US Tax Court — Know Your Options

When you hear or think about the United States Tax Court, what comes to mind? It probably involves a multimillion-dollar case, yes? Maybe a well known celebrity or famous person is involved, right? These are the cases that get national headlines on television or over the internet, but Tax Court can be a viable option for even the “regular” taxpayer who cannot get their IRS problem solved using the standard procedures available.

I just helped a current tax preparation client file a petition with the Tax Court because I was not able to get their problem resolved with the IRS concerning mortgage interest that was deducted on Schedule A of their 2019 tax return. The IRS thinks they are deducting mortgage interest in excess of the $1,000,000 mortgage cap instituted with the 2018 tax law changes. I faxed documents to the IRS twice proving they are in compliance with the new law because two of their mortgages were sold during 2019, resulting in the value of the mortgages getting reported twice on the required separate 1098 mortgage interest statements submitted to both the client and the IRS.

Since the IRS did not respond to my attempts to rectify the problem, my clients were sent a Notice of Deficiency letter. This particular letter gives taxpayers the right to petition the Tax Court within 90 days of the date of the letter, which we did. Now we are waiting for the IRS Chief Counsel in the Appeals Division to contact us to set up a time to discuss the case to see if it can be resolved before having to go to Tax Court to reach a resolution. It will not get to Tax Court. As power of attorney for my clients, I will be able to work with the Appeals Office to get them the documents they need to close the case with no additional tax owed. If the case had to go to Tax Court for resolution, I can recommend a colleague of my mine who is an attorney to represent them.

The process for petitioning the Tax Court is easy. There are four pages to complete and submit with the $60 application fee. The great thing about Tax Court is you can have the Section 6662(a) accuracy-related penalties abated completely during the appeals process, no questions asked. So, even if you do owe the additional tax assessed during the examination, it is worth it to file a petition and pay the $60 to wipe these penalties. For example, in my client’s case, there is a $2,225 accuracy-related penalty assessed in addition to the proposed tax adjustment. Even if the IRS was right in this case, the Appeals Office will still wipe out that penalty.

I have helped several clients over the years resolve their tax problems in the Tax Court appeals process without having to actually go to court. Over 90% of cases that petition the Tax Court get resolved in the appeals process, so do not be afraid to use this option if it is available to you and you are not getting a resolution using the regular IRS procedures. Please reach out to me if you have any questions or know anyone who may need help resolving a tax problem by petitioning the Tax Court.