Kara Sears
Tax law litigation is a legal practice area that involves disputes between taxpayers, non-profit organisations, businesses, and tax agencies like the Internal Revenue Service (IRS). These disputes can be civil or criminal in nature and are heard in venues such as the U.S. Tax Court, U.S. District Court, and U.S. Bankruptcy Court. Tax controversies arise when there is a disagreement over the amount of tax owed or when a taxpayer believes they are owed a refund. Tax litigation is a complex process that requires expertise in tax law and can have significant financial implications for those involved.
| Characteristics | Values |
|---|---|
| Type of matters | Civil matters or criminal tax matters |
| Venue | U.S. Tax Court, U.S. District Court, U.S. Bankruptcy Court, Federal District Court, Court of Federal Claims |
| Parties involved | Taxpayers, non-profit organizations, businesses, and tax agencies like the Internal Revenue Service (IRS) |
| Nature of dispute | Tax owed, tax refund, tax audit, tax credit, tax exemption, etc. |
| Complexity | High-stakes, complex |
| Tax laws involved | Substantive tax laws, federal and state taxation |
| Tax litigation process | Audit, assessment, collection activities, administrative or judicial appeals, criminal investigations, criminal trials |
| Role of tax attorney | Leading role in resolving tax controversy, advisor to the taxpayer or accountant, planner for transactions to avoid future disputes |
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Civil tax disputes
Tax litigation can involve civil matters or criminal tax matters. A civil tax dispute arises when there is a disagreement between the taxpayer and the tax agency, typically over the amount of tax owed or a refund claim. In the United States, civil tax disputes are handled by the Internal Revenue Service (IRS), which conducts civil audits to determine the tax liability of individuals and businesses. If the IRS determines that additional tax is owed, the taxpayer has the right to protest and appeal the decision through an established process that may eventually reach the U.S. Tax Court.
During a civil audit, the IRS examiner may identify potential criminal tax violations and alert the criminal investigation branch. This could lead to a criminal tax investigation, which is a more serious matter. In such cases, it is crucial to seek legal representation from experienced criminal defense tax attorneys to navigate the complexities of tax law and protect one's rights.
In the United Kingdom, HM Revenue and Customs (HMRC) is responsible for resolving civil tax disputes through civil law processes outlined in their Litigation and Settlement Strategy (LSS). HMRC aims to handle all cases fairly and equitably, providing support and guidance to taxpayers. The Tax Assurance Commissioner, introduced in 2012, has the ultimate responsibility for civil disputes governance across HMRC and ensures consistent decision-making in resolving tax disputes.
Taxpayers can request a statutory review of any tax decision and appeal to an independent tax tribunal if needed. HMRC encourages collaborative resolution and provides resources like the Taxpayer Advocate Service (TAS) and Low-Income Taxpayer Clinics (LITCs) to help taxpayers understand their rights and obligations. Additionally, the IRS Independent Office of Appeals assists in resolving disputes without proceeding to tax court.
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Criminal tax matters
Tax litigation can involve civil matters or criminal tax matters. Criminal tax matters are much more serious than civil tax fraud, and can result in imprisonment, loss of professional licenses, employment, the right to vote, and the right to bear arms. Criminal tax matters typically involve fraud or willfulness, such as conspiracy to impede or defeat the collection of tax.
If you are contacted by an IRS special agent in person, by phone, or by letter, it is recommended that you say you are not ready to speak with them and then contact an experienced criminal tax attorney. An attorney can seek to resolve your case before it is referred to the Department of Justice, and even after a referral has occurred, they can assist with your defense and negotiate a plea agreement.
If you suspect that you may become subject to a criminal tax investigation or you are under investigation, it is recommended that you consult with an experienced criminal tax attorney as soon as possible. Tax disputes are a complex chess game, and you need an advocate who is highly versed in the law and knows how to prepare and execute a strategy.
Criminal tax issues can start with a simple knock on your front door from IRS or NCDOR special agents. It is important to remember that whatever is said to IRS agents can be used in resolving tax investigations. Even if you have seemingly legitimate excuses for your tax fraud, such as a sinking business, major debt, messy business records, or influence from peers, these are not defenses to a criminal tax charge.
