Tax controversies affecting New York taxpayers arise at both the federal and state levels. Both the federal and New York tax systems operate through voluntary reporting and filing regimes, under which taxpayers file returns reporting their tax liabilities, and the relevant taxing authority examines those returns, determines any additional tax due, and enforces collection. The relevant taxing authorities are the Internal Revenue Service (IRS) at the federal level and the New York State Department of Taxation and Finance (“Department”) at the state level.

At the federal level, most controversies arise in connection with the IRS’s examinations of filed returns. For federal taxes subject to deficiency procedures – including income, estate, gift and certain excise taxes – disputes typically arise when the IRS proposes adjustments during audit and, if unresolved administratively, issues a notice of deficiency (NOD). That notice permits pre-payment judicial review in the United States Tax Court (“Tax Court”). Alternatively, a taxpayer may pay the asserted liability and pursue a refund claim, followed by litigation in a US district court or the United States Court of Federal Claims (“Claims Court”).

For federal liabilities not subject to deficiency procedures, including many employment and excise taxes and numerous assessable penalties, disputes generally arise after assessment and proceed in the collection context, including through collection due process (CDP) proceedings. Partnership disputes may also arise at the entity level under the centralised partnership audit regime.

Federal controversies also arise from refund claims, where taxpayers assert overpayment and the IRS denies or fails to act on the claim, and from amended returns, where taxpayers correct self-identified errors. In addition, disputes may develop during the IRS’s information-gathering process, including disagreements over information requests, scope, burden, privilege or timing that lead to summons enforcement proceedings.

At both the federal and state levels, controversies may also include civil penalties, collection actions and, in certain cases, criminal investigations. In New York, state-level controversies commonly involve residency and domicile, allocation and apportionment, sales and use tax, withholding, and the state consequences of federal adjustments. In appropriate cases, controversies may also arise at the city level, including with respect to taxes administered by the New York City Department of Finance.

Tax controversies in New York are driven by the scale of the federal and state tax systems, the complexity of reporting obligations, and the enforcement priorities of the relevant taxing authorities. By volume, many disputes arise from income tax returns of individuals and closely held businesses, often involving income matching, withholding, basis reporting and substantiation issues. These disputes frequently concern discrepancies between taxpayer filings and third-party information reporting. At the state level, significant disputes also commonly involve residency and domicile, sourcing of income, sales and use tax, and the effect of federal adjustments on New York tax liabilities.

By contrast, the most significant disputes in terms of value and complexity typically involve large corporate taxpayers, partnerships, estate and gift matters, and international issues. These disputes often concern transfer pricing, valuation, the timing and character of income, the allocation of deductions across jurisdictions, foreign tax credits, withholding obligations and international reporting requirements, all of which are governed by detailed rules, subject to heightened scrutiny, and often involve fact-intensive disputes with substantial amounts at stake. Employment tax controversies are also common in cases involving worker misclassification and withholding. Estate and gift tax controversies, while less frequent, often involve substantial amounts and focus heavily on valuation issues, particularly for interests in closely held entities. At the state level, businesses may also face disputes concerning nexus, apportionment, and sales tax collection and exemption issues.

At the federal level, the IRS’s organisational structure further shapes controversies. Divisions such as the Large Business & International (LB&I) division and the Small Business/Self-Employed (SB/SE) division apply different audit approaches and focus on distinct compliance risks, leading to large and technically intensive disputes in areas where the IRS concentrates specialised resources. Finally, penalties play an increasingly prominent role in controversies at both the federal and state levels, as they often form a core part of the dispute and materially affect settlement dynamics.

Tax controversy risk is reduced through careful reporting and the strategic use of available administrative procedures. At the filing stage, positions should be supported by adequate documentation and consistent with third-party reporting. Where uncertainty exists, federal disclosure mechanisms – such as Form 8275 or, for certain corporate taxpayers, Schedule UTP – may reduce penalty exposure. In New York, by contrast, controversy risk is more often reduced through careful reporting, contemporaneous support and early administrative engagement.

