A taxpayer who disagrees with the IRS may be able to litigate in one of three federal courts: the U.S. Tax Court, a federal district court, or the U.S. Court of Federal Claims. The forums differ in when the tax must be paid, who decides the case, how pretrial procedures work, and where an appeal goes. This article compares them.
U.S. Tax Court
Payment. The Tax Court is the forum in which a taxpayer can ordinarily dispute a deficiency before paying it. While a timely petition is pending, payment of the disputed tax is ordinarily postponed, although interest continues to run on any amount ultimately owed.
Access. A Tax Court case generally requires an IRS notice that confers jurisdiction, such as a notice of deficiency or a notice of determination, and a timely petition. For a notice of deficiency, the deadline is 90 days after mailing (150 days if the notice is addressed to a person outside the United States), and the Court cannot extend it.
The court. The Tax Court is a federal court that hears disputes between taxpayers and the IRS. It is based in Washington, D.C., and its judges hold trials in cities across the country. There is no jury. The IRS is represented by attorneys from the IRS Office of Chief Counsel.
Procedure. The filing fee is $60. Taxpayers may represent themselves, and qualifying cases may use the less formal small tax case procedure. The Court expects parties to exchange information informally before using its formal discovery tools.
Scope. Under section 6214(a), the IRS may ask the Court to determine a deficiency larger than the one in the notice, if it raises the claim at or before the hearing.
Appeal. Regular case decisions are appealed to a U.S. Court of Appeals. For individuals, section 7482 generally directs the appeal to the circuit of the taxpayer’s legal residence, which for California residents is the Ninth Circuit. Small tax case decisions cannot be appealed.
Federal District Court
Payment and refund claim. District courts hear tax refund suits under 28 U.S.C. section 1346(a)(1). In Flora v. United States (1960), the Supreme Court held that a taxpayer generally must pay the full assessment before suing for a refund. The taxpayer must also file an administrative claim for refund with the IRS. Under section 6532(a)(1), suit generally may not be filed until six months after the claim is filed, unless the IRS acts on it sooner, and must be filed within two years after the IRS mails a notice disallowing the claim.
Jury. District court is the only one of the three forums in which a jury trial is available. Under 28 U.S.C. section 2402, either party may request a jury in a tax refund suit.
Procedure. The government is represented by Department of Justice attorneys, and the Federal Rules of Civil Procedure govern discovery. The filing fee is $350 plus a $55 administrative fee.
Appeal. Appeals go to the regional U.S. Court of Appeals; for district courts in California, that is the Ninth Circuit.
U.S. Court of Federal Claims
Payment and refund claim. The Court of Federal Claims has jurisdiction over tax refund suits concurrently with the district courts, and the same full-payment and refund-claim requirements apply.
Procedure. There is no jury. The government is represented by Department of Justice attorneys.
Appeal. Appeals go to the U.S. Court of Appeals for the Federal Circuit (28 U.S.C. section 1295(a)(3)), rather than to a regional circuit.
Each forum’s decisions are reviewed by a different appellate court: the Tax Court and district courts by regional circuits, and the Court of Federal Claims by the Federal Circuit. The appellate precedent that governs an issue can therefore depend on the forum chosen.
Factors in Choosing a Forum
Ability to pay. If paying the full amount in dispute is not practical, the Tax Court is generally the available path. Paying first, however, stops interest from accruing on the amount paid.
Deadlines. The Tax Court petition deadline is short and fixed. Refund litigation has different deadlines, beginning with the refund claim itself, which section 6511(a) generally requires within three years from the time the return was filed or two years from the time the tax was paid, whichever is later.
The decision-maker. Some taxpayers prefer a judge who hears only tax cases; others may want the option of a jury in district court.
Governing precedent. Differences in appellate case law on a particular issue may favor one forum over another.
Burden of proof. Section 7491’s rules on shifting the burden of proof apply in any court proceeding, so the same statutory framework applies in each forum.
The right choice depends on the specific issues, the amount at stake, and the taxpayer’s circumstances, and the decision is often constrained by which deadlines remain open.
Weighing where to litigate a tax dispute?
Tax attorney Cassra Minai, Esq. can review your situation and the available forums in a confidential consultation.