How to Sue the IRS: An Explanation of Tax Litigation

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by Kathryn Nicole Magan, J.D.

Introduction

Most people don’t think of suing the IRS let alone the U.S. government, but we live in a healthy democracy and a significant aspect of a self-governing society is the ability to take legal disputes to court. IRS Revenue Agents and Examiners are human beings, and sometimes they simply don’t understand the law. Every single year, hundreds of lawsuits are filed against the IRS. In fact, there are so many cases that Congress created as special court called the United States Tax Court to hear those cases. Any tax professional that suggests it’s abnormal to sue the IRS is likely not an attorney or, if an attorney, clearly not an educated one.

This article is intended to empower the general public with the knowledge to sue the IRS; however, we will close the article with a description of how we engage clients on a contingent basis so that you can be represented by our trial attorneys without any out-of-pocket costs or expenses.

Statutory Notice of Deficiency or 6-Month After Claim or Refund

Before you can sue the IRS, there needs to be a final determination of a tax liability. In other words, if you’re currently under examination, it’s too soon. In an examination, you first receive the Examination Notice requesting substantiation of a deduction, credit, exclusion, treaty position, or some aspect of your tax return. If you want documents to be considered in court, you should provide them to the IRS during this phase of the examination. Once the IRS has completed reviewing everything, they will send you a Notice of Proposed Adjustments (NOPA) letter. You will have 30 days to either agree to the proposed changes or file an administrative appeal with the IRS Appeals Office either by completing the forms attached to the NOPA Letter or by filing IRS Form 12203, Request for Appeals Review. If you appeal, then an Appeal Officer will be assigned. The previous examiner will no longer be involved in the case. The Appeal Officer will then make a final determination. At the conclusion of the Appeals process or if you do not appeal, you will then receive a Statutory Notice of Deficiency that you will have 90 days to respond to, which is why we in the legal community call it the “90-Day Letter.” Section 7522 requires all deficiency notices to describe the basis for the tax due as well as a breakdown of the amounts. However, the requirement is weak since Congress also included a clause that says an “adequate description under the preceding sentence shall not invalidate such notice.”[1] Nevertheless, the complete absence of a description should invalidate the notice, and there is currently a case pending in federal court on this matter being handled by our firm.[2]

However, not all injuries arise from examinations. Sometimes a taxpayer forgets to claim a tax benefit. As such, they file an administrative claim for refund with an Amended Federal Income Tax Return. If the IRS does not issue a formal notice of claim disallowance within 6 months, a taxpayer may treat the claim as having been denied and file a lawsuit in U.S. District Court or the U.S. Court of Federal Claims.[3]

As a general rule, you can only file a lawsuit in federal court if you have an actual “injury” to be addressed. In the tax context, you don’t have an injury until the tax is actually paid. However, it would be unfair to compel taxpayers to pay a tax before having access to the courts to resolve a dispute. For that reason, Congress created the United States Tax Court. Under Tax Court rules, you do not have to pay the tax before filing your case. However, interest will continue to accrue, but that shouldn’t concern you if you believe you’re correct since an invalidation of the tax also invalidates any associated interest on the tax.

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Forum Shopping for Case Law Advantage

Once you receive the 90-Day Letter, tax litigation strategy is in play. You have the option of not paying the tax and suing the IRS in the U.S. Tax Court. However, you first need to see whether your particular issue has been addressed in either the U.S. Tax Court, the United States Court of Federal Claims, or your local United States District Court. If one of those courts has established case law not favorable to your position, definitely don’t file the case there. If one of those courts has established case law that favors your legal position, then obviously file the case there. It is unlikely that a case has specifically addressed your issue, but there may be other holdings that could be favorable to your issue. This typically requires an experienced tax attorney to assess. Nevertheless, you have 3 different courts to choose from, and that gives you a huge strategic advantage. Typically, the least favorable forum is the U.S. Tax Court, and, ironically, it’s the forum most often chosen by taxpayers since it’s the only one that offers the sue-first-pay-later option. In fact, it’s the no payment requirement that results in a lot of frivolous claims in the U.S. Tax Court, which is why tax court judges tend to be more critical of taxpayers.

