Essential Tax Solutions

What Tax Cases Will Be Brought To Court

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What do you do when you reach a disagreement with the Internal Revenue Service? What if tax disputes happen, would you try a few ways to appeal and resolve them? Would just let things end there and let the IRS win?

The fact is it is not true that the IRS is always in tax disagreements. If tax disputes get too big to be handled by the IRS, you may take it to court. If you’re anxious that the US Tax Court, where you should head over directly, is connected with the IRS, don’t fret. Just like you, as a taxpayer, the IRS is the other party to appear before the Tax Court. Cases are brought to the court when the taxpayer is charged with a deficiency in obligations by the IRS. The taxpayer then contests the lacking amount instead of paying it right away.

For What Reasons Do Tax Issues End Up In Court?

Well, first things first. Before you take your tax concerns to court, you must file a petition timely. After filing the petition, the court sets a trial schedule. Usually, matters are settled even before the court sets a date for trial. If it doesn’t resolve, it is forwarded to a judge and the process continues there like any typical court trial where both parties’ arguments are heard. The taxpayer may be represented by an attorney provided that the attorney is admitted to the Tax Court bar. Another option is by pro se or a move where taxpayers choose to represent themselves.

An average of 30,000 cases are filed before the US Tax Court yearly. Most settled cases do not reach the trial. For cases that go to trial, a lot share the same kinds of tax issues.

The National Taxpayers advocate listed what kinds of tax cases have made it to court. Other tax disputes that ended up for litigation include disagreements regarding worker classification, request for relief from joint, several liabilities on a joint return, and interest abatements. Here’s a list of other tax disputes in court: 

1. Penalties on Inaccuracy Issues

Everyone is aware that there is an existing penalty for tax underpayment. Accuracy-related penalty cases happen when a taxpayer fails to justify income and fails to report the proceeds in a, let’s say, house sale. Oftentimes, taxpayers are successful for 15% and they tend to split the decision with the IRS for about 10% of the time. 

2. Gross Income Matters

When it comes to reporting income just like with trade or business expenses, things also end up in court. Issues related to this include debt income cancellation, failure to report settlement proceeds, and unreported wages. 

3. Trade or Business Expenses

This should not surprise you. Since trade or business expenses are deductible, the problem always revolves around failure to keep good records. Eventually, taxpayers fail to produce the receipts needed to justify the deductions and expenses. In some instances, taxpayers weren’t keen enough to separate the use of their assets from personal use to business use. Expectedly, taxpayers and the IRS dispute over deductions from home of office expenses. In cases like these, the IRS always wins. On the side of taxpayers, only 2% won the trial. 

4. Summons Enforcements

The IRS is permitted by the Tax Code to examine any documents or records related to liabilities in civil or criminal taxes. The IRS often does this by serving a summon to the subject of the investigation or a third party with whom they can gather pertinent information. If the person or party summoned doesn’t submit and refuses to give the information, the IRS will decide to enforce it. Some cases under this differ in a way that it is the government that takes action instead of the taxpayer. Again, the IRS prevailed by 68% over the taxpayers. 

5. Unfiled and Unpaid Penalties

Failure to file and pay on time will cost you penalties. Sometimes penalties are not imposed and the IRS was successful in a majority of these cases. However, taxpayers have justified reasons for unfiled and unpaid penalties such as health problems and lost or damaged records by force majeure (Hurricane Katrina). 

6. Charitable Deductions

Itemizing federal income tax return allows you to make deductions should you wish to donate to charitable organizations. Some taxpayers are denied these deductions by the IRS contesting whether these are charitable organizations, whether the amount to be donated is set to a fair market value, and whether the donation is justified. About 20% of the time taxpayers were successful in these litigations. 

7. Refusal or Negligence To Pay Tax

The IRS may take civil actions by filing federal tax liens against a taxpayer’s property if there is refusal or negligence to pay tax. Ninety percent of such cases were won by the IRS in court. 

8. Penalties from Frivolous Tax Issues

Delinquent taxpayers raise frivolous arguments to procrastinate enforcement of collections. The best and most common example for this is “the income tax has no constitutional basis” but the IRS and especially the court do not entertain such arguments. Although 45% of taxpayers won in some of these cases, they were warned of the risks of this delinquent behavior.

9. Appeals Made from Collection Due Process Hearings

In 1998, Collection Due Process (CDP) hearings were created. Through CDP hearings, taxpayers are allowed to request for an independent review of tax disputes with the IRS Office of Appeals concerning a lien or levy. If a taxpayer disagrees with the outcomes of a timely-requested CDP hearing, he has the right to petition for a review in Tax Court. Charges of abuse in discretion against the IRS usually resulted from a lack of agreement. Only 10% of the taxpayers were successful in these hearings. 

Is Going To Tax Court Worth It?

So your audit and the IRS did not reach a settlement. Your three options are: convince the IRS to change their minds, accept your fate or go to court.

In the US Tax Court, there is no jury. There is only a judge who is appointed by the US President. They serve for 15 years and most of them are lawyers who have served in or are qualified to work in IRS or have practiced Tax Law.

The US Tax Court and the IRS are two separate entities so you are assured of impartial hearings and decisions.  If you received an unfair ruling from the Tax Court, you may petition for a hearing in US District Court or US Court of Federal Claims. 

Generally, taxpayers who brought their concerns with the IRS to court is assured of a high probability of partial success since 85% of cases are settled even before reaching trial.

What Can Essential Tax Solutions Do To Prevent Tax Complaints and Lawsuits?

Even if you are the most punctual, organized, law-abiding and diligent taxpayer, you’ll never know when you’ll find yourself named in a tax issue or complaint.

Essential Tax Solutions is your best friend in tax filing and preparation as you have enough professional assistance to protect you. We exist to help you if you have questions or concerns, if you need to get informed, if you need an expert and legal advice or you want to go about filing your taxes smarter and more confident.

Call our hotlines (897) TAX-3388 or visit our main office at 2104, St. Bernard Avenue, New Orleans, LA. 70119 

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