What Is Tax Court and How Does It Work?

The United States Tax Court is a specialized federal court established by Congress. It serves as an independent judicial forum for resolving disputes between taxpayers and the Internal Revenue Service (IRS). Its primary feature is that it allows a taxpayer to challenge a tax liability proposed by the IRS without first paying the disputed amount. This “deficiency” litigation model contrasts with other federal courts where a taxpayer must pay the tax and then sue for a refund.

The Tax Court’s jurisdiction is specifically granted by Congress and is limited to hearing cases related to IRS determinations of tax deficiencies. The court is headquartered in Washington, D.C., but its 19 presidentially appointed judges travel to hold trials in 74 cities across the United States. Cases are decided by a single judge who is an expert in tax law; there are no juries in Tax Court.

The Notice of Deficiency Prerequisite

Access to the court is contingent upon receiving a specific document from the IRS called a Notice of Deficiency. This notice, often referred to as a “90-day letter,” informs the taxpayer of the IRS’s determination that they owe more tax. It details the amount of the deficiency, the tax years involved, and the reasons for the changes, such as disallowed deductions or unreported income.

The issuance of this notice triggers a strict timeline. A taxpayer has 90 days from the date the notice is mailed to file a petition with the Tax Court. This deadline is extended to 150 days if the notice is addressed to a person outside the United States. Missing this deadline has significant consequences; the taxpayer forfeits their right to challenge the IRS’s determination in Tax Court before payment.

Once the 90-day period expires without a petition being filed, the IRS is legally authorized to assess the tax and begin collection actions. The taxpayer’s only remaining option would be to pay the full amount of the tax, file a formal claim for a refund with the IRS, and if that is denied, sue for a refund in a different federal court.

Preparing and Filing a Petition

Once a taxpayer receives a Notice of Deficiency and decides to challenge it, the next step is to prepare and file a petition with the U.S. Tax Court. The court offers two distinct paths: a regular case or a Small Tax Case, often called an “S Case.” The S Case procedure is available for disputes where the amount of tax and penalties for any single tax year is $50,000 or less. S Cases are designed to be less formal and are often resolved more quickly, but the judge’s decision is final and cannot be appealed by either the taxpayer or the IRS. Regular cases follow more formal rules of evidence and procedure but preserve the right to appeal the decision to a U.S. Court of Appeals.

The official petition form, known as Form 2, can be found on the U.S. Tax Court’s website. The petition must state the specific amount of the deficiency being disputed, identify the errors the taxpayer alleges the IRS made, and provide the facts that support the taxpayer’s position. A complete copy of the Notice of Deficiency must be attached to the petition.

After filling out the form with the required information, the taxpayer must file it with the court. A filing fee, which is currently $60, must be paid at the time of filing. If a taxpayer cannot afford the fee, they can file a Motion to Waive Filing Fee, which the court will consider based on the petitioner’s financial situation.

Navigating the Tax Court Process

After a petition is successfully filed, the case is officially docketed by the court. The court then serves the petition on the IRS, which is required to file a formal response, known as an “Answer,” within 60 days. The Answer addresses each of the specific points the taxpayer raised in their petition, admitting or denying the allegations.

The period between the IRS’s Answer and a potential trial is when most cases are resolved. The parties engage in a process called discovery, which involves the formal exchange of information and documents relevant to the case. During this time, many cases are referred to the IRS Appeals Office. This independent branch of the IRS has the authority to negotiate a settlement, and the vast majority of Tax Court cases are settled by mutual agreement without ever going to trial.

If a settlement cannot be reached, the case is scheduled for trial. Tax Court trials are “bench trials,” meaning they are conducted before a single judge with no jury. Both the taxpayer (who can represent themselves) and the IRS present evidence and witness testimony to support their respective positions. Following the trial, the judge issues a written report containing findings of fact and a legal opinion. Based on this report, the court enters a final decision which determines the taxpayer’s correct tax liability.