In our experience, the most favorable forum is the United States Court of Federal Claims, but it really depends on a case-by-case basis. For example, in many cases, our firm chooses to file cases in United States District Court, especially the United States District Court for the Northern District of Texas for other strategic reasons.

United States Tax Court

You have 90 days from receipt of the Statutory Notice of Deficiency to file your case in the U.S. Tax Court. This rule is strictly enforced. To file your case, visit the U.S. Tax Court’s website, select the e-Access option, select either Petitioner Access or Practitioner Access if you’re a licensed professional. If you do not yet have e-Access, then submit a United States Tax Court Petitioner Access Request Form online by clicking here. You can read the Petitioner’s Guide to Electronic Case Access and Filing by clicking here.

Trial by jury is not an option in the U.S. Tax Court. There is a tax court judge who will decide the case that, at one point, was nominated by a U.S. President for a 15-year term unlike federal court judges that are appointed for life. The Federal Rules of Evidence apply, but the rules are applied less formally than in federal district court. Also, it is important to note that the U.S. Tax Court has its own rules of practice and procedure that differ from the general Federal Rules of Civil Procedure. For example, the pre-trial discovery rules are more informal.

United State Court of Federal Claims

Even if you allow the 90 days to pass, you cannot file your lawsuit against the IRS in the U.S. Court of Federal Claims unless and until you actually pay the tax due.[4] It is our firm’s position that this does not require payment of interest and penalties, but this is not yet a fully settled issue.[5] As a result, there is a dead zone between the expiration of the 90 days to sue in the U.S. Tax Court and payment of the tax in order to sue in U.S. Court of Federal Claims.

After paying the tax in-full, you can proceed with filing your case with the U.S. Court of Federal Claims, which is located at in Washington DC at 717 Madison Place NW.

In these cases, the defendant is not listed as the Commissioner of Internal Revenue bur rather the United States, so the case will be titled Your Name v. United States. You will receive a response from an Assistant U.S. Attorney from the U.S. Department of Justice. Don’t panic, it’s the Tax Division that represents the U.S. in all tax cases.

The key difference between the U.S. Court of Federal Claims and a U.S. District Court is that trials by jury are not permitted in the U.S. Court of Federal Claims.

United States District Court

Even if you allow the 90 days to pass, you cannot file your lawsuit against the IRS in U.S. District Court unless and until you actually pay the tax due.[6] It is our firm’s position that this does not require payment of interest and penalties, but this is not yet a fully settled issue.[7] As a result, there is a dead zone between the expiration of the 90 days to sue in the U.S. Tax Court and payment of the tax in order to sue in U.S. District Court.

After paying the tax in-full, you can proceed with filing your case with the U.S. District Court, which will be located within driving distance from your home.

In these cases, the defendant is not listed as the Commissioner of Internal Revenue bur rather the United States, so the case will be titled Your Name v. United States. You will receive a response from an Assistant U.S. Attorney from the U.S. Department of Justice. Don’t panic, it’s the Tax Division that represents the U.S. in all tax cases.

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Conclusion

If you believe you’re being treated unfairly by the IRS, I strongly recommend contacting our law firm to schedule a free consultation. We can provide free guidance to let you know how to assert your rights. Schedule a free consultation today by submitting an online contact form by clicking here.


[1] IRC § 7522(a)

[2] See Dixon v. U.S., Case No. 19-270T (Fed. Cl. 2019).

[3] IRC § 6532(a)(1).

[4] IRC § 7422(a); 28 U.S.C. § 1346(a)(1).

[5] See 28 U.S.C. § 1346(a)(1); Flora v. U.S., 362 U.S. 145 (1960).

[6] IRC § 7422(a); 28 U.S.C. § 1346(a)(1).

[7] See 28 U.S.C. § 1346(a)(1); Flora v. U.S., 362 U.S. 145 (1960).

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