What You Should Do If Your Audit Goes Poorly and You Need to Litigate?

In episode 40 of How Tax Works, Matt Foreman continues his discussion of tax controversy, discussing appeals and litigation, focusing on timing, audit risk, and other related issues.

How Tax Works, hosted by Falcon Rappaport & Berkman LLP Partner Matthew E. Foreman, Esq., LL.M., delves into the intricacies of taxation, breaking down complex concepts for a clearer understanding of how tax laws impact your financial decisions.

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Transcript

Matthew Foreman [00:00:00]:
Welcome to the 40th episode of How Tax Works. I'm Matt Forman. In this episode, I'll discuss what happens if your audit ends poorly and you need to litigate or at least keep fighting. How Tax Works is meant for informational and entertainment purposes only. This may be attorney advertising, and it is not legal advice. Please hire your own attorney. That is legal advice.

Matthew Foreman [00:00:31]:
Please hire your own attorney. That's legal advice. How Tax Works is intended to help listeners navigate the intricacies and complexities of tax law, regulations, case law, and guidance demystify how taxes shape the financial and business decisions we all make. Before we get started. Administrative stuff, right? New episodes every two weeks. The next episode, we'll talk about what to do when you owe money to the IRS or a state revenue agency but can't pay or you want penalties removed or reduced. Right. Really, really interesting one.

Matthew Foreman [00:01:01]:
It's actually a question. I get a fair amount and it's one that I don't want to say is counterintuitive, but it just functions differently than people think it will. And I think that that's why it's at least interesting to me. It's a decent part of my practice too. So we'll do it. So. All right. This episode is a continuation, episode 39, which talks about audits.

Matthew Foreman [00:01:26]:
This episode is about what happens after the audit. Right? Appeals, litigation. Okay, so the audit itself, you get a no change letter from the irs. I've gotten them. I actually gotten a decent number recently. Had some really, really, you know, some audits that were kind of tough but really turned out well. Had good facts, had good law, et cetera. Sometimes the changes are agreed upon and negotiated.

Matthew Foreman [00:01:49]:
Common examples of that, you know, math errors, missing. Like you miss a 1099, you're like, yeah, I agree. He owes, you know, $4,000 in taxes. Sometimes there's a little bit of so called horse trading, you know, all right, you know, you, you give up, we'll get up the 469 issue, but you let go the 469 issue for these businesses. Right. Or, or something like that. Or, you know, we'll take accelerated depreciation on this, but we won't, won't do it on that. So there's some level of it.

Matthew Foreman [00:02:17]:
So, you know, know you can agree, you can negotiate sometimes more often. Probably my clients would like there's unagreed cases, probably more often than the auditors want to. Right. And the auditor sends a draft before you can talk. But the auditor is pretty dug in. So the question is, you Know, what do you do, right? You can agree IRS is IRS form 870 and you're done. That's basically like agreeing with what the auditor says. Like, do you actually agree? I've had adverse audits where we have made the decision just to pay and move on.

Matthew Foreman [00:02:46]:
And that does happen. Clients do want to do it. You know, there can be a $30,000 tax due and they're like, well, I could fight you on the $30,000 or I could, you know, and pay my, my attorney $65,000 for the appeal or whatever the number is. But I don't really think it's worth it. So that's sometimes what happens. And I do think auditors are aware of that. They shouldn't, but I do think they sometimes sort of know. So I think it's important.

Matthew Foreman [00:03:11]:
The next step is what's called the preliminary notice of deficiency, commonly referred to as a 30 day letter, not required by statute. You know, it is an administrative device. I'm more or less going to do New York IRS at this point. States have very similar processes, but not entirely, but I'm more or less just going to do the IRS here. It's easier, it makes sense. And just doing New York State, kind of boring. Or New Jersey or any of the other states, but you know, same general process anyway. Preliminary notice of deficiency, the so called 30 day letter.

