Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

90 Days, the IRS and Tax Court – your probationary period

Tax Court, dispute, petition, IRS, taxIf you have received a notice of deficiency from the IRS, you probably already know that procrastination is not your friend when it comes to this notice. The IRS issues a statutory notice of deficiency, sometimes referred to as the 90 day letter, if there has been a redetermination of your tax liability. The redetermination may have arisen as a result of the Service conducting either an in-person or correspondence audit. The taxpayer is initially given 30 days to either provide additional support to resolve the issue or to request a conference with Appeals. If the service does not receive a taxpayer response or resolution cannot be achieved, the statutory notice of deficiency, or the 90 day letter, is issued to the taxpayer. The clock has just started for the taxpayer as there are now 90 days to petition the U.S. Tax Court for a redetermination. When the notice has been addressed to a taxpayer outside of the country, the taxpayer has 150 days to file a petition with the Tax Court.

Tax Court history

The United States Tax Court was created in 1924. The Tax Court was the response to a need to adjudicate disputes that arose out of changed conditions that were brought on by the new taxes that emerged during World War I. The Court is comprised of 19 members who are appointed by the president. The Court is physically located in Washington D.C., however, judges do travel nationwide to conduct trial in various cities across the country.

Disputes

Tax Court cases can involve a litany of disputes. Some of the cases seem clear cut – a taxpayer deducting an item that the tax code simply does not allow. Most stem from a difference in the interpretation by the taxpayer as to the deductibility or taxable nature of items. Tax Court, however, is not just about tax deficiencies. Within the Court’s authority is the ability to redetermine transferee liability, adjust partnership items, order abatement of interest, redetermine worker classification, award administrative and litigation costs, review certain collection actions and review awards of whistleblowers that provide information to the Commissioner of Internal Revenue after December 2006.

Petitions

As a taxpayer, you can file a petition in Tax Court and represent yourself. A majority of petitions filed in Tax Court are pro se. There is a $60.00 filing fee which will be required to be paid when the petition is filed. If the taxpayer timely files their petition, the IRS cannot take any action to collect the deficiency until the Tax Court proceeding is concluded and the decision becomes final. For disputes of $50,000 or less, the taxpayer can request to have their case conducted under the simplified small tax case procedure. These cases generally have a speedier disposition and are less formal. The decision in a small tax case cannot be appealed.

Representation

If you are reluctant to represent yourself, you may be represented by a person admitted to practice before the Tax Court. An attorney must file an application for admission to practice before the Tax Court. Non-attorneys may be admitted to practice in Tax Court by successfully passing an examination and be sponsored by two individuals who are admitted to practice before the Tax Court. The path for a non-attorney to practice in Tax Court is not an easy one.

Jury

There is no jury in Tax Court. The trial is conducted before one judge who issues an opinion and an entry of decision. The vast majority of Tax Court cases are settled before a trial ever begins. Settlement is encouraged to reduce the burden on the court system. The case will generally be referred to the Appeals Division prior to trial for settlement consideration. If such an agreement can be reached, the case is closed.

Deadline

Maybe you forgot or just figured you’d get the information and response to the Internal Revenue Service on your terms and you miss the 90 days. Is it really that big of deal? The answer is YES. When the deadline to file a timely petition in Tax Court is missed, the deficiency is assessed and is payable upon notice and demand from the IRS. Do you have any options at this point? If you contest the assessment and miss your deadline to file your Tax Court petition, you must bring action in any United States District Court against the United States. Yes, that’s right. You will be suing the United States of America. In addition, you must pay the tax first and then file the suit to recover the contested amount paid. Not following the rules is just not a good decision.

If you receive a notice of deficiency don’t stall, ignore or stick your head in the sand. If you are uncertain on how to proceed, consultation with your tax advisor can be a good compliment to the aspirin you’re taking for your headache.

Cheryl Dickerson, CPA