At the federal level, pre-filing engagement with the IRS can also mitigate risk. Procedures such as private letter rulings (PLRs), pre-filing agreements (PFAs), advance pricing agreements (APAs), closing agreements, amended returns and voluntary disclosures allow taxpayers to address uncertain issues before an audit. Contemporaneous documentation remains critical, as records supporting reporting positions can narrow disputes and reduce adjustments, while incomplete documentation may broaden examinations.

Effective management of the examination process is equally important. Disputes often arise from inconsistencies, complex positions and areas involving significant judgement. At the federal level, early engagement with the IRS, clear communication regarding scope, and disciplined responses to information requests can prevent unnecessary expansion of issues and support earlier resolution. At the state level, similar discipline in reporting, documentation and administrative engagement may likewise reduce controversy risk, particularly in areas such as residency, sourcing, and sales and use tax.

International initiatives to combat tax avoidance, particularly the OECD’s Base Erosion and Profit Shifting (BEPS) project, have significantly influenced the US tax controversy landscape, including for taxpayers with New York operations or reporting obligations. Although the US has not adopted EU-specific anti-avoidance measures, BEPS-related concepts have influenced US controversy practice through expanded reporting, greater information exchange and increased co-ordination among tax administrations. These developments have not reduced controversy but have shifted it toward more complex, data-intensive disputes. Recent changes under BEPS 2.0, particularly Pillar Two, have further increased this risk by introducing additional complexity where US taxpayers must navigate interactions between domestic rules and foreign regimes.

In the US, BEPS-related controversies arise in transfer pricing, foreign tax credits, withholding and cross-border income allocation. Increased availability of multinational data – particularly through country-by-country reporting – allows tax authorities to identify perceived inconsistencies and conduct targeted examinations. These developments also increase the risk of overlapping claims by multiple jurisdictions. As a result, taxpayers face parallel disputes across jurisdictions applying different laws, with consequences not only for federal tax positions but also for New York reporting positions and the state tax treatment of related income and deductions.

Treaty-based mechanisms, including the mutual agreement procedure (MAP), remain important tools for mitigating double taxation, but they do not eliminate controversy. Instead, they often operate alongside alongside federal administrative or judicial proceedings, increasing the complexity, cost and duration of disputes, with possible downstream consequences for state tax positions as well.

At the federal level, whether a taxpayer must pay an asserted liability before contesting it depends on the type of tax and the forum in which the challenge is brought, as explained in 1.1 Tax Controversies in This Jurisdiction.

For federal taxes subject to deficiency procedures, including income, estate, gift and certain excise taxes, taxpayers may generally seek pre-payment judicial review in the Tax Court. After the IRS issues a NOD, the taxpayer has 90 days to file a petition (or 150 days for taxpayers outside the US). During that period, and while a timely Tax Court case is pending, the IRS is generally prohibited from assessing or collecting the disputed tax, and no bond is required.

If the taxpayer does not file a timely Tax Court petition, the IRS may assess the tax and proceed with collection. Challenges then generally proceed through the refund route, requiring payment, an administrative refund claim and, if necessary, litigation in a US district court or the Claims Court. This route also applies to liabilities not subject to deficiency procedures, including many employment and excise taxes, as well as numerous assessable penalties.

After assessment, the IRS may pursue enforced collection, including through liens and levies. Taxpayers may seek review through CDP proceedings, which allow challenges to certain collection actions and, in limited circumstances, the underlying liability.

The federal tax system does not generally require posting a bond to contest an assessment, although a bond may be required to stay collection pending appeal. At the New York state level, whether a taxpayer may obtain review before payment depends on the notice issued and the protest rights attached to it. Where protest rights are available, taxpayers may generally obtain administrative review before payment by requesting a conciliation conference or filing a petition with the Division of Tax Appeals. If protest rights are unavailable or have expired, the Department may proceed with collection.

At both the federal and state levels, failure to file or pay on time may also result in civil penalties and, in appropriate cases, criminal investigations or prosecutions.

At the federal level, tax returns are selected for examination through automated review for:

• mismatches, unusual patterns and other audit risks;
• examinations related to other taxpayers or transactions under review;
• issue-focused enforcement priorities;
• whistle-blower and information-sharing leads; and
• random or statistical selection programmes.

The IRS does not publish all selection criteria but relies on risk-based scoring systems, third-party information reporting, data analytics and artificial intelligence-assisted tools.