Matthew Foreman [00:03:42]:
It is not required by statutes and administrative device used by the IRS to give the taxpayer a chance to resolve in an informal manner any differences of opinion prior to the formal assessment procedure. It's use of an audit is a correspondence audit or a field audit. It contains a summary of the agent's report and will advise the taxpayer of their right to an appeal. It is tied to a time period to challenge the IRS assertions. The COVID letter to the IRS to the revenue agent's report. Rar. The substance is, you know, we think your own tax. Here's the amount, here's why, here's why we agree on these things.

Matthew Foreman [00:04:14]:
Here's why you don't agree on these things. Figure it out. Right. Your options, strategic cooperation. Always be cooperative, but send additional information to clarify. You can do that. They will, they will do that, right? Don't mislead the irs, but don't tell them everything you know. You have to know how to respond to that.

Matthew Foreman [00:04:31]:
You can dispute it, you can say, look, I don't disagree. Just send the notice deficiency, so called 90 day letter. Get to that in a moment. The only reason why go to the tax court. You can request appeals, consideration I really like independent officer appeals. Get to that in a second. And the premise of it is you write a protest to send to the appeal. It's less expensive.

Matthew Foreman [00:04:49]:
Litigation could produce a good result. The downside is you're sort of delaying things. Right. Some people say, look, the IRS is just never going to agree with me on this. I'm never going to agree with them. I just want to get the litigation, let's skip appeal, go straight to there. I'm a big fan of the IRS Independent Office of Appeals. I think it is truly independent, or as independent as you're going to get within a governmental agency.

Matthew Foreman [00:05:10]:
And I think the people who work there are generally pretty good, as opposed to my thoughts on auditors. Right. And you know, it's not public, so you have another bite at the apple, so to speak, before you go public. Tax court filings are public. Beyonce, right. Had them. Nicholas Cage had a very public one. Pete Rose.

Matthew Foreman [00:05:27]:
There's a bunch. There's a bunch, right. Stephen Ross had one. There's a lot, you know, so most are former auditors or revenue rave, revenue agent like roles. I've had really good experiences generally, and they are much better at understanding and applying the law to the facts. Much better, Much better. And I think it's really important to note that, you know, they're not perfect, but there's a discussion. Sometimes it's just a matter of, look, the auditor isn't going to agree with you, so let's go to someone else.

Matthew Foreman [00:05:53]:
Let's get, you know, again, we're going to pick on Jim because it's apparently a name I'm thinking about today. Instead of talking to Jim and going back and forth with him and his manager, let's just go to appeals, get someone else involved. They'll try to resolve it. They can sometimes serve as a bit of a mediator or arbitrator. They have real power to resolve. They offer things. You know, one of the frustrations I have in New York State, I'll get to this in a second, is the equivalent of this. It doesn't exist.

Matthew Foreman [00:06:19]:
It sucks. So it's something that, that I ignore for the most part. There's reasons to go to it, but for the most part, I ignore it. Interest continues to accrue, penalties continue to accrue, but can force the IRS auditor to agree they have that actual authority. I, again, I've had a lot of success states, again, I mostly ignored states. You know, the vast majority of what I do is IRS in New York State. I live in New York. I'm licensed in New York and New Jersey.

Matthew Foreman [00:06:40]:
That's where I'm going to practice the most. But I've done audits in Connecticut, done a lot of regional ones. I've done states outside. There's generally reciprocity, not an issue. You just have to find out what the state will allow you to do. New York State is what's called bcms. Bureau of Conciliation and Mediation Services. I'll tell you what I told the commissioner of the New York State Department of Taxation finance in early 2020.

Matthew Foreman [00:06:59]:
BCMS is useless. I said it to his face. I looked him in the eye and told him that he. I don't think he agreed, but he took it. The conferee can't overrule the auditor or force changes. They can't force agreement. It's a good way to get penalties abated or fix an auditor's math error. Otherwise move on.

