When the IRS gets it wrong: going to tax court

The IRS sometimes makes mistakes and tries to collect more from taxpayers than they actually owe. One way that tax issues can be resolved is by appealing the matter directly to the IRS. Sometimes, this is all that is needed to get the agency to change its position, especially in relatively straightforward disputes that can be settled simply by providing additional documentation. In other cases, however, disputes between taxpayers and the IRS must be litigated in court.

The United States Tax Court is a federal court presided over by neutral, independent judges. In tax court, the IRS and the taxpayer are opposing parties, much like in a civil lawsuit. Unlike many other court proceedings, however, there are no juries in tax court. Both the taxpayer and the IRS must present their arguments and supporting evidence to a judge who will issue a final decision on the matter.

Top 10 tax litigation issues

Each year, about 30,000 tax disputes are filed in federal tax court. Although many of these disputes are settled before trial in out-of-court negotiations, those that make it to trial often center on the same types of issues.

In a 2014 report to Congress, National Taxpayer Advocate Nina Olson identified the 10 issues most frequently litigated issues in tax court during the previous year. The National Taxpayer Advocate is an independent branch of the IRS that advocates on behalf of taxpayers regarding IRS policy and tax law. The issues identified in the report include:

  • Penalties for inaccuracy
  • Trade or business expenses
  • Summons enforcement
  • Gross income
  • Collection due process hearings
  • Penalties for failure to file, failure to pay or estimated taxes
  • Enforcement of tax liens
  • Penalties for frivolous issues
  • Charitable deductions
  • Losses and credits for passive activity

Also included in the report were statistics showing the number of cases filed in each category, which party prevailed, and whether the taxpayer was represented by an attorney. These data show that taxpayers who had legal representation were statistically more likely to prevail in court - regardless of the exact nature of the dispute - than those who represented themselves.

Seek legal help for IRS disputes

Considering that the U.S. Tax Code now exceeds 4 million words, it is no wonder that the taxpayers stand to benefit substantially by working with an attorney who is trained and experienced in this notoriously complex and highly changeable area of federal law. If you have received notice of an enforcement action from the IRS, be sure to get the legal help you need to protect your rights and financial interests. For questions about tax-related matters in the Seattle area, contact the experienced tax attorneys at Insight Law to set up a consultation.