Q: I got a notice of deficiency from the IRS for about $2,000. I filed a petition, but is it worth it to go to tax court?
I'm not sure if it would be smarter to just pay the owed taxes or to take my case to tax court and risk potential penalties. I'm not sure why I owe this money to the IRS, it has something to do with a deduction for being a student. I was a part time student in 2016, which I thought qualified me for the tax credit.
A:
When you petition the tax court you are usually given the opportunity to resolve it with a settlement officer prior to going to court. Ask them to explain (and provide you with the rule) why you owe the tax.
If you took the american opportunity tax credit you need to be a half time student (not all part-time students qualify). You can only take this credit for four years. It is also only partially refundable. If you had zero tax due to begin with you will not get a refund of the full credit.
If you took the lifetime learning credit this is not refundable at all so it will only help to lower the tax that you owe. It will not create a tax refund for you.
The above are the most common mistakes that I see people make with the credits. If you talk to the IRS and still do not understand why you owe the tax, I would suggest giving one of us a call. I never have a problem with explaining something to someone (I do not charge for this). It is likely that if the settlement officer is providing you with an explanation that you would not have a case but it never hurts to run it by an attorney.
If it turns out that you do owe the tax, you can ask for a first time penalty abatement. Since it sounds like you were audited there is no guarantee that it will be granted but it never hurts to ask. Ask for this after you have paid the original tax due in full.
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