Part One of this series explained why e-filing a tax return as quickly as possible is not always the best outcome for a client with IRS debt. This part looks at a second situation where putting the brakes on e-filing can protect taxpayer rights.  

Scenario: “My ex claimed our child” (and other e-file rejections) 

You prepare the tax return after a thorough interview, and then the e-file is rejected: the child’s TIN has already been claimed. This situation is all too common especially when parents are separated or divorced. If you find yourself asking, “should the client change the tax return in order to e-file?” – ? stop ?! This is a great time to connect the client with an LITC.  

At this point the client needs to choose their path: (1) file the tax return on paper, claiming everything they deserve, including the child-related tax benefits; or (2) remove the child so the tax return will e-file, and possibly file a complete amended return after the first return is processed.  

Why does it matter? To maximize legal rights (read: the strongest chance of getting the funds they deserve), a client must claim everything they are entitled to on their original return.  

Taxpayer Rights on Original Tax Returns 

If the IRS questions an item claimed on an original return, in most cases the taxpayer has strong appeal rights, called “deficiency procedures.” These are required by Internal Revenue Code section 6213. A typical case proceeds like this: 

1. The IRS sends a letter asking for proof of the item(s) the IRS is auditing.  

2. If the IRS is not satisfied by the response, they will send a “30-day letter” proposing changes to the return. This letter gives the taxpayer the right to request an administrative appeal.  

3. If no agreement is reached with IRS Appeals or there is no response to the 30-day letter, the IRS will send a “notice of deficiency.” This letter gives the taxpayer 90 days to file a petition with the U.S. Tax Court if they disagree with the proposed deficiency.  

Importantly, the IRS cannot make any changes to the tax return until the appeal period passes. And if a petition is filed, the IRS cannot make any changes until the Tax Court decides the case. The Court will decide if the taxpayer is entitled to the items they claimed.  

There is one big exception to this process: so-called math errors. For example, Congress authorized IRS to reduce claims for the Recovery Rebate Credit to account for advance credits paid. Because IRS had “math error” authority, it did not need to give taxpayers deficiency procedures before changing their Recovery Rebate Credits. Math error notices give a taxpayer 60 days to object and request deficiency procedures, but many people miss the deadline or do not understand their rights. The National Taxpayer Advocate urged Congress to limit the IRS’s use of this process in her 2023 Green Book, explaining that deficiency procedures are central to taxpayer rights.  

What is the Tax Court Process? 

The Tax Court has extensive guidance on its website for taxpayers, because most people who appeal to the Tax Court do not have an attorney.  

To appeal to the Tax Court, taxpayers need to complete a 2-page petition form, and a few other forms required by the Court. The filing fee is $60. If that is unaffordable, the petitioner can request a waiver. The petition can be filed online or by mail to the Tax Court in Washington, D.C.  

Most cases in Tax Court settle, meaning they are resolved without a trial. If the IRS and the taxpayer can’t reach an agreement, and there are disputed facts that the Court needs to decide, a trial will be scheduled. The taxpayer can choose their place of trial. Trials can be in person or online. In a trial, the taxpayer has the right to testify and bring witnesses.  

Taxpayer Rights on Amended Returns  

In contrast, IRS approval of an amended return (Form 1040X) is discretionary and there is no right to a Tax Court appeal.  

If the IRS denies a 1040X claim, the taxpayer can appeal to the IRS Independent Office of Appeals. Appeals will review any new documents, and the taxpayer will have the opportunity to speak with an Appeals Officer over the phone. The taxpayer can ask to meet by video conference or in person, but they do not have the right to any particular type of conference.  

Appeal conferences are informal and there is no process for sworn witness testimony. A taxpayer needs documents to prove their case most of the time. This is especially difficult with child-related claims.  

If Appeals continues to deny the claim, the taxpayer could potentially file a refund lawsuit in a federal district court. There are strict time limits for this that can be confusing: the deadline to sue can expire before the Appeals hearing if the Appeals process takes too long.  

What is the federal district court process? 

Federal district courts can decide refund claims if the procedures for refund claims (including time limits) were followed. If the original return showed tax due, or if the IRS made an adjustment to the return, all tax owed must be paid before a person can sue for a refund.  

The federal district court process is not as navigable for self-represented people as the Tax Court process, and each court has its own local rules. Many district courts have guidance for self-represented people, but it is much less comprehensive than the Tax Court’s guidance. District court is also more expensive than Tax Court. The fee to file a complaint is currently $402. There is a waiver process called “motion to proceed in forma pauperis.”  

LITCs sometimes file cases in federal district court, but much less often than they file in Tax Court. It is a more burdensome process for both the attorney and the client. The government can subpoena extensive records from the taxpayer and third parties and can ask for depositions of the taxpayer and any third-party witnesses. This does not happen often in Tax Court, because the Tax Court requires informal exchanges of information.  

Taxpayers have the right to a trial with witness testimony in district court, if the Court finds that all procedures were complied with and there are facts that the court needs to decide. It is very hard for self-represented people to comply with all the laws and procedures. Cases are often dismissed for failing to follow the strict rules governing refund claims and suits.  

The E-File Rejection Bottom Line 

Taxpayers who remove a child to e-file are giving up their right to have a free (or cheap), self-navigable court decide their claim. Some clients choose to do this, but they need to understand what they are giving up. Especially in cases that involve testimony rather than just documents, the right to a Tax Court trial can be the difference between winning and losing the refund.