Use the Lexology Getting The Deal Through tool to compare the answers in this article with those from other jurisdictions.

Overview

Legislation

What is the relevant legislation relating to tax administration and controversies? Other than legislation, are there other binding rules for taxpayers and the tax authority?

Tax administration and controversies are governed by the Internal Revenue Code (the IRC), Title 26 of the United States Code. The IRC is amended from time to time by tax acts passed by Congress and those acts contain effective dates and transition rules. The Internal Revenue Service (the IRS) officially interprets the IRC through Treasury regulations, revenue rulings and revenue procedures, and provides additional guidance in announcements, notices and publications. In addition, the US is party to income tax treaties with numerous foreign countries, under which residents of foreign countries may be taxed at a reduced rate or may be exempt from US income taxes on certain items of US source income.

Relevant authority

What is the relevant tax authority and how is it organised?

The IRS has authority to administer and enforce the IRC. The IRS is supervised by its Commissioner and its enforcement operations are divided into major divisions entitled Large Business and International (LB&I), Small Business/Self-Employed, Tax Exempt and Government Entities, Wage and Investment and Criminal Investigation. The IRS Chief Counsel provides legal interpretations and the Office of Appeals seeks to settle disputes between the IRS and taxpayers. Other departments provide administrative support and govern practice before the IRS by attorneys and other qualified tax practitioners.

Enforcement

Compliance with tax laws

How does the tax authority verify compliance with the tax laws and ensure timely payment of taxes? What is the typical procedure for the tax authority to review a tax return and how long does the review last?

Compliance is verified by examination of tax returns. Tax returns may be randomly selected, identified by comparing the return to information reported to the IRS or chosen based on the size of the taxpayer or the compliance risk resulting from the taxpayer’s status or operations. Tax returns may be examined by mail or during in-person interviews at an IRS office. Larger taxpayers typically have their tax returns examined at their place of business. Depending on the complexity of the return, examinations may be completed in months or over the course of several years. Taxpayers admitted into the IRS’s Compliance Assurance Process (CAP) work with the IRS to identify and resolve tax issues before the tax return is filed, generally resulting in shorter and narrower post-filing examinations.

Types of taxpayer

Are different types of taxpayers subjected to different reporting requirements? Can they be subjected to different types of review?

Whether a US citizen or resident alien must file an annual federal income tax return depends on the individual’s gross income, filing status, age and dependent status. Some individuals may file a return even if they owe no tax, for example, to recover withheld taxes or refundable tax credits. Citizens or residents of the US also must file gift tax returns and estate tax returns, when appropriate.

All domestic US corporations, including corporations in bankruptcy, must file annual corporate income tax returns, whether or not they have taxable income. Likewise, partnerships must file annual information returns to report their income, deductions, gains and losses from operations. Numerous other information returns may also be required, most commonly to report wages, interest, dividends or other items paid. Information returns also must be filed by US persons who own foreign business entities, by US corporations that are foreign owned and by foreign corporations operating in the US (IRC Section 6038, 6038A, 6038C).

While all tax returns are subject to IRS examination, high-income individuals and large corporations are more frequently audited. For fiscal year 2014, the IRS audited 0.86 per cent of individual returns, 0.95 per cent of small corporation returns and 12.2 per cent of large corporation returns.

Requesting information

What types of information may the tax authority request from taxpayers? Can the tax authority interview the taxpayer or the taxpayer’s employees? If so, are there any restrictions?

Taxpayers are required by law to maintain documents that are sufficient to establish that the items reported on their tax returns are correct (IRC Section 6001). In order to comply with this requirement, taxpayers should compile all relevant documentation and maintain it pursuant to a document-retention policy.

The IRS has broad power to examine the taxpayer’s books, papers, records and other data, including electronic data (IRC Section 7602). The only restrictions on the IRS’s examination power are that the time and place of the examination must be reasonable and that unnecessary examinations, including multiple examinations, are discouraged. The IRS is able to inspect the taxpayer’s premises and is able to interview the taxpayer and the taxpayer’s employees.

Available agency action

What actions may the agencies take if the taxpayer does not provide the required information?

The IRS typically requests information from the taxpayer by means of a written Information and Document Request (IDR). All taxpayers should discuss with the IRS the need for and scope of IDRs, their response due date and alternative ways to satisfy the need for information. In LB&I examinations of large corporate taxpayers, there are formal requirements for the issuance, response to and enforcement of IDRs.

