An Introduction to Tax Litigation
| Jurisdiction | United States,Federal |
| Citation | Vol. 23 No. 7 Pg. 0018 |
| Pages | 0018 |
| Publication year | 2018 |
The Legal
An Introduction to Tax Litigation
This article provides a brief overview of some of the nuances of litigating a case before the U.S. Tax Court or the Georgia Tax Tribunal.
BY BRIAN GARDNER
The U.S. Tax Court and the Georgia Tax Tribunal are unfamiliar forums for most practitioners. Many attorneys are surprised to find out that there is a dedicated courtroom for the U.S. Tax Court located on the 11th Floor of the Richard B. Russell Federal Building. They are even more surprised to find out that Georgia is one of 34 states with their own tribunal dedicated to handling state tax issues.[1] The Georgia Tax Tribunal opened its doors in January 2013 and was largely modeled after the U.S. Tax Court, along with other state tax tribunals. These forums have several unique characteristics, such as specialized judges, informal discovery and extensive stipulations, which attorneys should know about before initiating litigation either as petitioners themselves or as representatives of petitioners.
Overview of the U.S. Tax Court
The U.S. Tax Court (the Tax Court) is an Article I court established by statute by the U.S. Congress. The Tax Court's jurisdiction is defined and limited by statute.[2] The Tax Court is a court of national jurisdiction, meaning that taxpayers in Georgia generally follow the same precedent as those in New York or California. The court sits in Washington, D.C., and judges travel to 74 cities across the United States to hear tax disputes. A Tax Court judge typically travels to Atlanta four to six times a year for regular trial calendars. For example, in 2017 the Tax Court came to Atlanta for a regular trial calendar in January, April, September and November.
There are 19 judges appointed by the president to serve 15-year terms. Judges can be reappointed for additional terms. When a judge's term expires or the judge reaches 70 years of age, the judge assumes senior status.[3] Every two years the Tax Court judges elect a chief judge to serve a two-year term.[4] The chief judge has the authority to appoint special trial judges, who typically hear small tax cases.[5] They also occasionally hear large tax cases, as well as help manage cases that have not yet been assigned a judge by deciding pretrial motions. The Tax Court currently comprises 11 senior judges, five special trial judges and 16 presidentially appointed judges. Tax Court judges have extensive tax backgrounds, with experience working in private practice, academia, the Internal Revenue Service, the Department of Justice, the Joint Committee on Taxation and the Senate Finance Committee.
The Tax Court is a court of national jurisdiction, meaning that taxpayers in Georgia generally follow the same precedent as those in New York or California. The court sits in Washington, D.C., and judges travel to 74 cities across the United States to hear tax disputes.
Overview of the Georgia Tax Tribunal
The Georgia Tax Tribunal (the Tribunal) was established by the Georgia Tax Tribunal Act of 2012.[6] The Tribunal has jurisdiction to decide appeals of tax matters involving the Georgia Department of Revenue, including the ability to review decisions of the Georgia Department of Revenue relating to corporate and individual Georgia income tax, sales and use tax, and withholding taxes.[7] Notably, the Tribunal does not have jurisdiction to review federal income tax liabilities or county property tax assessments.
