June 8, 2011
Tax Court Jurisdiction
The Tax Court’s jurisdiction extends to income taxes; gift taxes; estate taxes; generation skipping transfer taxes; certain excises taxes imposed on public charities, private foundations, qualified pension plans and qualified investment entities; and in certain additions to tax, additional amounts and penalties.
The Tax Court does not have deficiency jurisdiction over employment tax and penalties except to the extent that the issue of employment taxes arises in a Collection Due Process proceeding. The Pension Protection Act of 2006 established that the Tax Court has exclusive jurisdiction over the review of all CDP determinations regardless of the type of underlying tax liability. The Court’s jurisdiction in CDP cases now includes unemployment taxes, unemployment taxes, trust fund recovery penalties, frivolous return penalties and other penalties that were previously heard in the United States District Courts.
With over 25 years of federal practice, Ms. Beary has the experience necessary to craft arguments of law to best represent you in the Tax Court. For more information about equitable arguments and proceedings outside of the Tax Court, see Suits for Refund in District Court.
Tax Court As A Choice of Forums
A taxpayer should carefully consider in which court a particular kind of suit may be brought. In this section, we provide information relevant to choosing the Tax Court to hear your case. For a summary which of the courts hears cases on what kinds of taxes see Tax Court Jurisdiction.
Taxpayer Can Litigate Before Paying The Tax
The Tax Court is one of the three judicial forums that hears and determines federal tax cases. The other two forums are the United States District Courts and the United States Court of Federal Claims. The principal difference between the Tax Court and the other two courts is that the Tax Court is the only court in which a taxpayer may dispute the amount of tax deficiency before paying the tax; in the other two courts, a taxpayer must first pay the entire amount of the disputed tax and then file a claim for a refund.
The absence of a prepayment requirement in the Tax Court explains why so many cases are filed there as compared to the other two courts. While the Tax Court may average up to 30,000 docketed tax-deficiency cases per year, the total number of cases filed in all of District Courts in the Nation per year is approximately 1,500 and, in the Court of Federal Claims, it is only 600 cases.
Geographic Scope of Jurisdiction
The Tax Court has nationwide jurisdiction and holds trials, in both Regular and Small Tax Cases, throughout the United States. Insofar as the Tax Court’s ability to compel the presence of witnesses, service of process by the Tax Court is nationwide. The Court of Federal Claims also offers nationwide service of process, unlike the United States District Courts which are general trial courts which have only localized jurisdiction in the district in which theyare located.
Nature of Expertise
U.S. District Courts hear all types of matters; unlike the Tax Court, they do not possess an exclusive tax expertise. Moreover, because of court backlogs and the speedy criminal trial rule, district court judges have increasingly assigned procedural and pretrial issues to magistrates who may possess even less tax expertise than do the district court judges themselves. The Court of Federal Claims was formerly known as the United States Claims Court. Although some judges on the Court of Federal Claims have a distinct tax background, there are other judges who may have had a government contracts or intellectual property career before their appointment to the bench. The number of tax filings on the Court of Federal Claims’docket has consistently declined over the years, although the amounts of tax in issue are generally large.
The District Courts are distinguished by being the only court adjudicating tax controversies which affords the taxpayer a jury trial. If a taxpayer has a good reputation in the community and thinks that it would be to his/her advantage to be judged by his peers, then the District Court might be the preferable venue.
Applicable Rules of Procedure
Both the Tax Court and the Court of Federal Claims are governed by their own Rules, while all litigation in the District Courts is governed by the Federal Rules of Civil Procedure. Even though the Tax Court may give deference to the Federal Rules of Civil Procedure where no express Tax Court Rule exists, if there is an applicable Tax Court Rule, a different result may be generated than the result that would have been obtained in the District Courts. This difference can work for or against the taxpayer, depending on the facts of the case.
The rules of procedure and evidence may be applied more liberally by the Court of Federal Claims than in the District Courts or the Tax Court, and the Court of Federal Claims may apply equitable principles in determining the cases before it.
Contrast in Litigating Style
Beyond the differences among the three courts discussed above, the Courts present fundamental contrasts in litigating style. For example, if a taxpayer has a technically complicated case, he or she may give consideration to the selection of the Tax Court because of that court’s specialized tax expertise and the judges’ general familiarity with all types of tax law.
In the context of tax cases, Tax Court Judges are perhaps more accustomed to cases where taxpayers are representing themselves. With its Small Tax Case procedures in place, the Tax Court has a specialized informal and relatively speedy procedure which taxpayers may choose if the tax liability does not exceed $50,000.
Centralization of Court Review of Opinions
Individual district court and Court of Federal Claims judges operate more independently than do the Judges on the Tax Court which uses a centralized calendar and whose Judges’ decisions are not only reviewed for consistency with one another and with precedent but also may be submitted to the entire court for review. In the District Courts and the Court of Federal Claims, each judge has sole authority over the case before him/her, and decisions are not reviewed by either the Chief Judge or the judges en banc for consistency with either the courts’ own precedents or the opinions of the other judges.
