31 December 2013

Nice Things To Say About Tax Court

Yesterday, for the first time in a long time (if ever), I filed a petition in the United States Tax Court in Washington D.C.  (I have a tax litigation practice, but as in most litigation, almost all cases settle.)

Tax Court is an Article I (Executive Branch) administrative tribunal that resolved disputes regarding taxes owed prior to payment.  Taxpayers who exhaust their remedies within the IRS can petition the tax court to resolve a dispute regarding taxes owed in lieu of paying the taxes and suing for a refund in an Article III (judicial branch) federal district court.

A few civil procedure aspects of tax court are quite nice.

1.  The filing fee in Tax Court, regardless of the amount in controversy, is only $60.00.  In contrast the filing fee for a civil action in a federal district court is $400.00.

2.  There are extensive opportunities for settlement negotiations prior to the point at which a tax court petition must be filed, so most of the 95%+ of cases that settle prior to trial in every kind of litigation settle before the court process begins (obviating the need for a filing fee).

Moreover, settlement negotiations with the IRS, for better or for worse, are very different than with private parties.  If the IRS agent involved believes in good faith that the taxpayer is right after the matter is fully explained, the IRS will generally concede even if there are huge amounts of money at stake.  But, on the other hand, if the IRS agent involved believes in good faith that the taxpayer is wrong, or just wants to abuse power, the IRS will not concede even if the dispute makes no economic sense for the parties to litigate.

Likewise, while the IRS can be a stickler for documentation of a taxpayer's claim, the IRS very rarely engaged in the tax litigation equivalent of discovery practice for tactical advantage only which is the norm in ordinary civil litigation.  For example, it is common for a private lawyer in civil litigation to refuse to stipulate to a fact that could be proven at trial even knowing that the fact can be proven at trial, while the IRS will routinely stipulate to facts that could have been proven at trial once it has seen the documents or other evidence that would serve as proof of these facts.  The IRS is a litigator who freely and easily acknowledges reality without much of a fight.

3.  It is not necessary to post a bond to prevent an IRS determination that taxes are owed from being enforced, something necessary in some kinds of civil litigation and in most civil appeals.

4.  Tax Court is the only court in the land where you can meet the deadline for filing your petition by sending it in the mail postmarked on the deadline for filing the petition.  In every other court, state and federal, the petition or complaint is not considered filed until it is received by the court in question.  E-filing mitigates this hardship (particularly in the case of a geographically distant venue) for practitioners already admitted to the bar of the court in question, but not for pro se parties (who make up a substantial share of the court's litigants).

5. While Tax Court is a unitary national court, it rides circuit, so a taxpayer can choose the federal district court courthouse in which the trial will be held (although some secondary courthouse locations in some federal districts are not available; for example, in the District of Colorado, tax court generally comes only to Denver).  In contrast, other national courts (e.g. the U.S. Court of International Trade) conduct business and hold trials only in Washington D.C. and perhaps a handful of other places.

6. Tax Court makes a form petition easily available on line in an Adobe Acrobat format that can be completed online.  The Tax Court rules are also easily downloaded for free from its website.

7.  While other courts require that in lawsuits against the IRS, that the IRS be separately served with process, in Tax Court, the initial Petition does not have to be separately served upon the IRS who is a party to every single action filed in Tax Court.

8.  Judges in Tax Court have considerable subject-matter expertise, so one can get right to the point.

9.  Compared to other Article I administrative tribunals (e.g. the National Labor Relations Board, the Securities and Exchange Commission, the Federal Trade Commission, and the Federal Election Commission), the tax court operates pretty purely in an apolitical judicial manner, rather than in a merely quasi-judicial, partially political manner.

Of course, there are also aspects of tax court that are weird or negative.

1.  Appeals from tax court decisions go to regional U.S. Courts of Appeals, so the law before the same court can be different in different parts of the country and give rise to circuit splits, even when the Tax Court's rulings are consistent.

2.  Tax Court judges do not have the structural independence of federal court judges appointed for life.

3.  In a related point, the Tax Court's subject-matter expertise coupled with a situation where one party is a party to every single case presents a risk of administrative capture by the agency and a lack of openness to new ideas, even if they have a sound legal basis.

4.  Tax Court denies litigants the full range of Article III court protections in the course of making a record before a case is appealed, which limits the scope of the Article III protection provided.

Still, on balance, Tax Court is a good institution whose innovations relative to the ordinary court system are good ones.

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