Matthew Foreman [00:07:18]:
If you want to get them to do a disagree, you know, change their opinion on how the law is structured or something like that, yet they're not gonna. They're just not because they have to convince the auditor that they're wrong on the law. I've had case law directly on point. BCMS couldn't do anything because the auditor said, I don't agree with that. I don't know. I don't know. You know, I've told them I think it's useless. I guess maybe it has some use, but whatever.

Matthew Foreman [00:07:43]:
This is as big of a rant, so I'm going to get on it. States vary significantly. New Jersey has a tax court, but it's mostly property tax appeals, certiorary, or however you say it, cert. So it's extreme, it's more limited, expert. They don't deal with as much tax stuff. Sorry if that's mean. You know, New York State in the actual litigation has courts just for this that are similar to New Jersey's tax court. Now, New Jersey's tax court, not.

Matthew Foreman [00:08:04]:
Not all that helpful because again, most of the cases deal with property tax bills which aren't really taxed. They're more valuation than anything else. Again, sorry if that's mean, but you know, that's my opinion and this is my podcast, so I guess I could do that. Why don't we take a quick music break, drop off for a moment and I'll come back and talk about the notice of deficiency, or as it's commonly called, the 90 Day Letter. First date on the issues at hand, on the years at hand, and I fax it in you know, fax is still used and I call the auditor. I want to establish contact. I want to say, hi, my name is Matt. I'm going to be doing this.

Matthew Foreman [00:08:40]:
I need more time, even if everything's going to happen and I'm going to get it in 30 days. I asked for 90, ask for third. I asked for 60 more. Generally get 30 more. Sometimes get 60 more. But I'm a big fan of that. I will tell you, I've had numerous instances, you know, let's say we get to get it and I call them on, you know, November 1st. Like, I can get it to you by the end of January.

Matthew Foreman [00:08:59]:
A lot going on, a lot of times I'll get it to them, you know, by Thanksgiving or shortly thereafter. It's not even about hitting that. It's about setting the expectation, hitting your deadlines, giving the information. And, you know, I ask questions. I always, hey, what are you looking for? What are you thinking? You know, why did this audit happen? Do you know? I had a. I had a client where the. We were an IRS Independent Officer of Appeals, which I'll talk about actually in the next podcast, told me why the audit happened. So that was, you know, that was really helpful to know why it happened.

Matthew Foreman [00:09:28]:
It's become a sort of fascinating tale, a slightly esoteric area, but it's interesting to hear how things come about and why and just establish rapport. The bulk of New York State auditors, for example, not the bulk, a big, A significant number are in Albany, New York. They're at the, the. This one campus, and it is literally next to where I went to college, right? And so I'm like, hey, you know, I went to SUNY Albany. It's right next to where you are. Oh, that's great. You know, talk about restaurants, talk about stuff in the area, you know, etc. And things like that.

Matthew Foreman [00:09:58]:
You know, being human really helps a lot of, you know, irs, one of their offer and compromise centers, for example, is out on Long Island. It's in Suffolk County. You hit auditors, you know, Pennsylvania, a lot of them in Harrisburg. I went to law school near there. Appealing to a human side really works. And I think a lot of people really underestimate how much it helps to just talk to a person and treat them like a person and how much that really helps and try to dig into the issues. Look, they're trying to resolve something, you're trying to resolve something. You're actually working to the same goal.

Matthew Foreman [00:10:27]:
You just have different views of what the goal is. But it's the same general goal, be done, move on and let everyone move on. So talk to them like that. And that's what I do. That's a big thing I do. Just be conversational, be polite. And I also know that a number of people who work for states in the IRS listen to this podcast, both from comments and the fact that I have, when I do webinars, I have see your emails, so I see that sort of stuff. I don't look that, that hard at them, but, you know, it's tough to not see, you know, treasure IRS.gov things like that.

Matthew Foreman [00:10:53]:
So it's interesting to see. So hopefully I'm, you know, doing an okay job here. The next step is the process, right? What is the process of an audit? The first letter you get and all the other letters and all the request for information are what's called an IDR information document request. The IRS uses form 4564. Every other state. Every state has their own form or D.C. i guess they're not a state where they request information via idr. It gives you the opportunity to look at what they want, right? And you can ask the auditor questions.

