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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law


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Why Do Taxpayers Lose Most Every Case Against the IRS in Tax Court

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A few years back, National Taxpayer Advocate Nina Olson released her annual report to Congress listing 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 percent. Taxpayers who were represented by counsel did somewhat better—they won 20 percent, or 54 of 265 cases; pro se taxpayers prevailed in 12 percent, or 78 of 658 cases. So, why is it so hard for taxpayers to beat the IRS in court? Here are, in my opinion, the five most influential reasons, in no particular order:

1. The IRS only litigates "winning" cases. Rarely, if ever, will the IRS try a case in court in which it does not believe that it has an overwhelming chance of winning. The reason for this has to rest on the fact that court decisions are public, and widely disseminated; a loss serves to undermine compliance/deterrence policies, and encourages taxpayers to further challenge the IRS.

2. The attorneys who represent the IRS have a superior knowledge of Tax Court procedures, and use that knowledge to their tactical advantage. Even seasoned civil litigators aren’t normally familiar with the unique procedures of the U.S. Tax Court, where 98% of all disputes against the IRS are tried. The stipulation process, reliance on post-trial briefs, limited discovery rules, and specialized role of expert witnesses are just a few examples of procedures that are peculiar to Tax Court practice.

3. The IRS has superior resources, and does not make litigating decisions based on economics. If the IRS maintains a position that it believes will have a significant impact on future taxpayer compliance, it can and will spend as much money as it needs in order to secure witness testimony and "expert" opinions, and to subpoena necessary - even duplicative - documentary evidence. Moreover, it can assign numerous agents, technical advisors and attorneys to litigate a position it feels is important, without incurring an additional expense - more worker bees is just a reallocation of a fixed labor cost.

4. Taxpayers frequently advance weak or irrelevant arguments in Court, including equitable positions. The Tax Court is a legislatively-created court with no powers to do what is "right" or what is "fair". It has to apply the tax laws as written by Congress. Taxpayers almost always fail to realize that sympathetic - even unfair - situations do not necessarily result in rulings in their favor.

5. The IRS has home field advantage. The Tax Court is where IRS Counsel attorneys fight every battle - it is their natural and regular habitat. They are familiar with the players, including the judges and their clerks, the applicable time frames, and the specific courtroom culture. It is hard to win when you are always playing in the other guy’s backyard. You would think that the Chief Counsel Attorneys representing the IRS in every Tax Court case would strive to be fair, and always seek to get to the correct result, even if it means they are conceding the case against the taxpayer. After all, it is the taxpayers who pay their salary. But, unfortunately, that’s generally not the case. They are combatants, like every other lawyer, ethically bound to aggressively and zealously advance their client’s position.

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