Can a Tax Court Case Settle? | Kathryn Meyer Law PC

Yes, and most do. Once a case is docketed, IRS counsel generally sends it to the IRS Independent Office of Appeals for settlement talks unless Appeals already decided it or you decline, and the parties can keep negotiating with IRS counsel right up to trial. A settlement ends the case with a stipulated decision the judge enters, so you do not have to try the case at all.

Settlement is not automatic, and its timing follows a set track inside the IRS and the court's own rules on cooperation and stipulation. Knowing that track helps you use the time well. Settlement and trial run side by side in Kathryn Meyer's tax litigation practice.

How settlement works in a docketed case, step by step

The IRS describes its process in Revenue Procedure 2016-22, and the Tax Court Rules set the court's expectations.

The petition and the answer. The petition is covered in how to file a petition in the U.S. Tax Court. After you file, the IRS has 60 days to answer (Rule 36). Under Rule 38 the case is "at issue" when the answer is filed, or later if a reply is required.
Referral to Appeals. Under section 3.01 of Rev. Proc. 2016-22, IRS counsel refers docketed cases to Appeals for settlement consideration unless Appeals issued the notice of deficiency or determination, or you tell counsel you want to skip Appeals. Section 3.04 says the referral generally happens within 30 calendar days after the case is at issue.
Appeals holds the settlement authority. While Appeals has the case, it alone can settle it (section 3.05). Counsel may ask to join the conference and keeps preparing for trial, which can include informal discovery conferences.
Appeals returns the case if it does not settle. In small cases, and regular cases with $50,000 or less per year, counsel may recall the case after six months, and Appeals must return it at least 30 days before the calendar call. In other cases, Appeals returns it when it concludes the case will not settle or within 10 days after the case appears on a trial calendar, whichever is sooner (section 3.07).
Talks continue with counsel. After the case comes back, settlement discussions continue with the IRS attorney preparing it for trial.
The settlement is written up. The parties sign a stipulated decision, and the case closes when the judge enters it. The court's guidance notes that if the IRS sends a "no change" letter after you petition, it will usually prepare a stipulated decision consistent with that letter.

IRS Publication 5 puts it plainly: a petitioner who did not appeal within the IRS "will normally have an opportunity to attempt settlement with Appeals while you are waiting for your trial," and need not appear at trial if the case settles first. The Appeals process itself is described in what happens at an IRS Appeals conference.

What the court expects of both sides before trial

Rule	What it requires	Why it matters for settlement
Rule 70(a)	The parties should try informal consultation before formal discovery; discovery may not start until 30 days after the case is at issue and must finish 45 days before the trial calendar call	Exchanging documents informally often narrows or ends the dispute
Rule 90	Requests for admission; a matter is deemed admitted unless answered within 30 days	Unanswered requests can concede key facts
Rule 91(a)	The parties must stipulate "to the fullest extent" all relevant facts, documents and evidence that "fairly should not be in dispute"	A thorough stipulation shows each side what is really left to fight about
Rule 124	Voluntary binding arbitration of factual issues, or nonbinding mediation, on motion	A neutral can resolve a narrow fact question or help bridge a gap
Rule 155	After an opinion, the parties submit computations within 90 days	Even a partial win or loss is turned into numbers by agreement where possible

If settlement talks stall, the court's pretrial countdown keeps running; its deadlines are set out in what happens before a Tax Court trial.

What a settlement covers, and what comes after

A Tax Court settlement fixes the deficiency, the penalties and any overpayment for the years named in the petition. It does not have to be all or nothing: the IRS may concede one adjustment, you may concede another, and a third may be resolved at an agreed amount. The stipulated decision states the figures the judge enters; interest on any tax owed then runs from the original due date until it is paid, as the court's guidance explains, so the final bill is larger than the decision figure.

If the case is tried instead and the judge decides some issues each way, Rule 155 lets the parties file agreed computations within 90 days after the opinion. If they cannot agree, each side files its own computation and the court decides the correct amount, without reopening the issues it has already decided. Either way, the amounts trace back to the adjustments in the original notice, which is why the notice is the place to start; see what to do when you receive a notice of deficiency.

Once the decision is final, the IRS assesses the tax and ordinary collection rules apply. A balance you cannot pay at once can still be addressed through a plan, a hardship pause or, where the numbers support it, the options described in whether you qualify for an IRS offer in compromise.

