What is the U.S. Tax Court?

By Jerry Meek

The United States Tax Court is a nationwide court, created by Congress pursuant to its powers under Article I of the U.S. Constitution.  The Court is composed of 19 Judges appointed by the President, former Judges serving on recall (known as “Senior Judges”), and Special Trial Judges appointed by the Court’s Chief Judge.  The Court’s Judges hold session in 74 designated cities across the country, permitting matters to be litigated in locations convenient to taxpayers.

The Court’s jurisdiction is defined by statute.  The four powers most commonly exercised by the Court are:

1. The power to redetermine tax deficiencies (I.R.C. § 6211 et. seq.).  When the IRS sends a statutory notice of deficiency to a taxpayer, informing the taxpayer that the taxpayer’s return understates the tax owed, the taxpayer has the right to appeal the IRS’s determination to the Tax Court.  The Tax Court is the only court empowered to adjudicate tax disputes before the taxpayer pays the tax demanded.  The U.S. district courts and the U.S. Court of Federal Claims, in contrast, exercise “refund jurisdiction,” deciding tax disputes only after the tax has been paid and a refund demanded.

2. The power to review claims for relief from joint and several liability (I.R.C. § 6015(e)).  When married taxpayers file joint returns, each spouse becomes jointly and severally liable for the entire amount owed.  This means that the IRS can pursue either spouse for the full amount, regardless of which spouse is to blame for the unpaid tax.  Taxpayers can ask the IRS for relief from joint and several liability.  If the request is denied, taxpayers can appeal to the Tax Court.

3. The power to review IRS decisions on liens and levies (I.R.C. §6320 and § 6330).  It may not seem like it, but there are significant procedural limitations on the IRS’s ability to collect the tax it says is due.  If the IRS files a Notice of Federal Tax Lien, for example, it must give the taxpayer an opportunity for an administrative hearing.  Similarly if the IRS intends to seize (or “levy” upon) the taxpayer’s property, it generally must first provide the taxpayer with an opportunity for a hearing.  The IRS’ decisions at such hearings – known as “collection due process hearings” – can be overturned by the Tax Court.

4. The power to review IRS decisions on installment agreements and offers in compromise  (I.R.C. § 6330).  If a taxpayer cannot pay an undisputed tax, the IRS has the power to enter into “installment agreements” or “offers in compromise.”  Under an installment agreement, the IRS agrees to accept payments over a period of time, suspending other collection efforts in the process.  Under an offer in compromise, the IRS agrees to accept less than the full amount owed.  IRS guidelines determine whether the IRS will enter into such agreements, and on what terms.  If a taxpayer disagrees with the IRS’s decision on a taxpayer’s request to enter into an agreement, and the proper procedural steps are followed, the Tax Court has the power to review the decision.

Except in certain cases designated as small cases (or “S Cases”), a decision of the Tax Court can be appealed to the U.S. Circuit Court for the State in which the taxpayer is domiciled.  As a result, under the “Golsen rule,” the Tax Court must apply the law in each case as that law has been interpreted by the Circuit Court of the taxpayer’s domicile.  See Golsen v. Commissioner, 54 T.C. 742 (1970).  Thus, in rare cases, the Tax Court will reach different rulings for different taxpayers, even on the same facts.