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Choice of Judicial Forum in Tax Litigation

When a taxpayer decides to pursue tax litigation against the IRS, he or she generally has three choices for judicial forum: Tax Court, the Claims Court, and Federal District Court. The different forums have different advantages and disadvantages. Also, certain disputes are only judiciable in specific forums, so that should be a consideration in choice of forum. Additional considerations include burden of proof, discovery government attorneys, the location of trial, and the judges available in each forum.

Requirement of Payment of Tax

To litigate a case in Tax Court, the taxpayer is not required to fully pay any disputed tax amounts. If the taxpayer pays the tax amount indicated on the Notice of Deficiency, the Tax Court will still retain jurisdiction. An additional advantage of paying the tax indicated on the Notice of Deficiency is that doing so will stop the running of interest on the proposed deficiency. The Tax Court is unique in that payment of the full tax is not required to confer jurisdiction; in other forums, the payment of tax is a prerequisite for jurisdiction.

Limitations on Refund Claims

While a taxpayer has a case pending in Tax Court, the taxpayer is unable to file a refund claim for the same taxable period, subject to several exceptions. If the overpayment of tax that is the subject of the refund claim is attributable to partnership and S-corporation items in accordance with the Unified Audit Provision, then the taxpayer can pursue a refund despite the pendency of the Tax Court litigation. When the Tax Court has jurisdiction via the issuance of a deficiency notice, it also has the ability to determine an overpayment of tax for that entire tax year. In those cases, the taxpayer must request consideration of the overpayment and refund through the original petition filed with the Court. Alternatively, the taxpayer may seek permission from the Court to amend the original petition to include the claim for refund.

A taxpayer may also make a claim for refund after the resolution of a final Tax Court case. After a final Tax Court decision, a taxpayer can file a lawsuit for amounts collected in excess of the amount of tax computed according to the Tax Court case and amounts collected after the period of limitations on collection expires.

The Role of Precedent in Selecting the Judicial Forum

In selecting which judicial forum to bring a tax case, the taxpayer should consult judicial precedent. Favorable or unfavorable precedent in the judicial forum can play an important role in choosing a judicial forum. Each judicial forum is bound to follow the decisions and precedent of higher courts. For examples, the Claims Court is controlled by the decisions of the Court of Appeals for the Federal Circuit. If the chosen judicial forum is the Federal District Court, the taxpayer should consider the precedent of the Court of Appeals to which the particular court’s decisions are appealable. Finally, the Tax Court follows the court of tax appeals.

The Taxpayer’s Desire for a Jury Trial in Selecting the Judicial Forum

If the taxpayer wishes to eventually have a jury trial, this option is not available in the Tax Court or in the Claims Court. In order to have a jury trial, the only option for the taxpayer is to pay the tax and sue for refund in a Federal District Court.

Burden of Proof in Tax Litigation

In civil tax litigation, the burden of proof generally falls to the taxpayer. In a civil fraud case, however, the burden of proof shifts to the government to prove the existence of tax fraud on the part of the taxpayer. Once the IRS has established that there is an underpayment of tax due to fraud, the burden shifts back to the taxpayer with respect to the entire underpayment of the tax.

Amount of Discovery Allowed in Different Judicial Forum

The amount of discovery allowed may vary in the different judicial fora available for tax litigation. In the Tax Court, the amount of discovery is more limited than in Federal District Court or Claims Court. The discovery process in Tax Court is more informal and encourages the stipulation of undisputed facts and issues. More advanced discovery is available in Tax Court after the informal process has failed. Additionally, the use of depositions is essentially disallowed in Tax Court. In many cases, the discovery consideration may not be too impactful because the taxpayer controls the documentation and may produce whatever documentation needed to meet his burden of proof. There is less need for the taxpayer to conduct discovery against the IRS in tax litigation cases than in other types of civil litigation.

Government Attorneys

Depending on the judicial forum, the IRS has different government attorneys acting as representation. In Tax Court, the government is represented by IRS district counsel. IRS district counsel attorneys are tax specialists who are extremely knowledgeable about IRS policies and laws. They are skilled in settling disputes, which is in accord with the general goal of the Tax Court to settle cases with taxpayers. They also have significantly greater authority than Department of Justice attorneys to settle cases with taxpayers. It is strongly recommended that you seek the counsel of a highly experienced tax attorney to represent your interests in any matter involving tax court.

The Department of Justice attorneys represent the government in disputes litigated in Federal District Court and Claims Court. In these cases, the Department of Justice attorneys are more hesitant to settle cases with taxpayers until extensive discovery has been completed. Moreover, Department of Justice attorneys have less discretion to settle cases than IRS district counsel; the decision to settle the case may be highly centralized and may require the approval of the Assistant Attorney General in charge of the Tax Division. Depending on the amount in controversy and the taxpayer’s desire to settle the dispute in a timely fashion, Tax Court may be a better option than either the Federal District Court or the Claims Court.

How a Tax Attorney Can Help

The Tax Lawyer - William D Hartsock Tax Attorney Inc. has been successfully helping clients file claims for refunds with the IRS since the early 1980s. He is knowledgeable in the selection of judicial forum for your tax case, and can guide you to make the correct decision for your tax situation. Mr. Hartsock offers free consultations with the full benefit and protections of attorney client privilege to help people clearly understand their situation and options based on the circumstances of their case. To schedule your free consultation simply fill out the contact form found on this page, or call (858) 481-4844.

Tax Law References:

  1. IRC § 6213(b)(4).
  2. 28 USC § 1295(a)(3).
  3. IRC § 7422(e).
  4. IRC § 7454(a); 7422(e).
  5. IRC §6663(b).

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The Tax Lawyer - William D. Hartsock, Esq. – San Diego Tax Attorney

Author: William D. Hartsock, Esq

A "Certified Tax Law Specialist" for over 37 years, Mr. Hartsock is one of the most trusted and respected tax attorneys in Southern California. Call today to discuss the facts of your case and learn about your options. Mr. Hartsock offers free consultations and all conversations are protected under attorney-client privilege; meaning that no information shared with a tax attorney will be shared with the IRS or California Franchise Tax Board.