Page 23 - Business Valuation for Estates & Gift Taxes

Chapter 4

Overview of Case Law

Precedence of Court Cases

When the IRS questions a tax matter, the IRS requires the taxpayer to undergo an audit. If the taxpayer
disagrees with the result, he or she can take the case to the appellate division of the IRS. If the taxpayer
disagrees with the conclusion of the appellate division, he or she must resolve the matter in U.S. District
Court or U.S. Tax Court.

In order for a dispute to be heard by the U.S. District Court, the taxpayer must first pay the disputed
amount and then file a claim for a refund from the IRS. If the IRS denies the refund claim and various
administrative remedies have been exhausted, the taxpayer can file a suit for a refund within the jurisdic-
tion of the U.S. District Court, where the taxpayer has the right to request a jury trial. No minimum
threshold for tax disputes exists in the U.S. District Court, but the court typically handles more complex
cases that involve larger disputed amounts when compared to the U.S. Tax Court. fn 1

The second option, and the one venue individual taxpayers select more frequently, is the U.S. Tax Court.
Taxpayers usually choose this venue because they do not have to pay the tax before filing a claim. A
Tax Court case commences with the filing of a petition within 90 days after the IRS mails the taxpayer a
deficiency notice. Once the petition has been filed, the taxpayer is not required to remit payment of the
tax proposed by the IRS until the case has been decided.

The Tax Court is made up of 19 judges appointed for a 15-year term by the president. Although the
court resides in Washington, D.C., the judges travel around the country to hear cases in approximately
75 cities. While Tax Court judges can issue their decisions from the bench, they return to their offices to
write their opinions in most cases. Bench opinions are binding only on the parties in the trial and form
no precedent.

Many of the cases filed in Tax Court are small Tax Court procedures which involve tax disputes of
$50,000 or less. In these cases, the judges render summary opinions that cannot be appealed. However,
before the decision is rendered, the taxpayer can transfer the case to the regular Tax Court where re-
course to an appeal is available. fn 2

When a judge renders an opinion in the Tax Court, it is reviewed by the chief Tax Court judge who
works with his or her counsel, composed of two judges. The chief judge decides whether the case should
be referred to a review by all 19 judges or if it should be released as a memorandum opinion. A memo-

fn 1
Another venue for tax dispute resolution is the U.S. Court of Claims. Trials in this court system are heard only by a judge and
taxpayers cannot seek a refund of certain IRS penalty payments. While individuals are permitted to have claims heard in the U.S.
Court of Claims, large national and multi-national companies predominately utilize this venue.
fn 2 Tax Court opinions and decisions are not the same. An opinion is filed by the Tax Court and is the written determination that
documents the issues tried and submitted to the Tax Court for decision. The decision is based on the opinion of the Tax Court and is
the court’s determination of either the taxpayer’s deficiency or overpayment. An appeal, if allowed, is done based on the Tax Court’s
decision, not opinion.

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