United States Tax Court

United States Tax Court

The United States Tax Court is a federal trial court of record established by Congress under Article I of the U.S. Constitution, section 8 of which provides (in part) that the Congress has the power to "constitute Tribunals inferior to the supreme Court". [U.S. Const., art. I, sec. 8, cl. 9.] The Tax Court specializes in adjudicating disputes over federal income tax, generally prior to the time at which the formal tax assessments are made by the Internal Revenue Service. [See usc|26|7441.] Though taxpayers may choose to litigate tax matters in a variety of legal settings, the Tax Court is the only forum in which taxpayers outside of bankruptcy may do so without having first paid the disputed tax in full. Parties who contest the imposition of a tax may also bring an action in any United States District Court, or in the United States Court of Federal Claims; however these venues require that the tax be paid first, and that the party then file a lawsuit to recover the contested amount paid (the "full payment rule" of "Flora v. United States"). [357 U.S. 63 (1958), "aff'd on reh'g", 362 U.S. 145 (1960).] Tax Court judges are appointed for a term of 15 years, not for life. [See usc|26|7443(e).]


The first incarnation of the Tax Court was the "U.S. Board of Tax Appeals", established by Congress in the Revenue Act of 1924 (also known as the Mellon tax bill) in order to address the increasing complexity of tax-related litigation. The board was not recognized as a separate and independent court. Those serving on the Board were simply designated as Members, operating under the direction of a Chairman.Fact|date=December 2007

The Board was initially within the Bureau of Internal Revenue, the branch of the United States Treasury Department which would later be renamed the Internal Revenue Service. The Board of Tax Appeals remained within that department until 1942, when Congress passed the Revenue Act of 1942, establishing the court as an independent agency and renaming it the "Tax Court of the United States". With this change, the Members became Judges and the Chairman became the Presiding Judge. The Tax Court was again renamed to its current formal designation in the Tax Reform Act of 1969, [ [http://www.library.unt.edu/govinfo/law/tutorial/court/courtspecial.htm Federal Specialty Courts] ] changing it from an historically administrative court to a full judicial court.

Jurisdiction of the Tax Court

The Tax Court provides a judicial forum in which affected persons can dispute tax deficiencies determined by the Commissioner of Internal Revenue prior to payment of the disputed amounts. The jurisdiction of the Tax Court includes, but is not limited to the authority to hear:Fact|date=December 2007

# tax disputes concerning notices of deficiency
# notices of transferee liability
# certain types of declaratory judgment
# readjustment and adjustment of partnership items
# review of the failure to abate interest
# administrative costs
# worker classification
# relief from joint and several liability on a joint return
# review of certain collection actions

Congress amended the Internal Revenue Code, now codified in Internal Revenue Code section 7482, providing that decisions of the Tax Court may be reviewed by the applicable geographical United States Court of Appeals other than the Court of Appeals for the Federal Circuit. [See usc|26|7482(a)(1).] (See Article I and Article III tribunals).

"Small Tax Cases" are conducted under Internal Revenue Code section 7463, and generally involve only amounts in controversy of $50,000 or less for any one tax year. [See usc|26|7463(a).] The "Small Tax Case" procedure is available "at the option of the taxpayer." [Id.] These cases are neither appealable nor precedential. [See usc|26|7463(b), which states: "A decision entered in any case in which the proceedings are conducted under this section shall not be reviewed in any other court and shall not be treated as a precedent for any other case."]

At times there have been movements by Congress and the Tax Bar to create a single national Court of Appeals for tax cases (or make Tax Court decisions appealable to a single existing Court of Appeals), to maintain uniformity in the application of the nation's tax laws (the very reason underlying the creation of the Tax Court and the grant of national jurisdiction to the Tax Court), but efforts to avoid "hometown results" or inconsistent results due to a lack of expertise, have failed.Fact|date=December 2007