A principal factor in audit selection is deviation from expected patterns or internal inconsistencies. The IRS compares filings with third-party information and historical data, and discrepancies such as mismatches in reported income or unusually high deductions may increase the likelihood of examination. Although there is no formal definition of a “high-risk” taxpayer, the IRS generally focuses on taxpayers whose size, structure or activities present greater compliance risk and revenue potential, including high-income individuals, complex pass-through structures, and taxpayers with cross-border activities.

Certain industries and activities receive greater audit attention due to higher compliance risk. Cash-intensive businesses and returns involving cross-border transactions, transfer pricing, Foreign Account Tax Compliance Act (FATCA) reporting, digital assets, research credits, micro-captive insurance, syndicated conservation easements, Puerto Rico residency positions and complex pass-through structures are more likely to be examined due to under-reporting risk, technical complexity and recurring compliance concerns.

Audit selection has shifted toward issue-focused campaigns that direct resources to specific transactions, industries and perceived areas of non-compliance.

In New York, audit activity is also driven by targeted enforcement priorities, particularly in residency and domicile audits, sales and use tax matters, and disputes arising from federal adjustments.

At the federal level, the IRS may initiate an audit at any time, but as a practical matter it generally does so while the statute of limitations on assessment remains open. The assessment statute of limitations therefore is the principal constraint on the timing and duration of a federal audit.

As a general rule, the IRS has three years from the date a tax return is filed to assess additional tax. Returns filed before their due date are deemed filed on that date, while late-filed returns begin the limitations period upon filing. The period is extended to six years when the taxpayer omits more than 25% of gross income, including specified foreign financial assets, and remains open indefinitely in cases involving fraud or failure to file. The period may also be extended by written agreement between the taxpayer and the IRS, which is common in complex examinations, although estate tax matters are generally excluded.

An audit itself does not suspend or interrupt the running of the limitations period. In deficiency cases, however, the issuance of a NOD suspends the period while the IRS is barred from making an assessment, including during the time to file a Tax Court petition, throughout any Tax Court proceeding, and for 60 days thereafter.

The statute of limitations may prevent a federal audit from resulting in an assessment if it expires before the IRS acts. In New York, the Department likewise generally has a three-year statute of limitations to assess additional tax, subject to limited exceptions and written extension by consent.

At the federal level, audit location depends on the type of examination and the complexity of the taxpayer’s affairs. The IRS may conduct audits by correspondence, in an IRS office or in the field (eg, at the taxpayer’s principal place of business). More substantive examinations are often conducted in an IRS office, and a single audit may involve a combination of correspondence, office and field procedures.

In federal LB&I examinations, information is principally requested through information document requests (IDRs), and both requests and responses are often exchanged through IRS-approved electronic channels. Electronic exchange is now standard in larger or more complex audits, particularly for accounting data and other electronically stored information, although paper records remain common in smaller cases and where original hard-copy records are still maintained.

In New York, audits are generally conducted as desk audits or field audits, and taxpayers may provide records in paper or electronic form, while the Department may also communicate electronically during the examination.

At both the federal and state levels, examiners focus on matters that may materially affect the determination of the correct tax liability. Examinations are risk-based, with scope and depth shaped by the nature of the tax return, the presence of large or unusual items, and the need for further factual development (see 2.1 Main Rules Determining Tax Audits). In practice, auditors evaluate substantive tax positions, filing compliance and relevant third-party information. From a procedural perspective, auditors assess compliance with required filing and reporting obligations, including related returns and information reporting regimes.

Documentation is central. Auditors review source documents, ledgers, bank reconciliations and return-to-book reconciliations to substantiate income, deductions, credits, basis, inventories and valuation. Substantively, audits focus on issues requiring factual development and legal judgement, including gross receipts, deductions, accounting methods, basis, and related-party or cross-border transactions.

For taxpayers with New York operations or reporting obligations, the proliferation of cross-border information exchange and mutual assistance rules has materially expanded the IRS’s ability to identify, select and develop international issues for examination, with potential downstream consequences for New York reporting positions and state tax treatment. In practice, this has produced more targeted scrutiny of cross-border matters than a broad increase in audit volume. The relevant framework includes tax treaties, tax information exchange agreements, multilateral arrangements, intergovernmental agreements under FATCA, and country-by-country reporting. These mechanisms provide the IRS with access to foreign-sourced information concerning offshore accounts, ownership structures, banking and accounting records, residency and cross-border transactions, strengthening its ability to test positions involving transfer pricing, foreign tax credits, withholding, foreign income, offshore assets and reporting obligations.

