How the Small Tax Case Procedure Works
Understand the U.S. Tax Court's streamlined and informal path for resolving smaller IRS disputes, a process that results in a final, non-appealable decision.
The United States Tax Court offers a small tax case procedure as an alternative for taxpayers to resolve disagreements with the Internal Revenue Service (IRS). This process is designed to be more straightforward, less formal, and quicker than a regular Tax Court case. Its purpose is to provide an accessible venue for individuals to dispute a proposed tax deficiency without needing to navigate complex legal rules or hire expensive representation. This streamlined approach allows a person to present their case directly to a judge in a less intimidating setting.
Eligibility for Small Tax Case Designation
To qualify for the small tax case procedure, the amount of tax in dispute is the primary consideration. The total amount of tax and penalties for a single case cannot exceed $50,000, but how this limit is applied depends on the type of dispute.
For disputes arising from a Notice of Deficiency, which typically involve income, estate, or gift taxes, the $50,000 limit applies to each tax year individually. For instance, a case involving a $40,000 deficiency for one year and a separate $30,000 deficiency for another would be eligible because neither year’s amount exceeds the cap. For other matters, such as certain disputes over IRS collection actions or requests for relief from joint liability, the $50,000 limit applies to the total for all years combined.
Information and Documents Needed to File
A Tax Court case begins after you receive a Notice of Deficiency from the IRS. This document is important because it officially states the IRS’s position that you owe more tax and details the amount. The notice starts a strict 90-day countdown from the date it is mailed to file a petition with the Tax Court. Missing this deadline typically means losing the right to challenge the deficiency in Tax Court before paying it.
To formally start your case, you must file the court’s official Petition (Form 2), which is available on the U.S. Tax Court’s website. Filing this petition, along with a $60 filing fee, initiates the process and pauses the IRS’s ability to collect the disputed tax until the case is resolved. If you cannot afford the fee, you can file a request for the court to waive it.
When completing the petition, you must formally choose the small tax case procedure. You will also need to provide specific information, including:
- Your full name, current mailing address, and taxpayer identification number
- The exact date shown on the Notice of Deficiency
- The specific tax years or periods that are in dispute
- The dollar amount of the deficiency you are challenging
- A clear explanation for why you disagree with the IRS’s determination
The Small Case Process After Filing
Once your petition is filed, the Tax Court will process it and formally serve it to the IRS, notifying the agency of your legal challenge. The IRS is then required to respond with a legal document called the “Answer,” which addresses the specific points you raised. Following the filing of the Answer, many cases are referred to the IRS Appeals Office. This step provides an opportunity for you and an Appeals officer to discuss the case and potentially reach a settlement without going to trial.
If a settlement cannot be reached, the Tax Court will schedule your case for a hearing. The court will send you a notice informing you of the date, time, and location of the trial, which is typically held in a city near you. The hearing itself is less formal than a traditional court trial, as the strict rules of evidence are often relaxed, allowing you to present your story and documents in a conversational manner.
The Decision and Its Finality
After the hearing concludes, the judge will review the evidence and arguments and issue a decision that resolves the dispute. This decision will state whether there is a tax deficiency and, if so, the correct amount that is owed.
A defining characteristic of the small tax case procedure is the finality of the judge’s decision. Once entered, the decision is legally binding on both the taxpayer and the IRS, and neither party has the right to appeal the outcome to a higher court. This trade-off—simplicity and speed in exchange for giving up appeal rights—is a fundamental aspect of this process.
Another feature of a small tax case decision is that it does not create a legal precedent. This means the outcome of your case cannot be cited or used as a legal basis in any other taxpayer’s future dispute with the IRS. The decision is specific only to your facts and circumstances.