The tax code in the U.S. is notoriously confusing and complicated, but residents and businesses must still pay taxes. Understand what you owe, the penalties for making mistakes, and how you can challenge taxes. If your taxes are complicated or legal issues arise, hire a tax lawyer for guidance.

What Are Taxes?

A tax is a monetary charge that the government imposes on citizens and organizations.[1] The U.S. government and state and municipal governments collect taxes to fund their budgets. The money goes to things like national defense, roads, public education, and government services.

Taxes in the U.S.

Congress writes the tax code, and the Internal Revenue Service (IRS) interprets and enforces it. State and local governments also have their own tax codes and laws. Taxes in the U.S. can be divided into three broad categories:[2]

  1. Taxes on Earnings. This includes individual income taxes, which increase with your income level. There are also corporate income taxes on profits, payroll taxes on employee wages, and capital gains taxes. The latter are often referred to as unearned income and include taxes on stocks and other investments.
  2. Taxes on Purchases. State and local governments collect sales tax to fund much of their budgets. Only a few states have no sales tax. Gross receipt taxes are based on a company’s sales. Excise taxes apply to specific goods, like gasoline.
  3. Taxes on Property. Property tax is another big source of income for state and local governments. If you own land or a building, you pay taxes on it. Tangible personal property tax applies to movable property, typically equipment and machinery. Estate and inheritance taxes apply to property at the time of death. The estate pays the former, while those inheriting property or money pay the inheritance tax.

Filing and Paying Taxes

Anyone who earns money is obligated to file and pay taxes every year. Which types of taxes and how much you must pay depends on many factors, such as your work, income, property, business type and size, and more.

You must complete the appropriate forms, tax returns, and file them with the IRS by April 15. Your status may be married or head of household if you are not married. Married couples may choose to file together or separately.

Filing taxes can be simple if you are single, have no children, do not own a business, have no significant property, and have just one or two income sources. Additional factors, such as dependents, a lot of property, investments, or a business, complicate tax filing. You may need a tax accountant or a tax lawyer in more complicated tax situations.

Legal Claims Against the IRS

If you have a dispute with what you owe in taxes or on other tax matters, you can directly challenge the IRS. Another option is to take the IRS to court. U.S. Tax Court is a federal court not affiliated with the IRS. The IRS can be a party to an action in court, just as an individual can.

Some issues that arise with the IRS fall under the jurisdiction of another court. This may be the U.S. Court of Federal Claims or Bankruptcy Court, for instance.

Most cases end up in Tax Court. The first step is to file a petition. Your matter will then be scheduled for a trial, which is in front of a judge, not a jury. As with any other type of trial, your lawyer will argue your case, and the IRS will bring a defense. Most petitions filed in Tax Court never make it there but are settled in advance of the trial date.

Common Reasons for Tax Litigation

When people bring the IRS to Tax Court, it can be over one or more of several issues. Some are more common:

  1. Penalties for inaccuracies
    The IRS charges penalties for underpayment when certain criteria are met. If there is a mistake in the penalty or if you received negligent tax advice on how much to pay, you may challenge the penalty.
  2. Business expenses
    People often challenge the IRS for disallowing business expense deductions. Sometimes they win, but often the IRS is correct in its assessment.
  3. Gross income
    The IRS can penalize you for failing to report some of your income, but you can bring it to court if there is a mistake.
  4. Appeal of Collection Due Process
    You can request a Collection Due Process hearing to have your tax dispute independently reviewed. If you disagree with the result, you can petition Tax Court for an appeal.
  5. Failure to pay
    If you don’t pay your taxes on time, you can be penalized, but you may also challenge that. A common reason cited for being unable to pay is health problems.
  6. A tax lien
    If you don’t pay taxes and resulting penalties, the IRS can put a lien on your property, which you can challenge in court.
  7. Charitable deductions
    If you disagree with the IRS’s ruling on your charitable donation deduction, you can challenge it in court. For instance, the IRS may claim your charity does not qualify, but you believe it does.

Filing and paying taxes and challenging errors or penalties can get very complicated. You can face stiff fines and even jail time if you make big mistakes or don’t pay. Let a tax lawyer help you with filing and paying before it gets to that point.

  1. Cornell Law School. Legal Information Institute. (n.d.). Tax.
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  2. Tax Foundation. (n.d.). The Three Basic Tax Types.
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