The small tax case (S case) procedure in Tax Court: who qualifies, how to elect it, and what you give up

What an S case is

IRC 7463 lets a petitioner in a qualifying dispute elect, with the court's concurrence before the hearing, to have the case conducted under simplified rules. Tax Court Rule 170 defines a small tax case as one where the amount in dispute is $50,000 or less, the petitioner has requested it under Rule 171, and the court has concurred. Except as the Small Tax Case Rules provide, the regular rules apply.

The election is made in, or after, a timely Tax Court petition. The trade-off is in section 7463(b): “A decision entered in any case in which the proceedings are conducted under this section shall not be reviewed in any other court and shall not be treated as a precedent for any other case.” Publication 556 puts it for taxpayers: if the court approves, the taxpayer can present the case “for a decision that is final and that you cannot appeal.”

The $50,000 limit and what counts

For a deficiency petition, neither the deficiency placed in dispute nor any claimed overpayment may exceed $50,000 for any one taxable year (income tax), $50,000 of estate tax, $50,000 for any calendar year (gift tax), or $50,000 per period or event for the excise taxes subject to deficiency procedures (IRC 7463(a)). The $50,000 is set by statute (it was raised from $10,000 by RRA 98) and is not inflation-adjusted.

The amount in dispute “includes additions to the tax, additional amounts, and penalties imposed by chapter 68, to the extent that the procedures described in subchapter B of chapter 63 apply.” (IRC 7463(e)). Interest is not counted. The test is what is placed in dispute, so a petitioner who contests only part of a larger deficiency may qualify, and the court's decision is then limited to the amounts in dispute within the limit plus amounts the parties concede (IRC 7463(c)).

S status is also available for innocent spouse petitions where the relief sought is $50,000 or less, CDP appeals where the unpaid tax is $50,000 or less, and interest abatement petitions where the abatement sought is $50,000 or less (IRC 7463(f)). The IRM notes that for these non-deficiency cases the amounts are measured for all years combined, and that worker classification cases qualify where employment taxes in dispute are $50,000 or less per calendar quarter (IRM 8.4.1.3).

Electing, opposing and removing S status

1. In the petition. Rule 171(a) lets the petitioner request S status in the petition, which in a small tax case is substantially in the form of the court's Form 2 (Rule 173(a)). The filing fee is the same $60, waivable for inability to pay (Rule 173(a)(2)).
2. After filing. The petitioner may make the request at any time after the petition is filed and before trial begins (Rule 171(c)).
3. Commissioner's opposition. If the Commissioner opposes, it files a motion with the answer (Rule 171(b)), or without leave if the request comes after the answer (Rule 171(c)).
4. Removal. The court, on its own or on motion before trial, may remove the S designation (Rule 171(d)).
5. Discontinuance. Before the decision is final, either side may ask to discontinue S proceedings. The court may do so if there are reasonable grounds to believe the amount in dispute exceeds the limit and the excess is large enough to justify it (IRC 7463(d)).

How an S case is tried

Rule 174(b): “Trials of small tax cases will be conducted as informally as possible consistent with orderly procedure, and any evidence deemed by the Court to have probative value shall be admissible.” Rule 174(c): “Neither briefs nor oral arguments will be required in small tax cases unless the Court otherwise directs.” No reply to the answer is filed unless the court directs, and the answer's affirmative allegations are deemed denied (Rule 173(c)). A decision with a brief summary of reasons satisfies the statute (IRC 7463(a)).

Representation is the same as in regular cases: “A petitioner in a small tax case may appear without representation or may be represented by any person admitted to practice before the Court.” (Rule 172). The petitioner may request a place of trial with the petition, and the court makes reasonable efforts to sit near that location (Rule 174(a)).

Informal does not mean unprepared. The pre-trial obligations still apply: the court expects informal discovery before formal discovery, and stipulation of facts that fairly should not be disputed (Rules 70 and 91). Documents that would be excluded in a regular trial may come in, but their weight is still for the judge.

