United States Tax Court
Most tax cases are litigated in the U.S. Tax Court for one very important reason: in the Tax Court, taxpayers can commence a case tax case before paying the tax liability claimed by the IRS. In other federal courts authorized to hear tax disputes, the taxpayer must first pay the amount in dispute and then sue for refund.
A Tax Court case usually begins after the taxpayer has received a "Notice of Deficiency" from the IRS. The taxpayer must then file a petition within 90 days of the IRS mailing date on the notice. These types of cases are called “deficiency cases”.
The Tax Court also has jurisdiction on certain non-deficiency cases. These non-deficiency cases primarily involve IRS-enforced collection actions (levies and liens) and IRS denials of taxpayer requests for innocent spouse relief, an offer in compromise, penalty abatement or other collection alternatives. Generally, non-deficiency cases are commenced in the Tax Court after exhausting all IRS Appeal rights pursuant to a collection due process hearing.
Although the Tax Court is physically located in Washington, D.C., the judges travel nationwide to conduct trials in various designated cities.
United States Court of Federal Claims
The U.S. Court of Federal Claims (previously called the Claims Court) was established to hear claims against the United States and has jurisdiction over claims for the refund of taxes that have already been paid. The disputed amount of the refund claim has no dollar minimum or maximum.
Approximately one-quarter of all the cases before the Court of Federal Claims involve tax refund suits, an area in which the court has the same jurisdiction as that of the U.S. District Courts. The cases tend to involve complex factual and statutory construction issues in tax law.
Tax disputes in the Court of Federal Claims are heard by a judge and no jury trial is available. Also, taxpayers cannot seek refund of certain IRS penalty payments in the court. The Court of Federal Claims is located in Washington D.C. and generally handles large tax claims for high-worth individuals and for national and multi-national companies.
United States District Court
To hear a dispute in U.S. District Court, the taxpayer must pay the disputed amount and then request a refund from the IRS. However, this is the only court where the taxpayer receives the right to a trial by jury. Jury trials are not available in the Federal Claims or Tax Court.
District Court judges are generalists and they do not specialize in tax law. They hear all sorts of cases based upon all U.S. federal laws, not just the Internal Revenue Code.
District Courts are located throughout the U.S., with each court assigned a specific geographical area. A district can be as small as one city or as large as an entire state.