What changes the answer

Whether Appeals already decided the case. If Appeals issued the notice of deficiency, Rev. Proc. 2016-22 generally keeps the case with counsel, unless Appeals asked for its return because it could not fully consider an issue before the assessment deadline.
Issues designated for litigation. Counsel will not refer a case or issue designated for litigation, and in limited cases may decline referral as not in the interest of sound tax administration (section 3.03).
New issues. If you raise a new issue while Appeals has the case, Appeals tells counsel, and the IRS may ask the examination function for its views (section 3.13), which can slow things down.
The strength of the record. Publication 4227 describes Appeals as weighing the strengths and weaknesses of each side's position, and the burden of proof shapes that weighing; see who has to prove what in a Tax Court case.
Penalties. Penalties can be settled separately from the tax, and the IRS's own procedural requirements for them can affect leverage; see what penalties the IRS can add after an audit.
A qualified offer. Under IRC 7430(g), a written offer designated as a qualified offer, made between the first letter offering Appeals review and 30 days before the case is first set for trial, can affect whether you recover costs; see whether you can recover your legal fees if you beat the IRS.

For example: a home office and a penalty

For example, imagine a consultant who petitions the Tax Court over a notice of deficiency disallowing a home office deduction and certain travel, plus an accuracy-related penalty. He never went to Appeals during the audit, so after the IRS answers, counsel refers the case to Appeals. At the Appeals conference he brings floor plans, a mileage log and client invoices. Appeals agrees the home office is supported, the parties remain apart on part of the travel, and the penalty is conceded. Because his case is a regular case with less than $50,000 at stake for the year, Appeals must return it to counsel no later than 30 days before the calendar call if it has not settled. Back with counsel, the two sides prepare a stipulation of facts under Rule 91, which narrows the travel issue to a handful of trips, and they settle those days before trial. The case ends with a stipulated decision. This is a hypothetical, not a real case.

Common mistakes in Tax Court settlement

Waiting for Appeals to ask for documents. Organized records sent early make settlement more likely.
Raising new issues late. New issues can be sent back for examination and delay a settlement.
Ignoring requests for admission. Rule 90 treats unanswered requests as admitted after 30 days.
Treating the stipulation as a formality. Rule 91 requires stipulating everything that fairly should not be in dispute, and refusing to do so can hurt credibility with the court.
Assuming interest stops. Interest keeps running on any tax ultimately owed, so the settlement amount is not the final bill.
Forgetting the trial calendar. Appeals' time with the case is limited, and the trial date does not move because talks are going well.

What to do this week

Confirm whether Appeals considered the case before the notice of deficiency, and whether you want Appeals involved now.
Organize the records for each adjustment in the notice, in the same order as the petition's assignments of error.
Decide what you can stipulate now, and draft proposed stipulations.
Consider whether a qualified offer makes sense, and calendar the cutoff 30 days before the first trial setting.
Note every court deadline: discovery cutoffs, responses to requests for admission, and the calendar call.

Frequently asked questions

Can you skip Appeals and go straight to IRS counsel?

Yes. Rev. Proc. 2016-22 says counsel will not refer the case if you notify counsel that you want to forgo settlement consideration by Appeals.

Does settling mean you agree you did something wrong?

No. A stipulated decision sets the amount owed for the years in the case; it is a resolution of the dispute, not a finding of misconduct.

Can the judge help the parties settle?

Rule 124 allows nonbinding mediation on a joint or unopposed motion. A Tax Court judge or special trial judge may act as mediator if the motion asks for one and the Chief Judge designates one.

What if the IRS concedes after you file?

The court's guidance says that after a "no change" letter, the IRS will usually prepare a stipulated decision consistent with it, which closes the case once entered.

Can you still pay over time after a settlement?

Yes. Once the decision is entered and the tax assessed, normal collection options apply; see the IRS payment plan options.

Is settlement different in a refund suit?

Rev. Proc. 2016-22 covers only cases docketed in the Tax Court; refund suits follow the procedures of the court where they are filed. The forums are compared in Tax Court, district court or the Court of Federal Claims.

Can a small tax case settle the same way?

Yes. Small cases follow the same referral process, with the six-month recall rule in Rev. Proc. 2016-22; see small tax case or regular case.

Preparing a case that can settle

Cases tend to settle on the strength of the record built before and after the petition, and on a realistic view of how a judge would see it. Kathryn Meyer spent more than two decades in the IRS Office of Chief Counsel, the office that negotiates and tries these cases for the IRS, and now represents taxpayers on the other side of the table. If you have a docketed case, contact the firm or call (571) 560-8674.

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