The Taxpayer Advocate Service (TAS) is an independent office within the Internal Revenue Service (IRS) that helps taxpayers to resolve disputes with the Internal Revenue Service. They also make recommendations to the United States Congress about changes to existing laws in order to improve the functioning of the federal taxation system.
The National Taxpayer Advocate (NTA) heads the Taxpayer Advocate Service (TAS). In her recent report to the US Congress, the current NTA, Erin Collins, urged the expansion of the US Tax Court's jurisdiction to include the judicial review of Refund Cases and Assessable Penalties. Currently, taxpayers who filed a refund claim that was rejected by the IRS and want to pursue judicial review must pay the full amount of the IRS tax first. They then can litigate in US District Court or US Court of Federal Claims. The NTA would like the US Congress to change the law to allow taxpayers to file refund claims as well as assessed penalty claims in US Tax Court. Assessed penalty claims do not give taxpayers the right to go to US Tax Court because a Statutory Notice of Deficiency (SNOD) is not filed.
The NTA's suggestion will benefit lower income individuals and businesses that often cannot afford to pay the disputed tax in full before litigating a refund or penalty case in US District Court or US Court of Federal Claims. In addition, these courts require the hiring of an attorney to litigate the case. These two costs make refund and penalty dispute claims out of reach for most taxpayers.
Unlike the US District Court and US Court of Federal Claims, the US Tax Court allows taxpayers to file a petition before paying the underlying tax or penalty. This is a tremendous advantage to filing in US Tax Court. US Tax Court judges tend to have a greater understanding of the tax law compared to US District Court and US Court of Federal Claims judges who hear a wide range of non-tax related cases day to day compared to US Tax Court judges who only deal with taxation. The US Tax Court also has a Small Case section for claims under $50,000 that allows for more simplified procedures. This benefits taxpayers that file pro se and represent themselves without an attorney, often because they cannot afford representation.
I have heard an estimate that around 70% of US Tax Court petitioners are low income. Giving the US Tax Court greater jurisdiction over refund and penalty cases will go a long way to even the playing field and making the federal tax system fairer.
The history behind laws is often interesting and should be understood in order to determine if an existing law should stand, be modified or removed. The NTA explained that the US Supreme Court feared that allowing a small amount of wealthy taxpayers subject to tax the option to litigate before paying the underlying tax could threaten the solvency of the government and the US budget. However, the NTA contends that the tax base is much broader today compared to the past. The timing of payment of tax, whether before or after judicial review, will not have a significant impact on the US budget. It is important to point out that IRS tax collection accounts for the bulk of the US budget. The US Congress should carefully consider this NTA proposal to expand the US Tax Court's jurisdiction to include refund and penalty cases.