If the taxpayer fails to respond to an IDR seeking documents held at a foreign location, the IRS can issue a Formal Document Request (IRC Section 982). If the taxpayer fails to respond in a timely manner, the taxpayer may be prohibited from introducing the requested documents in any subsequent tax proceeding. The taxpayer has the right to initiate a proceeding in court to quash the formal document request.

If a taxpayer does not respond in a timely manner to an IDR, the IRS can issue an administrative summons to compel production of the information sought (IRS Section 7602). Alternatively, if the taxpayer has not responded to an IDR and the IRS’s limitation period for assessment is close to expiration, the IRS can issue a Designated Summons, which tolls the running of the IRS’s limitation period for assessment (IRS Section 6503). If the taxpayer does not respond to a summons, the IRS can initiate a proceeding in court to enforce the summons.

Protecting commercial information

How may taxpayers protect commercial information, including business secrets or professional advice, from disclosure? Is the tax authority subject to any restrictions concerning what it can do with the information disclosed?

The taxpayer need not disclose protected information to the IRS. In the US, attorney-client privilege protects confidential communications between the taxpayer and an attorney, even an in-house attorney employed by the taxpayer. Business communications, however, are not privileged. A similar privilege protects communications between the taxpayer and a federally authorised tax practitioner, which includes accountants (IRC Section 7525). Finally, the work product doctrine protects materials prepared in anticipation of litigation or for trial. Work product generally does not receive absolute protection, but can be disclosed if another party establishes substantial need for the materials. Courts, however, will protect against the disclosure of work product that contains an attorney’s mental impressions, analysis, legal theories or conclusions.

If the IRS obtains taxpayer information, its ability to further disseminate that information is limited. The IRS is prohibited from disclosing tax returns and tax return information outside of the IRS unless the disclosure falls within one of various specific exceptions, which generally allow disclosures to other enforcement agencies (IRC Section 6103). Tax return information is broadly defined and includes data received by, recorded by, prepared by, furnished to or collected by the IRS. Wilful violations of the provision are punishable as a felony, while negligent violations subject the IRS to a suit for damages. If the IRS seeks to introduce confidential commercial information in a court proceeding, the taxpayer may seek a protective order preventing public disclosure of the information.

Limitation period for reviews

What limitation period applies to the review of tax returns?

The IRS generally must assess any increase in tax owed within three years of the date the tax return is filed (IRC Section 6501). In the case of a failure to file a return, the filing of a false or fraudulent return or a wilful attempt to defeat or evade tax, the IRS may assess an increase in tax at any time. If the taxpayer omits a substantial amount of income from gross income, the IRS may assess any increase in tax owed within six years of the date the tax return is filed. The taxpayer and the IRS may agree to extend the limitations period on assessment (IRS Form 872). Subsequent extensions may be agreed to if executed before the expiration of the immediately prior extension.

Alternative dispute resolution

Describe any alternative dispute resolution (ADR) or settlement options available?

Taxpayers who disagree with increases in tax proposed on audit may protest to the IRS Appeals Office. Generally, taxpayers must file a protest within 30 days after receiving IRS examination’s final report proposing an increase in tax. After the protest is filed, IRS examination can file a rebuttal to the protest. Thereafter, IRS Appeals will independently assess the issues using a quasi-judicial approach. IRS Appeals may reject the IRS examination’s position or the taxpayer’s position in full, or may seek to settle the dispute by applying a hazards of litigation standard.

Two alternative procedures allow the taxpayer to involve IRS Appeals at an earlier date. First, under the Fast Track Settlement programme, the dispute remains in the jurisdiction of IRS examination, but IRS Appeals acts as a mediator and helps the parties resolve factual or legal issues. If agreement is reached, IRS Appeals will exercise its settlement authority and effect the settlement. If no agreement is reached, the Fast Track issues can be protested later to IRS Appeals. Second, under the Early Referral programme, taxpayers being audited by the LB&I division can ask IRS examination to refer developed, unagreed issues to IRS Appeals, while the examination team continues to audit other issues. IRS Appeals can exercise its settlement authority to settle the Early Referral issue. Unagreed issues are returned to IRS examination and, if the case is later protested, those issues will not be reconsidered by IRS Appeals.

