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Statistics on Cases in Litigation from ABA Tax Section Meeting in May

Posted on Aug. 14, 2019

In May, the ABA Tax Section held its annual meeting in DC. Because of the location, this meeting has more government attendees than the other two meetings during the year. Since the government attendees were unable to attend the previous ABA meeting due to the shutdown, there was a fair amount of information disseminated by them at this meeting. My comments come from the first session of the Court Procedure and Practice Committee. This committee opens with a panel which includes government representatives from different parts of the tax world. There is a representative from the Office of Chief Counsel, from the Tax Court (usually the Chief Judge) and from the Tax Division of the Department of Justice. Chief Judge Foley announced the Court’s decision to allow limited representation starting in September and focused his remarks on that coming change. I expect that we will be writing more about that in coming weeks.

Rich Goldman from Procedure and Administration provided lots of statistical information in the form of slides. Because the slides were not made a part of the material available to attendees, I requested them informally. Because the slides were not made available to me based on the informal request, I obtained them through FOIA. For that reason it has taken a little time after the meeting to make these slides available. The slides cover a few different types of cases in litigation and provide different perspectives on the cases. The slides not only provide a perspective of what’s happening in tax litigation over the arc of the last decade but they can provide context in some types of litigation where letting the court know of the numbers of certain types of cases can be useful.

Inventory of Cases in Litigation

The first set of slides (slides 2 and 3) discusses the dollars in dispute pending in Tax Court, the Court of Federal Claims and the district courts filed in the last decade. As you will see in later slides the vast majority of tax litigation by number of cases occurs in the Tax Court. Because so many of the cases in Tax Court involve small dollar amounts the amount of money in dispute in the other two courts can make their dockets look bigger. Just focusing on dollars the Tax Court is the clear winner but the contrast gets much starker when looking at number of case filed which you can find in the following slides, 4 and 5.

The data then moves from graphs to pie charts to provide a greater breakdown of the Tax Court’s inventory (slide 6). The pie chart is followed by another graph showing dollars in dispute by type of Tax Court case. It comes as no surprise that a small percentage of Tax Court cases dominate the amount of dollars at issue (slide 7).

Tax Court Filings by Category

The next slide provides a 10-year arc of the filings in Tax Court by category (slide 8). This graph shows that the number of Tax Court cases have declined in recent years but the decline has not been as significant as I might have expected given the cut back in some of the audit activity by the IRS. These slides do not show the percentage of cases petitioned based on the number of statutory notices or determinations issued by the IRS. A long time ago the percentage of cases filed in the Tax Court by taxpayers receiving notices that provided a ticket to Tax Court was around 3%. If that percentage still holds or provides even a reasonably close approximation of the number of filings per notice, you can see that a drop off at the Tax Court of 1,000 cases reflects a much more significant drop off at the IRS of the number of cases in which it sends a notice.

Receipts and Closures at the Tax Court

A trio of slides shows the number of receipts and closures at the Tax Court (slides 10, 11, and 18). The Tax Court has been closing cases faster than it receives them for several years. I have not seen statistics on how this has impacted the length of time a case spends in the Tax Court. I expect that the length of time from filing to conclusion has decreased but that type of statistic was not included in the package of statistics provided at the ABA meeting. Another pair of slides shows the receipts and closures by case category type (slides 12 & 13).

Sources of Cases Petitioned to Tax Court

One slide shows the sources of case petitioned to the Tax Court. No big surprise that Service Center notices provide the vast majority of cases. I go to the Tax Court fairly regularly and sit in the docket room looking at cases on upcoming calendars in Boston. It’s interesting when you go through a calendar to see the types of case that make it to the Court. I have been struck in the last few years how few earned income tax credit cases appeared on the calendars. A large number of cases involved unreported income picked up by the automated underreporter unit which matches the information returns against the information reported on the return. Without these computer audits, the number of Tax Court cases would plummet.

Settlement

Two of the slides focus on settlements showing cases settled in Appeals and in Chief Counsel’s office (slides 15 & 16). The vast majority of cases do not go through Appeals on the way to Tax Court because the vast majority of cases involve pro se taxpayers who do not avail themselves of the opportunity to go through Appeals. It would be interesting to see what would happen to the Tax Court inventory if exhausting your remedies by going to Appeals was made mandatory instead of voluntary as a part of getting to Tax Court. All Collection Due Process (CDP) cases take the Appeals route prior to coming to court.

Pro Se Cases in Tax Court

One slide shows the number of cases filed by pro se petitioners in Tax Court and the dollars at issues in those cases. While many of the petitioners filing pro se meet the criteria as low-income taxpayers under IRC 7526 which pegs qualification at 250% of poverty, a large percentage of the petitioners in this group file pro se because the cost of representation exceeds the amount at issue. For many middle income or even high income taxpayers a dispute with the IRS that involves less than $15-20,000 may not justify the cost of obtaining representation. For individuals working calendar call, it is not unusual to encounter these petitioners. Of course, many of the more sophisticated pro se petitioners, whether low, middle or high income, can navigate the system and settle with Appeals or IRS Counsel. Still, some of the pro se individuals from each income level need assistance to effectively manage their case to the best result.

Refund Cases

There are five slides depicting various facets of refund litigation (slides 19-23). The striking aspect of refund litigation is how few cases end up in refund litigation anymore. The number of refund cases has historically been much less than the number of Tax Court cases but that trend has significantly accelerated in the past couple of decades. Some cases must go the refund route because the Tax Court route is unavailable, either because of the type of tax or the taxpayer’s initial decision to report the tax and allow the IRS to make an assessment. Larger corporations with sophisticated counsel tended to go the refund route if the forum shopping opportunity provided the best path to victory. The reduction in refund cases may reflect the significant decrease in audits of the types of taxpayers who made this type of choice in years past.

Collection Due Process

Four slides show the numbers of CDP cases in the Tax Court. The number of these cases is not as large as one might expect. It is unclear why so few taxpayer who elect CDP choose to go to Tax Court.

It’s worth noting that the Chief Counsel’s office did not display in any of the slides the number of cases in litigation in the bankruptcy courts. Section 505(a) of the bankruptcy code gives taxpayers going through bankruptcy the opportunity to litigate their liability in bankruptcy. No statistics were provided to show how many and what type of taxpayers avail themselves of this opportunity. Despite this absence, the group of slides provides a fairly detailed look at the tax litigation system and the cases going through it.

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