Matthew Foreman [00:11:22]:
You're like, look, you know, you're asking for this. That doesn't really exist. Can I give you this instead? Call them up, have the conversation. Don't just say, well, I have to give them exactly what they want. If you talk to them and you establish communication, they'll tell you what they want to get and the question they want to answer. And you know, I've had it where an auditor asks for emails. I said, look, there really aren't emails. There's six people use the same email.

Matthew Foreman [00:11:44]:
It's not going to show who actually sent it because it's not signed. And we can't locate an IP because it's people who use one computer or whatever. You know, everyone has a phone, but they're often in the office. So it's the same IP, but I can give you WhatsApp, I can give you a phone log, I can give you things like that that go to the same one. So asking the auditor questions as part of the IDR process really gets better information for them. So that's really helpful. You always have to assume there will be more questions and you answer the questions directly but narrowly. It is a lot like dealing with a small child, four or five year old.

Matthew Foreman [00:12:19]:
They're precocious, they ask a lot of questions, they want to know stuff. They think they know what's going on, right? They really do. But they effectively Just want to answer their questions and they're going to keep asking and assume they will, Right? And I'm not going. Auditors, small children. But that's how you have to view it, right? You answer the questions directly but narrowly. Because if you give a small child too much leeway in your answer, they're going to ask questions about what you just said. If, boy, you are stuck in a circle and you don't want to be in that. Right? So that's it.

Matthew Foreman [00:12:47]:
Provide documents, you know, whenever and wherever requested. I'm going to talk about this a little more later. And the goal is to support your position. However, you don't always provide every single document. You don't provide documents beyond what's required. You can redact. You know, people are like, oh, I have to send a 200 page operating room. I'm like, why? They asked you for who owns it and what the allocations and distributions are.

Matthew Foreman [00:13:10]:
Just send them the COVID page and send them the four or five relevant pages. Just remove the rest, redact it, black boxes, redact it, remove the page, whatever you want. They don't need to know everything. And if it's not relevant, they'll say, oh, I need the whole document. They don't. And that's really important. And you don't need to provide, for example, like, you know, three years of bank statements to show stuff. What are they trying to get? What are you trying to understand? You need one, we're going to do one.

Matthew Foreman [00:13:34]:
We'll see how it goes from there. They ask for more and they provide a compelling reason. You can do it. You can tell them to go away. It may cause them to tell you to, that, you know, this audit's not going so well, etc. So. Right. So ask what they want narrowly tailored to the response.

Matthew Foreman [00:13:48]:
This is where I always talk about Cohen vs. Commissioner, episode 30. I talk about Cohen v. Commissioner in detail. It's about substantiation, right? Verbal testimony or affidavits from related parties is absolutely admissible. The IRS and every state ignores them. They say, we don't consider them because you're lying, we know you're lying, we don't believe you, etc. And I'm like, look like if nothing the taxpayer provides can be believed, then why are we having a conversation? You already have all the information you need.

Matthew Foreman [00:14:14]:
You're just going to skew everything wrongly so you can push back. Auditors know that's not true, that they can act. They should actually listen to what you write. But. But the key is to have contemporaneous documentation that's supported by other estimates, other testimonial evidence. Right. And then you only need to show. Correct, not the only answer.

Matthew Foreman [00:14:34]:
Right. You know, there are different methods and a lot of times it's a reasonable method, not the only method. So you need to show that your method is a reasonable method, not the only method. And I think that's important to note. All right, let's get some music in. I'll be back in just a moment. We're back. Right.

Matthew Foreman [00:15:05]:
Notice of deficiency. Right. Appeals doesn't work. Right. So, so you're, you know, you don't want to do it. So like. All right, give me the statutory notice. Deficiency snod 90 day letter.