The US also has formal mechanisms for co-ordinated work with foreign tax authorities. IRS policies contemplate simultaneous examinations and joint audits, which remain specialised tools. Even where foreign involvement is substantial, exchanges must satisfy foreseeable-relevance standards and confidentiality rules, and joint audits remain relatively uncommon.

How a taxpayer manages an audit can materially influence the outcome of the examination and whether the matter escalates to administrative review or litigation; see 2.4 Areas of Special Attention in Tax Audits. Early decisions regarding scope, communication, documentation and statute management often determine both results and procedural posture.

Governance and Strategic Control

Early engagement with experienced advisers is critical to assess exposure, manage interactions with taxing authorities and preserve privilege(s). Taxpayers should centralise audit management, maintain consistent communications and establish a clear factual and legal narrative from the outset. Audit-stage positions and submissions can materially affect credibility, penalty exposure and later proceedings.

Documentation and Information Management

The quality of contemporaneous documentation is often determinative. Organised, consistent records support resolution, while gaps may expand the audit. Responses to information requests should be targeted and disciplined, with appropriate assertions of privilege.

Escalation, Timing and Resolution Strategy

Taxpayers should monitor for signs of escalation, including specialist involvement, and reassess strategy accordingly. Early evaluation of whether issues are best resolved in examination, administrative review or litigation is essential, particularly where the same underlying facts may give rise to both federal and New York controversies.

As discussed in 1.1 Tax Controversies in This Jurisdiction, whether an administrative claim phase is available or required depends on the procedural path to review. At the federal level, in deficiency cases, review by the IRS Independent Office of Appeals (Appeals) is generally available but not required. By contrast, in refund cases, a timely administrative refund claim is a jurisdictional prerequisite to suit in a US district court or the Claims Court.

When a federal examination results in proposed adjustments, the IRS typically issues a “30-day letter”, giving the taxpayer an opportunity to seek Appeals review. To initiate this process, the taxpayer must generally submit a written protest within 30 days. In larger matters, that means a formal protest outlining disputed issues, relevant facts and supporting legal authorities; in smaller cases, a streamlined request, such as Form 12203, may suffice. Appeals then conducts an independent review and may resolve the matter through settlement. Appeals is institutionally separate from the Examination function and serves as the principal administrative forum for resolving disputes without litigation.

If Appeals is not pursued or does not resolve the dispute, the IRS may issue a NOD, permitting a Tax Court petition without prepayment. Refund litigation follows payment and a timely administrative claim.

These federal procedural paths do not apply uniformly: assessable penalties and certain employment or excise tax matters follow different administrative routes and may be contested through post-assessment claims, Appeals or refund litigation rather than Tax Court review.

At the New York state level, where protest rights are available, taxpayers may generally challenge a notice by requesting a conciliation conference through the Bureau of Conciliation and Mediation Services (BCMS) or by filing a petition with the Division of Tax Appeals.

As discussed in 3.1 Administrative Claim Phase, at the federal level there is no single deadline by which the IRS must resolve all administrative claims; timing depends on the procedural posture of the claim.

Refund claims are the clearest example. A taxpayer must first file an administrative refund claim with the IRS before bringing suit. The taxpayer may commence a refund action after six months of IRS inaction or upon disallowance. If the IRS issues a notice of disallowance, the taxpayer must generally file suit within two years.

By contrast, in the pre-assessment examination and Appeals process, there is no mechanism allowing a taxpayer to invoke Tax Court jurisdiction based solely on IRS inaction. As discussed in 3.1 Administrative Claim Phase, Tax Court jurisdiction arises only upon issuance of a NOD.

At the New York state level, taxpayers must generally file an administrative protest within 90 days of the date the notice was issued, although the notice itself controls the applicable deadline.

