Tax Court Swamped By Flood Of Petitions; Here’s What Taxpayers Filing A Suit Need To Know

The United States Tax Court is one of the most accessible courts in the federal system, maybe even overall. Well here is some good news and bad news about the Tax Court. The bad news is that it is absolutely swamped by a flood of petitions. The good news? Well that’s the good news too. It all depends on what kind of a taxpayer you are.

How Good/Bad Is the News?

As I write this in mid-August, the last petition logged into the system was that of Robert Stiles filed on May 28, 2021, which gives you an idea of how far behind the Tax Court is right now. Its number is 19051-21. The Court assigns the docket numbers based on sequential filing with the two digit extension indicating the year. If it is on 19051 as of May 28, that projects to about 45,000 petitions for 2021. In a July 23 press release, the Tax Court indicated that it had already passed the 24,000 mark,

How does this compare to prior years? Well in 2020 there were less than 17,000, but that was an anomaly, because the Tax Court partially shut down in November to roll out a new document management system, which as far as tax journalists are concerned, turned out much worse than what it had before. More typically it had 24,364 petitions in 2019 and 25,422 in 2018.

What The Court Is Doing

In an August 16 press release the court tried to reassure us that it is still under control. Even though as of August 16, it is at 26,000 petitions—more than received for the entire year in each of the last three years. The Tax Court convened meetings of various “stakeholders”—the bar association, IRS, low-income taxpayer clinics and bar-sponsored pro-bono programs.

The Court has begun notifying the IRS of petitions prior to formal service, so that the IRS knows to stay collection action. Its August 16th release reminded folks that IRS has a dedicated email – taxcourt.petitioner.premature.assessment@irs.gov -for people who are subjected to collection action after they have filed a Tax Court petition, which is supposed to stay such collection.

The Taxpayer Advocate Services also has some advice on this issue, noting that “it is taking approximately 75 days for the Tax Court to process most of the petitions it receives and serve notice on the IRS – a period that typically exceeds the 15-day period IRS procedures have allotted for this notification process.” The Advocate also emphasizes using that email— taxcourt.petitioner.premature.assessment@irs.gov —to halt any assessment or collection action if you’ve filed a suit.

How To File With The Tax Court

As these sort of things go, it is not that hard to file a Tax Court petition. The Court gives you some guidance here. The fee is only $60. In order to file a Tax Court petition you are supposed to have a notice of deficiency, notice of determination or notice of certification from the IRS. Nothing stops you from filing a petition without one of those, but it is pointless and you will be wasting your time, the Court’s time and IRS time along with $60. But this year you would be part of breaking a record, so there is that. On the other hand the Tax Court can sanction you for frivolity.

Essentially what the IRS is doing with those notices is telling you that it is going to assess more tax or take a collection action or ask the State Department to revoke your passport. It is also telling you that it is pretty much the end of the line in terms of their appellate process. If you want to stop the steamroller you need to go to file a petition with the Tax Court. And get it in on time. Don’t fool with the deadline.

You also have the option of paying up, asking for the money back and then going to district court or the Court of Claims when IRS says “No” or sits on your refund claim too long.

The Upside Of The Flood

While your Tax Court case is in process, the IRS cannot take any collection action. If you are a really stubborn tax protester, the flood is great news, because you are never going to pay them regardless and this has to be slowing the process down. IRS attorneys represent the IRS in Tax Court (In other federal courts it is DOJ). Twice as many petitions does not mean that there will suddenly be twice as many IRS attorneys. So you can hope that they will think fast and make mistakes.

If you are currently being audited and the agent wants you to extend the statute of limitations, consider telling them to pound sand (in a nice way) and be prepared to file a Tax Court petition in the event they forge ahead with a notice of deficiency. This is not necessarily a strategy for the faint of heart.

If the ship has already sailed on the assessment of your deficiency, the flood also offers hope of kicking the can further down the road. Before the IRS can actually take any serious collection action, they have to send you a notice that tells you about your right to a collection due process hearing. You can appeal the result of that hearing to Tax Court. While the Tax Court has it, there can be no collection action. The downside is that the statute of limitations on collections is not running.

The Downside Of The Flood

This is terrible for what I would call normal people who can’t stand having the sword of Damocles hanging over their head. And to regular people who just pay their taxes when they are due, it might be a little annoying.

It would be great to sample the petitions to see if I could figure out what is creating the surge, but that is not a project I am inclined to take on. My suspicion is that it may be problems with and misunderstandings about stimulus payments. Another possibility is that IRS is not paying attention to the explanations that taxpayers send in in response to notices and issuing notices of deficiency too quickly. Taxpayers need to file a petition within ninety days in order to avoid losing their right to use the Tax Court.

Other Coverage

I picked this story up from Lew Taishoff who has Draining The Swamp.

So now it is announced that Tax Court met with the favored few (journos excluded, of course; they don’t want us nosy types asking questions), the net result of which may be found here.

Tax Court will try to drain the swamp. To what extent DAWSON has anything to do with the swamp is yet unanswered.

Mr. Taishoff and I had a discussion of the meaning of the flood. We were basically guessing. One point is whether the number is inflated by petitions that might have been filed in 2020, but for the yearend shutdown. By the way with respect to the 19051 number, they actually start with 101. So the count was 18,050.

The Tax Court has made it easier to look at unsealed documents. You call a number and tell them what you want and they send it electronically. It is fifty cents a page with a three dollar maximum per document, which is not such a bad deal compared to PACER where the rest of the federal courts keep their documents.

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