Legal Definitions - Tax Court, U.S

The U.S. Tax Court is a federal court that allows taxpayers to appeal adverse decisions made by the IRS concerning tax deficiencies. Established in 1942, it provides an independent forum for resolving disputes between taxpayers and the Internal Revenue Service.

The U.S. Tax Court (often abbreviated as T.C. in case citations) is a specialized federal court in the United States.

Its primary role is to resolve disputes between taxpayers and the Internal Revenue Service (IRS) concerning disagreements over tax liabilities. If the IRS determines that a taxpayer owes additional taxes (known as a "tax deficiency") and the taxpayer disagrees with that decision, they can appeal to the U.S. Tax Court. This court allows taxpayers to challenge IRS decisions before they have to pay the disputed amount, offering an independent judicial review of the IRS's findings.

• Example 1: Disputed Business Deductions

  Imagine Sarah, a freelance graphic designer, receives a notice from the IRS after an audit. The IRS disallowed a significant portion of her claimed business expenses, such as home office deductions and professional development courses, asserting they were personal expenses. This decision results in a substantial increase in her tax bill. Sarah firmly believes these expenses were legitimate and necessary for her business. Rather than paying the disputed amount and then suing for a refund, Sarah can file a petition with the U.S. Tax Court to challenge the IRS's disallowance of her deductions before paying the additional tax.

• Example 2: Unreported Income Claim

  Consider David, who sold a piece of inherited land. The IRS later sends him a notice stating that he underreported the capital gains from the sale, claiming he owes a large amount in additional taxes and penalties. David believes he correctly calculated the basis of the property and reported the gain accurately according to tax law. If he cannot resolve this disagreement with the IRS through their administrative appeals process, he can take his case to the U.S. Tax Court to have an impartial judge review the IRS's assessment and his own calculations.

• Example 3: Estate Tax Valuation Dispute

  The estate of Mr. Henderson, managed by his executor, is audited by the IRS. The IRS disputes the valuation of a valuable art collection included in the estate, asserting a much higher market value than what the estate's appraisers determined. This higher valuation would significantly increase the estate's tax liability. If the executor believes the IRS's valuation is incorrect and cannot reach an agreement through negotiation, the executor can petition the U.S. Tax Court to challenge the IRS's valuation and the resulting additional estate tax assessment.