Judicial tax litigation is initiated through statutory pathways that depend on the nature of the tax dispute and the forum selected; see 1.1 Tax Controversies in This Jurisdiction and 3.1 Administrative Claim Phase. At the federal level, the principal forums are the Tax Court, US district courts and the Claims Court, although certain tax issues may also be determined in bankruptcy cases, which are beyond the scope of this guide. The choice of forum generally turns on whether the taxpayer proceeds on a pre-payment deficiency basis or a post-payment refund basis.

The principal pre-payment route is a deficiency case in the Tax Court. The IRS issues a NOD and the taxpayer must file a petition within 90 days (150 days if outside the US). Alternatively, the taxpayer may pursue refund litigation after payment. This requires a timely administrative claim and, if denied or unresolved after six months, a complaint must be timely filed in a US district court or the Claims Court. Full payment before initiating a refund action is generally required.

Specialised procedures also apply. Partnership adjustments, CDP determinations, certain worker classification and innocent spouse matters follow distinct statutory routes.

At the New York state level, judicial review generally follows completion of the administrative process before the Division of Tax Appeals and Tax Appeals Tribunal, and is then sought by CPLR Article 78 proceeding in the Appellate Division, Third Department, generally within four months after notice of the Tribunal’s decision is served.

As explained in 4.1 Initiation of Judicial Tax Litigation, federal judicial tax litigation proceeds through a structured sequence of stages, while New York state judicial review generally follows the administrative record developed before the Division of Tax Appeals and Tax Appeals Tribunal.

A federal case begins when the taxpayer files a petition (Tax Court) or complaint (refund forums). In deficiency cases, the NOD defines the initial dispute, but pleadings remain critical because they preserve claims, identify material facts and address new matters raised by the government. The government responds and may assert procedural or jurisdictional defences.

The next phase in federal litigation involves factual development, including document requests, interrogatories, depositions, requests for admission and expert discovery. In Tax Court, stipulations are emphasised to narrow factual disputes before trial. Motion practice may narrow issues, resolve legal questions or define the evidentiary record. If unresolved, the case proceeds to trial.

Following trial, the parties may submit post-trial briefs, after which the court issues an opinion and enters a final decision. The decision may be challenged through post-judgment motions or appealed to the appropriate federal appellate court, with discretionary Supreme Court review.

By contrast, New York state judicial review of a Tax Appeals Tribunal decision is generally record-based Article 78 review rather than a de novo trial.

Federal civil tax litigation is largely document-driven, though witness testimony remains important where facts are disputed. In Tax Court and refund litigation, the Federal Rules of Evidence apply.

The evidentiary process in federal litigation begins during pre-trial factual development. In refund litigation, this includes formal discovery tools such as document requests, interrogatories and depositions. In Tax Court, discovery is more limited, and the court emphasises the stipulation process, which requires the parties to stipulate non-privileged facts and documents not genuinely in dispute.

Documents are typically exchanged before trial and introduced through stipulation or at trial. Witness testimony is most significant at trial, and both fact and expert witnesses are subject to cross-examination.

In New York state tax litigation, the evidentiary record is generally developed in the administrative proceeding, and judicial review ordinarily proceeds on that record.

In federal civil tax litigation, the burden of proof generally rests with the taxpayer, who must show by a preponderance of the evidence that the IRS’s determination is incorrect. This standard is subject to important statutory exceptions. The burden may shift to the IRS where the taxpayer produces credible evidence and satisfies substantiation, record-keeping and co-operation requirements. The IRS also bears the burden in cases involving new issues, increased deficiencies, penalties (as to production) and civil fraud, which must be proven by clear and convincing evidence. In criminal cases, the government must prove all elements beyond a reasonable doubt, including wilfulness.

In New York state tax proceedings, the taxpayer likewise generally bears the burden of proof, and notices of deficiency are generally presumed correct unless the taxpayer establishes error.

Strategic choices in judicial tax litigation affect forum, cost, timing, interest exposure and settlement leverage; see 4.1 Initiation of Judicial Tax Litigation and 4.2 Procedure for Judicial Tax Litigation. At the federal level, taxpayers may litigate in Tax Court without prepaying a deficiency, while refund litigation is brought in US district court or the Claims Court. Forum selection also affects procedure, including the availability of a jury, case tempo and evidentiary practices.

