The pre-trial stage in the U.S. Tax Court lasts the longest and decides most outcomes. Cases settle here more often before going to trial. The Court requires parties to share facts informally first.
The following are some of the key steps followed during a pre-trial stage:
The IRS issues a Notice of Deficiency to the taxpayer. The taxpayer can file a petition in Tax Court within 90 days (or 150 days if the notice is sent abroad) to contest the assessment without having to make a payment upfront. It’s important to remember that while you may have the option to delay payment, you could still incur interest, including interest on any past penalties.
A taxpayer may file a petition with the U.S. Tax Court either electronically through the Court’s DAWSON system (Docket Access Within a Secure Online Network). Alternatively, they may file by mailing or hand-delivering a paper petition to the Court’s Washington, D.C. headquarters. Mention address.
The petition states or challenges the IRS position, includes a copy of the notice, and suggests a trial city.
The IRS has 60 days from service of the petition to file an answer.
Next, let’s understand the next step in the pre-trial procedure: Informal Exchange and Settlement.
After the IRS files its Answer, the assigned IRS attorney (Chief Counsel) typically contacts the petitioner to schedule a conference. This follows the Branerton rule, which provides for informal talks before formal discovery.
Here Parties share facts, documents, and positions to settle or narrow issues. The case may go to IRS Appeals for settlement while in Court. Most cases may end through these talks.
Next, let’s understand the next step in the pre-trial procedure: Formal Discovery.
If informal efforts fail to resolve or narrow issues, formal discovery may be pursued. Discovery aims to uncover unknown facts and use admissions to establish uncontested matters efficiently.
The Tax Court’s Rules provide for formal pretrial discovery through written interrogatories, requests to produce documents or things, and depositions in certain circumstances. Let’s understand some of them, which are as follows:
Interrogatories consist of written questions served upon another party to which the other party makes written answers. In general, written interrogatories are used by the respondent to discover information.
A party may request documents and electronically stored information. The party receiving the request is required to serve a copy of its response on the propounding party within 30 days after service of the request, unless exceptions apply.
A Deposition is a formal discovery process where a party obtains sworn testimony from another party, a witness, or an expert outside of court. The testimony may be given orally or through written questions and is used to gather information or preserve evidence for the case.
Depositions may be taken of a party or a non-party witness.
Requests for admission may be used by a party to require another party to provide the following:
These are used to confirm specific facts or the authenticity of documents. They are frequently used to narrow disputes before trial.
International tax disputes often require evidence from outside the United States. This commonly arises in cases involving transfer pricing, foreign tax credits, Subpart F income, or cross-border transactions.
Obtaining foreign evidence is often time-consuming and should be initiated well before the trial.
IRS field attorneys may not independently seek evidence overseas. All foreign evidence requests are generally coordinated through the Associate Chief Counsel (International), Branch 7.
This Branch serves as the designated routing office for all foreign evidence gathering. This includes witness interviews conducted abroad, subpoenas, and summonses directed at foreign parties. Therefore, IRS field attorneys may not proceed without prior coordination and approval through that Branch.
The following are some of the methods for obtaining foreign evidence:
Administrative Channels
Administrative Channels refer to formal governmental and agency-level mechanisms for obtaining evidence from foreign countries, without resorting to judicial processes.
In the international tax context, the IRS relies on several administrative tools to gather foreign evidence:
Judicial Channels
Judicial Channels refer to formal communication pathways between judicial authorities of different countries. This type of communication is used for handling international legal assistance.
For example, Letters Rogatory are formal written requests issued by a court in one country to a court or judicial authority in another country. They ask for assistance in performing a judicial act, such as:
Letters rogatory are issued through diplomatic channels. This means they travel from the requesting court to the U.S. Department of State. Then the U.S. Department of State forwards them to the relevant foreign embassy or ministry, which in turn delivers them to the appropriate foreign court.
Since they pass through multiple layers of government, Letters Rogatory can be time-consuming.
On the other hand, the Hague Evidence Convention offers a more streamlined alternative for obtaining evidence abroad.
Requests under this Convention are typically coordinated with the Department of Justice. It allows courts in one signatory country to directly request evidence from courts in another. This bypasses the slower diplomatic routing required for Letters Rogatory. The Convention is available only between countries that have ratified it.
Depositions abroad under Tax Court Rule 81(e) are often conducted through written questions. These may proceed by stipulation, notice, commission, or rogatory request.
Authentication and Translation
Foreign documents may require apostille certification under the Hague Convention.
Formal certifications or notarizations may be needed.
Certified translations are required and arranged through the IRS Large Business and International (LB&I) Division for certain languages, or through approved contractors.
Proof of Foreign Law
Under Tax Court Rule 146, foreign law is treated as a question of law rather than fact. Courts may consider a broad range of sources, including expert testimony and legal materials.
Next, let’s understand the next step in the pre-trial procedure: Motions.
Motions are filed to resolve legal or procedural issues before trial.
There are several types of motions. For example, Motions for Summary Judgment (Rule 121). Under such motions, a party may request summary judgment or partial summary judgment. This is generally requested when there is no genuine dispute of material fact and the law favors one side.
Motions for summary judgment are generally filed at least 60 days before trial unless the Court permits otherwise.
Next, let’s understand the next step in the pre-trial procedure: Trial Notice and Final Steps.
The Court issues a Notice Setting Case for Trial, usually five or more months before trial. The notice includes the date, time, and location (or indicates if the trial will be remote).
The following are some examples:
The Following are the Key Pretrial Requirements:
Parties are required to agree on undisputed facts and documents. This helps narrow issues, particularly in transfer pricing cases involving comparables or functional analyses.
These summarize facts, legal issues, and arguments. They are especially helpful in complex international tax disputes.
As the trial approaches, settlement discussions often intensify. The Court encourages good-faith efforts to avoid trial.
Next, let’s understand the pre-trial stage in U.S. Tax Refund Litigation Cases.