Keith Mack
Tax cases in the United States are heard in one of three trial courts: the U.S. Tax Court, the U.S. District Courts, and the U.S. Court of Federal Claims. The U.S. Tax Court is a specialised court that exclusively hears tax disputes. Taxpayers can be heard in U.S. Tax Court without paying the amount in dispute prior to litigating, which is why most tax cases are litigated there. The U.S. District Courts are the only tax trial courts where taxpayers may request a jury trial, but taxpayers must pay the disputed amount before suing for a refund. The U.S. Court of Federal Claims also requires taxpayers to pay the disputed amount before litigation. Tax cases may then advance to the appellate level and to the Supreme Court of the United States, which is the court of last resort for cases involving constitutional challenges and those involving statutory interpretation.
| Characteristics | Values |
|---|---|
| Number of federal trial courts deciding tax cases | 3 |
| Names of the federal trial courts | U.S. Tax Court, U.S. Federal District Court, U.S. Court of Federal Claims |
| Court where taxpayers must pay the disputed tax before suing for a refund | U.S. Federal District Court, U.S. Court of Federal Claims |
| Court where taxpayers can be heard without paying the disputed tax | U.S. Tax Court |
| Court where taxpayers can request a jury trial | U.S. Federal District Court |
| Court of last resort for tax cases | U.S. Supreme Court |
| Court that exclusively hears tax disputes | U.S. Tax Court |
| Court that issues three types of opinions | U.S. Tax Court |
| Types of opinions issued by the U.S. Tax Court | Regular Opinions (or Reported Opinions), Summary Opinions, Memorandum Opinions |
| Court that hears tax disputes involving $50,000 or less and where decisions cannot be appealed | U.S. Tax Court (under the Small Tax Case procedure) |
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What You'll Learn
Tax Court vs. District Court
When the Internal Revenue Service (IRS) determines a tax deficiency, taxpayers have the option of having their case heard in either the United States Tax Court, the United States District Court, or the United States Court of Federal Claims.
The US Tax Court is a specialised court that exclusively hears tax disputes. It resides in Washington, D.C., but its judges travel to various cities across the country to hear cases. The Tax Court has 19 judges, all experts in tax law, and it is the only court where taxpayers are not required to pay the disputed amount before the case is heard. Cases are heard by a judge who acts as the fact-finder and decision-maker, and the discovery process is less formal than in other courts. The Tax Court is a "court of record" under Article I of the Constitution, and it has jurisdiction to redetermine deficiencies and overpayments in income, gift, estate, and certain excise taxes.
The US District Court, on the other hand, is a court of a particular district or area of the country. It is the only court where taxpayers can request a jury trial, but this comes at a cost: taxpayers must pay the disputed amount and then sue for a refund. The judges in the District Court are generalists, handling very few tax cases. The Federal rules of civil procedure apply, and the discovery process is more detailed and lengthy.
Given that taxpayers must pay the disputed amount before their case is heard in the District Court, most taxpayers opt for the Tax Court. However, it is important to note that the choice of court may depend on various strategic considerations and the specific circumstances of each case.
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Tax Court jurisdiction
Tax cases are first heard in one of three trial courts: the U.S. Tax Court, the U.S. District Courts, or the U.S. Court of Federal Claims. Taxpayers can be heard in U.S. Tax Court without paying the disputed amount prior to litigation, which is why most tax cases are litigated in Tax Court.
The U.S. Tax Court is a "court of record" pursuant to Article I of the Constitution, and it is a specialized court that exclusively hears tax controversies. The Tax Court has jurisdiction to redetermine deficiencies and overpayment in income, gift, or estate taxes, and certain excise taxes of private foundations and foundation managers. The Tax Court's jurisdiction also includes the authority to redetermine transferee liability, make certain types of declaratory judgments, adjust partnership items, order abatement of interest, award administrative and litigation costs, redetermine worker classification, determine relief from joint and several liability on a joint return, review certain collection actions, and review awards to whistleblowers who provide information to the Commissioner of Internal Revenue on or after December 20, 2006.
Section 6234(a), effective for partnership years beginning on or after January 1, 2018, grants the Tax Court jurisdiction to determine all partnership items for the partnership for the partnership year to which a notice of final partnership adjustments relates, the proper allocation of such items among the partners, and the applicability of any penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item.
Other jurisdictional grants by Congress to the Tax Court include:
- Claims for relief from joint and several liability (section 6015(e))
- Review of final partnership administrative adjustments (section 6226)
- Review where an administrative adjustment request is not allowed in full (section 6228)
- Review of partnership adjustments of a large partnership (section 6247)
- Review where an administrative adjustment request is not allowed in full for a large partnership (section 6252)
- Redetermination of interest on deficiencies or overpayments determined by the Tax Court (section 7481(c))
Additionally, the Tax Court has been granted jurisdiction over certification actions involving passports under I.R.C. § 7345(e).