A central consideration is early development of the evidentiary record. Taxpayers must identify the facts requiring proof, the supporting documents and witnesses, and which issues may be resolved through stipulation. In Tax Court, where stipulations are emphasised, document organisation and witness preparation are essential. Counsel should establish a clear theory of the case, co-ordinate submissions, and manage privilege and work-product concerns.

Timing and motion practice are also critical. Motions to dismiss, evidentiary motions and summary judgment may narrow issues, resolve legal questions and shape settlement leverage. Settlement should be evaluated continuously, with attention to costs, interest, penalties and broader implications.

Forum and payment decisions require careful analysis, including prepayment trade-offs and access to refund forums versus Tax Court. In New York state controversies, strategy must also account for the fact that judicial review generally follows the administrative process and proceeds by Article 78 review of the Tribunal’s decision. In both federal litigation and New York state tax proceedings, expert testimony may be critical in valuation and similar disputes.

In federal tax litigation and in New York state tax litigation, domestic law controls. Federal courts look first to the Code, Treasury regulations, applicable treaty text and binding US precedent, while New York courts look first to New York statutes, regulations and controlling New York precedent; see 4.2 Procedure for Judicial Tax Litigation. Other materials such as foreign decisions, administrative commentary and academic writing are not binding but may be considered for their persuasive value.

In cases involving treaty interpretation, foreign law, or transfer pricing, parties may cite decisions from foreign courts, including the ECJ or ECHR, or other foreign-law materials. Such authorities are not binding in either federal or New York courts.

Administrative guidance and scholarly commentary also play a secondary role. Treasury and IRS materials may frame issues and reflect the government’s position, while OECD guidance – including the Model Convention, Transfer Pricing Guidelines and BEPS-related materials – may be informative in appropriate cases, but is not self-executing absent incorporation into US law, New York law or applicable treaties.

The US has a multi-level judicial system for tax disputes see 4.1 Initiation of Judicial Tax Litigation and 4.2 Procedure for Judicial Tax Litigation. At the federal trial level, the principal forums are the Tax Court, US district courts and the Claims Court. The appropriate federal forum depends on the taxpayer’s procedural posture. Deficiency cases are generally brought in the Tax Court on a pre-payment basis, while refund litigation follows payment and an administrative claim, and proceeds in a district court or the Claims Court.

In most federal cases, there is one appeal as of right from the trial court. Appeals from the Tax Court and district courts are heard by the relevant regional U.S. Court of Appeals, typically within 90 days of the decision, while appeals from the Claims Court go to the U.S. Court of Appeals for the Federal Circuit. Further review by the Supreme Court is discretionary. The availability of appeals does not generally depend on the amount in dispute, except that small tax cases involving USD50,000 or less in Tax Court are not appealable.

In New York state tax cases, judicial review generally follows a decision of the Tax Appeals Tribunal and proceeds by CPLR Article 78 in the Appellate Division, Third Department, generally within four months after notice of the Tribunal’s decision is served. The availability of review does not generally depend on the amount in dispute, but may depend on the type of tax and any statutory payment, deposit or undertaking requirement applicable to the particular claim.

Final federal decisions of the Tax Court are generally appealable, as of right, to the appropriate regional U.S. Court of Appeals. Final judgments of a US district court are appealable to the corresponding regional circuit. Judgments of the Claims Court are appealable to the Federal Circuit.

The appellate court reviews the record created below rather than retrying the case. In general, legal issues are reviewed de novo, while factual findings are reviewed under the more deferential clear error standard, meaning they will not be overturned unless the appellate court is firmly convinced a mistake has been made. The appellate court may affirm, reverse, vacate or remand the trial court’s decision. Further review by the Supreme Court is available only by discretionary petition for certiorari.

In New York state tax cases, judicial review of a Tax Appeals Tribunal decision is record-based and proceeds under Article 78 in the Appellate Division, Third Department, rather than through a new trial. Further review may then be sought in the New York Court of Appeals, the state’s highest court, subject to the ordinary rules governing appellate review.