Matthew Foreman [00:15:16]:
The IRS can't assess until after 90 days. Plus 60 days. Never understood why the plus 60. I'm sure there's a reason. It's under 6503. And then you have 90 days to file a petition. That's just the 90 days with the tax Court or you have to pay. I've gone to appeals, agreed.

Matthew Foreman [00:15:31]:
In appeals and waited one time. I waited about eight months for it to get done. This was fairly early in the pandemic. I guess it's reasonable on some level, but it was definitely frustrating at the time. Had a great result for a client, but couldn't be resolved entirely until we got the letter saying, you know, it was done. Session or deficiency gone, money's gone. And the reason was because the Tax Court was so far behind on their mail that they had to wait till the Tax Court could tell the irs, because the Tax Court's technically separate, that, you know, we didn't file an appeal. But why would you file an appeal when you won? But whatever, it's fine.

Matthew Foreman [00:16:05]:
So 90 days to file a petition with the Tax Court or you have to pay. You could sign IRS form 870. If you do, there's no 90 day letter because you can't go to Tax Court. The deficiency amount under 6211 is the amount of taxpayer taxpayers return plus the amount previously assessed. There are significant restrictions on the IRS's assessment power. There's three restrictions specific, specifically under 6213A. One, there's 90 days to file notice with the Tax Court. Two, if the position is filed, there are no payments until the Tax Court decision is final.

Matthew Foreman [00:16:34]:
And three, notice and demand must be mailed to the taxpayer. IDRs can be faxed and they often are. You can get calls and emails, but you must mail the notice and demand to the taxpayer. Exceptions to the IRS's assessment power, really exciting stuff. We want to go through it. The exceptions are, right, mathematical, clerical errors, abatement of assessment due to math or clerical errors, tentative carry back a refund, assessment of the amount paid, and criminal restitution. Always a party to go criminal, right. Definitely what you want to avoid if the taxpayer does not file a petition within 90 days plus 60 can assess.

Matthew Foreman [00:17:08]:
You know, there's some definitions, right, under 6213G that are important, right? A return is any return, statement, schedule or list or any amendment or supplement there too filed with respect to any tax imposed. 6213g.1. There are people who hand write their own tax return and don't use the forms. That's a level of bonkers and effort that I'm just not willing to put in. And I'm always surprised when people do stuff like that. It's. It's often tax protesters whom I make fun of for good reason. But what always fascinates me is when they do stuff like that, because this is like, that's effort, you know, And I guess maybe that's the whole thing, right? A lot of tax protesters are really angry and they want to let you know that.

Matthew Foreman [00:17:47]:
So that's one thing. But you know, I've had people write that, seen it, where there are cases where people write stuff like that and the IRS processes it. And like, you wrote that you had no income. They're like, well, I didn't file a return. Like, yeah, you did. This is close enough. The IRS's return state returns, too, are not the only way to do it. And it sounds bananas to say to think about the IRS is kind of making them up as they go.

Matthew Foreman [00:18:09]:
They don't know what the best way to do it is. And they're doing the best they can, which I actually believe. Unfortunately, they're not. They're not great at it. And so if you do it your own way, the IRS can choose to process it and they have, and they will do it if, you know, they want to impose a fraud penalty on you, etc. So that's really an interesting one that you can do it. Mathematical clerical error. It's defined in 6213G2 IRS, you know, I'm not going to go into what those are.

Matthew Foreman [00:18:33]:
It's an interesting one. There's a lot of case law on it. You know, if it was issues relative administrative error, if the taxpayer submits information establishing the actual tax due is less than the amount shown the notice, the taxpayer specifically requests a Conference with the appropriate appeals office. Right. So they can issue it. You request appeals. They can rescind it if you ask politely. Sometimes they'll rescind it to allow you to go to appeals if you've missed the date to close a settlement.

Matthew Foreman [00:18:56]:
Right. If you're close to settlement, you want more time, they'll rescind the notice of deficiency and they'll continue the negotiation. And if there's administrative error otherwise. Right. Within the notice. Right. The IRS can only issue one notice of deficiency. You can.