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Tax Court opinions
There are three types of opinions issued by the Tax Court: Regular Opinions (or Reported Opinions), Summary Opinions, and Memorandum Opinions.
Regular Opinions are issued in cases that present significant legal issues. They are considered precedents and can be cited as legal authority.
Summary Opinions are issued in cases heard in the Small Cases Division of the Tax Court, where the disputed amount is less than $50,000. These opinions are not published by the Tax Court, are not considered precedents, and the decision cannot be appealed. However, they may provide valuable insights into the law that can support a taxpayer's case.
Memorandum Opinions are issued in cases where the law is settled or factually driven. While they are not officially published, they are often reproduced by commercial publishers and cited by litigants. Although Memorandum Opinions are technically not precedential, they are given considerable weight, and the Tax Court rarely disregards them.
It is worth noting that the majority of tax cases are litigated in Tax Court because taxpayers are not required to pay the disputed amount before their case is heard, unlike in other trial courts.
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Tax Court structure
The United States Tax Court is a federal court established by Congress under Article I of the U.S. Constitution. It is a specialized court that exclusively hears tax controversies and is independent of the IRS. The Tax Court is located in Washington, D.C., and has 19 judges with expertise in tax law. These judges travel to various designated cities across the country to hear tax disputes.
The Tax Court provides a judicial forum for individuals or entities to dispute tax deficiencies determined by the IRS before paying the disputed amount. It has jurisdiction over income, gift, and estate taxes, as well as certain excise taxes. The Court can also make declaratory judgments, adjust partnership items, review collection actions, and award administrative and litigation costs, among other powers.
Cases in the Tax Court are typically heard by a single judge, who issues a report with findings of fact and an opinion. This report is sent to the taxpayer, and the case is closed according to the judge's opinion. Most cases are settled before trial, but if a trial occurs, a decision is entered, and the case is closed.
Decisions in regular cases may be appealed to the U.S. Court of Appeals, and the Supreme Court is the final court of appeal. For tax disputes of $50,000 or less, taxpayers can opt for the Court's simplified small tax case procedure, but these decisions cannot be appealed.
The Tax Court is distinct from other federal trial courts that hear tax cases, such as the U.S. District Courts and the U.S. Court of Federal Claims, where taxpayers must pay the disputed amount before litigating. The Tax Court is, therefore, a more accessible forum for taxpayers who wish to contest a tax deficiency without first paying the disputed amount in full.
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Tax Court appeals
When the IRS identifies a tax deficiency, taxpayers have the option to have their case heard in the U.S. Tax Court, U.S. District Court, or the U.S. Court of Federal Claims. The majority of taxpayers opt for the U.S. Tax Court because they are not required to pay the disputed amount before the case is heard, unlike the other two courts. The U.S. District Courts are the only courts where taxpayers can request a jury trial.
The U.S. Tax Court has jurisdiction over a range of tax matters, including income, gift, estate, and certain excise taxes. It can also address issues such as transferee liability, partnership item adjustments, whistleblower awards, and worker classification. The court's decisions are made by nineteen judges with expertise in tax law, and cases are typically heard without a jury.
There are different types of opinions issued by the U.S. Tax Court:
- Bench Opinion: The judge delivers an oral opinion during the trial, and a transcript is sent to the taxpayer after the trial.
- Summary Opinion: This opinion is issued for disputes involving amounts less than $50,000, and the case is heard under the Small Tax Case procedures. These opinions are not considered precedents and cannot be appealed.
- Tax Court Opinion or Memorandum Opinion: Decided by the Chief Judge, these opinions can be cited as legal authority and can be appealed.
It is important to note that taxpayers may represent themselves in the U.S. Tax Court, and most cases are settled by mutual agreement without a trial. Appeals from the U.S. Tax Court are heard by the Circuit Courts of Appeal, and the U.S. Supreme Court serves as the final court of appeal for tax cases.
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Frequently asked questions
The United States Tax Court is a specialised, independent judicial forum that exclusively hears tax disputes. It is based in Washington, D.C., but its judges travel to various cities across the country to hear tax controversies.
The United States Tax Court hears only federal tax cases. It has jurisdiction to redetermine deficiencies and overpayment in income, gift or estate taxes, and certain excise taxes of private foundations and foundation managers.
In the United States Tax Court, taxpayers can be heard without paying the disputed tax prior to litigating. This is in contrast to other trial courts, where taxpayers must pay the disputed amount before suing for a refund.
The United States Tax Court issues Regular Opinions (or Reported Opinions), Memorandum Opinions, Summary Opinions, and Bench Opinions.
A taxpayer may file a petition in the United States Tax Court in response to certain IRS determinations. The petition must be timely filed within the allowable time, and a $60 filing fee must be paid. Once the petition is filed, payment of the underlying tax is typically postponed until the case has been decided.
