A tax lawsuit is a court case in which a taxpayer (or his or her tax attorney) files a challenge to the Internal Revenue Service over a tax debt. In many cases, taxpayers are pursuing tax lawsuits after the IRS has improperly assessed their tax liability for one reason or another. The IRS, in turn, asserts that the taxpayer committed tax fraud by making claims for tax benefits that were actually not available at the time the tax was accrued. There are two basic ways that the Internal Revenue Service obtains evidence that a taxpayer committed tax fraud: physical evidence and testimonial evidence. Below are some common examples of the types of evidence that the Internal Revenue Service uses to substantiate a tax claim.
Physical Evidence – The most commonly used type of physical evidence is a CPA’s certification that a taxpayer owed X amount of tax in a given year.
For example, if a taxpayer files a Form 4 wherein he or she requests an installment based on a triennial income tax return, the Internal Revenue Service will request a copy of that form. If the CPA certified that the taxpayer owed X dollars in taxes for a given year, the agency can use that certification as a basis for pursuing the audit. This evidence can also be used in court if the audit is based on the CPA’s certification.
Testimonial Evidence – This type of evidence is not quite as common as physical evidence, but it is just as important.
Testimonials from friends and family are sometimes used in tax lawsuits, especially when the government takes a hard shot at a taxpayer. For example, if a taxpayer is suspected of structuring his or her taxes in a way that minimizes his or her tax liability, the Internal Revenue Service might use the words of a friend or family member who may have paid taxes themselves in the past to prove that the client deliberately avoided paying his or her tax liability. This type of testimony can be very persuasive in resolving the underlying tax issue.
Deed In Lieu of Taxes – A lien is an asset that a person does not physically own but has an interest in.
A tax lien is simply the property tax liability (usually spelled tax liens) that is tied to the tax lien certificate. The certificate shows the exact property tax lien amount owed, along with the name of the owner of the lien, and can usually be found on the back of the tax lien certificate. Tax liens can be sold at auction or private sale in some states. Some states also allow tax liens to be transferred between counties or municipalities.
Offer in Compromise – If the Internal Revenue Service doesn’t settle the case with the taxpayer, the tax attorney can offer an offer in compromise.
An offer in compromise allows the taxpayer to settle the case with the Internal Revenue Service without going to court. In order to qualify for an offer in compromise, the taxpayer must demonstrate that he or she can pay the debt in full. If the Internal Revenue Service agrees to the proposal, then the taxpayer is typically out of pocket.
Bankruptcy – A tax lawsuit can also result from a complete loss of all assets that are owned by the taxpayer.
When the taxpayer is unable to pay their debt, they may become eligible for bankruptcy. If a bankruptcy motion is filed against the taxpayer, it is important to hire a qualified tax attorney as soon as possible. An experienced bankruptcy attorney can evaluate your situation and determine if a bankruptcy motion is right for you. In many cases, a bankruptcy motion is the only way to ensure that the Internal Revenue Service will accept a settlement offer or face severe tax consequences.