United States Tax Court - AbsoluteAstronomy.com

The United States Tax Court is a federal trial court

Trial court

A trial court or court of first instance is a court in which trials take place. Such courts are said to have original jurisdiction.- In the United States :...

of record established by Congress under Article I

Article One of the United States Constitution

Article One of the United States Constitution describes the powers of Congress, the legislative branch of the federal government. The Article establishes the powers of and limitations on the Congress, consisting of a House of Representatives composed of Representatives, with each state gaining or...

of the U.S. Constitution, section 8 of which provides (in part) that the Congress has the power to "constitute Tribunals inferior to the supreme Court". The Tax Court specializes in adjudicating disputes over federal income tax, generally prior to the time at which formal tax assessments are made by the Internal Revenue Service

Internal Revenue Service

The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...

. Though taxpayers may choose to litigate tax matters in a variety of legal settings, outside of bankruptcy

Bankruptcy in the United States

Bankruptcy in the United States is governed under the United States Constitution which authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States." Congress has exercised this authority several times since 1801, most recently by adopting the Bankruptcy...

, the Tax Court is the only forum in which taxpayers may do so without having first paid the disputed tax in full. Parties who contest the imposition of a tax may also bring an action in any United States District Court

United States district court

The United States district courts are the general trial courts of the United States federal court system. Both civil and criminal cases are filed in the district court, which is a court of law, equity, and admiralty. There is a United States bankruptcy court associated with each United States...

, or in the United States Court of Federal Claims

United States Court of Federal Claims

The United States Court of Federal Claims is a United States federal court that hears monetary claims against the U.S. government. The court is established pursuant to Congress's authority under Article One of the United States Constitution...

; however these venues require that the tax be paid first, and that the party then file a lawsuit

Lawsuit

A lawsuit or "suit in law" is a civil action brought in a court of law in which a plaintiff, a party who claims to have incurred loss as a result of a defendant's actions, demands a legal or equitable remedy. The defendant is required to respond to the plaintiff's complaint...

to recover the contested amount paid (the "full payment rule" of Flora v. United States
Flora v. United States
Flora v. United States, 357 U.S. 63 , aff'd on rehearing, 362 U.S. 145 , was a case in which the United States Supreme Court held that a taxpayer generally must pay the full amount of an income tax deficiency assessed by the Commissioner of Internal Revenue before he may challenge its correctness...

). Tax Court judges are appointed for a term of 15 years, subject to removal for cause.

History

The first incarnation of the Tax Court was the "U.S. Board of Tax Appeals", established by Congress in the Revenue Act of 1924

Revenue Act of 1924

The United States Revenue Act of 1924 , also known as the Mellon tax bill cut federal tax rates and established the U.S. Board of Tax Appeals, which was later renamed the United States Tax Court in 1942. The bill was named after U.S...

(also known as the Mellon tax bill) in order to address the increasing complexity of tax-related litigation. Those serving on the Board were simply designated as "members." The members of the Board were empowered to select, on a biennial basis, one of their members as "chairman." The Board was initially established as an "independent agency in the executive branch of the government." It was housed in the Internal Revenue Service Building

Internal Revenue Service Building

The Internal Revenue Service Building is a federal building which serves as the headquarters of the Internal Revenue Service.It is located at 12th Street, and Pennsylvania Avenue, Northwest, Washington, D.C., in the Federal Triangle.-Building history:...

in the Federal Triangle

Federal Triangle

The Federal Triangle is a triangular area in Washington, D.C. formed by 15th Street NW, Constitution Avenue NW, Pennsylvania Avenue NW, and E Street NW. Federal Triangle is occupied by 10 large city and federal office buildings, all of which are part of the Pennsylvania Avenue National Historic...

.

In 1929, the United States Supreme Court indicated that the Board of Tax Appeals was not a "court," but was instead "an executive or administrative board, upon the decision of which the parties are given an opportunity to base a petition for review to the courts after the administrative inquiry of the Board has been had and decided."

In 1942, Congress passed the Revenue Act of 1942

Revenue Act of 1942

The United States Revenue Act of 1942, Pub. L. 753, Ch. 619, 56 Stat. 798 , increased individual income tax rates, increased corporate tax rates , and reduced the personal exemption amount from $1,500 to $1,200...