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Tax fraud
Tax law litigation involves civil or criminal tax matters, often arising from disputes between taxpayers, non-profit organisations, businesses, and tax agencies such as the Internal Revenue Service (IRS). Tax controversies can range from disagreements over taxes owed or refunds to more complex issues like abusive tax schemes and fraud.
- False exemptions or deductions
- Kickbacks
- False or altered documents
- Unreported income
- Organised crime
- Failure to withhold required taxes
- Unemployment insurance fraud
- False tax returns filed by preparers
- Abusive tax schemes
- Offshore banking and scam corporations
To combat tax fraud, the Internal Revenue Service (IRS) provides educational materials and resources to help individuals and businesses recognise and report fraudulent activities. The IRS also investigates complaints and can adjust accounts or issue refunds with interest if fraud is identified. Additionally, there is a push for the IRS to leverage artificial intelligence (AI) to enhance its fraud detection capabilities, as highlighted by the Digital Evaluation for Tax Enforcement and Compliance Tracking (DETECT) Act.
If you suspect tax fraud or have been a victim, it is crucial to report it promptly. The reporting process may vary depending on the specific type of fraud and the jurisdiction. In the United States, individuals can use forms such as Form 14157, Return Preparer Complaint, or Form 14039, Identity Theft Affidavit, to report suspected fraud to the IRS. It is important to be vigilant and proactive in recognising and addressing tax fraud to protect oneself and others from financial harm.
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Tax liens
Tax law litigation involves civil matters or criminal tax matters between taxpayers, non-profit organisations, businesses, and tax agencies like the Internal Revenue Service (IRS). One aspect of tax law litigation is tax liens.
A tax lien is a legal claim made by a government body against the assets of individuals or businesses that fail to pay taxes owed to a local, state, or federal tax agency. This claim effectively ties up the property and prevents its sale until the owner pays the taxes owed or the property is seized by the creditor. A tax lien can be placed on property, securities, vehicles, and future assets acquired during the duration of the lien.
When a lien is issued, a tax lien certificate is created by the municipality, reflecting the amount owed on the property plus any interest or penalties due. The lien acts as a legal claim against the property for the unpaid amount owed. Property with a lien attached cannot be sold or refinanced until the taxes are paid and the lien is removed.
To avoid a federal tax lien, individuals and businesses must file and pay all their taxes in full and on time. If taxpayers cannot pay the full amount owed, payment options are available to help settle tax debt over time.
In some cases, investors can purchase tax liens, which can be a lucrative, though relatively risky, business for those knowledgeable about real estate. Investors can purchase tax liens for as little as a few hundred dollars if the property is very small, though most cost much more.
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Tax compliance
A tax compliance report or certificate shows whether an individual or business has filed tax returns and paid taxes on time. It verifies the accuracy of tax filings and the integrity of the reported information. Compliance checks are often triggered by anomalies in reporting and can result in penalties, interest charges, or criminal investigations for non-compliant taxpayers. For businesses, compliance is a legal necessity and a critical element of operational resilience and financial credibility. Non-compliance can result in significant penalties, reputational damage, and even legal prosecution.
To ensure tax compliance, businesses should establish centralized processes, maintain local expertise, and invest in integrated technology platforms that support global reporting and documentation. Digital tools and AI are increasingly being leveraged by tax authorities and businesses to enhance compliance monitoring, reduce errors, and streamline the tax compliance process.
In the context of tax law litigation, compliance takes on added importance. Tax litigation can involve civil or criminal tax matters, often arising from disputes between taxpayers and tax agencies like the IRS. These disputes may centre around the amount of tax owed, refunds, or other tax controversies. Individuals and businesses facing tax litigation must be able to demonstrate compliance with tax laws and regulations, including accurate reporting of income and timely filing and payment of taxes.
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Frequently asked questions
Tax law litigation involves civil matters or criminal tax matters. It can be heard in venues that include the U.S. Tax Court, U.S. District Court, and U.S. Bankruptcy Court.
A "tax controversy" is a term used to describe a dispute between taxpayers, non-profit organizations, businesses, and tax agencies like the Internal Revenue Service (IRS).
A tax attorney can play a leading role in resolving a tax controversy or simply serve as an advisor to the taxpayer or their accountant. They can also assist in planning transactions to avoid future disputes.
