Premature Assessments and Tax Court Cases

A premature assessment occurs when the IRS assesses (or makes record in its system) tax, and penalties and interest, without authority to do so.  When the IRS proposes adjustments to a taxpayer’s tax return (and tax is a type subject to deficiency procedures, like income tax), the IRS is required to issue the taxpayer a Statutory Notice of Deficiency, giving the taxpayer an opportunity to dispute the proposed adjustments in the United States Tax Court.

Assuming a taxpayer timely and properly files a Petition with the Tax Court, the IRS is prohibited from assessing the proposed tax, penalties, or interest, and it cannot attempt to collect from the taxpayer until the conclusion of the Tax Court case.  The only way the IRS knows a taxpayer has filed a Petition, disputing its proposed adjustments, is if the Tax Court notifies the IRS one was filed.  Unfortunately, this step is occurring much later than normal due to the Tax Court’s backlog.

On July 23, 2021, the Tax Court announced it has already received more Petitions through July 2021 than it normally receives in an entire year.  The number of Petitions, combined with the backlog in processing from shutdown last year, is causing the Tax Court to be delayed in notifying the IRS when a Petition is received from a taxpayer.  The IRS is assessing tax balances against taxpayers prematurely, because it is not being timely notified there is a pending Tax Court case.  The result is that many taxpayers are receiving balance due notices from collections, even though they timely filed Petitions for the same periods.

While the premature assessment can be reversed, the burden is on a taxpayer to notify the Tax Court and/or IRS this has occurred.  

If you have questions, contact Anderson & Jahde for help.

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