Selection Of Forum For Litigated Tax Issues

Abstract

The adjudication of federal income tax disputes between the Internal Revenue Service (IRS) and taxpayers takes place in one of three mutually-exclusive trial courts. The courts have several features in common but they differ with respect to a number of important requirements (aspects). This study models taxpayers choice of litigation forum as a function of requirements and constraints of the courts within the purview of the Elimination By Aspects Model (EBAM). The choice of forum is regressed on the contested deficiency using dichotomous and multinomial logit models. For increasing amounts of tax deficiency, the U.S. Tax Court appears to be the court of choice compared to the U.S. Claims Court. However, the magnitude of the contested deficiency does not meaningfully discriminate between the U.S. Tax Court and the U.S district court. A possible explanation is that both courts afford approximately equal probabilities of winning/losing and that taxpayers choose based on that understanding. The results have implications regarding the prepayment requirement in the U.S. Claims Court and U.S. district courts.