What to Expect When Your Case Goes to Federal Tax Court in New York
July 29, 2025
What to Expect When Your Case Goes to Federal Tax Court in New York
Facing a dispute with the IRS is stressful enough — and when that dispute escalates to the Federal Tax Court, the process can feel overwhelming. For individuals and businesses in New York, knowing what to expect and having skilled legal guidance can make all the difference in protecting your rights and your financial future.
At Auerbach Law Group, P.C., our dedicated team helps clients navigate the complexities of Federal Tax Court with clarity, confidence, and effective strategies tailored to each case.
When Do Cases Go to Federal Tax Court?
Not every tax dispute requires litigation. However, if the IRS has issued a Notice of Deficiency (sometimes called a “90-day letter”) and you disagree with the findings, you must act quickly. Filing a petition in Federal Tax Court allows you to challenge the IRS’s determination before paying the disputed amount.
Common reasons cases end up in Federal Tax Court include:
- IRS audits that result in significant additional taxes owed
- Disputes over unreported income or denied deductions
- Penalties and interest assessed by the IRS
- Civil tax controversies or alleged tax fraud
- Complex business or corporate tax issues
The Federal Tax Court Process in New York
The path through Federal Tax Court involves several key stages:
- Filing a Petition
You must file your petition within 90 days of receiving the Notice of Deficiency. Missing this deadline means you lose your right to challenge the IRS in court. - Pre-Trial Procedures
This phase includes exchanging information with the IRS, reviewing evidence, and potentially negotiating a settlement before trial. Many cases resolve during this stage. - Court Hearings
If the case proceeds, both sides present their arguments and supporting documentation before a Tax Court judge. - The Judge’s Decision
After reviewing the evidence, the judge issues a ruling that determines your tax liability. - Appeals (if necessary)
If either side disagrees with the decision, they may appeal to the U.S. Court of Appeals.
Why Legal Representation Is Critical
While you are not required to have an attorney in Federal Tax Court, representing yourself can be risky. The IRS will have experienced attorneys on its side, and the rules of procedure can be highly complex.
Working with a Federal Tax Court attorney gives you:
- Skilled representation against the IRS
- Thorough preparation of evidence and documentation
- Negotiation experience that may help settle before trial
- Guidance through deadlines and legal procedures
- Peace of mind knowing your rights are protected
Civil vs. Criminal Tax Court Matters
Most Federal Tax Court cases are civil in nature, dealing with disagreements about taxes owed. However, if the IRS suspects tax fraud or willful evasion, the matter could involve criminal charges — which carry far more serious consequences, including fines or imprisonment.
At Auerbach Law Group, we represent clients in both civil and criminal tax controversies, ensuring that your case is handled with the care and attention it deserves.
How Auerbach Law Group Helps New York Clients
At Auerbach Law Group, P.C., we understand the fear and uncertainty that comes with facing the IRS. Our team provides:
- In-depth analysis of IRS claims against you
- Tailored strategies designed to achieve the best possible outcome
- Clear communication so you always know where your case stands
- Strong advocacy in and out of court
With us by your side, you can face Federal Tax Court with confidence.
Take Action Before It’s Too Late
If you’ve received a Notice of Deficiency from the IRS, don’t wait — your window to file in Federal Tax Court is limited. Acting quickly can preserve your right to challenge the IRS and protect your financial future.
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Filing a false tax return is a serious offense that can lead to severe penalties, including fines and imprisonment. However, individuals accused of this crime may have legal defenses that can help challenge the charges. Understanding these defenses is essential for anyone facing allegations of tax fraud. Lack of intent to deceive One of the strongest defenses in a false tax return case is proving a lack of intent. The prosecution must show that the taxpayer willfully misrepresented information. Honest mistakes, such as miscalculations or misunderstandings of tax laws, do not meet the legal standard for fraud. If errors were made without intent to deceive, this defense may apply. Reliance on a tax professional Many taxpayers seek assistance from accountants or tax preparers. If an error occurred due to a professional’s mistake, this could serve as a defense. Demonstrating reliance on a tax expert , especially if the taxpayer provided accurate information, may help argue against willful wrongdoing. Insufficient evidence The burden of proof lies with the government. Prosecutors must present clear and convincing evidence that a taxpayer knowingly submitted false information. If the evidence is weak, inconsistent, or based on assumptions rather than facts, the defense can challenge the case’s credibility. Statute of limitations Tax fraud cases have a limited time frame for prosecution. Generally, the Internal Revenue Service (IRS) has six years to bring charges for criminal tax violations. If authorities pursue a case after this period, the defense can argue that the charges should be dismissed. Correcting the mistake If a taxpayer voluntarily corrects errors before the IRS begins an investigation, it may demonstrate good faith. Filing an amended return or paying the owed amount can help reduce penalties and weaken the prosecution’s case. Allegations of filing a false tax return require a strong legal strategy. Understanding the available defenses and acting quickly can help those accused of tax fraud challenge the charges effectively.
