What happens when a taxpayer disagrees with the Internal Revenue Service (IRS)? Some people think that the matter ends there: the IRS always wins, right? Not necessarily. There are a few ways to appeal an action with IRS. Ironically, most of those appeals actions are actually taken up with IRS meaning that if you disagree with IRS, you then ask IRS to change their minds. There is an exception: you can take your tax matter to court. Most often, that means that you head over to United States Tax Court.
Contrary to popular belief, the Tax Court is a real federal court and not a tribunal run by the IRS. The IRS is a party in the case just like any taxpayer in the Tax Court, says a recent Forbesarticle titled “Taxpayer Advocate Reports On Top 10 Most Litigated Tax Issues.”
A case typically 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 reasons why a matter might 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. 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 courts, like 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’s what were found to be 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 they are represented in court by an attorney and 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.
Reference: Forbes (January 15, 2015) “Taxpayer Advocate Reports On Top 10 Most Litigated Tax Issues”