Lessons from Federal Tax Court

Most undergraduate accounting programs include a basic federal income tax course with some coverage of the fundamentals of tax research. Students receive an introduction to statutory, judicial, and administrative sources of tax law and some practice in the fundamentals of tax research. Opportunities in advanced research, study of tax law development, and exploration of the judicial process are offered only at the graduate level of study, often after students have chosen other career paths in accounting.

Faculty seeking to stimulate interest in tax study and careers in tax practice can facilitate visits to federal tax court, where students can participate in the judicial process as courtroom observers. Students attending tax court sessions observe court players as they present, debate, and argue taxpayer returns, the Internal Revenue Code, and application of tax law. Students hear firsthand taxpayers’ frustrations as they struggle with the complexities and sometimes the inequities of tax law, and they have the opportunity to observe judges who direct court proceedings. In addition to providing more information about tax disputes and applications, the experience can also change students’ perspectives on the foundation, equity, and enforcement of tax law.

This column provides a court trip primer for educators interested in complementing or supplementing an existing tax course and for practitioners seeking enrichment for internship programs. In addition to the pedagogical aspects linked to tax education, it includes a discussion of the logistics of arranging a U.S. Tax Court visit and increasing the probability of hearing a regular case or a simplified small case procedure. Timing, court locations, class size, and flexibility all play an important part in the success of a class or program offering.

Preparation and Lessons

Traditional undergraduate tax courses introduce students to the world of federal taxation, focusing on the computation of taxable income for individuals and, for institutions offering a second tax course, the taxation of business entities. Topics and assignments emphasize tax compliance, identification of income and deductions, and perhaps preparation of a basic individual or business tax return. Although many professors discuss the authoritative structure of tax law, accounting students tend to gravitate to more concrete and definitive assignments, focusing on quick applications and generation of a final product. Tax study becomes an extension of financial accounting, with tax law replacing generally accepted accounting principles and tax returns replacing financial statements. Incorporating a tax court experience is an opportunity to break up the focus on tax law application and generate interest in tax law development and controversy.

Prior to a court visit, students should study the judicial sources of the tax law and the avenues that lead cases to Tax Court, including the Small Cases Division. Class discussions can review IRS remedies, and debates may ensue on choosing IRS settlement options over taking a case to court. Students may watch the video “An Introduction to the United States Tax Court” (www.ustaxcourt.gov/ustc_video_welcome.htm), which provides a very simple description of filing a petition that grants a taxpayer a day in court.

Course instructors may select prominent Tax Court cases, or cases tied to course topics, illustrating how the doctrine of stare decisis can set a precedent for future cases and guidelines for tax law enforcement. Although a limited number of small case decisions is available, it is also interesting to compare regular and memorandum Tax Court decisions with small case decisions. Finally, prior to attending a court session, the players—federal judges, attorneys, revenue agents, and taxpayers—should be introduced. The Tax Court assigns the judges presiding over specific court sessions early in the process, and classes can review their credentials and appointments using information available on the Tax Court website.

A Learning Experience

One of the first lessons in the judicial process is the time frame from tax return filing to actual court appearance. Students are always amazed to discover that a case being tried in 2010 may relate to a tax return from 1999. Although the span of years is generally not a concern for individual taxpayers, students learn to appreciate the skills developed as IRS agents, accountants, and attorneys juggle the presentation of cases using different versions of the tax law. In case settings, it is not unusual for the judge to remind an IRS agent to cite a specific provision in the Code or IRS procedures and for the agent to have to search case notes to find the appropriate citation. Do spectators assume that the agent is unprepared, or is it a subtle lesson reminding viewers that tax practitioners need to constantly stay current with tax law?

As one might expect, student spectator satisfaction rises when the court hears a familiar tax issue, Code section, or tax course topic. However, as one listens to the taxpayer arguments and pleas, the textbook summary may no longer seem relevant, and the audience may consider a different interpretation of the Code. What seemed to be a straightforward rule on exemptions now looks a bit cloudy and not so easy to interpret. More questions arise. What really was the legislative intent, and how will the judge rule? Will the facts and law prevail, or will the judge feel compassion toward the taxpayer, who will have to struggle to pay the tax return deficiency?

A large majority of the small court cases are argued by taxpayers themselves, without counsel. Fortunately, this allows students to hear fundamental income tax issues related to early levels of course study. Some of the author’s most popular cases over the past 18 years have included race cars and hobby losses, claims for personal exemptions, innocent spouse situations, unsubstantiated business expenses, failure to file a return, charitable contributions, and unreported income. Students easily follow the presentation of facts and can often identify specific Code sections. Even with more sophisticated topics, such as application of tax refunds and prior-year deficiencies, students can still appreciate the taxpayer arguments and the IRS positions.

