United States Tax Court

The United States Tax Court is a federal court of record established under Article I of the Constitution to decide disputes over federal taxes, most often an IRS determination that a taxpayer owes more income, estate or gift tax than reported. Section 7441 of the Internal Revenue Code provides that it "is not an agency of, and shall be independent of, the executive branch of the Government." Its 19 judges are appointed by the President with the Senate's consent for 15-year terms.

"Tax Court" and "U.S. Tax Court" refer to the same court. It is different from the IRS Independent Office of Appeals, which is part of the IRS and settles disputes administratively, and from state tax courts, which hear disputes over state and local taxes.

The prepayment forum. What makes the Tax Court central to tax disputes is timing. Section 6213(a) lets a taxpayer file a petition "for a redetermination of the deficiency" within 90 days after the IRS mails a notice of deficiency (150 days if it is addressed to someone outside the United States), and it bars the IRS from assessing the deficiency or levying to collect it until that period runs out or, if a petition is filed, until the court's decision is final. A petition filed by the last date printed on the notice is treated as timely. The usual alternative requires paying the tax first: a refund suit in a federal district court or the U.S. Court of Federal Claims generally starts only after the tax is paid and a refund claim has been denied or left unanswered.

Small tax cases. Under section 7463, where neither the deficiency in dispute nor any claimed overpayment exceeds $50,000 for any one year (for income tax), the taxpayer can elect the small tax case procedure, often called an S case, with the court's agreement. Rules of evidence are relaxed and the process is built for people representing themselves. The trade-off is that the decision "shall not be reviewed in any other court and shall not be treated as a precedent for any other case."

Regular cases and appeals. In a regular case, the decision can be appealed to the federal court of appeals for the taxpayer's circuit under section 7482, and from there to the Supreme Court. A case can be settled with IRS Appeals or IRS counsel at any point before trial, and a timely petition preserves the right to a hearing while the two sides negotiate.

Beyond deficiencies. Congress has given the court other kinds of cases, including review of innocent spouse determinations under section 6015(e), collection due process appeals over liens and levies, and certain whistleblower award and declaratory judgment matters. Each has its own filing deadline, and some are much shorter than 90 days.

What filing does not stop. Interest continues to accrue on any tax that is ultimately owed, so a taxpayer who expects to lose part of the case may choose to pay or deposit that part while the rest is litigated.

Filing. Petitions can be filed electronically through the court's DAWSON system, and taxpayers may represent themselves. Low-income taxpayer clinics and pro bono programs that participate with the court help people who cannot afford representation.

1. Receive a notice of deficiency. This is the IRS's formal determination, often called the 90-day letter. Earlier letters, such as an audit report or a 30-day letter, do not open the Tax Court's door.

2. Petition on time. File within 90 days of the mailing date, or 150 days if the notice was addressed outside the United States, using the last date printed on the notice. Elect small tax case treatment if the amount in dispute qualifies and you prefer the simpler process.

3. Collection is paused. The IRS cannot assess the disputed deficiency or levy for it while the case is pending.

4. Negotiate or try the case. The two sides can settle before trial. If they do not, a judge hears the case and issues a decision.

5. After the decision. The tax is assessed as decided. A regular decision can be appealed; a small tax case decision cannot.

For example: the IRS mails Darnell a notice of deficiency on March 3 asserting $18,500 of additional income tax and a $3,700 penalty for one year. Because the amounts in dispute are under $50,000 for the year, he petitions within the 90 days and elects the small tax case procedure. He pays nothing while the case is pending. At trial, the judge allows most of his deductions and sustains $4,000 of the tax and an $800 penalty, so he owes $4,800 plus interest instead of the $22,200 the notice asserted, and neither side can appeal.

Pros

• The disputed tax does not have to be paid before the case is heard.
• The court is independent of the IRS, and its judges specialize in tax law.
• The small tax case procedure is designed for taxpayers representing themselves, with relaxed rules of evidence.
• A timely petition keeps settlement talks with IRS Appeals or counsel open while preserving the right to a trial.

Cons

• The 90-day deadline is short, and a late petition can mean losing the chance to litigate before paying.
• Interest keeps accruing on whatever tax is ultimately owed while the case is pending.
• A small tax case decision cannot be appealed and sets no precedent.
• Regular cases follow formal rules, and complex ones can take years and benefit from professional representation.