, re-naming the Board as the "Tax Court of the United States". With this change, the Members became Judges and the Chairman became the Presiding Judge. By 1956, overcrowding and the desire to separate judicial and executive powers led to initial attempts to relocate the court. In 1962, Secretary of the Treasury

United States Secretary of the Treasury

The Secretary of the Treasury of the United States is the head of the United States Department of the Treasury, which is concerned with financial and monetary matters, and, until 2003, also with some issues of national security and defense. This position in the Federal Government of the United...

Douglas Dillon appealed to the U.S. General Services Administration

General Services Administration

The General Services Administration is an independent agency of the United States government, established in 1949 to help manage and support the basic functioning of federal agencies. The GSA supplies products and communications for U.S...

(GSA) to incorporate funds for the design of a new building in its upcoming budget. The GSA allocated $450,000, and commissioned renowned architect Victor A. Lundy, who produced a design that was approved in 1966. However, funding constraints brought on by the Vietnam War

Vietnam War

The Vietnam War was a Cold War-era military conflict that occurred in Vietnam, Laos, and Cambodia from 1 November 1955 to the fall of Saigon on 30 April 1975. This war followed the First Indochina War and was fought between North Vietnam, supported by its communist allies, and the government of...

delayed the start of construction until 1972.

The Tax Court was again renamed to its current formal designation in the Tax Reform Act of 1969

Tax Reform Act of 1969

The United States Tax Reform Act of 1969 was a federal tax law signed by president Richard Nixon in 1969. The largest impact of the act was the creation of the Alternative Minimum Tax, which was intended to tax high income earners otherwise exempt from income taxes through various exemptions and...

, changing it from an historically administrative court to a full judicial court. The completed United States Tax Court Building

United States Tax Court Building

The United States Tax Court Building is a courthouse located at 400 Second Street, Northwest, Washington, D.C., in the Judiciary Square neighborhood.It serves as the headquarters of the United States Tax Court....

was dedicated on November 22, 1974, the fiftieth anniversary of the Revenue Act that created the court. In 1991, the U.S. Supreme Court stated that the current United States Tax Court is an "Article I legislative court" exercising "judicial, rather than executive, legislative, or administrative, power", and that the Tax Court "remains independent of the Executive and Legislative Branches." According to one U.S. government publication, however, the Tax Court is part of the legislative branch of the United States government.

Jurisdiction of the Tax Court

The Tax Court provides a judicial forum in which affected persons can dispute tax deficiencies determined by the Commissioner of Internal Revenue

Commissioner of Internal Revenue

The Commissioner of Internal Revenue is the head of the Internal Revenue Service , a bureau within the United States Department of the Treasury.The office of Commissioner was created by Congress by the Revenue Act of 1862...

prior to payment of the disputed amounts. The jurisdiction

Jurisdiction

Jurisdiction is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility...

of the Tax Court includes, but is not limited to the authority to hear:

tax disputes concerning notices of deficiency
notices of transferee liability
certain types of declaratory judgment
Declaratory judgment
A declaratory judgment is a judgment of a court in a civil case which declares the rights, duties, or obligations of one or more parties in a dispute. A declaratory judgment is legally binding, but it does not order any action by a party. In this way, the declaratory judgment is like an action to...
readjustment and adjustment of partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...

items
review of the failure to abate interest
administrative costs
worker classification
relief from joint and several liability
Joint and several liability
Where two or more persons are liable in respect of the same liability, in most common law legal systems they may either be:* jointly liable, or* severally liable, or* jointly and severally liable.-Joint liability:...

on a joint return
review of certain collection actions

Congress amended the Internal Revenue Code, now codified in Internal Revenue Code section 7482, providing that decisions of the Tax Court may be reviewed by the applicable geographical United States Court of Appeals

United States court of appeals

The United States courts of appeals are the intermediate appellate courts of the United States federal court system...

other than the Court of Appeals for the Federal Circuit. (See Article I and Article III tribunals

Article I and Article III tribunals

In the United States, the American legal system includes both state courts and United States federal courts. The federal tribunals may be an Article III tribunal or another adjudicative body classified as an Article I or an Article IV tribunal...

).

"Small Tax Cases" are conducted under Internal Revenue Code section 7463, and generally involve only amounts in controversy of $50,000 or less for any one tax year. The "Small Tax Case" procedure is available "at the option of the taxpayer." These cases are neither appealable nor precedential.

At times there have been efforts in the Congress and the Tax Bar to create a single national Court of Appeals for tax cases (or make Tax Court decisions appealable to a single existing Court of Appeals), to maintain uniformity in the application of the nation's tax laws (the very reason underlying the creation of the Tax Court and the grant of national jurisdiction to the Tax Court), but efforts to avoid "hometown results" or inconsistent results due to a lack of expertise have failed.

