The rules for suing the IRS in tax vs. federal court differ — especially when it involves FBAR litigation.
Generally, to sue the IRS in Tax Court, the petitioner (you) must simply meet the timelines for filing.
Conversely, to sue the IRS in Federal Court, the complainant (you) will typically have to pay the amount outstanding and sue for refund, and/or wait to be sued by the IRS — and filed a counter lawsuit.
Suing the IRS
So, you want to know how to sue the IRS?
We get it.
You’ve had it up to about “here” with the IRS and their unfair domestic, offshore and international tax or penalties — and now you want to know how to sue the IRS.
Maybe you have an unreported foreign corporation, undisclosed foreign accounts, or offshore assets and investments that you hadn’t yet brought to the attention of the IRS, but the IRS found them out first – and penalized you.
First, Can you sue the IRS?
But, when it comes to understanding how to sue the IRS, there are different issues to consider —
So, what are your options?
Getting to the IRS Lawsuit
Typically, the IRS will have issued you a penalty and you want to dispute the penalty because you do not think it is fair, and/or you have reasonable cause to dispute it.
Example: David received a foreign gift from his family in Columbia. The gift was for $900,000, but David was unaware he was supposed to report the gift. After the fact, David files a late form 3520 (without a reasonable cause statement) and the IRS penalizes him 25% or $225,000.
David tries to dispute the penalty, but the IRS stands firm. David files for a collection due process hearing (CDP) — but it goes nowhere.
Therefore, David wants to sue the IRS.
*Offshore Penalties involving FBAR are more complicated, and generally tax court is not available.
Here are the options:
90 or 150-Day Letter & Tax Court (Typical Scenario)
For one reason or another, Davis is never able remove the penalty. The IRS continues to pursue the penalty, and subsequently sends David a 90-day letter.
The 90 day-letter is the taxpayer’s notice that the IRS has every intention to finalize the assessment of the tax, and pursue Collection.
The reason why the 90 days is so significant is because the taxpayer has a strict 90-day time-period to file a petition in Tax Court (150 days if the person resides overseas).
U.S. Tax Court
Filing a Tax Court petition is not too difficult. There are different rules for filing when the case is a small case (which may limit the Taxpayer’s options for appeal, etc.)
Benefit of Tax Court
The main benefit of Tax Court, is of course a person does not need to pay the tax or penalties that were assessed before filing the petition.
Therefore, if David wants to fight the $225,000 penalty that the IRS issued, he can do so by filing in tax court, and without having to first pay the penalty and then sue for refund (see below).
Another benefit is a person can represent themselves, and/or utilize an Enrolled agent for CPA who has not obtained licensure as an attorney.
Tax & Attorney-Client Privilege
*Even though a person may be represented by a non-attorney in Tax Court, there is no attorney-client privilege with a non-attorney, so the person has to be very careful.
Because a non-attorney representative can forced to disclose confidential information the taxpayer may believe was privileged under the attorney-client privilege.
*Kovel, if it was even accepted by the court, has very limited applicability.
District Court or Federal Court of Claims
Even though Tax Court is supposed to be impartial, it’s just not always the case. Many taxpayers have a skewed feeling toward suing the IRS in “Tax Court,” and feel that the courts are always meaning towards the position of the IRS.
Whether or not this is true, a Taxpayer may instead take the IRS to Federal Court in either the District Cour,t or Federal Court of Claims.
Unlike Tax Court, and unless a person is representing themselves (which is typically ill-advised at the district or federal court level), the representative must retain an attorney.
An enrolled agent or CPA is not licensed to file lawsuits in either one of these two courts, unless they are also an attorney.
Benefit of Tax Court
One of the main benefits is that the federal court system is not solely reserved for tax matters.
And, the taxpayer will be entitled to a jury of his or her peers, so why the taxpayer may have technical hurdles to climb with respect to specific tax-related matters, juries are less inclined to focuses as heavily on the nuances as a tax court judge might do.
In addition, while most tax court judges are as close to an expert in any particular area of tax that you may find — you may not want that for your tax matter.
Rather, you may wish to appeal to the human nature of a jury.
Main Downside of Tax Court
Typically, you have to pay penalty and then sue for refund.
Try to Avoid Penalties at the Outset
What are the best ways to avoid getting into a mess with the IRS is to get into offshore compliance before the IRS can find you.
One of the best methods for getting into IRS Offshore Compliance is with one of the approved IRS Tax Amnesty/Voluntary disclosure programs.
Golding & Golding: About our Firm
We specialize exclusively in international tax, and specifically IRS offshore disclosure.
We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
- Learn more about the Board-Certified Tax Lawyer Specialist credential
- Learn more about the Enrolled Agent credential
- Learn more about Golding & Golding’s Case Accomplishments
- Learn more about Golding & Golding Testimonials from prior clients
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Foreign Accounts Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.