3 ways to fight the IRS in court

By Jeff Schnepper

Sometimes, IRS agents just don't listen, and when they do listen, they just don't understand. In those cases, we have to take the government to court.

But how? To which court? And how much will it cost?

If you and the Internal Revenue Service can't agree, they will send you a "Notice of Deficiency," sometimes referred to as a 90-Day Letter. This is because once the notice has been issued, you have 90 days from the date on that notice to file a petition with the Tax Court.

If you miss the 90-day cutoff, you lose! No ifs, ands or buts. The statute of limitations has run out and you must pay the tax. You may be able to sue for a refund, but you have to pay the tax first. So, first and foremost, if you disagree with the IRS, don't just sit on the notice. Respond, saying that you disagree with the agency's findings. Now, let's see what to do once you've decided to go to court.

U.S. Tax Court

Most taxpayers choose the U.S. Tax Court as their forum to litigate tax issues. Established in 1923, it's made up of 19 judges who travel around the country and hear cases on a regular basis. It handles only tax litigation, and the judges are tax experts.

Which court to choose?
Court	Fee	Contact	When to use
U.S. Tax Court	$60	Clerk, U.S. Tax Court	Case is based on law interpretation.
		400 2nd Street N.W. Washington, D.C., 20217
		202-521-0700
U.S. District Court	$150	Clerk of Court's office in district where you reside.	Case is based on fairness issues.
U.S. Court of Federal Claims	$250	Clerk of the Court of Claims	Your attorney is "forum shopping" for a federal circuit court with laws sympathetic to your case.
		17 Madison Place N.W. Washington, D.C., 20005
		202-357-6400

The major advantage of electing this forum is that it is the only court that will decide your case before you pay the tax. All other options require you to pay the disputed amount upfront. If you can't pay, you won't be able to get into any of the other courts, as those are intended as refund disputes. If your argument is based on technical analysis, this is the courtroom for you. You want a judge who understands the minutiae of the law.

If your argument is based on fairness or equity, you don't want to be in the Tax Court. You should file your petition in U.S. District Court, discussed below. In district court, a jury of your peers decides the verdict. Remember, Tax Court cases are decided exclusively by judges; there are no Tax Court juries.

Although you may represent yourself at the Tax Court, it is best to have an attorney specializing in taxation to handle the case.

A simplified process is available if the disputed amount is $50,000 or less for any taxable year. Here, you may want to represent yourself.

Cases under the Small Claims division are heard by special trial judges in informal settings, and the formal rules of evidence don't apply. But if you lose, you can't appeal. Their decision is final and binding. Regular Tax Court decisions can be appealed to the U.S. Courts of Appeal, and then to the U.S. Supreme Court.

The fee for all cases is $60. You send it, with an original and two copies of your petition, a copy of the Notice of Deficiency, and your pick of the city where you want to be heard.

U.S. District Court

If you missed the 90-day time limit, or want a jury to hear your case, you may choose to go to U.S. District Court. It's the only forum where a jury is available. That's great if your argument is more about fairness than technical compliance. Juries are more receptive and sympathetic to the equities of a case than to the letter of the tax law.

To get into a District Court, you must first pay your tax deficiency and then file a claim for a refund with the IRS. The IRS then has six months to act on your claim. When it is rejected, you can then file suit for a refund in U.S. District Court. (I should note that, rarely, does the IRS say, "Oops, we goofed!" and give you a refund.)

Continued: District Court judges are rarely tax experts

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