Tax disputes can be complex and daunting, but understanding the avenues available for resolution can significantly ease the burden for taxpayers. Two primary forums for tax litigation in the United States are the U.S. Tax Court (USCT) and the U.S. Court of Federal Claims. In this blog, we’ll explore the nature of tax court litigation, the functions of these courts, and the advantages of pursuing cases in each venue.

What is Tax Court Litigation? Tax court litigation involves disputes between taxpayers and the Internal Revenue Service (IRS) regarding tax liabilities. These disputes can arise from various issues, including:

• Disagreements on tax assessments
• Claims for refunds
• Penalties imposed by the IRS

Taxpayers have the right to challenge IRS decisions, and understanding how to navigate this process is crucial for anyone facing tax-related issues.

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U.S. Tax Court (USCT)

1. Overview: The U.S. Tax Court is a specialized court that exclusively handles tax-related cases. Established in 1942, it provides a forum for taxpayers to dispute IRS determinations without having to pay the disputed tax first. This unique feature makes the USCT an attractive option for many taxpayers.
2. Key Features
3. No Prepayment Required: One of the most significant advantages of the USCT is that taxpayers can contest IRS decisions without having to pay the tax in question upfront. This is particularly beneficial for individuals and businesses that may not have the liquidity to pay a tax bill while disputing it.
4. Specialized Judges: The judges in the USCT are tax experts, which can lead to more informed and fair decisions regarding complex tax issues.
5. Informal Procedures: The court often employs more straightforward procedures than federal district courts, making it less intimidating for taxpayers to represent themselves.

III. Types of Cases: The USCT hears a variety of cases, including:

• Deficiency cases: IRS asserts that a taxpayer owes more tax than reported.
• Refund cases: Taxpayers seek returns on taxes they believe were overpaid.
• Collection due process cases: Taxpayers contest the IRS’s attempts to levy or garnish their wages.

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U.S. Court of Federal Claims

1. Overview: The U.S. Court of Federal Claims is another venue for tax litigation, but it operates differently than the USCT. This court hears claims for monetary damages against the United States, including tax refund cases.
2. Key Features
3. Damages and Refunds: Unlike the USCT, which primarily deals with tax disputes before payment, the Court of Federal Claims typically involves cases where taxpayers have already paid the disputed tax and are seeking a refund.

2. 2. Formal Procedures: The procedures in the Court of Federal Claims are generally more formal and structured, resembling those of federal district courts.
3. Broader Scope: This court can hear a wider range of claims against the federal government, not just tax-related issues.

III. Types of Cases: The Court of Federal Claims typically handles:

• Tax refund claims: Taxpayers have paid taxes and seek a refund based on various grounds, including errors in tax assessments.
• Claims: Federal contracts, takings, and other monetary claims against the government.

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Choosing the Right Forum: When deciding whether to pursue a case in the USCT or the Court of Federal Claims, several factors should be considered:

• Nature of the Dispute: If you’re contesting an IRS determination before paying the tax, the USCT is likely the appropriate venue. Conversely, if you’ve already paid the tax and seek a refund, the Court of Federal Claims may be a better option.

• Complexity of the Case: For complex tax issues that require specialized knowledge, the USCT’s tax-focused judges may provide a more favorable environment.

• Resources and Representation: Consider whether you’ll be representing yourself or hiring legal counsel, as the level of complexity can impact your choice of court.

Tax court litigation can be a challenging process, but understanding the roles of the U.S. Tax Court and the U.S. Court of Federal Claims can empower taxpayers facing disputes with the IRS. Each forum offers unique advantages and is suited to different types of cases. That’s why it’s always best to work with tax resolution specialists like Noble Pacific Tax Resolution. We will carefully be evaluating the specifics of your situation, and help you make an informed decision on the best path forward for your tax dispute.

 Plus, with Douglas Dick, owner of Noble Pacific Tax Resolution having a USTCP (United States Tax Court Practitioner) designation, Douglas can represent his clients in these courts as well.  Want to learn more?  Make sure and read our blog about the USTCP designation in tax ligation.