By Robert B. Teuber, Weiss Berzowski Brady LLP, Milwaukee
Dec. 1, 2010 – In the previous two installments of this four-part series, I discussed the IRS tax audit and appeals processes. Where a resolution to a tax dispute cannot be reached in these administrative divisions of the IRS, the next step is for a taxpayer to consider whether to challenge the case in court. Frequently, the forum of choice is the United States Tax Court, although there are other options available.
Where the IRS issues a Statutory Notice of Deficiency (also known as a 90-day letter) asserting a tax liability, a taxpayer must file a petition within 90 days if the taxpayer wishes to have the case heard by the tax court. Failing to do so will deprive the tax court of jurisdiction over the issues. If the deadline is missed, or for other strategic reasons the tax court is not the desired forum, the case can be litigated in the U.S. district courts or in the United States Court of Federal Claims.
Tax attorney Rob Teuber talks about IRS audits, and the steps that lawyers should take to help their clients navigate the process. From the initial letter to the actual audit, Teuber gives sound advice for minimizing the stress associated with such an event.
The district courts and the Court of Federal Claims are known as “refund courts.” They have earned this nickname because the right to proceed in these courts arises only after a taxpayer has paid the disputed tax and filed a claim for refund with the IRS.
Practically, the requirement that the tax be paid prior to filing a lawsuit works a substantial reduction in the number of tax cases heard in these courts. Proceeding to the tax court does not require the payment of any tax before arguing the merits of a case to a judge.
Where a taxpayer wishes to proceed to the tax court, the 90-day letter has been issued, a petition has been filed and the administrative appeals division has already considered the case, the matter will proceed towards trial. An IRS attorney will be assigned to handle the case. As with any legal proceeding, there is still the possibility to negotiate a settlement; however, it will be amidst the trial preparation process.
Tax court proceedings, however, are not the same as “regular” court. The court has its own set of procedural rules. These rules specifically express the expectation that the parties will handle discovery informally before turning to the discovery procedures provided for in the rules.
The actual trial differs from other courts as well. The proceedings are held before a judge and there is no option of having a jury. The trial resembles an evidentiary hearing in which testimony and documents are entered into the record but limited legal argument is made concerning the merits of the case. Further, the taxpayer has the burden of proof (subject to some exceptions) and the IRS’ assertion of a tax deficiency is presumed to be correct.
Following the trial proceedings, the parties file briefs and the court considers the arguments made therein. Upon consideration of the evidence in the record and the arguments made by brief, the tax court judge will render a decision. I observe, however, that there is no fixed timeframe in which the decision must be issued. A Wisconsin case recently received a decision roughly five years after the briefing concluded.
When the court does render its decision, it will apply the law of the federal circuit court of appeals to which the taxpayer has the right to appeal. This principal, known as the Golsen Rule, allows for the seemingly paradoxical application of the tax law to similar factual scenarios. However, based on the structure of our courts and appellate system, this rule makes a degree of sense. While rare, if the issues are significant and enough courts of appeal split on the application of the tax law to a sufficient degree, a tax case might even make its way before the United States Supreme Court.
About the author
Robert B. Teuber is a tax attorney with Weiss Berzowski Brady LLP in Milwaukee. He works with individuals and businesses in resolving tax audits, appeals, litigation, and collection actions brought by the IRS and Department of Revenue. Rob can be reached at (414) 270-2538 or at rbt@wbb-law.com.
Related:
- Don’t panic: The who, what, when, and where of IRS tax audits (Part 1) – InsideTrack, Nov. 3, 2010
- Don’t panic: The who, what, when, and where of the IRS appeals process (Part 2) – InsideTrack, Nov. 17, 2010