The IRS issues trust fund recovery penalties (TFRPs) to hold individuals personally responsible for unpaid payroll taxes. Employers must withhold income and payroll taxes from employees’ wages and remit them to the IRS. If a business fails to do so, the IRS can assess TFRPs against responsible individuals, including business owners, officers, or employees who manage financial decisions. Determining responsibility and willfulness To impose a TFRP, the IRS must establish that the individual was responsible for collecting, accounting for, or paying employment taxes. The IRS also needs to prove that the responsible person acted willfully in failing to remit the taxes. Willfulness does not require fraudulent intent; a voluntary, conscious decision to pay other obligations before tax liabilities is enough to meet this standard. Requesting an appeal Taxpayers can challenge a TFRP assessment through an IRS appeal. After receiving a proposed assessment, the taxpayer can submit a written protest within 60 days (75 days for cases outside the U.S.). The protest should provide evidence and arguments explaining why the assessment is incorrect. This process allows taxpayers to present their case before an independent IRS appeals officer. Contesting liability in tax court If an appeal does not resolve the issue, taxpayers can challenge the assessment in the U.S. Tax Court, the Court of Federal Claims, or a U.S. District Court. To proceed in district court or the Court of Federal Claims, the taxpayer must first pay a portion of the penalty and file a refund claim with the IRS. If the IRS denies the claim or does not respond within six months, the taxpayer can file a lawsuit. Providing evidence to support the case Strong documentation is essential for disputing TFRPs. Evidence such as emails, financial records, and witness testimony can demonstrate that the individual lacked responsibility or did not act willfully. Legal counsel can help present a well-supported case to the IRS or the courts. Taxpayers facing TFRP assessments should seek guidance from professionals who are knowledgeable in tax matters. These individuals can analyze the case, gather evidence, and navigate the appeals process. Proper preparation and a strong defense increase the chances of a favorable outcome and minimize financial liability.
Cash transactions of significant amounts often draw government scrutiny due to concerns about financial misconduct. Failing to meet these legal obligations can result in serious financial and legal consequences. Authorities enforce strict regulations to ensure transparency and prevent illegal activity. Federal reporting requirements for cash transactions The Bank Secrecy Act and Internal Revenue Code require businesses to report cash transactions exceeding $10,000 . This includes payments received in a single transaction or multiple related transactions within 24 hours. The law applies to businesses, individuals, and financial institutions. Failure to comply can lead to investigations by the IRS and the Department of Justice. Criminal charges for noncompliance Failing to report cash transactions can result in severe criminal penalties. Willful violations may lead to charges of tax evasion, money laundering, or structuring transactions to avoid reporting requirements. Convictions for these offenses can carry significant fines and prison time. Potential fines and imprisonment The penalties for failing to report cash transactions vary based on intent. If a person knowingly avoids reporting, fines can reach up to $250,000 for individuals and $500,000 for corporations. In cases involving money laundering or fraud, courts can impose additional penalties. Prison sentences may range from five years for basic violations to 20 years for more serious offenses. Additional consequences of noncompliance Beyond criminal penalties, failing to report cash transactions can trigger IRS audits, asset seizures, and reputational damage. Businesses may lose operating licenses or face civil lawsuits. In many cases, federal authorities will pursue criminal charges alongside financial penalties, making compliance essential. Proper record keeping and timely filing of Form 8300 can help prevent legal issues . Consulting a tax attorney or accountant can ensure compliance with federal laws. If an error occurs, correcting it as soon as possible can reduce the risk of criminal charges. Understanding and following reporting requirements protects individuals and businesses from severe penalties.
Tax problems can be expensive and stressful. New technology can help people follow tax rules and avoid disputes. Tools like artificial intelligence (AI) and cloud computing make it easier to track income, expenses, and payments. More businesses and individuals use these tools to stay compliant and reduce errors. As technology improves, tax reporting will become simpler and more accurate. Improving accuracy with AI AI can quickly process financial data with fewer mistakes. It can check expense reports and invoices in real-time, making sure everything follows tax rules. This accuracy helps prevent errors that could cause problems with tax authorities. AI also helps detect unusual transactions, reducing fraud risks. By using AI, businesses and individuals can confidently file their taxes, knowing their data is accurate and up-to-date. Organizing records with cloud computing Storing financial records in the cloud keeps them safe and easy to find. Cloud systems update in real-time and allow users to access information from anywhere. Better record-keeping allows people to file taxes correctly and avoid disputes. Cloud technology also allows seamless collaboration between taxpayers, accountants, and tax agencies. Automatic backups ensure records remain intact, even if a device is lost or damaged. Using real-time reporting New technology allows businesses and individuals to report financial transactions as they occur. When tax records update instantly, errors are caught and fixed immediately, preventing small mistakes from becoming big problems. Governments are also adopting real-time tax collection methods, which reduce delays and ensure smoother tax administration. The ability to instantly verify information creates transparency and trust between taxpayers and authorities. Technology helps people follow tax laws more easily and keeps tax agencies informed. As these tools become more common, tax disputes will happen less often, making the system smoother for everyone. Investing in digital tax solutions benefits both taxpayers and tax authorities, leading to fewer audits and penalties.
