Trial & Appellate Tax Litigation in Federal, State & Local Courts

Many times it is not possible to resolve a tax case at the audit or administrative level and it becomes necessary to go to trial. Litigation is costly and fraught with risk, at Brandywine Tax Resolution every effort is made to obtain a favorable resolution and to avoid going to court. However, when court is the only or best option, Brandywine Tax Resolution is prepared to serve as a strong and experienced advocate. Brandywine Tax Resolution routinely handles litigation matters with the U.S. Department of Justice, Internal Revenue Service, Pennsylvania Department of Revenue, Pennsylvania Attorney General, City of Philadelphia and other local jurisdictions.

The Tax Court offers Taxpayers a forum for disputing deficiencies asserted by the Internal Revenue Service under income, estate and gift tax, and certain employment and excise tax provisions. It is headquartered in Washington, D.C. However, the Tax Court judges travel around the country to major cities including Philadelphia. Cases involving no more than $50,000 for any single year may be resolved under the “small tax case procedures,” also referred to as S case procedures. In a “small tax case” the Taxpayer is barred from appealing an adverse decision. Generally, Tax Court decisions in small case procedures are not published, as they have no value as precedent. The rules of evidence in a “small tax case” are often more relaxed, and procedures may be informal.

The Tax Court is the forum of choice to litigate federal tax matters for many reasons. Most importantly, the Taxpayer does not have to pay the tax before filing suit. Additionally, Tax Court judges hear nothing but tax cases. Tax Court judges generally have a background in tax law either in or out of government service. Tax Court is often the least expensive federal forum to litigate in due to its shortness of trials and its restricted discovery process that has emphasis on stipulation by the litigants. A primary disadvantage of the Tax Court is the unavailability of a jury.

Litigation in Federal District Court is commonly referred to as “refund litigation” the reason being that the Taxpayer generally must pay the tax in full and file a claim for refund to get into the District Court. In Federal District Courts the dockets are heavily criminal, and very few tax cases are heard. The unique distinction of the Federal District Courts is the ability to have the case heard by a jury. The U.S. Department of Justice, Tax Division serves as opposing counsel in tax cases tried in Federal District Courts.

The U.S. Court of Federal Claims is located in Washington, D.C., and its jurisdiction is limited to claims against the federal government. Generally, the Taxpayer must pay any tax deficiency before the Federal Claims Court will have jurisdiction to hear the Taxpayer’s complaint. The Court of Federal Claim’s hearings and trial are normally heard in Washington, D.C. Judges in the Court of Federal Claims hear all types of claims litigation, not just tax cases. Like the Federal District Court, the government is represented in the Court of Federal Claims by the Department of Justice, Tax Division.

The Federal Bankruptcy Court can also be a forum for Taxpayers seeking resolution of their tax problems. In specific instances, certain taxes can be wholly discharged in bankruptcy. Additionally, the Bankruptcy Court has significant discretion in determining tax liability. In situations where a Taxpayer has a tax case pending before the Tax Court or in a District Court at the time of a bankruptcy filing, the Bankruptcy Court has discretion regarding whether to hear the case or to allow the proceeding to continue in the other court. An expanded discussion of tax litigation in Bankruptcy Court can be found in the Tax Bankruptcy practice area discussion.

Litigation of Pennsylvania state taxation matters is commenced in the Commonwealth Court of Pennsylvania after the administrative process below in the Board of Appeals and Board of Finance and Revenue has been completed. Appeals from the Commonwealth Court are heard by the Pennsylvania Supreme Court. Local tax matters in Pennsylvania are generally first litigated in the Court of Common Pleas. Common Pleas Court decisions in tax matters are appealed to the Commonwealth Court. Final orders in tax cases, like many other orders of the Common Pleas Court, may be appealed “as of right” to the Commonwealth Court. Final orders of the Commonwealth Court in tax cases cannot be appealed “as of right” to the Supreme Court of Pennsylvania. A party seeking to take an appeal from the Commonwealth Court must file a Petition For Allowance of Appeal with the Supreme Court. Litigation in State & Local Courts is further discussed under the State & Local Tax Problems practice area.