Matthew Foreman [00:19:10]:
If you rescind, you can get another one. But 6212C. If they want to add something, they must add it to the pleadings. Right. So litigation. Litigation is really important. There's a couple options. There's tax court, district court or court of claims.

Matthew Foreman [00:19:22]:
Tax court's probably the most common place to litigate for a couple reasons. Within the Tax court, you have 90 days to file the petition. The timely mailing is timely filing. Right. So what's called the mailbox rule. Use it just for you. USPS Post Office Post Service, but now includes designated Delivery services and other substantially equivalent delivery services. FedEx, UPS and so on.

Matthew Foreman [00:19:47]:
I'm a big fan of just going ups. But you can also e file now with Taxcore. That's a newer thing when they created. It's not Dawson, is it? Dawson. I forget the name of it, but, you know, I didn't write it down. So I'm just going to blank on it right now. And it'll annoy you, but it might be Dawson. But you know, still mail stuff, etc.

Matthew Foreman [00:20:06]:
The assessment is restricted until the Tax Court resolves the case. So, you know, under 7481 until the tax Court decision becomes final. If you ever read Tax Court decisions, which. Yes, you know, I do. I don't read them all when they come out. I read a lot of them and I read them, you know, when they're relevant to my research. It says decision will be entered under Rule 155. That's when the decision is final.

Matthew Foreman [00:20:28]:
That's really important. It's the date the Tax Court enters the amount of the deficiency. It can be later than the date of the decision. So it can take some time. There can be some extra interest which taxpayers never like. But such is life. After the Tax Court decision, you have 90 days to appeal. 7,481.

Matthew Foreman [00:20:44]:
At that point, you know, the IRS can add initial amounts and that's it. There's some more stuff on, like when it's. When it's final under 7459C&D. I'm not going to go into them. Let's talk about district courts and the court of claims. So district court, you know, there's one for everywhere you live, right? I live in New York. There's four eastern, northern and western. You know, largely where you think they are.

Matthew Foreman [00:21:07]:
The southern is really kind of southeastern. Eastern is, you know, Brooklyn, Queens, East, Northern. Includes a lot of New York that are pretty southern in New York, but, you know, such as life, et cetera. Then there's states that only have one that are, you know, I think New Jersey only has one. Pennsylvania has three. I, I don't know. I don't get it. It.

Matthew Foreman [00:21:24]:
Sometimes it's population, sometimes it's based on kind of how it was when it was set up and just distinctions. Court of claims. The difference between main difference in tax court and district court of court of claims is tax court. You don't have to pay. You can say, well, pay after. If it's adverse district court, you have to pay and sue for refund. Right. So which court location for district courts based on where the taxpayer is? Anyone can file the court of claims.

Matthew Foreman [00:21:49]:
If you're outside the U.S. you go to the D.C. circuit. No. It's really important to note that litigation is slow and expensive. General judges don't know tax. They tend to be litigators. Right.

Matthew Foreman [00:21:59]:
District court judges tend to just be general litigators. So you're taking a risk. You can have a jury trial either way. So that's kind of neat. I'm sort of thinking the idea, you know, whenever people go. Whenever I've been to jury duty, right. I've been on. I've never been on a jury.

Matthew Foreman [00:22:13]:
I've been on a grand jury, which was not, you know, knocking out that grand. And I think about most of the cases when I've been on jury duties. You know, they do voir dire and it's personal injury or it's criminal. Right. Tax is so different. I'm trying to figure out like how that would be for most people, but that'd be kind of bonkers. That'd be interesting to, you know, think through. Anyway, so the tax court itself, right.

Matthew Foreman [00:22:38]:
Is an Article 1 court adjudicate, which means it's adjudicated. Federal courts are under Article 3. There are 19 judges. They are appointed by the president, confirmed by the Senate. There are senior judges whose term has ended. They return to hear more cases. And there are special trial judges who are appointed by the chief judge. They're Similar to magistrates.