At IRS Appeals, under the Rapid Appeals Process, IRS Appeals can bring IRS examination and the taxpayer together early in the appeals process, serve as a mediator and use its settlement authority to effect any settlement reached. Also, either IRS Appeals or the taxpayer can seek a Technical Advice Memorandum on legal issues from IRS attorneys and, if the advice favours the taxpayer, IRS Appeals will follow the advice. If IRS Appeals and the taxpayer cannot agree to a settlement, the Post Appeals Mediation procedure may be utilised. A different IRS Appeals officer will be supplied by the IRS to act as a mediator, and the taxpayer may elect to involve a non-IRS co-mediator at its own expense. The mediation is non-binding, but if agreement is reached, IRS Appeals will use its authority to effect the settlement. A binding Appeals Arbitration procedure formerly existed, but was discontinued in 2015.

Collecting overdue payments

How may the tax authority collect overdue tax payments following a tax review?

The IRS will send the taxpayer an invoice seeking payment and, if no payment is received, a second invoice. If no payment is made, the IRS can file a notice of federal tax lien, which attaches to the taxpayer’s property (real estate and personal property) and rights to future property (amounts owed to the taxpayer and payable later). The IRS can also proceed to seize (or levy) the taxpayer’s property and rights to future property. Generally, the IRS can attempt to collect taxes up to 10 years after the date of assessment, although that time period may be suspended for various reasons.

Penalties

In what circumstances may the tax authority impose penalties?

Civil penalties can be imposed for failure to file a tax return, failure to pay taxes or estimated taxes and in a myriad of other circumstances in which the taxpayer fails to comply with an IRC requirement. Penalties can also be imposed if the taxpayer files a tax return showing a knowingly improper amount of tax, such as on a fraudulent tax return. Accuracy-related penalties can be imposed in more ambiguous situations if the tax return reports tax positions the IRS determines are negligent, that disregard rules or regulations, that result in substantial understatements of income tax, that make substantial valuation misstatements, that involve a transaction that lacks economic substance or that involve a transaction the IRS has identified as a reportable transaction (IRC Sections 6662 and 6662A).

How are penalties calculated?

Many penalties are in amounts specified in the tax code. The civil fraud and the accuracy-related penalties are calculated by reference to the amount of the understatement of tax on the tax return, which is the amount of tax that was required to be shown on the return minus the amount of tax actually shown on the return. The amount of these penalties ranges from 20 per cent to 40 per cent of the understatement.

What defences are available if penalties are imposed?

A negligence penalty can be avoided by showing that there was a reasonable basis for the reported tax position. The disregard of rules or regulations penalty can be avoided by showing that there was a reasonable basis for the position and that the position was adequately disclosed on the tax return. The substantial understatement penalty can be avoided if there was substantial authority for the position, or if there was a reasonable basis for the position and it was adequately disclosed on the return. All of the foregoing penalties, and the fraud penalty, can be avoided by showing that there was reasonable cause for the position and that the taxpayer acted in good faith. A reportable transaction understatement penalty can be avoided by disclosing the position on the tax return, having substantial authority, and having a belief that the position is more likely than not correct. These rules will differ if the tax position involves a tax shelter (IRC Sections 6662 and 6664).

Collecting interest

In what circumstances may the tax authority collect interest and how is it calculated?

If any tax deficiency or penalty is not timely paid the IRS will charge interest, which will be assessed and collected in the same manner as tax. The underpayment rate is a variable federal short-term rate plus three percentage points. For large corporate underpayments, the interest rate enhancement is increased to five percentage points after the IRS proposes a tax deficiency.

Criminal consequences

Are there criminal consequences that can arise as a result of a tax review? Are these different for different types of taxpayers?

Criminal penalties can be imposed on a taxpayer for tax evasion, wilful failure to file a tax return, for filing a false return or statement and for other specified actions. The consequences are typically specified to be a monetary fine, a term of imprisonment or both.

Enforcement record

What is the recent enforcement record of the authorities?

The IRS budget for the current fiscal year is about US$900 million below that for 2010, which has resulted in a degradation of its compliance, audit and collection programmes, leading to a steady decline in the number of individual audits over the past six years. In fiscal 2015, the IRS completed the fewest audits in a decade. The IRS Commissioner has stated that this trend of fewer audits is expected to continue.

Third parties and other authorities

Cooperation with other authorities

Can a tax authority involve or investigate third parties as part of the authority’s review of a taxpayer’s returns?

The IRS is able to seek information and documents from, and may interview, unrelated third parties who may have information relevant to the taxpayer’s return. Before the IRS contacts a third party, it must give the taxpayer notice that such contacts may be made. Thereafter, the IRS must provide to the taxpayer a list of third parties contacted. Taxpayers do not have an automatic right to be present when third parties are interviewed, but the third party can request the taxpayer’s attendance.

