The federal tax dispute system gives taxpayers structured paths to challenge IRS determinations. After an IRS examination and an unsuccessful appeals conference, a taxpayer may take the case to the U.S. Tax Court, the U.S. District Court, or the U.S. Court of Federal Claims—all independent judicial bodies. Misusing the appeals process or filing frivolous petitions can trigger penalties up to $25,000.
U.S. Tax Court
The Tax Court hears only tax matters and requires a Notice of Deficiency before a petition. Taxpayers have 90 days to file (150 days if abroad). Cases are heard before tax is assessed or paid, and most settle without trial. Jurisdiction includes income, estate, gift, and certain excise taxes. When the amount in dispute is $50,000 or less, taxpayers may elect small tax case procedures, producing a final, non‑appealable decision.
District Court & Court of Federal Claims
These courts require the taxpayer to first pay the tax and file a refund claim with the IRS. If the IRS denies the claim or fails to act within six months, the taxpayer may sue. District Court is the only venue offering a jury trial. Refund litigation follows strict timelines and procedural rules.
Appeals
Decisions from trial courts may be taken to the appropriate U.S. Court of Appeals, and in rare, nationally significant cases, to the U.S. Supreme Court.
Burden of Proof
Taxpayers generally bear the burden to substantiate items on their returns. They must provide credible evidence, records, and cooperation to show the IRS determination is incorrect. The IRS carries the initial burden of production for penalties and when reconstructing income using statistical methods.
When the Burden Shifts to the IRS
The IRS bears the burden on factual issues only if the taxpayer:
-
Introduces credible evidence
-
Meets all substantiation rules
-
Maintains required records
-
Cooperates fully with IRS requests
-
Has net worth ≤ $7M and ≤ 500 employees (for entities)
Actual burden‑shifting is rare because full cooperation and credible evidence usually resolve disputes before litigation.