Understanding the “Hazards of Litigation” and Tax Appeals

  • Robert S. Thomas,
  •   Taxation
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The IRS has a very high win rate when it comes to trials in tax court. A big reason for this is that the IRS is very selective in the cases that it brings to trial. The agency is selective because the IRS cares about its reputation. A lot.

There is a good reason for this. When the IRS loses at trial, it sends shockwaves through the legal and tax professional community. In short, it pierces that aura of invincibility that the IRS wants to desperately maintain and encourages more people to take their chances at trial. Losses also give tax attorneys an avenue of attack in future litigation.

This is why when it comes to tax appeals and cases filed in tax court, the IRS carefully considers the “hazards of litigation” when deciding what kind of settlement to reach.

The IRS Prefers to Settle Cases

When the IRS determines that a taxpayer owes more money than they claimed on their tax return, the taxpayer has a right to appeal that adjustment. Depending on the nature and amount of the adjustment, some taxpayers simply agree and pay the difference. However, if the adjustment is significant or unaffordable, it may be in a taxpayer’s interest to file a tax appeal.

The mission of the IRS tax appeals office encourages settlement. In fact, the tax appeal officer is tasked with pursuing a:

“fair and impartial resolution is one which reflects on an issue-by-issue basis the probable result in event of litigation, or one which reflects mutual concessions for the purpose of settlement based on relative strength of the opposing positions where there is substantial uncertainty of the result in event of litigation.”

Referred to as the hazards of litigation, an appeal officer must weigh many factors, such as:

  • Whether the correct law was used when calculating the adjustment;
  • Whether the law was applied properly;
  • Whether the facts (ie., the records and paper trail) support the adjustment;
  • Whether the taxpayer can meet his or her burden of proof at trial;
  • What witnesses may be called at trial;
  • The probability of a loss; and
  • The big picture implications that a loss would have on the agency.

Tax appeals officers have broad discretion to determine whether to settle based on the potential hazard of losing.

Contact a Tax Appeal Attorney

If the IRS has significantly adjusted you tax obligation, you should contact the Law Offices of Robert S. Thomas. The IRS is likely to settle with you if they believe there are hazards in proceeding to tax court. With over twenty years of experience and a license to practice in the US Tax Court, I can provide clear and effective representation that will make the IRS take your claim seriously. Contact The Law Offices of Robert S. Thomas at 847-392-5893 to schedule a consultation or visit our website today.

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