TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, January 13, 2010

Taxpayers Win 14% of Tax Cases

Blog of the Legal Times, Fighting the IRS:

Your chances of winning a fight with the IRS are about as great as your chances when fighting City Hall. National Taxpayer Advocate Nina Olson, in her recently-released annual report to Congress, listed the 10 tax issues most litigated in the federal courts. Of the 923 cases involving those issues, taxpayers prevailed in whole, or in part, in 132, or roughly 14%. Taxpayers who were represented by counsel did somewhat better when the numbers were broken down—they won 20%, or 54 of 265 cases; pro se taxpayers prevailed in 12%, or 78 of 658 cases. ...

The 10 most litigated tax issues, in order of greatest number of cases, are:

  • Collection Due Process hearings (§§ 6320, 6330)
  • Summons enforcement (§§ 7602(a), 7604(a), 7609(a))
  • Trade or business expenses (§ 162(a) and related Code sections)
  • Gross income (§ 61 and related Code sections)
  • Accuracy-related penalty (§ 6662)
  • Frivolous Issues Penalty (§ 6673 and related appellate-level sanctions)
  • Civil Actions to Enforce Federal Tax Liens or to Subject Property to Payment of Tax (§ 7403)
  • Failure to file penalty (§ 6651(a)(1)) and estimated tax penalty (§ 6654)
  • Family status issues (§§ 2, 24, 32, and 151)
  • Relief from joint and several liability for spouses (§ 6015).

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Tracked on Jan 14, 2010 5:31:09 AM


A year ago, I sent this in. So it begs the question why have another agency that is suppose to "help" the people when the proof is in the numbers. we are no better off.
Deborah J Snow 2010

Justice for all? (2009) I doubt it.
The jovial holiday season, home cooked meals, time with the family, decorations and a few hot toddies are all brought to a crashing end January 2nd of each year when the realization that the clock is ticking and April 15th is looming in the not so distant future.
Papers that have been shoved in a file or drawer now have to find order if the IRS is to believe what we put on our 1040. For some it is the simple form that they can fill out; others try to save money by using Turbo Tax (how is that working for you Mr. Geithner?). The rest hire a CPA to help wade through the various sections of the Internal Revenue Code (IRC) in order to determine if we had a gain or loss.
Does it matter what you claim? Yes and No. Yes, in the fact that we all must file a tax return if we made any money. No, in the fact that no matter what you put down, if it does not fit in the parameters set by the IRS for that year, it will be pulled out and an audit will begin. Best case, it is a simple mistake on your part (you filled in the wrong line) and worst case the IRS has decided you are lying about what you are claiming and they are coming to get their pound of flesh. In their mind you are a tax cheat and you deserve whatever they can extract from you. The IRC is thousands upon thousands of pages and the IRS is sure you have never read it, let alone know where to find it at the library or online.
If you have never tried to read the code, it is like trying to read a Greek novel. I have tried and all I end up with is hundreds of printed pages referencing one IRC section after another.
It has been suggested that the IRS National Taxpayer Advocate (NTA) service can help. Has anyone investigated this office of the IRS and looked at the results from their own report to Congress? I did and here is what I found: In the 2008 Annual Report to Congress, of the top 10 issues dominating tax litigation in the federal courts, taxpayers won only 25% or fewer of the cases, depending on the issue. (The National Law Journal, January 14, 2009 Web-Only “Want to fight the IRS on the 10 most-litigated tax issues? Good luck”.)
Olson noted that of the 61% of the Taxpayers who represented themselves (pro se), only 17% prevailed. Not good odds in my estimation for the Taxpayer; they would be better off in Vegas. I have no doubt that these taxpayers represented themselves because either a) they could not afford to hire another Law Firm and be further in debt while trying to pay off the loan from the first litigation, or b) they just have no money to hire anyone that might be able to help, including a lobbyist, because the IRS took everything.
I am sure these people who represented themselves could not even find a law firm or an attorney who would take the case. Would you take one of these cases, knowing that the chance of winning is only 17%? These people are left to fend for themselves in trying to find justice, and the NTA is not it.
Another judicial system that hides the truth is the US Tax Court. By now most people have forgotten about the Ballard v Commissioner case. It was during this trial that the public discovered that the Tax Court was hiding the original decisions by the STJ (Special Trial Judges). Hundreds if not thousands of taxpayers who went before the Tax Court had their decisions changed by the STJ’s boss and were not notified until the Supreme Court decision in Ballard. Taxpayers were notified years later of the correct decision after the Statute of Limitations had run. Where does this leave these Taxpayers? How do they recoup monies paid to the IRS, when in fact the Special Trial Judge said they never should have had to pay in the first place?
The courts and IRS tell us there is no difference between us and the members of Congress, but the news and facts over the recent weeks speak loudly of a different tune. Mr. Rangel, Mr. Geithner, Mr. Daschle (and the list goes on) are given special treatment by agencies they oversee as part of their jobs in Congress.
The preamble of the Constitution of the United States begins “We the People…..establish justice….” How can the courts, IRS and Congress provide justice to “We the people” when special treatment is given to few, courts hide the truth, and the tax process is so convoluted that not even those who manage this agency know the rules and regulations?
To all those in Congress who have been given special treatment by any agency of the government, to the Tax Court for not being ethical in treatment of all those who stand before you, and to the IRS for saying in your mission statement “……by applying the tax law with integrity and fairness to all”: Where is the justice for “We the people?”

Deborah J Snow

Posted by: Deborah Snow | Jan 14, 2010 1:55:50 PM

The percentage of people who prevail at a contested hearing understates the usefulness of raising these issues in disputes with the IRS. In tax cases, as in any other area of litigation, most cases are settled before they are resolved on the merits by the courts. If very few litigants, even when represented, are prevailing on the merit in trials, this suggest that the IRS may be assenting to tax payer requests or settling a large percentage of cases that it could have won on the merits if push had come to shove.

Also, for pro se taxpayers who often aren't familiar with tax litigation standards for filing meritorious claims and have little long term interest in maintaining their reputation with the IRS as good faith litigators, simply delaying payment of an already admitted underlying tax liability by contesting collections measures or penalties may buy litigants time to secure the funds they need to pay off what they owe. This has been a particular temptation lately, because interest rates on amounts not paid to the IRS are quite low, but securing a loan while subject to a tax lien in order to pay off tax debts has never been harder since underwriting standards for borrowers with poor credit have tightened.

Posted by: ohwilleke | Jan 14, 2010 3:26:36 PM