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The Small Case Division of the Federal Tax Court

The federal Tax Court has a special “small case” division. This division has jurisdiction over cases in which the IRS claims that amount of taxes and penalties for a taxpayer in any one tax year is $50,000 or less. Cases that qualify for adjudication in the small case division are known as “small cases” and receive an “S” designation.

Most people who file a small case in Tax Court end up getting their taxes reduced by some amount. And some taxpayers never even make it to court. In almost every case, before the trial date, the IRS will ask the taxpayer to meet with its lawyer to try to reach a settlement. It is quite possible that the taxpayer may be able to settle for an amount that is less than the additional tax originally imposed by the auditor. This is because Appeals Division officers weigh the cost of litigation and the risk that the IRS might lose a court appeal against the chances of success. Statistics have shown that most cases (9 out of 10, in fact) heard by the Appeals Division are settled.

If a taxpayer does not settle with the IRS or otherwise proceeds to court, that taxpayer will discover that the small case division of the tax court operates much like a small claims court. One simply tells the judge his or her story and shows whatever evidence he or she may have. Laypersons need not know legal procedures or technical legal jargon. Conversely, the IRS will send a lawyer to advocate for its side. A typical case lasts just an hour or two. Of course, the taxpayer can always hire someone to represent him. A lawyer, especially one with training and experience in tax law, can represent the taxpayer; so can an enrolled agent or CPA who has been admitted to practice before the Tax Court.

The odds are that about half of all taxpayers will be audited at least once, and the odds increase with the amount of income the taxpayer reports. In the end, the best way to avoid an IRS audit is to minimize the possibility that the income tax return raises questions when the taxpayer files it with the IRS. To do this, the taxpayer should be sure to file all the required forms and answer all the questions asked on the return, even if they seem unrelated to the taxpayer’s situation. Finally, the taxpayer should check the accuracy of W-2 and 1099 forms and report all the income on these forms to the IRS.

Inside The Small Case Division of the Federal Tax Court