If a third party fails to respond to an IRS request for information, the IRS can issue a third-party summons. The IRS must notify the taxpayer of the issuance of the summons and the taxpayer can initiate a proceeding in court to quash the summons. Alternatively, if the IRS seeks to enforce the summons against the third party in court, the taxpayer has the right to intervene in that proceeding (IRC Section 7609).

Does the tax authority cooperate with other authorities within the country? Does the tax authority cooperate with the tax authorities in other countries?

The IRS is permitted to disclose tax information to other federal law enforcement agencies and to state tax authorities for tax administration purposes and does so with safeguards to protect that information against misuse and unauthorised disclosure (IRC Section 6103). State agencies likewise share tax information with the IRS. The IRS has tax information exchange relationships with approximately 90 countries, in the form of tax treaties, tax information exchange agreements (TIEAs) and mutual legal assistance treaties (MLATs).

Special procedures

Voluntary disclosure and amnesties

Do any special procedures apply in cases of financial or other hardship, for example when a taxpayer is bankrupt?

Taxpayers with unpaid taxes may seek to pay the IRS over time pursuant to an instalment payment agreement, or they may make an offer in compromise to pay less than the full amount owed. Taxpayers can seek assistance from the IRS’s Taxpayer Advocate Service, request a Collection Due Process hearing, and may access IRS Appeals through the Collections Appeals Program. Bankruptcy courts have the authority to determine the amount or legality of any tax imposed on a debtor. A bankruptcy court can discharge a debtor from personal liability for some taxes, but many tax debts cannot be discharged. The scope of bankruptcy discharge depends not only on the nature of the tax debt, but also on the chapter of the bankruptcy code under which the case was filed.

Are there any voluntary disclosure or amnesty programmes?

The IRS has an Offshore Voluntary Disclosure Program (OVDP) for submissions made on or after 1 July 2014, which is available to taxpayers who wish to voluntarily disclose their offshore accounts and assets to avoid prosecution and limit their exposure to civil penalties. The IRS also has a domestic voluntary disclosure procedure.

Rights of taxpayers

Rules protecting taxpayers

What rules are in place to protect taxpayers?

The IRS’s Taxpayer Bill of Rights accords taxpayers the right to be informed, the right to pay no more than the correct amount of tax, the right to challenge the IRS’s position and appeal to an independent forum, the right to finality and privacy, and the right to retain representation. As federal employees, IRS employees are subject to the Office of Government Ethics’ Standards of Ethical Conduct.

Requesting information

How can taxpayers obtain information from the tax authority? What information can taxpayers request?

The IRS issues numerous publicly available publications, notices, announcements and rulings covering both procedural and substantive topics. Also, taxpayers can request documents from the IRS pursuant to the Freedom of Information Act, 5 USC 552. While all IRS records are subject to Freedom of Information Act (FOIA) requests, the IRS may withhold documents (or parts of documents) based on exemptions and exclusions in the FOIA statute. Commonly withheld documents include inter-agency or intra-agency memoranda or letters covered by the deliberative process privilege, the work product privilege or the attorney-client privilege. If the IRS does not respond to an FOIA request or withholds documents, the taxpayer can protest to IRS Appeals and, if necessary, initiate suit in federal district court.

Tax authority governance

Is the tax authority subject to non-judicial oversight?

The Government Accountability Office, the Office of Management and Budget and the Treasury Inspector General for Tax Administration oversee IRS operations. Within the IRS, the Taxpayer Advocate Service operates as an independent organisation to pursue taxpayer complaints. Advisory boards include the IRS Oversight Board and the Taxpayer Advocacy Panel. Finally, both the Senate and House have IRS oversight subcommittees.

Court actions (describe trial court actions in this section)

Competent courts

Which courts have jurisdiction to hear tax disputes?

A taxpayer can initiate a tax dispute in the US Tax Court, the Court of Federal Claims or federal district court. In Tax Court, a simplified small tax case procedure is available for certain cases involving US$50,000 or less. Trials in small tax cases are less formal and result in a speedier disposition, but the decisions cannot be appealed.

Lodging a claim

How can tax disputes be brought before the courts?

To litigate in the Tax Court, the taxpayer must receive a statutory notice of deficiency (IRC Section 6213). Following an examination or consideration by IRS Appeals, the IRS will inform the taxpayer of any proposed deficiency and request payment. If the taxpayer does not pay the deficiency, the IRS will issue a statutory notice of deficiency. The taxpayer then has 90 days (or 150 days if the notice is addressed to a taxpayer outside the US) to file a petition with the Tax Court. In the Tax Court, the taxpayer seeks a determination that the assessment is incorrect and that no tax is due.

