Why Tax Court Matters
The United States Tax Court is unique. It is the only federal court where you can challenge the IRS without paying the tax first. In every other court, you pay the tax, file a claim for refund, and then sue. Tax Court lets you fight first and pay later, or not at all if you win.
When to File a Petition
You file a Tax Court petition in response to a Notice of Deficiency, commonly called a 90-day letter. The IRS sends this notice after an audit or when they propose to assess additional tax. You have exactly 90 days from the date of the notice to file your petition. Miss that deadline by one day and the court will not accept your case. There are no extensions.
Tax Court petitions are also used to challenge collection actions through Collection Due Process hearings, to appeal denied innocent spouse claims, and to challenge certain IRS determinations about exempt organizations and retirement plans.
The Small Tax Case Option
If the amount in dispute for any single tax year is $50,000 or less, you can elect small tax case procedures under Section 7463. Small tax cases are less formal, faster, and do not require the same level of legal briefing. The downside is that small tax case decisions cannot be appealed. If you lose, that is the end of the road.
What Happens After Filing
After you file, the IRS assigns your case to an attorney in the Office of Chief Counsel. You will receive a letter assigning the case and offering settlement discussions. Most Tax Court cases settle before trial. The IRS attorney evaluates the strength of both sides and often proposes a compromise.
This is where having your own tax attorney makes the difference. Settlement negotiations with the IRS are legal negotiations. The IRS attorney knows the law and knows their case. You need someone who knows it equally well and can credibly threaten to take the case to trial if the settlement offer is unreasonable.