By Laura Saunders

Are you dreaming of taking the Internal Revenue Service to court? Your chances of winning may not be as bad as you think, and it isn't crazy to represent yourself.

These insights come from data compiled by National Taxpayer Advocate Nina Olson, who is charged with representing taxpayer interests before the IRS and Congress. Each year, Ms. Olson publishes a deep dive into the IRS's civil litigation as part of her annual report to Congress, which was released this week.

This year's report analyzes results from 609 federal tax decisions on the most-litigated code sections for the 12 months ended May 31. Most of the cases were in Tax Court, a specialized forum devoted to taxpayer conflicts with the IRS.

A big winner in the recent survey was billionaire Sumner Redstone. A judge ruled that because Mr. Redstone relied on professional advice, he didn't owe a penalty of up to $368,800, plus millions in interest, for a gift-tax return he should have filed in 1972 but didn't.

The IRS had the upper hand in most of the cases surveyed by Ms. Olson. The agency won about three-quarters of them outright, while taxpayers won only about 10% outright. The rest were split decisions.

But overall results obscure important little victories. In the largest category of cases, which involved a 20% penalty for negligence and large underpayments, taxpayers won total or partial victories in about 30% of decisions. Taxpayers also got good news in about one-third of cases on business expense write-offs, the fifth-largest category.

A common thread running through many decisions was record-keeping. For example, a Tax Court judge ruled that an Arizona couple with a landscaping business didn't owe the IRS about $12,000 in penalties because they had good records showing they relied on the advice of a tax preparer.

In another case, a Missouri couple won a deduction for nearly $7,000 of car and truck expenses for a small business. While they didn't have the written records the IRS likes to see, the judge believed their oral testimony, which was "specific and detailed."

Careful records don't help if a deduction simply isn't allowed, however.

When a Maryland couple with their own company and two children under 12 showed the Tax Court a spreadsheet listing "business expenses" for vendors such as Macy's, Toys "R" Us, and Hair Cuttery, the judge disallowed the deductions because they were personal expenses for the benefit of the children.

Ms. Olson's report also offered interesting details on taxpayers and their representation in court. Overall, taxpayers represented themselves in about 60% of the cases, winning about 17% of the time. By contrast, taxpayers represented by approved specialists such as lawyers won about 22% of their cases -- which isn't much higher.

"If taxpayers are prepared and have good facts, good records, and good manners, it's entirely possible for them to represent themselves and win, " says Harry Bergland, a CPA in Richmond, Calif., who advised a couple who represented themselves in Tax Court and won late last year.

Taxpayers in one category of cases nearly always argue on their own behalf -- those fighting a penalty up to $25,000 for making frivolous arguments to the IRS. These taxpayers often lose.

In one case reviewed by Ms. Olson, the taxpayer assured a Tax Court judge that he didn't owe the IRS $3,840 of tax and penalties for dozens of reasons, including that he was a citizen of California, not the U.S., and that he had his own definition of income. Asked to provide it, he said, "It's a catwith a pink bow."

After warning the taxpayer four times, the judge imposed a $3,500 penalty.

Write to Laura Saunders at laura.saunders@wsj.com

(END) Dow Jones Newswires

January 13, 2017 12:19 ET (17:19 GMT)

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