A Tax Court appeal is not something that comes at the end of a Tax Court case. Instead, it is a form of IRS appeal that comes at the beginning of your Tax Court case. The Tax Court appeal is a curious little animal. You need to understand that at any time during an IRS audit you may write a protest and ask IRS Appeals to consider your objections to the IRS agent’s report and additional tax proposed. But oftentimes your tax lawyer, for various reasons, may decide to let the 30 day time limit run and then file your case in Tax Court. What’s the first thing that happens there? Well, the Tax Court appeal kicks in at this point because the IRS Chief Counsel attorney will refer the case out to Appeals, in an effort to get it settled. Tax Court judges like this practice; it gives both parties another bite of the apple and just might get the case settled.
Interestingly, when a Tax Court case gets referred out to Appeals then only Appeals has the right to settle the case. This right to settle the case exists until the Appeals Officer gives up on the case and refers it back to IRS Chief Counsel for preparation for trial.
Why would most tax lawyers like to see their cases get sidetracked to appeals? For various reasons. One, they can flex a little muscle and let the IRS know the case isn’t a slam-dunk, that there are issues on which it just might lose. Another good reason is that Appeals, like the Tax Court judge, has no interest in the outcome of the case, so a fair resolution and lessening of litigation tensions is always more likely than the lawyers for both sides trying to settle the case among themselves. A third prong to Appeals is that the judge will be much easier to deal with if your lawyer can go before him and tell him that he has participated both in Appeals and in conversations with Chief Counsel for the IRS that he has tried to get the case settled. Tax Court judges have little patience for parties and their representatives who have not been literally struggling to get the case settled.
More cases are settled in Tax Court appeals than cases going to trial. It is always preferable to reach a settlement with the IRS if possible, because trials are expensive and outcomes are never guaranteed. When you settle you know the outcome and you have the certainty that knowing brings.