Is this you when you hear the work Tax Court?
Never fear, Practical Accounting Solutions is here!
Let’s talk Tax Court! First, what is it? Tax Court is a Federal trial court that solely hears cases that are tax-related. They’re independent of the Internal Revenue Service, too. Tax Courts have special judges called Tax Court Judges and are divided into two branches: Small Tax and Regular Tax. If you owe less than $50,000 for a single tax year, you’ll attend Small Tax Court. Tax Courts have two main parties, the Petitioner (You!) and the Respondent (the Commissioner of the Internal Revenue of the IRS). All in all, there's a lot of paperwork and it can be quite a long process. Today, we’ll cover why you might need to go to Tax Court, how to file your Petition, and how to prepare for your trial. Next week, we’ll cover what happens during and after a trial.
Why Go to Tax Court
Tax Court is a pretty interesting process (at least for us!) There are a few reasons you may feel the need to go to Tax Court, although 85% of cases reach a settlement before trial! You may need Tax Court if you took your audit case to appeals, and they said “no”, too. This is one of the many important reasons to keep detailed records of all of your transactions. Tax Court also buys you time because you don’t have to pay the tax assessed before Tax Court, but you would have to pay it if you went through a regular court. Tax attorneys can also help you through this process, and they can be found at independent firms as well as Tax Clinics nationwide. If you qualify based on your income level, you may be able to receive free or discounted representation.
The IRS has a handy kit called the Petition Kit to help you file your Petition. You’ll file a petition if you’ve received a:
Notice of Deficiency
Notice of Determination
Notice of Certification
It’s also important that your file your Petition by the due date, as there are no extensions offered. The filing fee is $60, and in a nutshell, your Petition outlines the different reasons for why you disagree with the IRS. Along with your Petition, you’ll also send the Notice of Determination or Notice of Certification and an explanation of adjustments or reports received with the Note of Deficiency. Be sure to remove your Social Security number from all of these documents, which you can easily do by using a black marker. At this point, you won’t include any tax returns, receipts, or any other evidence. You can check your status through the Docket Inquiry System that is updated every weekday.
Before the Trial
After you file your Petition, you’ll receive an Answer that includes the:
Notice of Trail
Standing Pre-Trial Order
Send a copy of everything to your tax attorney!
An IRS employee will contact you to schedule a meeting. This meeting is held in order to come to an agreement on the main facts and issues at hand. You will bring all of your documents to this meeting. If you settle your case during this meeting, you’ll receive a document called a Stipulated Decision. You’ll simply sign this and send it back, and you won’t have to appear in court.
While typically unnecessary, you may desire to send a subpoena to have a witness appear or testify during your Tax Court Trial Session or appear at your Deposition. If you choose this route, be sure to understand the attendance and mileage costs associated.
Standing Pretrial Order or Standing Pretrial Notice (for S Cases)
After your meeting, if you did not settle, you’ll receive a Standing Pretrial Order or Standing Pretrial Notice. This document outlines everything you need to do to settle the case. For a Standing Pretrial Order, you must file a Pretrial Memorandum, and it is highly encouraged to file in S Cases, too. Your Pretrial Memorandum simply outlines the facts if you did not settle in your initial meeting, and it helps the Tax Court Judge understand your position.
The Final Status Report informs the Court and the IRS of the settlement of a case that was not previously reported to the court or provides final estimates of the likelihood and/or length of a trial that was not previously reported in your Pretrial Memorandum.
Tax Court Check List of Best Practices
The United States Tax Court created this checklist to help taxpayers prepare accordingly before their trial at Tax Court.
Think about what facts you want to tell the Judge.
Organize any documents you have to support your case.
Organize your facts and arguments so you can present your case clearly.
Meet with and talk to people at the IRS who call or write to you.
Provide to the IRS copies of documents that you intend to use at trial.
Agree in writing to facts and documents that are not in dispute.
If the IRS will not agree (stipulate) to your documents, bring three copies of each document to the court.
Consider whether you need any witnesses to support your case.
If you need a witness, make sure the witness is available and present in the courtroom at the trial session.
Come to court early so you will be ready when your case is called at the calendar call. You may receive a notice from the Court recommending that you arrive at Court by 9:00 a.m. to have the opportunity to meet with clinical and calendar call attorneys. The Court believes it would be in your interest to comply with this recommendation.
Tax Court may seem stressful, but follow all of the steps and it can be a less stressful process. Practical Accounting Solutions is here to help, too! Contact us with your questions at PracticalAccountingVA.com
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Disclaimer: The views presented in this post are meant as educational resources and should not be taken as direct advice for your personal finances or small business. Should you have questions regarding a post relating to your specific finances, please contact us at firstname.lastname@example.org.