What is tax court? It sounds super boring, why should you spend 5 minutes reading about it? Well Tax Court is a federal court which receives far less attention than the rest of our court system. And like all sectors of the resolution which receive little attention it is rife with the need for substantial reform, and unsubstantial reform (you can expect cases from both catagories). In short, knowing the facts about this court will be worth your time–and hopefully not too taxing.
- What Is Tax Court?
This one is pretty basic. Tax Court is a federal court which presides over tax related disputes. Primarily it hears cases brought by a taxpayer contesting the IRS. If you disagree with the IRS then you take the matter to Tax Court. There are many courts which hear tax related cases (including the United States District Court, Bankruptcy Court, and the United States Court of Federal Claims), but Tax Court is the only one where you don’t have to pay the disputed amount until after the case is decided. Tax Court has the authority to hear various tax disputes concerning notices of deficiency, notices of transferee liability, failures to abate interest, administrative costs, and other equally uninteresting areas of tax bickerings. But it is key to remember that Tax Court does not have exclusive jurisdiction to hear these kinds of cases, this leads to predictable jurisdiction problems as we shall see in point 8.
- History and Constitutional Basis
It was established by Congress with the Revenue Act of 1942 under Article 1 section 8 of the constitution which grants Congress the power to: “Constitute tribunals inferior to the Supreme Court”. Futhermore Congress may “Lay and collect taxes….But all duties, imposts and excises shall be uniform throughout the United States” This adds to the complication of jurisdiction problems, but more of that later. In 1969 another act was passed which changed Tax Court from an administrative court into a full judicial court. But it was never established as an Article III Federal Court. An Article III court is a court identified in Article III, Section 2 of the Constitution. These article III courts are usually what people are referring to when they talk about “the Federal Court System”. This leads to our first problem….
- Problems with Courty-ness
While Tax Court is listed by the Federal Bar Association as one of the U.S. Courts of Special Jurisdiction, some bicker over the exact status of Tax Court. Technically it is not an Article III Federal Court which means its status as an agency or as a federal court is still murky. Which means that it does not fall under the discipline of the Administrative Procedure Act or the Freedom of Information Act (both applicable to agencies) nor is it overseen by the Administrative Office of the United States Courts. This lack of accountability and confusing status is the subject of much debate. For those interested in a potiential topicality arguement or even a case, I suggest this article.
- The Process
So ya got a problem with the IRS (well who doesn’t) how do you resolve it? Let’s say that the IRS determines that you have a tax deficiency and sends you a notice, Tax Court allows you to dispute that deficiency without paying first. You start by filing a petition (which costs $60), it must be filed within 90 days of the IRS’ notice. If you miss that deadline, your case is automatically dropped. If your deficiency is less than $50,000 then it goes to “Small Court” a more informal version of Tax Court, usually overseen by retired Tax Court judges and by “special trial judges” who are appointed by the chief judge of Tax Court. After your petition is filed you wait for your summons. The trail is conducted by one judge, without a jury. Don’t expect a decision anytime soon. After the trial date it could take years before you hear back from the court about the Judge’s ruling.
- Problems with Judges
Tax Court is made up of 19 judges appointed by the President and approved by the Senate. There have been many allegations of Tax Court judges being biased towards the IRS, and some policy suggestions on how to fix this. While you may encounter a case advocating one of these policies the evidence for judge bias is unconvincing, as discussed in this article.
One interesting (and mildly concerning) aspect of judge appointment is that a Tax Court judge can be be removed from office by the President. The President can do this if he deems the judge guilty of “inefficency, neglect of duty, or malfeasance in office” (26 U.S. Code § 7443)
Some argue this is a dangerous overlap of excecutive and judicial branches, and violates separation of powers.
- The Issues
In all, Tax Court recieves about 30,000 filings each year. This is a huge amount for so few judges to hear, but the vast majority of these cases are settled out of court. The types of cases that aren’t settled out of court tend to fall into the same 10 catagories. If you want to know what those catagories are in order to have a better idea of what Tax Court handles on a daily basis, you can check out this article.
- Problems with Lawyers
Unlike in criminal cases, if you can’t afford a lawyer you cannot claim “indigence” and have the State pay for one. This is because in Tax Court the citizen is always the plaintiff and the Government (IRS) is the defendent. This is why Tax Court has such a high rate of “pro se”, or going without a lawyer and representing yourself, prosecutions (about 45%). It makes sense that the government wouldn’t assist in paying for an attorney to prosecute a government agency. But in the case that a person is being unfairly taxed and wronged by the IRS, is it really right for that unjustice to go unnotice because they can’t afford a lawyer?
- Jurisdiction–It’s Kinda a Big Deal
There are 3 things to know:
Thing 1: There are multiple federal courts where you can take your tax disputes.
Thing 2: There is no unified court of appeals for tax cases.
Thing 3: The constitution requires that all taxes “be uniform throughout the United States”.
Impact: It is almost impossible to maintain uniformity when there are multiple courts with overlapping jurisdiction and no one court to rule them all. Without a single court to which all appeals from the various tax-related courts (including Tax Court, Bancrupty Court, United States Court of Federal Claims) can go to, we will continue to struggle to maintain consistency in enforcing our nation’s tax code.
- Example Cases
Tax Court is (debatably) a federal court, and you can expect to run into a few cases dealing with it. Example cases include changing the status of Tax Court into an Article III court, creating a unified Court of Appeals to solve the jurisdiction problems, allowing taxpayers to file for indigence and get a state lawyer, or revoking the President’s power to remove a Tax Court judge from office. You may even run into less significant cases like increasing the number of judges/courtrooms.