An important reason for the movements to create a single national Court of Appeals for tax cases is that the United States Tax Court does not have exclusive jurisdiction over tax cases. In addition to the Tax Court, federal tax matters can be heard and decided in three other categories of courts: U.S. District Courts, the Court of Federal Claims, and the Bankruptcy Court. [See usc|26|7422(a),(e) with regard to the first two courts; usc|11|105(a),(e) with regard to the latter.] In the first two instances, the taxpayer bringing the claim must have first paid the deficiency determined by the IRS. [See usc|26|7422(a).] For the Bankruptcy Court, the tax matter must of course, arise as an issue in a bankruptcy proceeding. [See Steve R. Johnson, "The Phoenix and the Perils of the Second Best: Why Heightened Appellate Deference to Tax Court Decisions is Undesirable," 77 Oregon Law Review, 235, 239-242 (Spring 1998) for a review of federal court jurisdiction including, especially, as to the Bankruptcy Court.] Bankruptcy Court appeals are initially to the U.S. District Court. [Id.] Appeals beyond the U.S. District Courts and the Court of Federal Claims follow the same path as those from the U.S. Tax Court as described above. [Id.]

With this number of courts involved in making legal determinations on federal tax matters and 11 United States Courts of Appeals exercising appellate jurisdiction, some observers express concern that the tax laws can be interpreted differently for like cases. Thus, the movement on the part of some for a U.S. Court of Federal Tax Appeals, though the merits of this are a matter of much discussion. [See Johnson, op.cit.; David F. Shores, "Deferential Review of Tax Court Decisions: "Dobson" Revisited," 49 Tax Lawyer, 629 (Spring 1996); David F. Shores, "Rethinking Deferential Review of Tax Court Decisions," 53 Tax Lawyer 35 (Fall 1999); and Andre Smith, "Deferential Reviews of Tax Court Decisions of Law: Promoting Expertise, Uniformity, and Impartiality," 58 Tax Lawyer 361, for a useful exchange on different views of the matter.]


The Tax Court is composed of 19 members appointed by the President and confirmed by the Senate. [See generally usc|26|7443(a) and (b).] Former judges whose terms have ended may become "Senior judges", able to return and assist the court by hearing cases while serving on recall. In addition, the court is assisted by a number of "special trial judges", who are employees of the court, appointed by the chief judge of the Tax Court, rather than by the President. [26 USCS § 7443A (a).] Special trial judges serve a function similar to that served by Federal Magistrates of the United States District Courts, and may hear cases regarding alleged deficiencies or overpayments of up to $50,000. [26 USCS § 7443A (b)(3).] Reappointment, when requested by a Tax Court judge (I.R.C. 7447(b)(3)) is generally "pro forma" regardless of the political party of the appointing President and the political party of the re-appointing (sitting) President.Fact|date=December 2007

President George W. Bush was heavily criticized by the U.S. Congress, the Tax Bar, and others when he indicated that he likely would not, or might not, re-appoint Tax Court judges whose terms were expiring (even though the first Judge whose re-appointment President Bush called into question was appointed by President Ronald Reagan).Fact|date=December 2007 President Bill Clinton also was criticized for not acting timely to re-appoint Tax Court judges, having allowed one sitting Chief Judge's term to expire, thus requiring the Tax Court to elect a new Chief Judge. Additionally, several Tax Court Judges had to wait more than a year (sometimes more than two years) to be reappointed during the Clinton presidency.Fact|date=December 2007

Trial sessions are conducted and other work of the Court is performed by its judges, by senior judges serving on recall, and by special trial judges. All of the judges have expertise in the tax laws, and are tasked to "apply that expertise in a manner to ensure that taxpayers are assessed only what they owe, and no more". Although the "principal office" of the Court is located in the District of Columbia, Tax Court judges may sit "at any place within the United States". [See usc|26|7445.] The judges travel nationwide to conduct trials in various designated cities. The work of the Tax Court has occasionally been interrupted by events. In 2001, a trial session in New York City was canceled due to the September 11th terrorist attacks. In 2005, stops in Miami and New Orleans were canceled due to the effects of hurricanes which had struck shortly before their scheduled visit to each city.Fact|date=December 2007

