We all know the IRS can come after taxpayers. If you lose, then naturally there are ways to appeal the IRS action ... through IRS channels. But can taxpayers sue the IRS in an independent forum? If yes, do they have a "snowball's chance"? I mean, the game is rigged, right?
Nope. Enter the U.S. Tax Court.
Contrary to popular belief, the Tax Court is a real federal court and not a tribunal run by the IRS. Even better, the IRS is a party in the case just like any taxpayer in the Tax Court.
This was the backdrop for a recent Forbes article titled “Taxpayer Advocate Reports On Top 10 Most Litigated Tax Issues.”
Typically, a case finds its way to the Tax Court when a taxpayer is assessed a deficiency and decides to challenge the amount in court rather than pay. Other cases that end up in Tax Court include a request for interest abatement, worker classification disagreements, and a request for relief from joint and several liability on a joint return.
On the other hand, if a specific federal tax-related issue is not within the jurisdiction of the U.S Tax Court, the matter may be decided in other federal courts. Examples of these courts include the Bankruptcy Court and the U.S. Court of Federal Claims.
The Tax Court receives tens of thousands of filings each year, but most are settled. Of those cases that do go to trial, a number involve the same kinds of issues over and again.
As part of the report that National Taxpayer Advocate (NTA) presented to Congress, it detailed the most litigated issues at court.
Here is the NTA's list of the top litigated issues in the second part of 2014:
- Accuracy-related penalty.
- Trade or business expenses.
- Summons enforcement.
- Gross income.
- Collection due process (CDP) hearings (down about 25% over 2013).
- Failure to file or pay penalty, and failure to pay estimated tax penalty (down 35%).
- Civil actions to enforce federal tax liens or to subject property to payment of tax.
- Frivolous issues penalty.
- Charitable deductions.
- Passive activity losses and credits.
The NTA found that taxpayers are more than twice as likely to prevail on cases if: 1) they are represented in court by an attorney; and 2) when they had documentation or proved they made a reasonable attempt to comply with the law.
Obviously having the right advice and doing it right the first time can save you a lot of time and headache. An experienced tax attorney, especially one who has worked on the other side (for the IRS) can be just the tax sherpa you need.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: Forbes (January 15, 2015) “Taxpayer Advocate Reports On Top 10 Most Litigated Tax Issues”