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Tax appeals, part 2: challenging the IRS in Tax Court

In the first part of this post, we distinguished between two different meanings that the word “appeal” can have when referring to a tax controversy.

When you get into a dispute with the IRS, one way to challenge the agency is through an internal appeal within the agency. We discussed the procedure for that type of challenge in part one of this post on December 10.

Today we will discuss another type of appeal of IRS action: challenging the IRS in U.S. Tax Court. We will do this by looking at a specific case involving the taxation of two IRA accounts.

The government seized these accounts in a forfeiture action connected to the fallout from the collapse of the notorious investment-fraud scheme run by Bernard Madoff. The taxpayer who owned the IRA accounts was Madoff’s sister-in-law.

The forfeiture eventually led to a tax issue: could Ms. Madoff properly recompute her taxes to reflect the forfeited assets?

Writing in Forbes, one tax commentator contended that the IRS Appeals division failed to properly consider this question in a collection due process (CDP) hearing. Instead, the taxpayer had to take the case to U.S. Tax Court to get it addressed.

Our point in this post is simply that the option of pursuing your case in Tax Court is available to you in appropriate cases. If you have received a notice of deficiency from the IRS or a notice of determination of tax liability, you are eligible to initiate proceedings in Tax Court.

Whether or not to take this step is a question best decided with advice from an experienced tax attorney.

Source: United States Tax Court, “Tax payer Information: Starting a Case

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