The U.S. Tax Court is a federal trial court established by Congress to adjudicate tax disputes between the IRS and taxpayers. Generally, taxpayers that come out on the losing end of an audit will have an opportunity to “get their day in court” and sue the IRS over the amount of their tax liability if they pay attention to their rights. Taxpayers can also go to the Tax Court to defend against collection actions, such as levy and lien actions, and when an innocent spouse claim is denied.
However, as with many other taxpayer rights, Tax Court rights expire with the passage of time. A taxpayer cannot simply file a case in the Tax Court anytime he or she wants to.
A taxpayer must be issue a “ticket” to go to court by the IRS. Under the federal tax law, the IRS must give out this ticket, but under this law this ticket expires after either 30 or 90 days depending on what type of case it is.
After an audit, the IRS will send an audit report, which shows all of the disallowed deductions and any previously (alleged) unreported income, to the taxpayers. The IRS will ask the taxpayers to sign the report and “agree” with the auditor’s findings.
If the taxpayers do not sign off on the report, some weeks or months later, the IRS will mail – to the last known address – a certified letter commonly referred to as the “90 day” letter (legally referred to as the Statutory Notice of Deficiency).
This letter will allow the taxpayers to file a petition with the Tax Court, but no later than 90 days from the date of that letter. If the petition is not filed within the 90 days (not filed at all or filed late) the taxpayers have lost (or slept) on their rights to contest the audit in court.
It is critically, critically, important that these rights are not lost. Outside of filing bankruptcy, there is no way to get your case into court without first PAYING the tax. A taxpayer may pay a disputed income tax (in full) and then sue the IRS in District Court for a refund, even if the 90 days has expired. Generally, a taxpayer has two years from the date of payment (or date of denial of the refund) to file suit.
The Levy: The IRS, with limited exceptions, must issue a certified letter to the taxpayers 30 days prior to sending out notices of levy (a levy means the IRS is going to take your property to pay your past due taxes).
The notice will state, NOTICE OF LEVY AND YOUR RIGHT TO A HEARING. The notice will give you 30 days to file for a Collection Due Process hearing before the IRS Office of Appeals.
At the hearing, you must offer a collection alternative and/or dispute the validity of the tax if you did not already have an opportunity to do so.
If the taxpayers lose at this hearing, they will receive a second 30 day letter known as a Notice of Determination. This notice will give the taxpayers 30 days to file a petition in the U.S. Tax Court. Again, if the petition is late, the court will not hear the case. And, most importantly, the IRS will be free to take your property as payment for the taxes.
The Lien: After the IRS files a notice of lien (and not before), the taxpayers will receive a 30 day notice that will allow them to request a hearing with the Office of Appeals related to the filing of the notice of lien (A lien is a secured interest in all of the taxpayers’ property – like a judgment or mortgage).
At that hearing the taxpayers can raise collection alternatives to pay the tax, such as an installment agreement or offer-in-compromise. Also, they may request withdraw, release or subordination of the lien.
If the taxpayers lose at this hearing, they will receive a 30 day letter known as a Notice of Determination and have 30 days from the date of that notice to file a petition in the U.S. Tax Court. Once again, if the petition is late, the court will not hear the case.
Generally, a married couple filing a joint return will be “jointly and severally” liable for any tax due related to that return. If the taxpayers lose an audit, or simply file a return reporting unpaid tax, they are both on the hook for the whole amount due.
However, the tax law does provide for a spousal defense commonly called innocent spouse relief.
To request this type of relief the requesting spouse files form 8857 with the IRS and waits for an answer (the non-requesting spouse will be contacted).
If the IRS denies the relief, the requesting spouse will have 90 days to file a petition with the Tax Court to review the case. As before, if the petition is not filed or filed late, the right to go to court is lost, without first paying the tax in full.
Make sure that you do not lose your rights. If you receive certified letters from the IRS or letters you do not understand, contact us immediately for a consultation.