If the taxpayer fails to respond to the 30-day letter and/or if no agreement is reached with the Appeals Officer, the IRS will issue a statutory notice of deficiency (also known as a 90-day letter or a “ticket to Tax Court”). At this point, the taxpayer has 90 days from the date of the notice to file a petition in Tax Court. After the petitioner files a Tax Court Petition, the government (who is called the “respondent”) will file an answer and the case becomes a docketed U.S. Tax Court case. The case, however, still may be settled prior to trial by an IRS Appeals Officer, if the taxpayer previously did not have an opportunity to go to Appeals. If the case settles prior to trial, the parties will execute a Decision and file it with the Tax Court.
If the case proceeds to litigation in U.S. Tax Court, an attorney from the Office of Chief Counsel will be assigned to handle the case. Just like any other type of litigation, there is discovery, depositions, motions and ultimately a trial, which is held before a Tax Court Judge in San Francisco, California. After the trial, the Tax Court may require that the parties file post-trial briefs, and the Judge ultimately will issue an opinion in the case. It sometimes can take up to a year (or longer) to receive an opinion from the Court. If the taxpayer disagrees with the Court’s decision, the taxpayer has the right to appeal the case to the Court of Appeals for the Ninth Circuit.
Practically speaking, most cases are resolved at IRS Appeals because litigation in Tax Court, for most taxpayers, can be quite expensive and there is uncertainty involved in any trial. There are cases, however, where the government and the taxpayer are unable to reach a basis for settlement, and the case proceeds to trial in Tax Court. A Tax Court opinion is a published document, so if privacy or confidentiality is an issue, a taxpayer should consider settling the case at IRS Office of Appeals.
Individuals or companies who are facing litigation in Tax Court should contact competent tax counsel, who can evaluate the case, explain the options, and provide adequate representing in court.