The United States Tax Court hears most litigated international tax disputes, particularly transfer pricing cases. Many taxpayers choose this court because they can challenge an IRS deficiency without first paying the tax. The judges specialize in tax law, and the court has nationwide jurisdiction. Cases are tried before a judge (not a jury) under the Tax Court Rules of Practice and Procedure, with the Federal Rules of Evidence generally applying.
Now, let’s review the trial procedure before a U.S. Tax Court. This discussion provides a general overview of the trial process.
The following is the trial procedure before a U.S. Tax Court.
When the case is formally called for trial, the attorneys for both parties are required to make a verbal entry of appearance before the judge. This is a formal on-the-record statement confirming who is representing each side. It ensures the court recognizes the proper representatives for the proceedings.
The above entry of appearance happens even if the parties appeared during the earlier calendar call. On the first morning of the trial session, a Tax Court employee, the trial clerk, will announce the name of each case that has not been settled.
Next, let’s understand another trial procedure before the U.S. Tax Court: Preliminary Matters.
Once the case is called for trial and appearances are entered, the parties have an opportunity to raise preliminary matters with the judge. This includes addressing any last-minute concerns, filing or arguing preliminary motions, requesting clarifications on procedural issues, or noting any stipulations/agreements. The judge may resolve these issues before proceeding to the actual trial evidence and testimony.
Next, let’s understand another trial procedure before the U.S. Tax Court, which is Stipulated Facts and Exhibits
The case typically opens with the filing or offering into evidence of stipulated facts and agreed exhibits under Rule 91. The parties are expected to agree on all facts that are undisputed , and these are read into the record.
Stipulated facts are written agreements between the petitioner (taxpayer) and the respondent (IRS) about facts, documents, or evidence that both sides accept as true and relevant. They are not in dispute, so no proof is required at trial. Rule 91 requires the parties to stipulate to the fullest extent possible on all non-privileged, relevant matters to streamline the case.
Next, let’s understand another trial procedure before the U.S. Tax Court, which is Excluding Witnesses.
If appropriate, one party (usually through a motion or request) asks the court to exclude witnesses from the courtroom so they cannot hear other witnesses’ testimony before they testify themselves. This helps prevent witnesses from being influenced by others’ statements.
However, the petitioner (taxpayer) cannot be excluded, and an officer or employee designated as the representative of a non-natural person (like a corporation) also cannot be excluded. See Tax Court Rule 145(a) and cases like Griffith v. Commissioner, T.C. Memo. 1988–123. The court may also allow exceptions for essential witnesses, such as experts.
Next, let’s understand another trial procedure before the U.S. Tax Court, which is the Petitioner’s Opening Statement.
The court generally invites the party with the primary burden of proof (usually the petitioner/taxpayer) to deliver the first opening statement.
Who is usually the Petitioner?
The petitioner is the taxpayer (the individual, business, or entity) who files the petition with the U.S. Tax Court to challenge the IRS’s determination.
The burden of proof means the responsibility to prove something is true. In most Tax Court cases, under Rule 142(a), the burden is on the petitioner (taxpayer) to show that the IRS’s determination in the notice of deficiency is incorrect. However, the burden can shift to the IRS in certain situations. This may include new matters raised by the IRS, fraud allegations, or if the taxpayer provides credible evidence under IRC § 7491 and meets other requirements.
Next, let’s understand another trial procedure before the U.S. Tax Court, which is Clarifying Abandoned or New Issues.
At the conclusion of the petitioner’s opening statement, the court will inquire whether the respondent chooses to make an opening statement. Following the petitioner’s opening, the field attorney clarifies the record regarding any omitted issues or newly raised matters that may require amendments to pleadings.
The respondent is the Commissioner of Internal Revenue (the IRS). The respondent’s attorney is the IRS lawyer (typically from the Office of Chief Counsel) representing the government in the case, often referred to as the field attorney or trial counsel.
Here, Pleadings are the formal written documents that outline the parties’ positions at the start of the case. In Tax Court, the main pleadings are:
These set the framework for what issues are disputed. Any changes to claims later may require amending the pleadings.
Next, let’s understand another trial procedure before the U.S. Tax Court, which is the Respondent’s Opening Statement.
The respondent then delivers its opening statement, concisely outlining the bases for the determination, the key facts, and the theory of the case.
In U.S. Tax Court cases, the respondent is almost always the Commissioner of Internal Revenue (representing the IRS). The taxpayer (or their representatives) is the petitioner who starts the case by challenging the IRS’s notice of deficiency. There are rare exceptions where a taxpayer might be named as a respondent, such as in certain declaratory judgment actions (e.g., involving tax-exempt status or certain partnership issues under IRC §§ 7428 or 7477), but in standard deficiency or penalty disputes, the IRS is always the respondent.