A real-life court performance is also a lesson on career possibilities in accounting. The average student’s expectations for choosing a career in tax practice may begin and end with the compilation and review of tax returns. This limited perspective may be the result of participation in a class focused on tax preparation, an internship during tax season, or simply no initial interest in tax subjects. Regardless, in Tax Court students can observe numerous opportunities for career development, career growth, and jobs in the tax arena. In classroom meetings following court visits, students not only consider tax internships but also discuss volunteer services for needy taxpayers, combining law study with tax, choosing a career with the IRS, and speculating about securing an appointment as a federal tax judge.

Planning a Tax Court Visit

Accounting educators often search for teaching practices that actively engage students in the classroom and recruit more students to be accounting majors. Progressive programs of study provide more exposure to different paths in accounting practice prior to enrollment in a series of financial and intermediate accounting courses. Although a visit to a court may be more beneficial during or following a one-semester tax class, students at different levels and majoring in different disciplines will still appreciate cases heard in the court. Students are usually intrigued by the differences between a tax court and the courtroom dramas they have seen on television. In Tax Court, there is no jury, and taxpayers often represent themselves.

There is no formal process for visiting Tax Court. It is open to the public, and any individual who carries proper identification, is appropriately dressed, and successfully clears security may attend. However, facilitators planning a court visit with a group of students should contact the judge’s chambers before the visit. If the judge is aware of the visit, it would not be unusual for him or her to take time at a break or at the end of the court day to address the group, welcoming questions and comments from the students. It is also important to limit the number of participants attending court. Many of the courtrooms are small and cannot hold a large audience beyond petitioning taxpayers and IRS personnel.

The U.S. Tax Court holds sessions throughout the United States in various cities, often in only one city per state. However, a majority of the colleges and universities in the country have reasonable access to these cities. Tax Court sessions run in one- to two-week sessions and in some cities only once a year, so it is important to plan in advance and not risk being unable to visit the court if the trip is a critical or mandatory component of a course.

In some northeastern locations it is possible to choose among several different cities. For example, a class from a college or university in Pennsylvania could travel to attend court in Philadelphia, New York, Baltimore, or Washington, DC. U.S. Tax Court terms have winter (January–March), spring (April–June), and fall (September–December) schedules, which are generally posted three months prior to the session. (See the Tax Court website at www.ustaxcourt.gov for session schedules.)

Trip facilitators can choose to attend regular or small case Tax Court. Both courts begin on Monday morning with a reading of the case docket. This may be a fairly long process and in some locations may last all morning, despite the fact that the majority of cases will be noted as settled. Taxpayers in attendance who still wish to stand trial receive a trial date and time, starting with Monday afternoon. There may also be taxpayers not in attendance who have requested a trial date for later in the week. By noon on Monday, all the trials for the week should be scheduled. However, there is no guarantee that any case will go to trial until it actually starts. Prior to and during court, taxpayers and IRS personnel will be negotiating in the hallways. Every effort is made to keep disputed returns from reaching the courtroom. This is why visiting classes should not come unprepared; there is the risk of arriving to see an empty courtroom.

There are, however, several ways to minimize that risk.

• Plan to attend early in the week, unless prior contact with the judge’s chambers indicates a case or cases that are certain to run later in the week.
• Check in advance to determine if the docket can be read by noon on Monday, providing a good opportunity to hear cases that afternoon.
• Select trial sessions that run for two weeks and/or sessions with both a regular case calendar and a small case calendar.
• Try to attend regular Tax Court because the cases run longer and there will be a greater chance of court being in session throughout a given week.
• If traveling a long distance to a particular court location, travel with another class and identify alternative open-ended activities that can be substituted if Tax Court does not work out.

Final Notes

A tax court experience is a valuable one for students at many levels and across a broad spectrum of accounting programs. It is definitely worth the time and effort; faculty are immediately rewarded with a buzz of discussion when leaving the courtroom and later when reading student experience reports and course evaluations. The facilitator will also hear participating students sharing their experiences when making formal presentations to prospective students, interviewing with campus recruiters, and discussing classes with other students. Public accounting firms may also find a receptive audience with student interns when their initial experiences of compiling tax return information are enhanced by viewing the trial results of taxpayers who often prepare their own returns at significant risk.

With sufficient advance preparation, a field trip to Tax Court can be a unique opportunity to help students gain a deeper appreciation of the importance of tax law in people’s lives as well as the roles and responsibilities of accountants in the tax compliance process.

EditorNotes

Annette Nellen is a professor in the Department of Accounting and Finance at San Jose State University in San Jose, CA. She is a former member of the AICPA Tax Division’s Tax Executive Committee and a current member of the Individual Income Tax Technical Resource Panel. Gail Wright is a professor of accounting in the Brown School of Business and Leadership at Stevenson University in Owings Mills, MD. For more information about this column, contact Prof. Wright at gwright3311@stevenson.edu.