Question

Chapter 02: Working with the Tax Law

-Discuss the advantages and disadvantages of the Small Cases Division of the U.S. Tax Court.

-Distinguish between the jurisdiction of the U.S. Tax Court and a U.S. District Court.

-How do treaties fit within tax sources?

Answer 1

1. ADVANTAGES:

• The proceedings of a Small Case Division are informal and result in speedier disposition.The proceedings will be more timely and less expensive.
• The taxpayer does not have to know legal procedures and technical jargon,he/she just has to present their case before the judge with whatever evidence they possess-There is no necessity for the taxpayer to be represented by a lawyer or tax advisor.
• In a Small Case, the amount of procedures to go through will be considerably much lesser,and there will be more easier access to the Tax Court and much less hassle
• Special trial judges preside over the proceedings rather than the Tax Court judges

DISADVANTAGES:

• The decisions of the Small Case Division is final and cannot be appealed to the US tax court.This is quite a serious disadvantage.
• The decisions of the Small Case Division cannot be used as a precedent for any other court decisions.The doctrine of stare decisis-which obligates courts to follow past cases when making a ruling on a similar current or future case-does not apply here.Therefore, the taxpayer cannot refer to other Small Case Division decision for precendential value.
• The Division only has jurisdiction over cases in which the IRS has determined the amount of taxes and penalties in a tax year to be $50,000 or less

2.   US Tax Court:

• The Tax Court hears only tax cases.The tax court hears about 80% of the cases brought by the taxpayers disputing the IRS notices of deficiency.
• It's jurisdiction is limited to cases involving federal income, death, and other taxes.
• Despite the fact that the The Tax Court is headquartered in Washington,D.C.,The Tax Court's jurisdiction covers the entire nation-Its 19 judges hear cases in about 80 cities throughout the US.

US DISTRICT COURT:

• The United States district courts are the general trial courts of the United States federal court system.The District Court hears a wide variety of cases-Both civil and criminal cases are filed in the district court-including federal tax cases.(they also have the authority to apply state law)
• There are 94 district courts,including at least 1 in each state.The jurisdiction of the US district court would be that of the location of the tax payer.

3. Countries sign tax treaties( also known as tax conventions) to resolve issues of double taxation and tax evasion of a resident of one country earning an income in another country.

When an individual invests in another country,the issue of which country should tax his earnings arises.The countries in question-the source country(where the income is earned) and the residence country(the investor's country of residence)-can enter into a tax treaty to agree which country should tax the investment income, so that the same income doesn't end up getting taxed twice(Double Taxation).

The US has entered into treaties with a number of foreign countries.Because of this, residents of certain countries are taxed at a reduced rate or can also be exempt from taxes on certain items of income they earn in the US.This depends on the country and item of income.Likewise,US residents earning income in foreign countries will only have to pay reduced tax amounts or can also be exempt on certainitems of income.