Chess Pieces on a Chessboard

Choice of Forum

Taxpayers who have exhausted the administrative remedies within the IRS may have their “day in court” to dispute taxes allegedly owed to the IRS. Such taxpayers should consider carefully which judicial venue in which to file suit as there are differences between the courts. Federal tax claims may be heard at the following three courts: The US Tax Court, the US Court of Federal claims, or a US District Court.

The Us Tax Court

The US Tax Court only hears tax cases, and therefore, its judges have more tax experience than those of the US Court of Federal Claims or US District Courts. The US Tax Court has 19 judges who travel around the country to hear tax law cases. The most important benefit is that taxpayers are not required to pay the disputed amounts in order to be heard in the US Tax Court. All cases heard in the US Tax Court are bench trials, meaning the judge will act as the fact finder and decide the case.

The US Court of Federal Claims

The US Court of Federal Claims hears monetary claims against the Federal government of which a substantial number are tax cases. Generally, to be heard in the US Court of Federal Claims, taxpayers must pay the disputed amount in full. Furthermore, all lawsuits heard in the US Court of Federal Claims are bench trials.

United States District Courts

The US District Courts have jurisdiction over cases under the federal laws. To be heard in a US District Court, the taxpayer must fully pay the tax liabilities. Unlike the US Tax Court or US Court of Federal Claims, the taxpayer or the government may request a trial by jury in a US District Court.

Strategic Considerations

There are several factors taxpayers and their representatives should consider when choosing a judicial forum:

  1. Favorable precedent;
  2. Opportunities to settle;
  3. Cost comparison; and
  4. Where the taxpayer would want to be in the event there is an appeal.

The US Tax Court tends to be less costly as it encourages the parties to stipulate on as many facts and issues as possible. Discovery of evidence is generally less formal in US Tax Court, whereas the discovery process in Federal Court of Claims and US District Court can be very lengthy and broad.

Furthermore, taxpayers do not have to pay the tax liability to be heard in the US Tax Court. The taxpayer, however, must have received a notice of deficiency from the IRS to petition the US Tax Court. If the taxpayer does not petition the US Tax Court within 90 days from the date of the notice of deficiency, the taxpayer will have no choice but to pay the tax liability and be heard in the US Federal Court of Claims or US District Court. It is important to note that because payment of the tax liability is not required in the US Tax Court, interest continues to accrue on the deficiency until a determination is made on the case.

Cases Where You Have no Choice

Sometimes taxpayers may not have a choice. The following actions can only be heard in US District Courts:

  • IRC Section 7402(b) - Summons enforcement actions filed by the government
  • IRC Section 7403(a) - Action to enforce or discharge liens
  • IRC Section 7426 - Wrongful levy actions
  • IRC Section 7407(a) - Tax return preparer injunction suits

The following actions can only be heard in US Tax Court:

  • IRC Section 6330(d)(1) - Collection due process determination appeal
  • IRC Section 6404 - Review of IRS interest abatement rejection
  • IRC Section 7430(f)(2) - Review of determination to award reasonable administrative costs

Contact the tax litigation attorneys at the Ben-Cohen Law Firm, if you have received a notice of deficiency or would like to dispute a tax liability. Our Los Angeles tax litigation attorneys can evaluate your tax dispute and go over the available legal options with you. You may contact us at (310) 272-7600 or submit an online form to set up an appointment.

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