Representation of parties

The United States government is represented in the Tax Court by the Chief Counsel of the Internal Revenue Service (IRS) or his delegate. [usc|26|7452. Although, as explained below, the "Commissioner of Internal Revenue" is the proper party to be sued in Tax Court, the statute actually states that the "Secretary" is represented by the IRS Chief Counsel (or delegate). However, the term "Secretary" is defined in usc|26|7701(a)(11)(B) as the "Secretary of the Treasury or his delegate." Further, the term "or his delegate" is defined (in this context) at usc|26|7701(a)(12)(A)(i) as "any officer, employee or agency of the Treasury Department duly authorized by the Secretary of the Treasury directly, or indirectly by one or more redelegations of authority [ . . . . ] "] The Tax Court permits persons who are not Attorneys at Law to be admitted to practice (to represent taxpayers) by applying for admission and passing an examination administered by the Court. Attorneys who provide evidence of membership and good standing in state bar or the D.C. bar can be admitted to the bar of the Court without sitting for the Tax Court examination. Tax Court practice is highly specialized and most practitioners are licensed attorneys who specialize in tax controversies.Fact|date=December 2007

Genesis of a Tax Court dispute

Seal of the United States Tax Court.

Many Tax Court cases involve disputes over Federal income tax and penalties, often after an examination by the Internal Revenue Service of a taxpayer's return. After issuance of a series of preliminary written notices and a lack of agreement between the taxpayer and the IRS, the IRS formally "determines" the amount of the "deficiency" and issues a formal notice called a "statutory notice of deficiency," or "ninety day letter". [See generally usc|26|6212.] In this context, the term "deficiency" is a legal term of art, and is "not necessarily" equal to the amount of unpaid tax (although it usually is). The deficiency is generally the excess of the amount the IRS contends is the correct tax over the amount the taxpayer showed on the return -- in both cases, without regard to how much has actually been paid. [See generally usc|26|6211]

Upon issuance of the statutory notice of deficiency (after IRS determination of the tax amount, but before the formal IRS assessment of the tax), the taxpayer generally has 90 days to file a Tax Court petition for "redetermination of the deficiency". [See generally usc|26|6213.] If no petition is timely filed, the IRS may then statutorily "assess" the tax. To "assess" the tax in this sense means to administratively and formally record the tax on the books of the United States Department of the Treasury. [usc|26|6201 through usc|26|6203.] This formal statutory assessment is a critical act, as the statutory tax lien that later arises is effective retroactively to the date of the assessment, and encumbers all property and rights to property of the taxpayer. [See usc|26|6321 and usc|26|6322.]

Life cycle of a Tax Court case

Because of the negative legal consequences ensuing with respect to a statutory assessment (especially the tax lien and the "Flora" requirement that the taxpayer otherwise pay the full disputed amount and sue for refund), a taxpayer is often well advised to timely file a Tax Court petition. The rule in the Tax Court is that the taxpayer sues the "Commissioner of Internal Revenue," with the taxpayer as "petitioner" and the Commissioner as "respondent." This rule is an example of an exception to the general rule that the proper party defendant in a U.S. tax case filed by a taxpayer against the government is "United States of America." In the Tax Court, the Commissioner is not named personally. The "Secretary of the Treasury", the "Department of the Treasury" and the "Internal Revenue Service" are not proper parties.

The petition must be timely filed within the allowable time. The Court cannot extend the time for filing which is set by statute. A $60 filing fee must be paid when the petition is filed. Once the petition is filed, payment of the underlying tax ordinarily is postponed until the case has been decided. In certain tax disputes involving $50,000 or less, taxpayers may elect to have the case conducted under the Court's simplified small tax case procedure. [See usc|26|7463.] Trials in small tax cases generally are less formal and result in a speedier disposition. However, decisions entered pursuant to small tax case procedures are not appealable are not precedential.

Cases are calendared for trial as soon as practicable (on a first in/first out basis) after the case becomes at issue. When a case is calendared, the parties are notified by the Court of the date, time, and place of trial. Trials are conducted before one judge, without a jury, and taxpayers are permitted to represent themselves if they desire. However, the vast majority of cases are settled by mutual agreement without the necessity of a trial. However, if a trial is conducted, in due course a report is ordinarily issued by the presiding judge setting forth findings of fact and an opinion. The case is then closed in accordance with the judge's opinion by entry of a decision.



Some information on this page is from the web site of the U.S. Tax Court, which, as a publication of the United States government, is in the public domain.

External links

* [http://www.ustaxcourt.gov/ Official Web Site of the United States Tax Court]
* [http://www.unclefed.com/USTaxCourt/ United States Tax Court Rules of Practice and Procedure]
* [http://www.irs.gov/individuals/content/0,,id=98196,00.html IRS Appeals - Resolving Tax Disputes] Official IRS Appeals Office Website

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