In the U.S., you have two options for fighting the IRS. The first is to pay the tax, and apply for a refund. If denied, you file suit in Federal District court. Option two is to proceed directly to Tax Court, without paying the tax at all. Which should you choose? Well, here’s 9 rules to help you decide if you should pick what’s behind Door #1 (Federal Court) or Door #2 (Tax Court).

Tax Court is a good option (i.e., consider it) if:

1. You’re represented by counsel. Of all the Tax Court cases I’ve read, one thing has become abundantly clear – those taxpayers who come to the court pro se lose. Often. Sure one or two might win, but those are the really well-organized taxpayers. Most taxpayers aren’t so lucky. Spring for a lawyer – even the Tax Court suggests they may be beneficial.
2. You have support for your case. You’d think this is a no-brainer, but you’d be wrong. Most taxpayers who come to court, do so with little to no evidence to support their assertions. “I should get the deductions because I’m very honest, your honor, and I swear I’m not lying on my tax return” is no way to persuade a judge to take your side. In fact, it often has the opposite effect – it persuades him that the government is right. Remember, it’s a pretty low bar for the government – all they have to do is a) send you a bill, and b) bring a copy of the bill to court (for the most part), and they’re done. To paraphrase the late Johnny Cochran, “If you have no support, don’t go to court.”
3. You’re fighting over significant dollars. And no, $1,500.00 is not significant. Sure, it may seem like a lot of money, but going to Tax Court means you’re not paying the tax. If you lose, you’ll owe even more – lots more. If the balance is under $25,000.00, the IRS is obligated to accept an installment plan from you. Take advantage of it. What is significant? Well, that depends – and a good lawyer can help you determine if you should fight back, or take your beating and move on.
4. You’re arguing a new area of law, or some esoteric deduction that’s not directly addressed. Got nailed on vehicle mileage? Take your pill and move on. Same with Unreimbursed Business Expenses, or any business-related deduction. They’ve been litigated to death, and unless you meet criteria #2 above, you’re not likely to come up with a viable enough excuse to persuade the court to rule in your favor. So don’t try. And don’t pin your hopes on the ‘Cohan Rule,’ either – the court requires sufficient evidence in the record to support the assumption. Which means it’s rarely beneficial to the taxpayer.
5. You used a tax preparer. Certain penalties can be abated if you hired someone else to prepare your return, and you relied upon their advice. But be careful here – if you have financial knowledge, you won’t be so lucky. The court will assume you could have discerned that the advice you got was bad, and you shouldn’t have followed it.

Tax Court is a bad option (i.e., don’t go) if:

1. You can’t pay what you already owe. Filing in Tax Court does not require that you pay the tax assessed. The upside is obvious – you’re not out any money. The downside is too often ignored – penalties and interest are still accruing while the case is pending. Tax Court cases can take a year or more to be heard, and a month or more before a decision is made, which means that the amount that you owe is rising daily, and if you lose, you could pay double or triple what you would have paid if you’d just settled. As I mentioned above, if the amount you owe is less than $25,000.00 you really should consider an installment agreement.
2. You’re trying to advance a frivolous/creative argument. You’re not a person, as defined in the tax code? Or maybe you think that you’re exempt from tax because you’re a corporation sole? Or….well, there’s a lot of creative arguments that people have tried (16th Amendment not properly ratified, tax forms don’t bear OMB numbers, blah, blah, blah). None of them have worked. Think you’re different? Well, think twice – you can be subject to a $25,000 penalty. So if you thought your tax bill was high before….
3. You did your own taxes. Don’t think that just because you sprang for Tax Cut or Turbo Tax or something similar, your tax return will automatically be correct. Remember the old computer rule – garbage in, garbage out. In a recent case, a couple used Tax Cut, and somehow managed to deduct gambling losses without having any winnings. Trouble is, the code doesn’t permit that. Needless to say, they got hit with additional taxes, penalties and interest. They also violated rule #3 – the amount of tax assessed was $5, 783 plus a penalty of $1,156. Now they’ll owe that, plus interest. And, lest you think that a few hundred dollars in interest is worth the risk (even though the tax code is pretty clear, and makes this case in particular an obvious loser), don’t forget about all the personal time, effort, and stress that went into this matter. How much is that worth?
4. You’re representing yourself. NOT a good idea. Most self-represented taxpayers lose because they make bad arguments, say things or admit things that are bad for their case, or simply present themselves poorly. If you hate speaking in front of a group, you’ll really hate being in court – it’s just like being in front of a group, with additional stress to make you feel worse.

Going to court is risky, and can be expensive. Don’t make it more expensive by being brash.  Use the above rules as a guideline to help you make the right – and reasoned – choice for you. And if you need a lawyer, you know where to find one.