Question

Your client was notified by the IRS that he owes $50,000 in back taxes. In an effort to resolve the dispute you helped him go through the IRS appeals process .... Unfortunately, you were not successful. Thus, you are now prepared to go to court and you have two options (1) TAX COURT (2) DISTRICT COURT. If you were to write a letter to your client, what advantages and disadvantages of each of these options would you list?

Answer 1

The advantages and disadvantages of the two options are as follows:

1) TAX COURT

a) Advantages of going to a Tax Court:

1. The main advantage to going to tax court is your ability to not have to pay back taxes if you have proven your case.

2. Since the Judges of the tax court are more experienced in tax laws you will be given clear judgement of what is correct or incorrect.

3. In the tax court rules governing the evidences are less strict and more open for interpretation.

4. If your case is small than the procedures to go through with will be much less. There is a system of easy access to small cases.

b) Disadvantages of going to a Tax Court:

1. The biggest disadvantage is you do not have the option to go back in time, for whatever reason you did not file suit is no excuse. You can always file a suit in another court system but in terms of filing your case in tax court, once you pass the window of opportunity there is no going back.

2. In some other courts you can use your sympathy card and make the case in your favour but it is not possible in case of Tax Court. It does not entertain cries of sympathy.

3. If you have not prepaid the amount that you owe prior to going to tax court, interest will continue to accrue while your case is being tried.

4. If the tax court determines that you are wrong than your liability can increase by what you have expected.

2) DISTRICT COURT.

a) Advantages of going to a District Court:

1. District Court not only hears tax cases, it hears varieties of cases.

2. With the District Court Jury trials are available which is not the case with the tax court.

3. District Court has full power enforcement of its orders which is same as in case of tax court.

b ) Disadvantages of going to a District Court:

1. There is only one judge per District Court with several courts per district against 19 judges in tax court.

2. Many District Courts with jurisdiction only in the district in which the court sits.

3. Tax payer must pay the tax deficiency and sue for refund which is not in the case of Tax court.

4. Location of district court is more important than location of Tax payer.