Federal cases are decided by different courts depending on the forum selected, and judges are assigned through each court’s ordinary procedures rather than on an ad hoc basis. In the first instance, a deficiency case in the Tax Court is tried before a single judge without a jury, although certain matters may be assigned to Special Trial Judges under the Code and the Tax Court’s rules. A refund suit in a US district court proceeds under that court’s assignment procedures and may be tried by a jury if properly demanded, with magistrate judges often handling pre-trial matters and, on consent, conducting proceedings and entering judgment. Refund suits in the Claims Court are decided by a single judge.

On federal appeal, cases are generally heard by a three-judge panel of the relevant U.S. Court of Appeals, with en banc review available in exceptional circumstances. If certiorari is granted, review is conducted by all nine Justices of the Supreme Court.

In New York state tax cases, judicial review of a Tax Appeals Tribunal decision is heard in the first instance by the Appellate Division, Third Department, before a multi-justice panel of that court. Further review, if available, is by the New York Court of Appeals, the state’s highest court, which consists of seven judges.

At the federal level, the principal administrative forum for resolving federal tax disputes without litigation is Appeals. Although not always described as “ADR”, Appeals is the core non-judicial settlement forum in federal tax practice. Appeals operates independently of IRS compliance functions and resolves cases based on the substantive merits and hazards of litigation.

The IRS also emphasises formal ADR programmes. Fast Track Settlement (FTS) allows an Appeals mediator to work with the taxpayer and examination team while the case remains in Examination, facilitating accelerated resolution of developed issues without forfeiting appeal rights. Other mechanisms include:

• Early Referral to Appeals, which transfers discrete issues during an audit;
• the Rapid Appeals Process (RAP), which provides Appeals-stage mediation; and
• Post-Appeals Mediation (PAM), which offers non-binding mediation after impasse.

As explained in 1.4 Efforts to Combat Tax Avoidance, MAP is used in cross-border matters to address double taxation.

After docketing, the Tax Court permits mediation and arbitration under court supervision.

At the New York state level, the principal non-judicial forum is the BCMS, which offers conciliation conferences for notices carrying protest rights.

At the federal level, most federal disputes that settle administratively are resolved through Appeals; see 3.1 Administrative Claim Phase. Appeals officers evaluate the facts, law and litigation risk, and may settle the case based on the relative strengths of the parties’ positions.

As explained in 6.1 Mechanisms for Tax-Related ADR in This Jurisdiction, FTS allows an Appeals mediator to work with the taxpayer and Examination during an audit to facilitate resolution on a non-binding basis. Early Referral permits discrete issues to be transferred to Appeals while the audit continues. Within Appeals, the RAP offers a mediation-style approach, while PAM is available after impasse.

In cross-border matters, MAP settlements are reached by competent authorities; see 1.4 Efforts to Combat Tax Avoidance. In docketed Tax Court cases, the parties may use Court-supervised mediation or arbitration.

At the New York state level, many disputes are resolved through BCMS conciliation conferences before they proceed to the Division of Tax Appeals. BCMS does not function as the same formal menu of ADR programmes used by the IRS, but it does provide an independent administrative forum in which disputes may be narrowed or resolved without litigation.

At the federal level, tax ADR can result in negotiated reductions to proposed adjustments and related civil penalties, including in Appeals, FTS, RAP, PAM and Tax Court settlement processes. Interest, however, is generally statutory and not subject to discretionary reduction, so changes follow from adjustments to underlying tax or penalties.

In Tax Court, mediation or arbitration may resolve factual disputes affecting liability, indirectly reducing interest but not independently reducing statutory interest.

In cross-border matters, MAP may address ancillary issues, including interest where permitted, but its primary focus is eliminating double taxation and resolving the underlying adjustment.

At the New York state level, conciliation may likewise result in resolution of the underlying assessment and any related penalties, while statutory interest generally follows the outcome of the underlying tax determination rather than being independently compromised through ADR.

At the federal level, binding advance rulings and related PFA procedures can increase certainty and prevent disputes, particularly where the tax treatment of a proposed transaction or reporting position is uncertain and the taxpayer is prepared to invest the necessary time and resources. Their principal value lies in addressing issues before they mature into audit disputes, thereby reducing the risk of prolonged examination, disagreement with the IRS, and potential penalties.