From petition to trial session

The election is made on the petition form itself. The court's guidance for petitioners says of line 4: “If you do not check a box, the Court will file your case as a regular case.” A regular case can be converted later under Rule 171(c), but a petitioner who intends S status should check the box, because the docket number, the notice of trial and the pretrial order all follow from it. The court's own eligibility table applies the $50,000 test differently by case type: for a deficiency case the “Deficiency in dispute (including any additions to tax and penalties) is $50,000 or less for any one year”, while for a CDP case the “Total amount of unpaid tax is $50,000 or less for all years combined”. A penalty is tested with the tax for the year it attaches to, so a $40,000 deficiency with a $10,000 accuracy-related penalty qualifies and a $45,000 deficiency with a $9,000 penalty does not; interest is outside both tests. Where the taxpayer concedes part of the deficiency in the petition, only the amount placed in dispute counts (IRC 7463(a) and (c)), which is how a $60,000 notice can produce an S case.

After the answer, Counsel refers the case to Appeals under Rev. Proc. 2016-22, and most S cases settle there or with Counsel. Those that do not are calendared: “The Tax Court will issue either a notice for S cases or a notice for regular cases setting your case for trial generally about five months before the trial date.” The notice comes with a Standing Pretrial Order for Small Tax Cases, which differs from the regular order in one practical respect: “You must file a pretrial memorandum in a regular case. You should submit a pretrial memorandum in an S case.” Submit one anyway; it is the only written argument the judge will see, since Rule 174(c) says briefs will not be required unless the court directs. The order also sets the deadline for the stipulation of facts and for exchanging documents, and the court warns that regular mail sent to Washington within a week of the session may not arrive in time. Many trial cities have no permanent courtroom, so the notice of trial, not the Form 5 request, tells the client where to appear.

The session opens with a calendar call on the first morning, at which the trial clerk calls every unsettled case and the judge sets trial times for the week. Non-appearance is fatal: “If you do not come to court for the calendar call or at the date and time set for trial and you have not been otherwise excused by the Tax Court, your case may be dismissed for failure to prosecute and a decision may be entered against you.” A fully stipulated case can be submitted without trial under Rule 122.

The judge may deliver a bench opinion orally during the session, with a transcript mailed afterward, or issue a written opinion later. For S cases the written opinion is a summary opinion: “A Summary Opinion is issued in an S case. A Summary Opinion cannot be relied on as precedent, and the decision cannot be appealed.” That is the statute at work: IRC 7463(a) says a decision “together with a brief summary of the reasons therefor” satisfies the court's findings-and-opinion requirements, and IRC 7463(b) bars review and precedential use. Summary opinions are useful for seeing how judges weigh substantiation evidence, but they cannot be cited to the court or to Appeals as authority, and neither side may appeal.

S cases in Appeals

A docketed S case is referred to Appeals like any other (Rev. Proc. 2016-22). Two differences matter:

• Timing. For S cases, and regular cases with $50,000 or less a year at issue, Counsel may recall the case after six months; otherwise Appeals returns it so Counsel receives it at least 30 days before the calendar call (Rev. Proc. 2016-22, sec. 3.07). Larger cases stay with Appeals until 10 days after they appear on a trial calendar.
• Specific dollar settlements. Appeals may settle a small tax case for a stipulated amount approximating the computed tax, where the issues are nonrecurring, only years in Appeals are affected, and there is one taxpayer (IRM 8.6.4.2.3). For this purpose a small tax case includes a non-docketed case that would qualify as an S case if docketed.

The settlement standard is otherwise the same; see hazards of litigation.

What does not change in an S case

Several rules are the same as in a regular case. The petition is still due 90 days (150 if the notice is addressed outside the United States) after the notice of deficiency is mailed, and electing S status does not extend that (IRC 6213(a)). Assessment remains barred until the decision is final, and the assessment period stays suspended until then plus 60 days (IRC 6213(a); IRC 6503(a)). The burden of proof rules in IRC 7491 apply, including the IRS burden of production on penalties against individuals (IRM 8.6.4.2.6). Publication 5's warning that the court can impose a penalty of up to $25,000 for a case brought primarily for delay or on a frivolous position is not limited to regular cases.

A settlement in Appeals is closed the same way, by a stipulated decision that the taxpayer signs as an offer and Counsel files (Rev. Proc. 2016-22, sec. 3.15). On the docket, the court marks small cases with an S after the docket number; other suffixes identify other case types, such as L for CDP cases and P for passport cases (IRM 8.4.1.3.1).

Choosing between S and regular

Because S status can be requested any time before trial (Rule 171(c)), a petitioner can file as a regular case and request S status once the issues are narrowed, or elect at filing knowing that either side may later ask to discontinue (IRC 7463(d)). The rules allow either sequence.

Questions practitioners ask