A notice of deficiency lands in a Redlands mailbox in early October, and in the corner is a date: the last day to petition the Tax Court. The petition asks whether you want a small tax case and which city you want for trial. Most people answer in seconds, and neither answer is easy to take back.
In September the Court added Sacramento as a trial city. That is a convenience, not new tax law. The decisions around it are what count, and they start with whose law applies.
Why does Ninth Circuit law control a California Tax Court case?
Since Golsen v. Commissioner, 54 T.C. 742 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971), the Tax Court has followed “a Court of Appeals decision which is squarely in point where appeal from our decision lies to that Court of Appeals and to that court alone.” For Californians, that is the Ninth Circuit.
Under 26 U.S.C. § 7482(b)(1)(A), an individual appeals to the circuit of legal residence when the petition is filed, so the trial city you pick does not change it.
The filing deadline is the sharpest example. Organic Cannabis Foundation, LLC v. Commissioner, 962 F.3d 1082 (9th Cir. 2020), held the 90 days in 26 U.S.C. § 6213(a) jurisdictional, so no equitable tolling. The Third Circuit disagreed in Culp v. Commissioner, 75 F.4th 196 (3d Cir. 2023), and the Second, Sixth and Eighth Circuits have since joined it (Buller, Oquendo, Maniktala). A late Pennsylvania filer may get a tolling hearing; a Californian should assume none (my post on missing the 90-day deadline covers what still works).
Two unmarried co-owners argued the mortgage interest debt limits applied to each of them. The Tax Court said no in Sophy v. Commissioner, 138 T.C. 204 (2012); the Ninth Circuit reversed in Voss v. Commissioner, 796 F.3d 1051 (9th Cir. 2015), and the IRS later said in AOD 2016-02 it would follow Voss. On the small-case track, which allows no appeal, they would have lost for good.
A regular-case appeal is noticed within 90 days after decision under 26 U.S.C. § 7483 and argued at a Ninth Circuit courthouse such as San Francisco or Pasadena. To stop collection meanwhile, section 7485(a) requires a bond of up to double the deficiency appealed.
Should I check the small tax case box on my Tax Court petition?
26 U.S.C. § 7463 allows S status when the deficiency in dispute is $50,000 or less for any one year, and section 7463(e) counts penalties in that figure. A $42,000 deficiency with an $8,400 penalty misses. In a collection due process case, section 7463(f)(2) tests the unpaid tax instead.
The Court must concur. Rule 171 lets the IRS oppose with its answer and lets the Court remove the designation before trial, and section 7463(d) allows discontinuance if the amount proves too large. One benefit is easy to overlook. Section 6214(a) lets the IRS seek a bigger deficiency than its notice stated “Except as provided by section 7463,” and section 7463(c) caps an S decision at the limit.
The cost is finality. An S decision “shall not be reviewed in any other court and shall not be treated as a precedent for any other case” under section 7463(b). In exchange, Rule 174(b) admits “any evidence deemed by the Court to have probative value,” and a special trial judge may decide the case under 26 U.S.C. § 7443A(c). For a shoebox-of-receipts case, that informality is worth a lot.
So I turn down S status when a legal question turns on Ninth Circuit authority that helps, since only an appeal fixes a misreading. I also hesitate when a year sits near $50,000 and more adjustments are possible.
Is a notice of deficiency sitting on your desk with the 90-day date circled? The trial city and the small-case election are both made on the petition itself, and undoing either later takes a motion the Court can refuse.
Which California city should I request for a Tax Court trial now that Sacramento is on the list?
The Court’s September 8 announcement brought the national total to 79. The revised Form 5 lists five California cities: Fresno, Los Angeles, Sacramento, San Diego and San Francisco. The Court also stopped reserving cities for small cases. Fresno carried that limit on the Court’s older request form, so a regular case can now be set there too.
The request is a separate paper filed with the petition under Tax Court Rule 140(a). Changing it later takes a Rule 140(b) motion, which may be denied as dilatory once the trial notice is out.
From Riverside or San Bernardino, Los Angeles is usually right. The Court has permanent courtrooms in the Roybal Federal Building, and in mid-October its public list showed Los Angeles sessions every month or two into 2027. Sacramento and Fresno have no permanent courtroom and no session posted yet. I look first at where the witnesses and records are. The Court also holds trials by Zoomgov and now posts standalone remote sessions.
Will my Tax Court case go to trial, and what is the new reporting calendar?