An important reason for the movements to create a single national Court of Appeals for tax cases is that the United States Tax Court does not have exclusive jurisdiction over tax cases. In addition to the Tax Court, federal tax matters can be heard and decided in three other categories of courts: U.S. District Courts, the Court of Federal Claims, and the Bankruptcy Court. In the first two instances, the taxpayer bringing the claim generally must have first paid the deficiency determined by the IRS. For the Bankruptcy Court, the tax matter must, of course, arise as an issue in a bankruptcy proceeding. Bankruptcy Court appeals are initially to the U.S. District Court. Appeals beyond the U.S. District Courts and the Court of Federal Claims follow the same path as those from the U.S. Tax Court as described above.

With this number of courts involved in making legal determinations on federal tax matters including all 13 United States Courts of Appeals exercising appellate jurisdiction (the 11 numbered Circuits, the Federal Circuit (for appeals from the U.S. Court of Federal Claims), and the D.C. Circuit), some observers express concern that the tax laws can be interpreted differently for like cases. Thus arises the movement on the part of some for a U.S. Court of Federal Tax Appeals, though the merits of this are a matter of much discussion.

Judges

The Tax Court is composed of 19 judges appointed by the President

President of the United States

The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....

and confirmed by the Senate

United States Senate

The United States Senate is the upper house of the bicameral legislature of the United States, and together with the United States House of Representatives comprises the United States Congress. The composition and powers of the Senate are established in Article One of the U.S. Constitution. Each...

. Former judges whose terms have ended may become "Senior judges", able to return and assist the court by hearing cases while serving on recall. In addition, the court is assisted by a number of "special trial judges", who are employees of the court, appointed by the chief judge of the Tax Court, rather than by the President. Special trial judges serve a function similar to that served by United States magistrate judge

United States magistrate judge

In the United States federal courts, magistrate judges are appointed to assist United States district court judges in the performance of their duties...

s of the district courts

United States district court

, and may hear cases regarding alleged deficiencies or overpayments of up to $50,000. Reappointment, when requested by a Tax Court judge (I.R.C. 7447(b)(3)) is generally pro forma
Pro forma
The term pro forma is a term applied to practices or documents that are done as a pure formality, perfunctory, or seek to satisfy the minimum requirements or to conform to a convention or doctrine...

regardless of the political party of the appointing President and the political party of the re-appointing (sitting) President. Each active judge appointed by the President has two "law clerk

Law clerk

A law clerk or a judicial clerk is a person who provides assistance to a judge in researching issues before the court and in writing opinions. Law clerks are not court clerks or courtroom deputies, who are administrative staff for the court. Most law clerks are recent law school graduates who...

s" (attorney-advisers) and each senior judge and special trial judge has one law clerk.

President George W. Bush

George W. Bush

George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....

was heavily criticized by the U.S. Congress, the Tax Bar, and others when he indicated that he likely would not, or might not, re-appoint Tax Court judges whose terms were expiring (even though the first Judge whose re-appointment President Bush called into question, current Chief Judge John O. Colvin, was appointed by President Ronald Reagan

Ronald Reagan

Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....

). President Bill Clinton

Bill Clinton

William Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001. Inaugurated at age 46, he was the third-youngest president. He took office at the end of the Cold War, and was the first president of the baby boomer generation...

also was criticized for not acting timely to re-appoint Tax Court judges, having allowed one sitting Chief Judge's term to expire, thus requiring the Tax Court to elect a new Chief Judge. Additionally, several Tax Court Judges had to wait more than a year (sometimes more than two years) to be reappointed during the Clinton presidency.

Trial sessions are conducted and other work of the Court is performed by its judges, by senior judges serving on recall, and by special trial judges. All of the judges have expertise in the tax laws, and are tasked to "apply that expertise in a manner to ensure that taxpayers are assessed only what they owe, and no more". Although the "principal office" of the Court is located in the District of Columbia, Tax Court judges may sit "at any place within the United States". The judges travel nationwide to conduct trials in various designated cities. The work of the Tax Court has occasionally been interrupted by events. In 2001, a trial session in New York City

New York City

New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...

was canceled due to the September 11 terrorist attacks. In 2005, stops in Miami and New Orleans were canceled due to the effects of hurricanes which had struck shortly before their scheduled visit to each city.