Next, let’s understand another trial procedure before the U.S. Tax Court, which is the Petitioner’s case-in-chief.
The party with the burden of proof (typically the petitioner) proceeds first with the presentation of evidence under Rule 142. The petitioner or the taxpayer bears the burden of showing that the IRS adjustment is incorrect.
Next, let’s understand another trial procedure before the U.S. Tax Court, which is Direct and Cross-Examination of Witnesses.
Direct and cross-examination are two tools of questioning a witness. Let’s discuss each one separately.
The party presenting the witness (e.g., the petitioner or respondent) conducts direct examination by asking open-ended questions to elicit the witness’s testimony about relevant facts. The goal is to present the witness’s account clearly and in their own words, without suggesting answers. For example, leading questions are generally not allowed on direct, except for limited purposes, such as refreshing memory or with hostile witnesses.
The opposing party then conducts cross-examination to challenge the witness’s testimony, test credibility, highlight inconsistencies, or elicit favourable facts. Leading questions (suggesting the desired answer) are generally allowed and common on cross. This helps the judge evaluate the reliability of the evidence.
Objections can be raised during either phase (e.g., for irrelevance, hearsay, leading questions on direct examination, or improper scope on cross-examination). The judge rules on objections promptly. The presenting party may conduct a re-direct examination to clarify issues raised on cross, and a re-cross may follow if needed.
Next, let’s understand another trial procedure before the U.S. Tax Court, which are Motions to conform pleadings to proof.
Near the end of the trial, after all evidence has been presented but before closing arguments, either party may move the court to conform the pleadings to the proof. This request allows the original pleadings (the petition and answer that framed the disputed issues) to be amended so they reflect what was actually proven at trial.
Courts generally grant this motion liberally, provided the amendment does not unfairly prejudice the opposing party. In other words, it cannot introduce an entirely new issue that the other side had no opportunity to address. The purpose is practical: to ensure that the court’s final decision is based on the evidence actually presented, rather than on technical inconsistencies in the earlier pleadings.
In simple terms, once the evidentiary record is complete, the parties are allowed to make sure the “paper roadmap” matches the path the trial actually took.
After the taxpayer presents their case, the IRS proceeds with its case-in-chief. At this stage, government counsel introduces evidence to support the notice of deficiency or to challenge the taxpayer’s position.
This may include documentary evidence, financial records, expert testimony (for example, on valuation or transfer pricing), and fact witnesses. The IRS may also cross-examine any remaining taxpayer witnesses to test the reliability of their testimony. The objective is to reinforce the correctness of the IRS determination and to undermine the taxpayer’s factual or legal arguments.
Cross-examination occurs after a witness has testified on direct examination. During direct examination, a party asks its own witness open-ended questions to present its version of events.
On cross-examination, the opposing party may ask leading questions, those that suggest the answer, to challenge the witness’s credibility, expose inconsistencies, or clarify ambiguities. The purpose is to test the strength and reliability of the testimony so the judge can better assess its weight.
To rebut is to respond to an opponent’s evidence or argument with counter-evidence or reasoning that shows it is incorrect, incomplete, or unreliable.
In trial practice, rebuttal evidence is offered to directly address and contradict points raised by the opposing party. For example, if a taxpayer claims an expense was business-related, the IRS may rebut that claim with documents or testimony indicating it was personal in nature.
Rebuttal ensures that disputed factual assertions are fully examined before the court renders its decision.
The court may allow limited rebuttal evidence to address new points raised during the IRS presentation, particularly in complex matters.
Next, let’s understand another trial procedure before the U.S. Tax Court, which are Closing Arguments and Briefs.
Closing arguments may follow the presentation of admitted evidence. In most international cases, the court may require detailed post-trial briefs under Rule 151. These briefs can be substantial, addressing statutory interpretation, regulatory standards, economic evidence, and burden-of-proof issues, with standard timelines (e.g., 75 days for opening briefs, 45 days for replies).
Transcripts are typically ordered for the record, especially in appealable cases. In complex situations, bench opinions may be issued immediately if straightforward, or detailed written opinions follow.
Next, let’s understand another trial procedure before the U.S. Tax Court, which is the Decision and Aftermath.
After the trial, the judge issues a written opinion. If the decision is designated for publication, it may serve as precedent. When the exact tax computation requires further calculation, the court may direct the parties to submit computations under Rule 155 before entering a final decision.
Next, let’s understand the trial procedure in a U.S. District Court.