In contrast, to litigate in the Court of Federal Claims or a federal district court the taxpayer must first pay the tax. The tax payment can occur with the tax return, following an IRS examination in which a tax deficiency is proposed, or after consideration by IRS Appeals. Within the applicable statute of limitations (Code Section 6511), the taxpayer must then file an administrative refund claim with the IRS (IRC Section 7422). Unless the IRS disallows the claim sooner, the taxpayer must wait six months to file a complaint initiating the suit. If the IRS disallows the claim, the complaint must be filed within two years of the date of the IRS notice of disallowance. In these courts, the taxpayer seeks a determination that the tax is not legally owed and must be refunded.

In most cases, the tax Anti-Injunction Act (IRC Section 7421) prevents a taxpayer from filing suit to restrain the assessment or collection of tax and the Declaratory Judgment Act (28 USC 2201) prevents a taxpayer from filing suit to have a court declare whether the taxpayer is liable for tax.

Combination of claims

Can tax claims affecting multiple tax returns or taxpayers be brought together?

Each tax year is considered a separate cause of action. Nevertheless, the IRS may examine more than one tax year at a time. If the taxpayer seeks to litigate in the Tax Court, multiple years can be included in the petition. If the taxpayer seeks to litigate in the Court of Federal Claims or a federal district court, the taxpayer must file a separate refund claim for each year, but multiple years can be included in the complaint.

Cases that involve different taxpayers but a common question of law or fact may be consolidated for trial, but separate trials may be ordered to avoid prejudice.

Pre-claim payments

Must the taxpayer pay the amounts in dispute into court before bringing a claim?

To litigate in the Tax Court, a taxpayer need not pay the tax assessed, but after the petition is filed, the taxpayer may decide to do so to stop the running of interest. To litigate in the Court of Federal Claims or a federal district court, the taxpayer must first pay the tax.

Cost recovery

To what extent can the costs of a dispute be recovered?

A taxpayer may recover litigation costs incurred in connection with a court proceeding brought by or against the US if the taxpayer establishes that it is the prevailing party, that it exhausted the available administrative remedies, that it has not unreasonably protracted the court proceedings and that the claimed litigation costs are reasonable (IRC Section 7430). Recovery will be denied if the taxpayer’s net worth exceeds specified limits. The IRS cannot recover litigation costs from a taxpayer.

Third-party funding

Are there any restrictions on or rules relating to third-party funding or insurance for the costs of a tax dispute, including bringing a tax claim to court?

No such restrictions exist.

Court decision maker

Who is the decision maker in the court? Is a jury trial available to hear tax disputes?

In the Court of Federal Claims and in the Tax Court, a single judge is the decision-maker and a jury trial is not available. In a district court, a single judge will hear the case, but either party may request a jury trial. The judge decides procedural and legal issues. If no jury is requested, the judge acts as the trier of fact, while in a jury trial, the jury acts as the trier of fact.

Time frames

What are the usual time frames for tax trials?

After the taxpayer files its petition or complaint, the government will file an answer, which is due within 60 days, although extensions are typically sought. Thereafter, the judge and the parties usually agree to a scheduling order which sets a time frame for discovery, the exchange of expert reports, pretrial conferences and other matters. Depending on the number of issues and their complexity, this pretrial period may extend for six months or over a year. Trials may take place in a single day or over a month or more, depending on the number of issues, the complexity of the facts and the number of fact and expert witnesses. A case is likely to proceed more quickly in Tax Court than in the Court of Federal Claims or district court because the Tax Court encourages the parties to stipulate to facts, which may shorten the pretrial and trial stages. After the close of trial, the judge likely will not issue a decision for six months or a year or longer.

Disclosure requirements

What are the requirements concerning disclosure or a duty to present information for trial?

Discovery in the Court of Federal Claims and a district court is often extensive and lengthy. First, the parties are required to make initial disclosures of the potential evidence and witnesses that they may use to support their case. Thereafter, the parties may serve interrogatories (written questions), take depositions (transcribed interviews), seek admissions and move for the production of documents. The judge may limit the number of discovery requests and the period during which discovery can occur. In contrast, the Tax Court requires that the parties are required to seek the objectives of discovery through informal communication before resorting to formal discovery. Moreover, the parties are required to stipulate all relevant facts to the fullest extent possible, which may reduce the need for discovery. As needed, however, the parties can serve interrogatories, take depositions, seek admissions and move for the production of documents.