The Tribunal can hear a case anywhere in Georgia, but trials are typically held in Fulton County at the Office of State Administrative Hearings.[8] There are no juries for cases tried before the Tribunal. The Tribunal may review official assessments and state tax executions issued by the Georgia Department of Revenue.[9] Unlike the U.S. Tax Court, the Georgia Tax Tribunal also has jurisdiction to hear cases seeking a refund of tax that was previously paid.[10]
Cases filed in the Georgia Tax Tribunal are automatically remanded to the Georgia Department of Revenue for up to 90 days to allow the parties to resolve any issues that can be settled without tri-al.[11] The provisions of the Civil Practice Act governing discovery and depositions apply to cases before the Tribunal.[12] The Georgia Tax Tribunal, however, just like the U.S. Tax Court, has a strong preference for the parties to conduct discovery by informal consultation before using formal discovery requests and depositions.[13]The Tribunal also places an emphasis on filing a robust stipulation of facts by requiring that the parties stipulate all relevant and nonprivileged matters to the fullest extent to which complete or qualified agreement can fairly be reached.[14]
Other Tax Jurisdictions
Taxpayers contesting Georgia tax liabilities do not have to go to the Georgia Tax Tribunal to contest their liability. They still have the opportunity to file their case in superior court in their county of residence.[15] In order to file a tax appeal in superior court, a taxpayer must post a surety bond that covers the entire proposed liability, including tax, penalty and interest, unless the taxpayer owns an interest in real property in Georgia that is in excess of the amount of the tax dispute.[16]
At the federal level, a taxpayer could file suit in district court or the Court of Federal Claims. Taxpayers are often discouraged, however, when they discover that they will need to pay their tax in full and file an administrative claim for refund before they can sue the IRS for a refund.[17]
Receptiveness to Pro Se Taxpayers
Both the U.S. Tax Court and the Georgia Tax Tribunal recognize that although there are a number of complex tax matters brought before them by counsel, there are a number of cases brought by unrepresented taxpayers. Both of the forums provide an abundance of resources for taxpayers to bring an action pro se. Their websites provide detailed lists of frequently asked questions detailing applicable procedures and necessary documents.[18] Both websites provide form petitions in fillable pdf format to allow taxpayers to fill in the relevant information and submit the documents to the court.[19]
Both courts also provide special procedures for small cases, with relaxed evidentiary rules and a more informal procedure for taxpayers to present their evidence. To qualify for small case procedures in U.S. Tax Court, the amount of the deficiency and any additions to tax or penalties that the taxpayer disputes cannot exceed $50,000.[20] Most taxpayers in small cases bring their case pro se, so the Federal Rules of Evidence are relaxed, and judges will typically consider any evidence that is relevant. The Georgia Tax Tribunal waives the filing fee for filing a small claims case.[21] To qualify to elect a small claims case in the Georgia Tax Tribunal, the amount of income tax liability in dispute and the amount of penalty must be less than $15,000.22 For all other taxes, the amount of the tax and penalty in dispute must be less than $50,000.23
One notable resource for low-income taxpayers who would likely have to bring their federal tax matter pro se is the Philip C. Cook Low-Income Taxpayer Clinic at the Georgia State University College of Law. The clinic is an excellent alternative for taxpayers who would not otherwise be able to afford an attorney to handle their federal income tax matter. There are several requirements for taxpayers to be eligible for this resource, including income level (typically, 250 percent of the Federal Poverty Income Guidelines), available assets and amount in controversy, among other factors.[24] The clinic provides a service to the community by representing taxpayers who are unable to afford representation, while giving law students valuable client experience.
Starting a Case
Unlike federal district court, the Tax Court is a prepayment forum, meaning that taxpayers have an opportunity to litigate their case before paying the proposed liability. A Tax Court case normally starts with the IRS issuing a Statutory Notice of Deficiency, which gives the taxpayer 90 days to file a petition with the U.S. Tax Court.[25] A Notice of Deficiency is a letter from the IRS informing the taxpayer of any tax, additions to tax and penalties being imposed. The Notice of Deficiency is a defining moment in tax litigation. It is the taxpayer's one and only opportunity to contest the proposed assessment in court without having to pay the liability and sue for a refund. If the taxpayer does not file a petition within 90 days, the IRS will assess the proposed tax, penalties and interest against the taxpayer and begin the collection process.[26]
Cases in the Georgia Tax Tribunal typically start when the Georgia Department of Revenue issues an Official Assessment and Demand for Payment, which gives the taxpayer 30 days to file a petition with the Tribunal. If the taxpayer does not file a petition timely, then the Department of Revenue can issue a state tax lien (also known as a State Tax Execution) and file it with the clerk of superior court in the taxpayer's county of residence to begin collection of the tax.[27]Unlike U.S. Tax Court, which lacks jurisdiction over a taxpayer's underlying liability when the taxpayer fails to petition the Tax Court within 90 days of the Notice of Deficiency, the Georgia Tax Tribunal also has jurisdiction to hear cases challenging a State Tax Execution.[28] Upon the issuance of a State Tax Execution, the taxpayer has 30 days to file an appeal with the Georgia Tax Tribunal.[29]
Settlement Opportunities
After a case is docketed in U.S. Tax Court, IRS counsel may agree to transfer the case to the IRS Office of Appeals for settlement consideration, unless the case went to the IRS Office of Appeals prior to the issuance of the Notice of Deficiency or if the case is designated for litigation by the...
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