How Do I Take IRS or the State Tax Agency to Court?
There may be advantages to taking a tax dispute to a judicial forum, as opposed to trying to deal with the agency directly.
Among the benefits are:
- An independent decision-maker. A judge in court will not be an employee of the agency, and hence will not have a conflicting goal to enforce and collect tax. Also the judge will be more concerned with enforcing principles of the law and seeing that justice is done rather than increasing revenues for the government.
- The taxpayer is on equal footing with the tax agency. Before a judge, the tax agency is just the other party to the dispute in the case that is before the court, no more or less.
- The case will move along a schedule set by the court, not the agency. Resolution may, depending on the court, move along faster and certainly upon a well-defined timetable. The sooner you can resolve, the smaller will be the interest accrued, if you end up having to pay some part of the tax.
- The decision-maker may be better educated and knowledgeable. Compared to rank-and-file agency personnel, this will almost certainly be true in courts that specialize in tax or financial matters, such as the bankruptcy court, or federal tax court and court of claims.
One of the unique features of tax disputes is that there is more than one forum in which to try a dispute.
Depending upon the posture of the case, a federal tax dispute may be heard in the US Tax Court, Court of Claims, US District Court, and Bankruptcy Court. Often one can chose the forum, or take the necessary steps to bring the case within the jurisdiction of that court (such as paying the tax and suing for a refund in the Court of Claims), and thereby decide which forum may give the taxpayer the best outcome. For example, in some situations, the controlling case law can vary or even conflict from forum to forum.
For state tax disputes, the choice is more restricted, and generally the taxpayer is limited to the state court of record. For tax disputes in the District of Columbia, the case is heard in DC Superior Court. For Maryland, tax disputes are heard in the Maryland Tax Court, with appeal to the Circuit Court. In Virginia, tax disputes can be heard in the county’s Circuit Court.
One of the advantages of the bankruptcy court is that it has the power to decide both federal and state tax issue of any type. Particularly when the taxpayer is facing other debt issues and urgently needs protection from creditor enforcement action that may be coming from all sides, the bankruptcy court is hands-down the best overall forum.