U.S. Tax Court is a special federal court that only hears federal tax cases between the Internal Revenue Service (IRS) and a taxpayer. Tax Court judges travel all over the country to hear cases.
Just as there are small claims courts for judges to hear smaller cases in a more informal way, the Tax Court has a “Small Cases Division.”
When you receive a notice of deficiency from the IRS demanding payment of money they have determined you owe, if you wish to appeal this, you may have the dispute heard in Tax Court. You must petition the court within 90 days of receiving the notice of deficiency.
If the disputed amount does not exceed $50,000 for any given year, it is eligible to be heard in the Small Cases Division. For example, if the IRS is claiming you owe them $40,000 for 2006, $50,000 for 2007, and $25,000 for 2008, this case can be heard in the Small Cases Division, because even though the cumulative amount in dispute is $115,000, no more than $50,000 is from any single year.
You might not end up in court even if you petition for a hearing, as the IRS will first have one of its lawyers meet you to try to work out a settlement. The majority of the time, this is where the case ends. Only if you fail to come to an agreement will a judge then hear your case.
If you do make it as far as a hearing, there is a judge but no jury, and there is no appeal from the judge’s decision. The Small Cases Division is run much like a small claims court. It is comparatively informal. The judge will expect you to explain your position and provide whatever relevant supporting documentation you have. It is fine if you just speak as a layperson; you are not required to know all the procedures and lingo that a lawyer would know.
You are, however, allowed the option of having your case presented by an attorney if you choose, which is often not the case in small claims courts. Non-attorney tax professionals such as Certified Public Accountants (CPAs) can also be enrolled to practice before the tax court, so another option is to have someone like that represent you.
At any point in the proceedings, the Small Cases Division judge may stop the hearing and rule that it must be heard instead in the full Tax Court. This can happen when the case turns out to involve more complex matters of fact and law than anticipated, where the judge believes a fuller, more formal hearing is in order.
Note that individual states also have Tax Courts and versions of the Small Cases Division. The monetary cap on taxes owed and the other rules for having your case heard in these fora will vary from state to state.