough is at stake to make it worthwhile for them to hire accountants, attorneys or other persons admitted to practice before the court to be on their side, though they remain free to do so.
Your suit will be considered by a judge who has no ties to the IRS and will make every effort to bring out facts that support your position. That’s especially helpful when the controversy involves borderline factual issues — for instance, whether you’ve sufficient documentation to substantiate write-offs for medical expenses and other itemized deductions or for dependency exemptions.
An often-overlooked point: The $50,000 ceiling isn’t an absolute barrier.
To illustrate, assume that the IRS insists on an additional $63,000, and you concede more than $13,000 of that amount. Result: You become eligible to challenge the balance under the special rules for small cases.
The court will hear your case only if you first ask the IRS to send you a "statutory notice of deficiency." This notice is a formal letter (“90-day letter”) that assesses additional taxes and provides access to the court.
Be mindful of the calendar. The notice usually gives you a maximum of 90 days from the date when it’s mailed to you (not 90 days from the date when you receive it) to file a form ("petition") with the Tax Court. Miss that strict deadline by so much as a day and you forfeit your opportunity to appeal it.
The court is unyielding on the time requirement, as many thousands of taxpayers have learned when their petitions were tossed out. The petition merely asks that you provide a short and simple explanation of what errors were made by the IRS and what facts support your position.
The Tax Court hears small cases in cities around the country; so ask to present your arguments in a location at or near where you live. How expensive is it to go before the court? The filing fee is only $60. Moreover, the court can waive the $60 fee in cases in which taxpayers establish hardship.
Go to ustaxcourt.gov for information on court procedures and required forms.
This is a continuation of a short series: Have a Disagreement With IRS? Take ‘em to Tax Court: Part 1
Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 250 and counting).