Tax Research: Understanding Sources of Tax Law
(Why my IRC beats your Rev Proc!)
Understanding the Federal Courts
There are three levels of Federal courts that hear tax cases. At the bottom of the hierarchy, there
are several trial courts, including the Tax Court, the U.S. Court of Federal Claims, District Courts and
Bankruptcy Courts. Trial court cases are appealed to the U.S. Courts of Appeals. The highest court
and final level of appeal is the Supreme Court of the United States.
Federal Tax Cases
U.S. Tax Court
U.S. Court of Appeals
U.S. District Court and
Bankruptcy Courts
Court of Federal Claims
Trial Courts
U.S. Supreme Court
U.S. Court of Appeals
for the Federal Circuit
Appellate Courts
High Court
Trial Courts
U.S. Tax Court. Most tax cases are litigated in Tax Court. The Tax Court is a court of nationwide
jurisdiction. Although the Tax Court is physically located in Washington, D.C., the judges travel
nationwide to conduct trials in various designated cities. The 19 Tax Court judges are appointment
by the President of the United States. The Tax Court judges have special expertise in federal tax
laws.
U.S. Court of Federal Claims. The U.S. Court of Federal Claims is a special trial court that has
nationwide jurisdiction over certain types of cases, including claims for money damages against the
United States. Tax cases make up a substantial subset of the cases decided by this court.
Approximately one-fourth of the cases before the U.S. Court of Federal Claims involve tax refund
suits. Tax cases before this court are often large, complex and technical claims by national and
multi-national companies.
U.S. District Courts. Federal District Courts have jurisdiction to hear nearly all categories of federal
cases, including both civil and criminal matters, within their geographic areas. Jury trials are
available.
Bankruptcy Courts. Bankruptcy courts are separate units of the district courts. Federal courts have
exclusive jurisdiction over bankruptcy cases. Thus, a bankruptcy case cannot be filed in a state
court. Bankruptcy courts have jurisdiction to decide tax issues that arise in a bankruptcy
proceeding. Bankruptcy court decisions are appealed the U.S. District Court.
Appellate Courts
U.S. Court of Appeals. The losing party in a decision by a trial court in the federal system normally is
entitled to appeal the decision to a federal court of appeals. There are 94 federal judicial districts,
which are organized into 12 regional circuits, outlined below. Each circuit has a court of appeals.
Each regional circuit court of appeals hears appeals from the district courts located within its circuit,
as well as appeals from decisions of federal administrative agencies.
First Circuit – Maine, Massachusetts, New Hampshire, Rhode Island, Puerto Rico
Second Circuit – Connecticut, New York, Vermont
Third Circuit – Delaware, New Jersey, Pennsylvania, Virgin Islands
Fourth Circuit – Maryland, North Carolina, South Carolina, Virginia, West Virginia
Fifth Circuit – Louisiana, Mississippi, Texas
Sixth Circuit – Kentucky, Michigan, Ohio, Tennessee
Seventh Circuit – Illinois, Indiana, Wisconsin
Eighth Circuit – Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, South
Dakota
Ninth Circuit – Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada,
Oregon, Washington
Tenth Circuit – Colorado, Kansas, New Mexico, Oklahoma, Utah, Wyoming
Eleventh Circuit – Alabama, Florida, Georgia
D.C. Circuit – District of Columbia
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Court of Appeals for the Federal Circuit. The Court of Appeals for the Federal Circuit has nationwide
jurisdiction to hear appeals in specialized cases, such as those decided by the U.S. Court of Federal
Claims (as well as cases involving patent and copyright laws and cases decided by the Court of
International Trade).
Appeals of Tax Court cases. Tax Court cases are appealed to the appropriate U.S. Court of Appeals
where the taxpayer resides. Thus, a Tax Court cases decided against a taxpayer in Texas would be
appealed to the U.S. Court of Appeals for the Fifth Circuit.
Highest Court
Supreme Court of the United States. The U.S. Supreme Court consists of nine justices (a Chief
Justice and eight associate justices). The Supreme Court is rarely required to hear a case; instead,
parties petition the court, and the justices decide whether to hear a case. Each year, the court
receives thousands of petitions. Cases before the U.S. Supreme Court usually involve important
questions about the U.S. Constitution or federal law. The court does not decide many tax cases; if
there is a constitutional issue concerning a tax or if there is a split in the Circuits on a particular tax
matter, the Supreme Court is far more likely to accept the case.
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Choice of Forum for Litigation of Tax Issues
The following table describes the trial courts that hear tax disputes.
Must pay disputed
amount, then
request refund
from IRS, in order
to file tax case?
Jury Trial
Available?
Tax Court
Most federal tax cases are
litigated in Tax Court. Judges are
tax specialists. Jurisdiction not
limited to any specific
geographical region.
No
No
U.S. District Court
No minimum amount for tax
disputes but costs and
complexity of a federal District
Court case often limit tax
actions to large cases. Judges
are generalists, not tax
specialists. Jurisdiction is based
on geographic area.
Yes
Yes
U.S. Court of Federal
Claims
Large, complex tax claims
(generally for national and
multi-national companies).
Judges are generalists, not tax
specialists. Jurisdiction not
limited to any specific
geographical region.
Yes
No
Resolves a wide variety of tax
issues concerning taxpayers who
are in a pending bankruptcy
case.
