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Which federal court should I litigate my tax issue in?

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Which federal court should I litigate my tax issue in?

Federal tax controversies can be litigated within the U.S. Tax Court, the U.S. Court of Federal Claims or the federal district courts. The choice which court to litigate in is best made with Experienced Tax Counsel because the court ultimately selected must have the proper authority to hear the type of issue that the taxpayer is needs to have resolved. Each court only has the authority to hear certain types of federal tax matters. This type of authority is referred to in the legal profession as “jurisdiction”.

The factors that experience legal counsel will weigh in making a determination of which court a taxpayer should select include:

  • Settlement possibilities, (Differing courts present differing opportunities to resolve the case)
    • Taking into consideration the high cost of litigation and the time and effort involved, taxpayers are well advised to settle a case without going to trial. In matters litigated before the U.S. Tax Court, the IRS Appeals Division has settlement authority for the first four months following the issuance of the notice of deficiency. The Tax Law Office of David W. Klasing has a great deal of experience with the appeals division,
  • See:

After the running of the four month time period, IRS District Counsel assumes control over the case and can be approached for settlement discussions. In matters before a district court or the Court of Federal Claims, settlement discussions available through the Tax Division of the Department of Justice.

  • Expertise of the court, (What types of issues it commonly hears and thus has expertise in)
    • The Tax Court was established by the federal government to only hear tax cases. Therefore Tax Court judges are generally tax specialists. Judges in the Court of Federal Claims and the Federal District Courts hear a broad range of matters, and thus they are not necessarily experts on tax issues. The complexity of a Tax issue is a substantial factor in choosing which federal tax court to litigate in. court.
  • Legal precedents,
    • Legal precedents are the prior decisions that the court has heard and memorialized on similar issues of law. These prior decisions give insight into the likely disposition of a similar future case. For example, if a case is brought in the Tax Court, prior decisions of the Tax Court will control where the current case presents similar facts as the previously heard case.
  • Jurisdiction of the court, (What types of issues it has the power to hear)
    • Each Federal Tax has a specific jurisdiction to hear specific types of tax actions. The court that a taxpayer selects must have the authority to hear the particular type of case at issue or the case will not be heard. The Court of Federal Claims and the federal district courts have jurisdictions to hear refund suits. In a refund action, the taxpayer typically seeks to recover taxes, penalties and interest that they believe have been wrongfully assessed and collected by the IRS.

The Tax Court’s is also a limited jurisdiction Court. The Tax Court has jurisdiction to review deficiency determinations (a finding that additional tax is owed usually via and income tax examination) asserted against taxpayers for additional income, estate, gift, excise and private foundation taxes. However, once a taxpayer files a petition with the Tax Court, the Tax Court can also determine if there has been an overpayment.

Additionally, the Tax Court has jurisdiction to:

  • review the denial of a request for abatement of interest
  • review partnership actions
  • redetermine interest on deficiencies
  • review disclosure actions
  • modify decisions in estate tax cases
  • review certain declaratory judgment actions
  • review determinations regarding innocent spouse relief
  • review jeopardy assessments and levies and sales of seized property
  • determine whether a worker is an employee or independent contractor
  • determine transferee or fiduciary liability
  • review Collection Due Process (CDP) determinations
  • review actions for administrative costs

Location of the court,

The location of the court impacts the following factors:

  • the ease of access and logistics of trial,
  • the availability of counsel and witnesses, and
  • the cost of litigation.

The US Tax Court conducts sessions throughout the United States via traveling circuits that are available in various major cities which are chosen for the convenience of taxpayers. The taxpayer requests a specific trial location at the time the petition is filed.

The Court of Federal Claims is located in Washington, D.C. and, like the Tax Court, the judges travel to hear cases in various major cities throughout the United States.

District courts are located throughout the country and specific choice of venue rules apply to determine where a particular case may be heard. Refund actions must be brought in the district where the taxpayer resides at the time of filing the lawsuit. When a Corporate refund action must be brought in the district in which the corporation’s principal place of business or principal office or agency is located.

  • Rules of the court, (Certain courts have relaxed rules of evidence which can save a taxpayer thousands of dollars)
  • Payment of tax before bringing the action,
    • Before a taxpayer can file an action in either the Court of Federal Claims or the federal district courts, the taxpayer must first pay the amount of tax in dispute. The Tax Court is the only federal court in which payment of the tax at issue is not a prerequisite to filing the lawsuit.
  • Which party has the burden of proof, and
    • Taxpayers generally have the burden of proving their particular case except where tax law specifically places the burden on the IRS. (which occurs in rare instances)
  • Whether a jury trial is available
    • Taxpayer are not granted jury trials in the U.S. Tax Court or in the Court of Federal Claims however, actions brought in a district court may be tried by jury upon the request of either party to the litigation (Taxpayer or the Government).
  • Discovery procedures (Methods whereby parties gather evidence for presentation at trial)
    • In the Tax Court, the voluntary exchange of information is encouraged and formal discovery is discouraged. Therefore most information gathering is done through meetings and exchanges with IRS personnel and through written letter requests. This slim lined discovery process can save Taxpayer’s thousands of dollars in discovery costs.
  • The availability of small tax case procedures. (Only available in Tax Court)
    • Requires cases with $50,000 or less at issue. The small tax case division is very relaxed and informal in order to allow taxpayers to represent themselves however a decision in a small tax case cannot be appealed.

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