Online businesses continue to face changing tax collection policies as federal and state governments adjust to the growing digital economy. Lawmakers have introduced new regulations to ensure that online retailers, service providers, and digital platforms meet tax obligations. Understanding these updates is essential for businesses to stay compliant and avoid penalties. Expanding state sales tax requirements in New York New York requires online businesses to collect and remit sales tax if they meet specific economic nexus thresholds. Following the 2018 Supreme Court ruling in South Dakota v. Wayfair, Inc. , New York enacted regulations requiring remote sellers and marketplace facilitators to collect sales tax if they generate more than $500,000 in gross revenue and conduct more than 100 transactions in the state within a year. Businesses operating in New York must comply with these laws to avoid penalties and ensure proper tax reporting. Increased IRS focus on digital transactions The Internal Revenue Service (IRS) has increased oversight of digital transactions to ensure businesses report online sales and revenue accurately. Payment platforms such as PayPal, Venmo, and Stripe must report payments exceeding $600 per year to the IRS. This policy change, which lowers the previous $20,000 threshold, aims to improve tax compliance among gig workers, freelancers, and e-commerce sellers. Marketplace facilitator laws New York has enacted marketplace facilitator laws that require online marketplaces such as Amazon, eBay, and Etsy to collect and remit sales tax on behalf of third-party sellers. Under these laws, marketplace facilitators must ensure compliance with New York’s tax regulations, even if the individual sellers do not have a physical presence in the state. These laws simplify tax collection for small businesses but also introduce compliance requirements for online platforms operating within New York. Compliance challenges and business impact Online businesses must stay informed about changing tax laws to remain compliant. Failure to collect and remit taxes correctly can result in audits, fines, and legal consequences. Many companies now use automated tax software to navigate multi-state tax obligations efficiently. As e-commerce continues to grow, tax policies will likely evolve further. Businesses should monitor legislative updates to adapt to new tax collection requirements. Staying proactive ensures compliance and reduces financial risks associated with tax liabilities.
Misclassifying employees as independent contractors can cause serious tax problems for businesses. In New York, strict rules determine whether a worker is an employee or a contractor. Employers who fail to classify workers correctly risk financial penalties and other consequences. Increased tax liability Employers must pay certain taxes for employees, including Social Security, Medicare, and unemployment insurance taxes. Misclassifying workers as contractors means these taxes go unpaid , creating tax liability if the mistake is uncovered. Businesses may also face back taxes, interest, and penalties. Penalties under New York law Employers can also face harsh penalties for worker misclassification. They may owe fines for unpaid payroll taxes and violations of wage and hour laws. The New York State Department of Labor can investigate and take action against businesses that fail to comply with worker classification rules. Impact on workers’ rights Misclassification affects workers, too. Employees are entitled to benefits like overtime pay, health insurance, and workers’ compensation. Contractors do not have these protections. If misclassification occurs, employees can file complaints, leading to legal disputes and further costs for the employer. How to determine worker status The law uses specific tests to determine if someone is an employee or contractor. Factors include how much control the employer has over the worker and whether the worker operates independently. Employers should carefully review these criteria before classifying workers to avoid mistakes. Correctly classifying workers is important for avoiding costly penalties and safeguarding business operations. Employers who adhere to the law create a stable foundation for their workforce while preventing unnecessary financial and legal risks.
Tax evasion is a serious offense with significant consequences. A key element in proving tax evasion is demonstrating “willfulness.” Understanding this term is crucial for anyone accused of such charges. Courts carefully examine the circumstances surrounding a taxpayer’s actions to determine whether willfulness exists. Defining willfulness in tax evasion Willfulness means a voluntary, intentional violation of a known legal duty. It requires more than mere negligence or a mistake. Prosecutors must show that the accused knew about their tax obligations and made a deliberate choice to disregard them. This definition highlights the importance of intent in criminal tax cases. Examples of willful actions Certain actions commonly demonstrate willfulness in tax evasion cases. Examples include failing to file tax returns, underreporting income , concealing assets, or keeping false records. Using offshore accounts to hide income or creating sham transactions also signals intentional misconduct. Each action reflects a conscious decision to evade taxes rather than an innocent mistake. How prosecutors establish intent Prosecutors rely on evidence to prove willfulness. They examine financial records, communications, and behavior patterns. For instance, a sudden drop in reported income without a corresponding change in lifestyle can raise red flags. Additionally, providing false information during audits or investigations strengthens the case for willfulness. Courts consider all circumstances to assess whether a taxpayer acted with criminal intent. Defending against allegations of willfulness Individuals accused of tax evasion have defenses available. Demonstrating a lack of intent can weaken the prosecution’s case. Evidence of good-faith efforts to comply with tax laws, reliance on a tax professional, or genuine confusion about complex rules can counter willfulness claims. Legal representation helps individuals present these arguments effectively. Willfulness is a pivotal factor in criminal tax litigation . It separates intentional misconduct from honest mistakes. Anyone facing allegations of tax evasion must understand how prosecutors define and prove willfulness. This knowledge is essential for building a strong defense and protecting legal rights.