No
No
Court
Bankruptcy Court
Types of Cases Heard
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When a taxpayer in a dispute with the IRS receives a notice of deficiency (“90-Day Letter”), the
taxpayer may file a petition in the Tax Court without paying the tax. The Tax Court is the only forum
in which a taxpayer can dispute tax deficiencies without first paying the tax. Jury trials are not
available in Tax Court.
Alternatively, the taxpayer may pay the tax and file a refund claim. If the IRS denies the refund
claim, or does not respond within six months, the taxpayer can file a suit in the Federal District
Court or the U.S. Court of Federal Claims. (Certain types of cases, such as those involving some
employment tax issues or manufacturers’ excise taxes, can be heard only by these courts.) A jury
trial is only available in federal District Court.
Simplified Small Tax Case Procedure. If the dispute is $50,000 or less for any one tax year, the
taxpayer has the option of having the case heard under the Tax Court’s simplified small tax case
procedures. Generally, small tax cases are less formal and are resolved faster. However, decisions
are not appealable.
The illustration below highlights some of the general considerations in selection of a forum to
litigate tax issues.
Pay Tax
Deficiency ?
File Refund
Claim
Y
O
Denied, or no
response in 6 months
Jury Trial
Available?
Y
U.S. District Court
O
N
Approved
Amount at
issue is
$50,000 or
less?
Y
N
Tax Court
Tax Court—
option of
simplified
Small Tax
Case
procedure
N
U.S. Court of Federal
Claims
General Considerations in
Choosing a Forum to Litigate
Tax Issues
Weight of Authority
There are several factors that affect the strength of a court decision. The main factors are outlined
below.
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Rank of the court. Generally, the higher level of court, the more weight of authority. At the trial
court level, the Tax Court is generally considered to have more technical expertise on tax matters
than other trial courts.
In the U.S. legal system, lower courts must follow finding of law made by higher courts that is within
the appeals path of cases the court hears. Thus, a District Court in New York must follow the
findings of law established by The Court of Appeals for the 2nd Circuit and the U.S. Supreme Court.
This concept is called “precedence” or “binding precedence” in the judicial system.
Hierarchy of Federal Court System
High Court
Appellate Courts
Trial Courts
U.S. Supreme Court
U.S. Court of Appeals
U.S. Tax Court
Federal Court Level
U.S. Supreme Court
U.S. Court of Appeals
U.S. Court of Appeals
for the Federal Circuit
U.S. District Court
Court of Federal Claims
Weight of Authority
Highest court in the federal judiciary. Highest authority.
Binding on all Federal courts. Case decided by 9 justices.
A decision by the U.S. Court of Appeals carries a higher
authority than a decision by a trial court. A case decided
by a particular Circuit Court of Appeals is only binding on
the District Courts within that circuit. High persuasive
value in other Federal Circuits. Cases are heard and
decided by a panel of 3 Appellate Court judges.
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Federal Court Level
Weight of Authority
A trial court decision generally carries less authority than
an appellate court decision. The Tax Court is generally
considered to have more technical expertise on tax
matters than other trial courts. A Tax Court regular
U.S. Tax Court - Regular Decisions
decision is issued when the Tax Court believes the case
involves a sufficiently important legal issue or principle
(new or unusual point of law). A Tax Court decision can
be cited as legal authority.
A Memorandum Opinion addresses cases where the law
is settled or factually driven (does not involve a novel
U.S. Tax Court - Memorandum Decisions legal issue). A Memorandum Opinion has less authority
than a regular Tax Court decision but can be cited as
legal authority.
Similar authority as Tax Court. Precedential value in the
U.S. Court of Federal Claims
Court of Federal Claims or in the Court of Appeals for
the Federal Circuit.
Not binding on any courts but often cited as persuasive
U.S. District Court
authority.
U.S. Tax Court - Small Case Procedures
No precedential value (but can be persuasive if directly
Summary Decisions
on point).
Jurisdictional issues regarding where taxpayer lives. Court cases with similar facts and issues may
have been decided differently in other circuits. For example, an Eleventh Circuit Court of Appeals
decision would provide precedent for cases appealable in the Elenenth Circuit (in Alabama, Georgia
and Florida). The decision could also be used as persuasive authority in another circuit, but would
not provide binding precedent in other circuits or in the Supreme Court.
Status on appeal. Cases that were affirmed on appeal generally carry more weight than cases that
were overruled on appeal. An Appellate Court decision where the U.S. Supreme Court declined to
review the case (writ of certiorari was denied) carries more weight than an Appellate Court decision
that was not appealed.
Whether the decision was unanimous or split. A unanimous decision of the court carries more
weight than a split decision. The number of concurring and dissenting judges may affect the weight
of authority. Furthermore, an Appellate Court decision heard by all circuit court judges (en blanc)
carries more weight than a decision decide by the normal 3-judge Appellate panel.
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Split in the Circuits. When one court of Appeals decides a case one way and another court rules
differently in a case with similar facts and circumstances, the decision of both may carry less weight
as there is not uniformity in the law.
Authority of the judges. The authority or respect of the judges who decided the case, and the
soundness of the reasoning expressed in the opinion, may affect the weight of authority.
How other courts viewed the decision. Using a citation index (“Citator”) is an important step in
evaluating how an opinion compares with other decisions on the same issue. A Citator provides the
judicial history of a case and a record of citations listing later decisions in which that case has been
discussed and cited. A strong decision would be one with a long history of favorable evaluation by
other courts.
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