Matthew Foreman [00:22:57]:
And they can hear cases up to $50,000. 50. Generally speaking, you know, the rule is that you want to decide which way you want to go. There's some thought that tax court judges are better because they're. They're tax attorneys. They're. They're practitioners. I don't know.

Matthew Foreman [00:23:15]:
Maybe, maybe not. There are tax court cases. I totally disagree with their district court cases. I'm like, yeah, you know, I think. I think they got that right. And then you get kind of weird results, you know, so. So there's no hard and fast rule. Where do you want to go? Who do you want to do? But I think that that's really important to sort of think through where do you want to go? And a big part can be if you go to tax court, you don't have to pay before you go to tax court.

Matthew Foreman [00:23:36]:
Interest is still accruing, but penalties are not. You do have the opportunity to negotiate before you actually go to tax court. Or if you come. You litigate in district court. You know, Ernie, for the government will sit there and chat with you. Do you want to settle this? Can we settle this, etcetera? I think that's really important. All right, let's get some more music in, and then we'll bring it on home with appeals and some talking about state. All right, we're back.

Matthew Foreman [00:24:16]:
So for the final part, I want to talk about appeals. Trial court to the circuit court is really interesting. Right? Tax court is the same rule generally. But, you know, you. You go from tax court to whatever court, circuit court, you go. So if you're like me, you live in Manhattan, you're gonna go from the tax court or Southern district of New York to the second Circuit. Right. And there's a whole bunch of second circuits.

Matthew Foreman [00:24:40]:
They're in Manhattan, they're in Brooklyn. You know, they're in Connecticut, they're in Vermont. That's. And they're elsewhere in New York. You're going to get one based on where you live. Can take longer, can take shorter. You know, it. It depends.

Matthew Foreman [00:24:50]:
From the tax court, you have. Must file notice of appeal within 90 days. Decision being final. 7483. Appeal does not stay the assessment. Collection 74, 7485. Unless the notice of appeal is duly filed by the taxpayer and a bond is filed by the taxpayer to stop assessment, you have to file to provide a bond. Kind of.

Matthew Foreman [00:25:10]:
Kind of crazy. A little tax unfriendly. But, you know, at a point, the IRS is probably pretty disinterested in fighting for Money. So they're just going to say, all right, make sure we get paid at the end of this. Right. If the IRS wants to add additional amounts or claims, they must amend the answer. You can admission you cannot issue a second notice of deficiency 6212C. And if the taxpayer forgot to deduct something or any other beneficial position, the taxpayer can bring it up in court, being via pleading or amended pleading.

Matthew Foreman [00:25:38]:
So you can at that point, and then, boy howdy, does this happen. They'll go to trial court, they'll get to appeals, and then they'll change the bank. Oh, and taxpayers suddenly found an extra $100,000 of deduction. So we'll talk about that. The courts seem to view that. I don't know. I don't say they chuckle at it, but it's thrown out there in a way. And I've always felt like the judges are like, really, this is happening.

Matthew Foreman [00:25:58]:
You surprised? It happens more than people think. You know, who knows why? Right. The district court, court of claims. Right. Court of claims, you go to the appeals for the Federal Circuit, which is its own kind of world. And district court, again, you go to circuit court, same as tax court. You get these weird splits if you go to tax court. So tax court rule and way you appeal to, let's say, the 7th Circuit, whatever, and the 7th Circuit overrules.

Matthew Foreman [00:26:21]:
The tax court will now control the tax court decision that was overruled will control everywhere but the 7th Circuit. The 7th Circuit, you have it. So if you're in a situation where you're a taxpayer who's in the 7th Circuit, you go to tax court, you're controlled by. Not tax court, by 7th Circuit. But if you're anywhere else, you're controlled by tax court. Now, court appeals tend to be much more deferential to each other. Deferential to each other rather than just, you know, the tax court. Although they're.

