United States Tax Court - Genesis of A Tax Court Dispute

Genesis of A Tax Court Dispute

Many Tax Court cases involve disputes over Federal income tax and penalties, often after an examination by the Internal Revenue Service of a taxpayer's return. After issuance of a series of preliminary written notices and a lack of agreement between the taxpayer and the IRS, the IRS formally "determines" the amount of the "deficiency" and issues a formal notice called a "statutory notice of deficiency," or "ninety day letter". In this context, the term "deficiency" is a legal term of art, and is not necessarily equal to the amount of unpaid tax (although it usually is). The deficiency is generally the excess of the amount the IRS contends is the correct tax over the amount the taxpayer showed on the return—in both cases, without regard to how much has actually been paid.

Upon issuance of the statutory notice of deficiency (after IRS determination of the tax amount, but before the formal IRS assessment of the tax), the taxpayer generally has 90 days to file a Tax Court petition for "redetermination of the deficiency". If no petition is timely filed, the IRS may then statutorily "assess" the tax. To "assess" the tax in this sense means to administratively and formally record the tax on the books of the United States Department of the Treasury. This formal statutory assessment is a critical act, as the statutory tax lien that later arises is effective retroactively to the date of the assessment, and encumbers all property and rights to property of the taxpayer.