Printable Version

Taking the IRS to court

By: Julian Block

The Tax Adviser

Many of my readers have asked about Internal Revenue Service audits. In particular, you want to know whether it is worthwhile to fight back when you disagree with an IRS examiner who insists that more taxes are due than the amount listed on your Form 1040, and that the extra tab should be augmented by interest charges and maybe even penalties.

As my columns have often noted, there are appeal rights that become available if you conclude that the examiner incorrectly interpreted the frequently fuzzy language in the Internal Revenue Code or unreasonably refused to accept the receipts and other documentation you submitted to support questioned items.

Moreover, all is not lost if your appeals within the agency get you nowhere. One of your options is to turn to the Tax Court, which is entirely independent of the IRS. The advantage of going that route is that you can contest additional taxes, interest and penalties without first paying the disputed amounts; not until you settle with the IRS or the Tax Court sides with it, are you required to pay anything.

As for the paperwork, your case will be heard by the Tax Court only if you ask the IRS for a "statutory notice of deficiency" -- a formal letter assessing additional taxes that is your ticket to the Tax Court and is referred to as a "90-day letter." Usually, it gives you no more than 90 days from the date when it is mailed to you to file a form, known in legal lingo as a "petition."

Court records are generally open to the public, which can cause embarrassment, not to mention a dent in the wallet; the facts and figures in Uncle Sam's 90-day letter and your petition, along with other documents and testimony, might prove newsworthy and eventually be relayed by reporters and broadcasters to the entire country.

To avoid unfavorable publicity, can you ask the Tax Court to seal its records? Usually, the court will reject your request.

Take, for instance, a confrontation that pitted country music singer Willie Nelson and his wife Connie (the third of his four wives) against the tax gatherers. The couple sought to keep their Tax Court proceedings from public view when they challenged attention-attracting assessments of over $1,500,000 in taxes, plus negligence and fraud penalties of over $750,000. The Nelsons asked that the court seal all of its records until the time of trial and to prohibit any disclosure of information in those records to the media.

The couple contended that "intense and continual" scrutiny by the media of their tax tribulations had caused them "undue embarrassment and considerable emotional distress." Then there was the slow down of their cash flow. Because of the publicity, they had been "unable to negotiate large up front payments in long term, product endorsement contracts."

The court, though, would not buy those arguments; it refused to stop the presses. True, the Nelsons correctly argued that the law does authorize the court to seal records to protect a party from embarrassment or harassment. Nevertheless, their case went down the drain because the facts were against them.

Generally, the press coverage was fair; most of the newspaper articles mentioned their denials of fraud. The clincher was that the publicity had not hurt their bookings for performances. "If anything," observed the court, "Willie Nelson's popularity and desirability as a performer has remained intact, if not increased."