Speedy Resolution of a Case
Processing tax cases in the District Courts may be delayed due to the speedy-trial rule which requires that criminal defendants be given first preference when docket conflicts arise. In contrast, on the average, it takes approximately one year from the time that a case is first docketed by the Tax Court to when a trial commences. There may be a longer delay in settling tax refund actions in the District Courts and the Court of Federal Claims than deficiency actions in the Tax Court because, as a general rule, most Tax Court cases are referred to the Internal Revenue Service’s Office of Appeals for settlement evaluation immediately after the government’s answer has been filed, while settlement of tax-refund cases will not be considered by the U.S. Department of Justice (the attorney for the IRS), until after the government has completed discovery. Even if the Department of Justice trial attorney recommends settlement of a case, there is an extensive review process, and large refunds in excess of $1,000,000 must be referred to the Congressional Joint Committee on Taxation for approval, thereby further delaying settlement.
Application of Equitable Principles
Unlike the District Courts and the United States Court of Federal Claims, the Tax Court may not use equitable rules to expand its jurisdiction, although the Tax Court has held that it may apply equitable principles in the course of making determinations in those cases that come within its jurisdiction. Thus, the Court has applied the principles of waiver, quasi-estoppel, estoppel, substantial compliance, abuse of discretion, laches, equitable recoupment and the tax benefit rule.
Suits for Refund in United States District Courts
A taxpayer may contest a tax liability by paying it and bringing a suit for refund in the U.S. District Court. See discussion under topic Tax Court As A Choice Of Forum.
Release of Liens & Levies
Section 6321 of the Internal Revenue Code provides that the United States may record a lien upon the property and rights to property of persons who owe taxes to the government. Once a Notice of Tax Lien is recorded, the world is put on notice that the IRS has a lien against all real property located in the county in which the lien is recorded and against all personal property and against all rights to property.
Sometimes, the underlying tax liability has been wrongfully assessed. In such cases, Patricia Beary works with the IRS Revenue Officer assigned the case to remove the assessment and to release the lien. Often, a taxpayer receives a notice from his/her employer or bank that the IRS has served a levy. This means that the taxpayer’s wages will be garnished and paid to the IRS or the taxpayer’s bank account has been frozen and the funds will be turned over to the IRS. In cases involving levies, Attorney Beary will work with the taxpayer and the IRS to provide a collection alternative to the levy. Generally, collection alternatives are the submission of either a request for an installment agreement or an offer in compromise. These options are discussed in more detain under the topic headings.
Patricia Beary has successfully challenged liens and levies. One example is a case in which Attorney Beary was successful in proving that the taxpayer had ceased doing businessAdditionally, Attorney Beary obtained the release of the lien and levies, and the entire amount of the tax assessment, in excess of $100,000, was abated.
Offers in Compromise and Installment Agreements
An Offer in Compromise is an agreement between the taxpayer and IRS to settle the taxes for amount less than the full liability. An Offer in Compromise is a complicated process which requires the submission of a Collection Information Statement and the supporting documentation that must be submitted with the Offer. Patricia Beary has extensive experience with Offers in Compromise and can analyze your financial situation and advise you on whether you quality for an Offer and what the minimum amount of the Offer must be in order for the IRS to consider approving it.
If you do not qualify for an Offer in Compromise, Attorney Beary will recommend a Request for an Installment Agreement or suggest other alternatives. The substantiation requirement for an Installment Agreement is similar to an Offer in Compromise. The major difference is that, with an Installment Agreement, the taxpayer pays off the entire taxbility making installment payments for a certain number of months. With an Offer in Compromise, payments can also be made in installments or in a lump some. The total amount to be paid under an Offer, however, is less than the total amount owed.
Ms. Beary has handled successful submissions of Offers in Compromise, as well as negotiated Installments Agreements maximizing the monthly income available to the taxpayer for living expenses.
Defense Litigation in United States District Courts
If the Internal Revenue Service has been unsuccessful in receiving payment of tax liabilities, the United States of America may file a suit to foreclose the IRS tax lien on property to which the lien has attached. For example, the suit may seek foreclosure of a residence. These suits are brought in the U.S. District Courts. In addition ordering foreclosure of your residence and/or other real property, District Courts also have the power to issue a judgment for the amount of the tax lien, thereby extending the statute of limitations on collection of the outstanding taxes. These suits must be vigorously defended by filing an answer to the complaint or an appropriate motion seeking dismissal of the complaint. It is imperative that the attorney representing the defendant taxpayer be familiar not only with litigation strategy and the collection of taxes, but also with lien priorities and the effect of bankruptcy on tax claims. Attorney Beary has handled defense litigation in U.S. District Court and has achieved great success in a forum where it is difficult for a taxpayer to win.
IRS audits are typically performed by Internal Revenue Service agents or examiners. Audits often include in-person meetings, written correspondence, and other contacts. The typical examiner has spent years investigating the financial affairs of taxpayers. Therefore, when a person becomes the subject of an audit, it is important to have an attorney on board who is experienced in handled these matters and who is comfortable dealing with IRS representatives.
Because of her expertise and background in tax and bankruptcy, Mr. Beary will assist you in gathering the all of the substantiation required in an IRS audit and present your position to the examiner with the goal of having the audit closed quickly and favorably.
Appeals of Tax Court Decisions
The Tax Court has nationwide jurisdiction. Although the Tax Court is based in Washington D.C., the judges rotate, hearing cases in different cities throughout the country. Decisions of the Tax Court are appealable to the U.S. Court of Appeals for the particular circuit. In Arizona, for example, cases would be appealed to the Court of Appeals for the Ninth Circuit. Cases filed under the Tax Court’s Small Case Procedure, however, cannot be appealed. Patricia Beary is admitted to practice before the Court of Appeals for the Ninth Circuit, as well as the Supreme Cout of the United States. She is able to represent you as far as you want your case to go.
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