Matthew Foreman [00:26:48]:
Yeah. You know, judges tend to be. Have some. Give some deference to each other generally. And I think it's really important to note that that's. That's something that does happen. You know, I'm not. Not picking on 7th Circuit or anything like that.

Matthew Foreman [00:26:58]:
Right. And then if you don't like what the circuit court says, whether you're going to circuit court or court appeals for Federal Circuit, you're at the Supreme Court, which is requesting cert, which you don't necessarily get. The tax court. Excuse me. The Supreme Court takes very, very, very few tax cases. They generally have constitutional issues rather than just, you know, regular old Cases, just too many cases. And I don't think a lot of them understand tax and law. So here we are, State appeals.

Matthew Foreman [00:27:24]:
Right. So again, going to talk about New York State CMS or. No, I already talked about how crappy BCMS is. The next is Division of Tax Fields, followed by the Tax Appeals Tribunal. Division of Tax Appeals is a administrative law judge. So, you know, people like, oh, that's, that's hearsay. And you know, congratulations. Hearsay is admissible in administrative courts.

Matthew Foreman [00:27:41]:
And in fact, hearsay is often admissible. I would say generally admissible, but it generally is party opponent admissions. There's a bunch of them that go into it. And so it's really important to note that even though you may have a situation where you don't have a lot of, a lot of stuff, you know, a lot of things gets brought in. Tax Appeals Tribunal in New York State, they generally, you know, go along with what it has. And then you have what's called an Article 78 proceeding. Article 78 and what it is, it is the first appeal that you have that brings you out of administrative court. New York State, for those who don't know, the Supreme Court is the trial level court, you actually skip it.

Matthew Foreman [00:28:14]:
And the appeal is heard in the, what's called the Appellate Division or Supreme Court Appellate division. All Article 78s are in the third district, which is in Albany, New York, the state's capital. And then you have an appeal. If you disagree with New York State Court of Appeals, they too have to grant certs. They don't necessarily just hear your case be like, I'm going to take this all the way. Supreme Court. I always say, well, probably not. You know, court appeals doesn't heal that many tax court cases either.

Matthew Foreman [00:28:42]:
And a lot of times the state doesn't really want to go there. The last case where the taxpayer won that I can think of in appellate division was, was one called obis. It's a state case involving residency. The state did not litigate it to the court of Appeals, and I think they would have granted cert. I think the state decided because it was a somewhat narrow fact pattern. So they sort of decided, well, we'll take the loss here, but we'll sort of prevent there from being a broader rule. So there is some strategery, as it's oftenly called there. So I guess really important, again, each state has its own rules.

Matthew Foreman [00:29:13]:
I gave you New York because I know New York best. That's the state I do the most in. And it's where I sit right so let's, let's bring it all home, right? Years from the audit through appeals. Decade is not an unheard of period of time. It's expensive, it's time consuming. You're going to lose sleep, you're going to lose time. It's stressful. You know, people are like, I'm going to fight this for forever.

Matthew Foreman [00:29:33]:
And I'm like, do you really, honestly, do you want to? I don't want to. So let's, let's talk about that, try to resolve it. You know, a three month audit is long and annoying, but it's not on the planet. It's not in the realm of an appeal, a full litigation appeal. So time, expense, et cetera. And that's something to consider, you know, when deciding whether to do it. All right. That was the 40th episode of How Tax Works.

Matthew Foreman [00:30:00]:
I hope you hope you learned something. I can't believe I hit 40. That's, that's something, right? I'll be back in two weeks with the 41st episodes. We bring a close, man. We are. You know, I'd have to look at the exact date, but this 41 might be in December, which is kind of crazy. The 41st episode. I'm going to talk about what to do when you owe money to the IRS or a state and you can't pay, or you can't pay now, or you want a payment plan, or you want the penalties removed, or there's some other reason that even though you're responsible for the tax, you may not necessarily be responsible for the tax.

Matthew Foreman [00:30:30]:
So we'll talk about that. And now for the very best song of all time. Thank you for listening. Sa.