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Guide to Tax Law
- Introduction to Tax Law
- What is the IRS?
- Filing Your Tax Return
- Rights of Tax Payers
- Tax Free Income
- What is a Tax Credit?
- Tax Implications of Differed Income
- How Tax Deductions Work
- Recucing Your Taxes with Investments
- Tax Benefits for Homeowners
- Shifting Income withing a Household
- Your Status as a Tax Payer
- Small Business Owners and the IRS
- Minimize Taxes on Your Estate
- Tax Fraud and other Crimes
- Red Flag: IRS Audits
- What if Your Owe the IRS?
- When to Hire a Tax Attorney
Is it worth going to tax court if you lose your audit? When determining whether it is worth it to go to tax court if an audit is lost, the taxpayer must weigh the pros and cons on appealing the decision versus accepting the finding and the consequences. In many cases, and auditor will outline their finding and the liability of the taxpayer in the final audit report. The contents of the audit report may potentially have major implications for the taxpayer, so the option of appealing the decision should be seriously considered if the liability proposed is burdensome to the taxpayer.
Taxpayers should know that they have the right to advocate for their positions if they do not agree with the findings of a completed audit. If the auditor and taxpayer have discussed the available options and have been unable to get to an amicable compromise on the overall tax liability determination, it may be worth going to tax court to try and find a more equitable outcome.
Small (Low Value) Tax Cases
Small tax cases are those which a taxpayer allegedly owes less than $50,000 for one year of taxes. Even if the IRS alleges that a taxpayer owes $50,000 a year for the past four years (i.e. a total of $200,000), the case will still be considered a small tax case as long as the yearly liability does not exceed $50,000.
Small tax cases are heard in tax court, which is a collection of courts that is a subdivision of small claims court. Every state has a small claims court and a section within that handles tax cases.
Preparing, Completing, and Filing Tax Court Forms
When a taxpayer is preparing to have their small tax dispute heard before the small tax court, the taxpayer must take diligent steps to confirm that all necessary paperwork and forms have been properly completed and filed. The small tax court forms are as follows:
- Notice of Deficiency or Notice of Determination the IRS (a copy of the document that was sent to the taxpayer from the IRS)
- Statement of Taxpayer Identification Number (Form 4);
- Request for Place of Trial (Form 5)
- A $60 filing fee (payable by check, money order) payable to: "Clerk of United States Tax Court"
- Note: In lieu of payment, a fee waiver form may be filled out in certain circumstances
All of the forms must be timely filed in the Office of the Clerk for the Court in which the case is being heard. Failing to completely and timely file all applicable forms could cause the case to be delayed or even dismissed if the statute of limitations runs of the case.
Larger Tax Court Cases (Over $50,000)
Federal tax court has jurisdiction over large tax cases such as those involving fraud on an income tax report or taxpayer negligence on an income tax report.
If a taxpayer owes more than $50,000 in taxes for one tax year, the case will fall outside of the jurisdiction of the state small claims tax court and will be sent to the appropriate Federal court.
Other Federal Courts
Tax Court
If you choose tax court, you don't have to pay the initial tax. This is the only court that does so, every other court requires that you pay full amount of tax first and then litigate it. The government can collect the tax if it determines that jeopardy will accrue such as if they have reason to believe you will flee.
To begin, the IRS will send you a note of deficiency which is a letter giving you the tax years, issues, and their decisions regarding your tax return. You have 90 days to appeal this decision by filing with the tax court.
Statute of Limitations remains open: If government finds additional issues against you, they have burden on those additional issues. You can raise any issue and are not limited to the issues raised by government in the note of deficiency letter.
If you lose, there is an appeal as of right, same as federal district court.
Federal District Court or Federal Claims Court
If a taxpayer chooses Federal District Court of Federal Claims Court, they must pay the tax first and it is usually the entire amount.
To begin, you file an administrative claim with government to get your tax payment back. This gives the government six months to consider your claim. During those six months, you are forbidden from bringing suit. If the government disallows your claim or doesn't act upon your claim, then you can file your claim in court.
If you litigate, you are stuck with the issues brought up in administrative claim so make sure you state all your reasons for not paying the tax.
If you lose, there is an appeal as of right, same as tax court. You would appeal to the federal appeals court. Then you can ask for writ from Supreme Court or directly appeal to the Supreme Court if the statute is held to be unconstitutional. The Supreme Court takes very few tax cases. Generally you have 3 years under the statute of limitations to ask for return of erroneous taxes paid.