The Tax Court's judges serve 15-year terms, subject to removal during the term for "[I]nefficiency, neglect of duty, or malfeasance in office." The judges' salaries are set at the same rate as "[J]udges of the district courts of the United States", currently $169,300.00 per annum.

Representation of parties

The United States government is represented in the Tax Court by the Chief Counsel of the Internal Revenue Service (IRS) or his delegate. The Tax Court permits persons who are not Attorneys at Law to be admitted to practice (to represent taxpayers) by applying for admission and passing an examination administered by the Court. Attorneys who provide evidence of membership and good standing in state bar or the D.C. bar can be admitted to the bar of the Court without sitting for the Tax Court examination. Tax Court practice is highly specialized and most practitioners are licensed attorneys who specialize in tax controversies.

Genesis of a Tax Court dispute

Many Tax Court cases involve disputes over Federal income tax and penalties, often after an examination by the Internal Revenue Service of a taxpayer's return. After issuance of a series of preliminary written notices and a lack of agreement between the taxpayer and the IRS, the IRS formally "determines" the amount of the "deficiency" and issues a formal notice called a "statutory notice of deficiency," or "ninety day letter". In this context, the term "deficiency" is a legal term of art, and is not necessarily equal to the amount of unpaid tax (although it usually is). The deficiency is generally the excess of the amount the IRS contends is the correct tax over the amount the taxpayer showed on the return -- in both cases, without regard to how much has actually been paid.

Upon issuance of the statutory notice of deficiency (after IRS determination of the tax amount, but before the formal IRS assessment of the tax), the taxpayer generally has 90 days to file a Tax Court petition for "redetermination of the deficiency". If no petition is timely filed, the IRS may then statutorily "assess" the tax. To "assess" the tax in this sense means to administratively and formally record the tax on the books of the United States Department of the Treasury

United States Department of the Treasury

The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...

. This formal statutory assessment is a critical act, as the statutory tax lien that later arises is effective retroactively to the date of the assessment, and encumbers all property and rights to property of the taxpayer.

Life cycle of a Tax Court case

Because of the negative legal consequences ensuing with respect to a statutory assessment (especially the tax lien

Tax lien

A tax lien is a lien imposed by law upon a property to secure the payment of taxes. A tax lien may be imposed for delinquent taxes owed on real property or personal property, or as a result of failure to pay income taxes or other taxes....

and the Flora requirement that the taxpayer otherwise pay the full disputed amount and sue for refund), a taxpayer is often well advised to file a Tax Court petition in a timely manner. The rule in the Tax Court is that the taxpayer sues the "Commissioner of Internal Revenue," with the taxpayer as "petitioner" and the Commissioner as "respondent." This rule is an example of an exception to the general rule that the proper party defendant

Defendant

A defendant or defender is any party who is required to answer the complaint of a plaintiff or pursuer in a civil lawsuit before a court, or any party who has been formally charged or accused of violating a criminal statute...

in a U.S. tax case filed by a taxpayer against the government is "United States of America." In the Tax Court, the Commissioner is not named personally. The "Secretary of the Treasury

United States Secretary of the Treasury

", the "Department of the Treasury

United States Department of the Treasury

The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...

" and the "Internal Revenue Service

Internal Revenue Service

" are not proper parties.

The petition must be timely filed within the allowable time. The Court cannot extend the time for filing which is set by statute. A $60 filing fee must be paid when the petition is filed. Once the petition is filed, payment of the underlying tax ordinarily is postponed until the case has been decided. In certain tax disputes involving $50,000 or less, taxpayers may elect to have the case conducted under the Court's simplified small tax case procedure. Trials in small tax cases generally are less formal and result in a speedier disposition. However, decisions entered pursuant to small tax case procedures are not appealable and are not precedential.

Cases are calendared for trial as soon as practicable (on a first in/first out basis) after the case becomes at issue. When a case is calendared, the parties are notified by the Court of the date, time, and place of trial. Trials are conducted before one judge, without a jury, and taxpayers are permitted to represent themselves if they desire. However, the vast majority of cases are settled by mutual agreement without the necessity of a trial. However, if a trial is conducted, in due course a report is ordinarily issued by the presiding judge setting forth findings of fact and an opinion. The case is then closed in accordance with the judge's opinion by entry of a decision.

External links

Official Web Site of the United States Tax Court
United States Tax Court Rules of Practice and Procedure
IRS Appeals - Resolving Tax Disputes Official IRS Appeals Office Website

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