International tax litigation begins when the taxpayer files the initial pleading in the appropriate federal court and the parties set out their respective positions. This initial stage defines the adjustments being challenged, the legal and factual grounds for the dispute, and the issues that will shape the remainder of the case.
In cross-border matters, the pleadings often also identify the relevant international transactions, regulatory provisions, and treaty arguments that form the basis of the controversy.
Next, let’s understand the initiation and pleadings before a U.S. Tax Court.
In a U.S. Tax Court, Litigation begins when the taxpayer files a Petition against the notice of deficiency. A notice of deficiency is a formal legal notice from the IRS stating that they have determined you owe additional taxes (a “deficiency”), plus any penalties and interest.
A petition before the U.S. Tax Court is generally filed within 90 days of a statutory notice of deficiency or 150 days if the notice was addressed outside the United States. The Petition identifies the adjustments in dispute and the grounds for challenge. The IRS responds with an Answer that admits, denies, or asserts additional matters.
After the petition, the IRS files an Answer admitting/denying the allegations or raising new issues. This starts the formal litigation phase, which may involve discovery, motions, settlement talks, or trial before a Tax Court judge.
Next, let’s understand the initial pleadings before a U.S. Court of Federal Claims and a U.S. District Court.
Refund litigation begins with the filing of a Complaint after the taxpayer fully pays the disputed tax, files a timely administrative refund claim, and receives a denial (or a deemed denial after six months). The Complaint sets out the factual and legal basis for the refund, including regulatory or treaty arguments.
Refund litigation in both the U.S. Court of Federal Claims and U.S. District Court is initiated by filing a Complaint. These forums require full payment of the disputed tax before suit may be brought.
This contrasts with filing a petition before the U.S. Tax Court, where a taxpayer contests a deficiency before paying.
Before initiating refund litigation, the taxpayer should timely file an administrative refund claim with the IRS.
After filing, the refund suit generally cannot be brought until the earlier of:
Once a suit is allowed, the taxpayer has two years from the date of the disallowance (or deemed disallowance) to file the Complaint.
The Complaint is filed against the Government represented by the U.S. Department of Justice Tax Division. It sets out the factual and legal basis for the refund, including any statutory, regulatory, or treaty arguments.
The Government, represented by the DOJ Tax Division, has 60 days to file an Answer admitting or denying the allegations and, where applicable, asserting an offset for the same period.
Next, let’s understand the second stage of international tax litigation: discovery and motions.