Usually not. Under Rev. Proc. 2016-22, IRS Chief Counsel refers a docketed case to Appeals within 30 days after it is at issue, unless Appeals issued the notice, the taxpayer opts out, or Counsel designated it for litigation. In an S case or a regular case at $50,000 or less a year, Counsel may recall it after six months. Unsettled cases get a standing pretrial order; the Court’s small-case sample orders settlement talks and a stipulation of facts as soon as possible.
The pilot starts no earlier than the Fall 2027 term. The Court may place cases on a “reporting calendar” that assigns a judge and a standing scheduling order instead of a trial date, with trial set only if needed. Traditional calendars continue and details are promised later. I expect an assigned judge to push for narrowed issues sooner, which moves preparation earlier.
What does the Franchise Tax Board do after my Tax Court case ends?
Cal. Rev. & Tax. Code § 18622(a) requires you to report a federal change within six months after the final federal determination and “concede the accuracy of the determination or state wherein it is erroneous.” Individuals report only changes that raise California tax. Section 18622(d) dates the final determination from the IRS assessment, not the court decision.
A timely report gives the FTB two years from the report, or its ordinary period if later, under section 19059(a). With no report, section 19060(a) lets it assess “at any time.” The Office of Tax Appeals presumes an assessment built on a federal adjustment correct, as in Appeal of Gorin, 2020-OTA-018P.
The work is in the California differences: state conformity on each adjusted item and California’s own accuracy penalty under section 19164. If the FTB proposes tax from its own audit, you protest within 60 days under section 19041, then appeal to the Office of Tax Appeals within 30 days of the FTB’s action under section 19045. Those clocks run on their own, so both tracks can be open at once.
How would a Redlands couple handle a two-year notice of deficiency?
An illustrative case. A Redlands couple’s notice, mailed October 2, 2026, proposes $38,000 of 2023 tax plus a $7,600 accuracy penalty ($45,600), and $14,000 for 2024. Ninety days runs to Thursday, December 31, 2026, and a petition filed by the date printed on the notice is timely under section 6213(a).
Each year is under $50,000, and since the designation attaches to the case, both years move together. If the dispute is receipts and mileage for her consulting business, I would probably check the box; section 7463(c) also keeps 2023 from growing past the cap. If 2023 turns on a legal question with helpful Ninth Circuit authority, I would leave it unchecked.
Los Angeles, roughly 65 miles away, is the natural trial city. Sacramento would make sense only if a key witness lived up north, and even then a remote appearance may be easier.
Suppose Appeals settles it in spring 2027: 2023 drops to $22,000, the penalty is conceded, and 2024 stays at $14,000. If the IRS assesses on May 10, 2027, the couple must report to the FTB by November 10, 2027, and the state computes its own tax and penalty, with two years from the report to propose more.
| Feature | Regular case | Small (S) case |
|---|---|---|
| Amount limit | None | $50,000 per year, penalties included (§ 7463(a), (e)) |
| Evidence rules | Formal | Any evidence with probative value (Rule 174(b)) |
| Who decides | Judge; special trial judge if $50,000 or less | Judge or special trial judge (§ 7443A) |
| Appeal | Ninth Circuit, notice within 90 days (§ 7483) | None for either side (§ 7463(b)) |
| Precedent | Yes | None |
| IRS increase | Allowed (§ 6214(a)) | Capped at the limit (§ 7463(c)) |
| Time to trial | Same calendars; Appeals keeps the file until settlement fails or 10 days after calendaring | Same calendars; Counsel may recall from Appeals after six months |
| Best for | Legal issues, Ninth Circuit authority, big years | Fact fights well under the cap |
Frequently Asked Questions
Can I change my Tax Court trial city after I file?
Yes, by a Rule 140(b) motion stating the reasons. After the trial notice is served, the Court may deny it as dilatory.
Does choosing Sacramento instead of Los Angeles change which law applies?
No. Your legal residence when you file sets the appeals court, so California individuals are in the Ninth Circuit.
Can I appeal a small tax case decision?
No. Section 7463(b) bars review in any other court, for the IRS too. The decision is also not precedent.
Do penalties count toward the $50,000 small case limit?
Yes. Section 7463(e) includes penalties and additions to tax, measured year by year in a deficiency case.
Do I have to tell the Franchise Tax Board about my Tax Court result?
If it raises your California tax, yes, within six months after the IRS assesses it. Without a report, the FTB can assess at any time.
How North Star Law Firm Can Help
North Star Law Firm prepares Tax Court petitions and handles the Appeals and FTB follow-up through its Tax Court and Office of Tax Appeals, tax defense and penalty abatement practices. Phillip Zagotti is a California attorney and a CPA admitted to the U.S. Tax Court.
If your notice has a date circled on it, contact North Star Law Firm or schedule a consultation before you fill out the petition.