Electing Small Tax Case Treatment in U.S. Tax Court

Published Categorized as IRS & State Audits, Tax Relief
Small tax court case, Austin Tax Attorney

Taxpayers often handle cases in the U.S. Tax Court by themselves. This is typically the first time the taxpayer has been involved in a court case and the taxpayers are not familiar with the rules or how a court case is handled. Luckily, the U.S. Tax Court provides instructions on how to go about doing this. In reading the court’s instructions, one of the first questions taxpayers often have is whether to request “small case” or “S case” treatment. This is an issue that has to be carefully considered.

Effect of Small Case Treatment

Before getting into the rules, it is helpful to pause to consider the impact of electing small case treatment. The following are the primary impacts that are most often associated with small case treatment:

  • the case will be heard by a special trial judge,
  • the formal rules of evidence that apply to litigation may not be enforced for less sophisticated taxpayers,
  • briefs are not required to be filed, and
  • the court’s decision is not appealable.

The IRS rules generally advise their attorneys not to object to evidentiary problems if the taxpayer is doing their best to present the facts. It also advises the IRS attorney to assist the taxpayer in presenting the facts to the court.

Of lesser concern to most taxpayers who represent themselves, the court’s decision in a small case cannot be cited as precedent for other cases litigated in the future.

What Cases are Eligible?

The small case rules are found in 26 U.S.C. § 7463 and U.S. Tax Court’s Rules of Practice and Procedure 170-174. These rules say that a case may be eligible to be treated as a small case if the taxes at issue are income, estate, gift, some employment and excise taxes. They also say that some innocent spouse and collection cases can also qualify.

A case may be eligible to be treated as a small case if the tax, penalties, and interest at issue do not exceed $50,000. The dollar amounts are strict. For example, in Schwartz v. Commissioner, 128 T.C. 6 (2007), the court concluded that a collection case did not qualify for small case treatment when the combined total for all years involved exceeded $50,000, but each year individually was less than $50,000.

It should be noted that the $50,000 amounts are only those amounts in dispute. This may be less than the total amount involved in the case if the taxpayer and the IRS are not disputing amounts included in the IRS’s notice of deficiency in excess of this amount.

It should also be noted that the court has the authority to deny or revoke the small case treatment. The court may revoke the small case treatment where the court feels that the case presents an important issue that would benefit other parties in the future by the court issuing a regular opinion. See, Court Order in Skaggs v. Commissioner, Docket No. 15944-16S.

How to Request Small Case Treatment

Small case treatment is a request made on the U.S. Tax Court petition (the document filed with the court to start the litigation). The U.S. Tax Court provides a sample petition form on its website that can be used by taxpayers. It has a checkbox to request small case treatment.

The tax court rules also allow the taxpayer to elect small case treatment at any time before the commencement of the trial.

Taxpayers can be represented by counsel even in small tax court cases. We help with these cases. Contact us directly to find out how we can help.