Permitted evidence

What evidence is permitted in a tax trial?

Documentary evidence may be introduced at trial. Fact witnesses can testify at trial regarding facts that are not stipulated. Generally, the taxpayer will present fact witnesses, who may be the taxpayer, employees of the taxpayer, counterparties to a transaction or any other individual with relevant information. The government may present fact witnesses, but often primarily cross-examines the witnesses presented by the taxpayer. If a fact witness was deposed and is unavailable for the trial, his or her deposition testimony may be read into the trial record. Both parties can present expert witnesses, who can be cross-examined by the opposing party. Written expert reports may be introduced into the record.

Permitted representation

Who can represent taxpayers in a tax trial? Who represents the tax authority?

In the Court of Federal Claims and the district courts, taxpayers may represent themselves, but more often are represented by lawyers admitted to practise in those courts. In the Tax Court, taxpayers may also represent themselves, but more often are represented by lawyers or by non-lawyers admitted to practise in the Tax Court.

In the Court of Federal Claims and the district courts, the IRS is represented by trial attorneys in the Tax Division of the US Department of Justice. In the Tax Court, the IRS is represented by IRS attorneys. In major cases in all three courts, the government trial team may have both Tax Division and IRS lawyers.

Publicity of proceedings

Are tax trial proceedings public?

In all three courts, trials are held in courtrooms open to the public. Documents introduced into the trial record, testimony given at the trial and briefs prepared by the parties are also open to the public. If evidence sought to be introduced is a trade secret or otherwise confidential, the public can be excluded from the courtroom while that evidence is introduced and that part of the trial record can be sealed to prevent public disclosure.

Burden of proof

Who has the burden of proof in a tax trial?

The taxpayer has the burden of proof in tax litigation. In tax refund litigation in the Court of Federal Claims and in district court, the taxpayer bears the burden not only to prove that its position on the issues raised in the complaint is correct, but also that its asserted amount of tax liability is correct. Thus, if the IRS raises a new issue to offset the taxpayer’s claimed decrease tax liability, the taxpayer bears the burden of proof on that new issue. In contrast, if the IRS raises a new issue in Tax Court litigation, the IRS bears the burden of proof on that new issue. By statute (IRC Section 7491), the burden of proof can shift to the IRS in certain circumstances, but this rule is inapplicable if the taxpayer’s net worth exceeds specified limits.

Case management process

Describe the case management process for a tax trial.

Case management begins when the taxpayer engages in a transaction giving rise to a potential tax dispute. Relevant documents and electronic information must be carefully compiled and stored. Before the case is filed, facts must be marshalled, legal research performed, witnesses identified and experts retained. Once the case is filed, discovery will begin in earnest and the value of adequate prior preparation becomes evident.

As trial approaches, the content of the evidence to be introduced and the order of its introduction must be designed. Evidentiary and other motions must be anticipated and responses prepared. In addition, the necessary trial staff must be identified, including the lawyers, staff to organise and manage the documentary evidence, and staff to coordinate the availability of fact and expert witnesses in a timely manner. In the US, the ‘electronic courtroom’ has become standard, with documents stored on computers and displayed on screens throughout the courtroom. Arrangements must be made to prepare and operate this system. In addition, demonstratives (charts, diagrams, summaries) must be prepared in advance. Finally, witness testimony outlines and the opening argument must be finalised.

During the trial, the active trial team will present the evidence and examine and cross-examine witnesses. A team of ‘backroom’ lawyers and staff must be available to locate documents and to research legal issues that become relevant during the trial.

Appeal

Can a court decision be appealed? If so, on what basis?

Tax cases can be appealed by either party to one of the 13 US courts of appeals. District courts are located in 94 federal judicial districts, which are organised into 12 regional circuits, each of which is assigned to a court of appeals. Appeals from the Tax Court and a district court are heard by the court of appeals for the judicial district in which the taxpayer is located. Appeals from the Court of Federal Claims are heard by the court of appeals for the Federal Circuit.

The appeal is initiated by timely filing of a notice of appeal. Thereafter, the parties submit briefs pursuant to a scheduling order. After briefing concludes, the parties will orally argue the case before a three-judge panel. After a decision is rendered, which may take up to a year, the unsuccessful party can file a petition seeking US Supreme Court review. Supreme Court review is discretionary, and only a small percentage of petitions are granted, usually in instances in which courts of appeals have reached different conclusions regarding the same issue.