While most taxpayers do not experience difficulties with tax issues, or resolve their problems at an early stage, individuals with continuing tax disputes may choose to resolve their claims against the Internal Revenue Service in federal court. Taxpayers can bring tax litigation in one of three federal courts that operate independently of the IRS. Depending on the case, Claims Court, District Court, or Tax Court may provide the appropriate forum. The taxpayer may choose to bring his or her dispute in these courts prior to completing the IRS internal appeals process, but some judges will not hear a case that has not been through this administrative procedure. Additionally, a tax court judge may fine a taxpayer if he or she feels that the lawsuit was brought to delay tax payment.
The U.S. Court of Federal Claims deals with disputes over taxes already paid. After a taxpayer makes payment, he or she may file a suit in federal claims court for a refund of the disputed amount. The refund may represent any amount however small, but the taxpayer cannot seek refund of certain IRS penalty payments.
U.S. District Court also requires that the taxpayer pay the disputed amount prior to bringing suit. Additionally, the taxpayer must request the refund from the IRS before commencing district court litigation. The IRS must either deny the refund or delay for over six months before the taxpayer can begin his or her District Court action. In the District Court, the taxpayer receives the right to a trial by jury, a feature not available in the Federal Claims or Tax Court. As in Federal Claims Court, District Court sets no minimum amount for tax disputes that may be heard, but litigation costs may limit district court actions to larger claims.
Unlike Claims Court and the District Court, U.S. Tax Court hears only tax-related cases. The taxpayer need not pay the disputed amount prior to commencing a Tax Court case. A tax judge hears the case and makes a decision on the taxpayer's case. Because the taxpayer does not pay the disputed tax prior to suit, he or she must file a Tax Court case quickly: The taxpayer must file within ninety days of the IRS mailing a notice of deficiency to the taxpayer. Because the taxpayer is not required to pay taxes prior to trial, Tax Court is the most popular tax litigation option.
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This publication and the information included in it are not intended to serve as a substitute for consultation with an attorney. Specific legal issues, concerns and conditions always require the advice of appropriate legal professionals.
