Judicial Review On A SNOD
The taxpayer has the option, as long as they are filing in a timely manner, to Petition the Tax Court when they receive a SNOD. Be sure the client understands that there is a filing fee, currently $60, and that they must either represent themselves or have a representative who is admitted to practice before the Court. For a non-attorney that means passing the U.S. Tax Court Practitioners Exam, the highest accreditation awarded to a Tax Professional. Let’s delve a little more deeply into the petition process.
The U.S. Tax Court allows taxpayers to file a Petition in the following cases under the “Small Cases” provision:
1. Review of a SNOD, the amount of the deficiency can not exceed $50K for any one tax year.
2. Review of an IRS Notice of Determination Concerning Collection Action (these include Liens and Levies), the amount of the unpaid tax can not exceed $50K for all years combined
3. Review of an IRS Notice of Determination Concerning Your Request for Relief from Joint and Several Liability (or if the IRS has failed to respond to a spousal relief request, Form 8379 or Form 8857, within six months of filing) and the amount of spousal relief is less then $50K for all years combined
4. Review of an IRS Notice of Determination of Worker Classification and the amount in dispute is less then $50K for any calendar quarter.
You must mark the Petition “Small Case” in Box 4 or the case will automatically be docketed as a regular case. The advantages to a “Small Case” determination is that they are often less formal and are resolved more quickly, however, the acceptance of “Small Case” status eliminates the right to appeal the decision made by the court.
Filing a Tax Court Petition automatically throws your case over to the special appeals section of the IRS and many times that is exactly what we want to happen. This gets the case off the desk of a RO or RA and their managers, whom you have had no success in negotiations with and gets it into the hands of a impartial third party.
The impartial third party reviews the proposed IRS enforcement actions from several standards including:
1. Abuse of Discretion by the IRS? Did they follow their own rules?
2. Hazards of Litigation? Is it worth it to the IRS to go to court?
3. Will an alternative dispute resolution be more effective?
4. Does the IRS meet the Burden of Proof? For proceedings from an exam started after 22 Jul 1998 the IRS holds the burden of proof unless another issue at hand requires a specific burden be met.
5. Has the case been fully developed to be able to meet the satisfaction of the court
Taxpayers should be aware that the Tax Court, while impartial, finds heavily in favor of the IRS (approximately 90%). They should also be aware that most Tax Court Petitions never actually make it into the courtroom because the IRS has so many settlement options.
If there is any way to settle a case, within reasonable standards, the IRS is going to attempt to do so before going into Tax Court with a taxpayer. This doesn’t mean they will hesitate to take the case to court, never think that. T
The IRS has started taking a hard line on “frivolous” requests. This includes repetitive requests for the same notice or period, filed only for the purpose of delaying collection, or filing only to impede the administration of tax laws. This can not only get you, the representative, in hot water, it can negate your clients rights to further administrative or Judicial Review of their case and if the court decides the filing was “frivolous” or simply a delaying tactic, they have wide latitude to levy huge fines against the side that is wasting the Court’s time.
What happens if the taxpayer has blown their time lines for filing a Tax Court Petition? We touched on one of the available actions earlier. They can pay the entire amount of the assessed tax and P&I, then file an amended return to make a claim for a refund.
This starts the Tax Court filing time clock over as the IRS must review and either accept or reject your 1040X within 6 months. The taxpayer may file suit for the refund if the IRS rejects the claim for refund or fails to respond. The taxpayer generally has two years from that date to file suit.
The suit in this case will go to the U.S. District Court or the U.S. Federal Claims Court. This has its advantages and disadvantages. These courts are much more strict in rules of evidence, but, on the other hand you have the right to a jury that you do not have in U.S. Tax Court.