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Ten Most Litigated Tax Issues

Sean McMahon

Every year the National Taxpayer Advocate analyzes tax cases litigated in federal court to identify the most commonly litigatedBoston Tax Attorney Top Litigation issues. The ten most litigated tax issues from June 1, 2014 – May 31, 2015 are:

  • Accuracy-Related Penalty Under IRC § 6662(b)(1) and (2)
    • The IRS is authorized to impose a penalty if a taxpayer’s underpayment was the result of negligence or disregard for the the rules and regulations or an underpayment is deemed a “substantial understatement”.
  • Trade or Business Expenses Under IRC § 162 and Related Sections
    • Disputes over trade or business expense deductions.
  • Summons Enforcement Under IRC §§ 7602, 7604, and 7609
    • The IRS may summons an individual under investigation in a civil or criminal tax case or any third party in order to obtain relevant records or data. If a person neglects or refuses to comply with the summons, the IRS may seek enforcement in the U.S. District Court.
  • Gross Income Under IRC § 61 and Related Sections
    • Disputes related to the reporting of gross income or failure to report sources of income.
  • Appeals from Collection Due Process (CDP) Hearings Under IRC §§ 6320 and 6330
    • A taxpayer has the right to an independent review by the IRS Office of Appeals of IRS’s Notice of Intent to Levy or Notice of Federal Tax Lien (NFTL) before the action is taken.
  • Failure to File Penalty Under IRC § 6651(a)(1), Failure to Pay an Amount Shown as Tax on Return Penalty Under IRC § 6651(a)(2), and Failure to Pay Estimated Tax Penalty Under IRC § 6654
    • Litigation over the imposition of penalties for (1) failure to file a tax return by the due date; (2) failure to pay an amount shown on a tax return, and/or (3) failure to pay estimated taxes.
  • Civil Actions to Enforce Federal Tax Liens or to Subject Property to Payment of Tax Under IRC § 7403
    • If a taxpayer refuses or neglects to pay any tax, the U.S. Government can file a civil action in U.S. District Court against the taxpayer. The Government can also file suit to enforce a federal tax lien.
  • Charitable Deductions Under IRC § 170
    • Litigation over charitable deductions is generally related to disputes over whether or not an organization is a charity; if the contribution has been substantiated; if the amount deducted equals fair market value; and whether or not the contributed property qualifies as a contribution.
  • Frivolous Issues Penalty Under IRC § 6673 and Related Appellate-Level Sanctions
    • The government may impose a penalty for “frivolous issues” if it is believed the taxpayer’s true purpose is to delay the case or is being unreasonable in seeking administrative remedies.
  • Relief from Joint and Several Liability Under IRC § 6015
    • Litigation pertaining to to innocent spouse claims.

All of the tax crimes except the last issue, relief from joint and several liability, were on the list last year.

The report also analyzed how often the government wins versus taxpayers. The government prevails in the majority of cases that go to trial. Taxpayers win all or part of the case less than 25% of the time. When represented by a tax attorney, taxpayers’ odds increase to 28%.  It is important to keep in mind that most tax cases never go to trial. They are resolved before they reach trial.

By law, the National Taxpayer Advocate must submit two reports to Congress each year. The Objective Report is delivered in June and includes goals and activities planned by the Taxpayer Advocate for the coming year. The Annual Report delivered in December includes a summary of the 20 most serious problems taxpayers encounter with the IRS and recommendations for solving the problems.

Read the Annual Report.

Authors: D. Sean McMahon and Elissa Burton