Key federal mechanisms include PLRs, APAs and PFAs. A PLR is a written IRS determination applying tax law to a specific taxpayer’s facts, and is binding on the IRS if the underlying representations are accurate. APAs are particularly important in cross-border matters because they allow the taxpayer, the IRS and, in bilateral or multilateral cases, treaty partners to agree in advance on transfer pricing methodologies, often covering multiple years and, in appropriate cases, including rollback treatment. PFAs function differently by resolving specific issues before a tax return is filed, with any agreement memorialised in a binding arrangement, although they are generally unavailable for transfer pricing issues. These mechanisms can be effective but are limited by cost, timing and their non-precedential nature.

At the New York state level, the principal analogue is the Department’s advisory opinion process. An Advisory Opinion is issued at the request of a person or entity, is limited to the facts set forth in the request, and is binding on the Department only with respect to the requesting party and only if the facts are fully and accurately described.

Federal tax ADR depends on the posture of the case and the programme used. FTS is generally limited to non-docketed disputes and excludes certain matters, including designated-for-litigation cases. Early Referral requires a developed issue, while PAM is available after Appeals impasse. Tax Court ADR is available only after a case is at issue, with binding arbitration typically limited to factual disputes.

There is no uniform monetary threshold for federal ADR eligibility, and timing varies by programme, with FTS typically resolving cases within 60–120 days and PAM within 60–90 days.

Federal ADR proceedings generally involve an Appeals officer acting as mediator or facilitator. In PAM, a non-IRS co-mediator may be selected by agreement, typically at the taxpayer’s expense, while in Tax Court ADR, mediators or arbitrators are appointed by stipulation or court order.

ADR outcomes are non-binding unless formalised, create no precedent, and do not preclude further administrative or judicial proceedings.

In New York, BCMS conferences are available only for notices carrying protest rights and must be requested timely. The conference is conducted by a conciliation conferee. If the matter is not resolved by consent, the conferee issues a conciliation order, which is binding on the Department and binding on the taxpayer unless the taxpayer files a petition with the Division of Tax Appeals. The Department’s guidance does not identify a separate monetary threshold for BCMS eligibility.

At the federal level, ADR can be important in transfer pricing disputes, but the appropriate mechanism depends on the taxpayer’s objective. Appeals remains the principal domestic forum, evaluating competing legal and economic positions on a hazards-of-litigation basis. FTS may be used where issues are developed and the parties seek expedited resolution, while Early Referral may be appropriate for discrete issues during an ongoing audit. Where double taxation is the primary concern, MAP is critical because it is designed to secure correlative relief from treaty partners.

In some cases, taxpayers may proceed directly to the competent authority without waiting for a 30-day letter, which can trigger “hot interest” on large corporate underpayments. This may influence whether to prioritise Appeals, MAP or both.

If a case proceeds to Tax Court, mediation or arbitration may help resolve discrete factual or valuation issues, although these tools are used infrequently.

New York does not offer a separate transfer pricing ADR regime comparable to MAP or APAs. To the extent a New York controversy tracks a federal transfer pricing or indirect determination dispute, resolution is more likely to occur through the ordinary state administrative process, including BCMS conciliation or proceedings before the Division of Tax Appeals.

An additional tax assessment does not automatically give rise to civil penalties or criminal charges. At the federal level, most matters begin as civil examinations, where the IRS determines whether additional tax is due and whether civil penalties apply, including penalties for understatements, valuation misstatements, failure to file or issue information-returns, or, in appropriate cases, civil fraud. At the New York state level, additional assessments may likewise remain civil, with penalties for negligence or fraud, while criminal exposure arises only where the conduct satisfies the state’s separate criminal tax fraud provisions.

The distinction between civil and criminal fraud turns on intent. Inadvertent mistakes or unsupported positions generally remain civil matters, while criminal exposure arises where the government can prove wilfulness or other intentional misconduct, such as concealment of income or assets, false statements or other affirmative acts of evasion. New York law similarly requires intentional conduct for criminal tax fraud, including wilful failure to file, filing materially false information, supplying false information in an audit or investigation, failure to remit collected tax, or failing to pay tax with intent to evade it.

If indications of criminal conduct arise during an examination, the matter may be referred to IRS Criminal Investigation, although such referrals are not automatic and even substantial adjustments do not, by themselves, imply criminal conduct. In New York, the Department likewise has a Criminal Investigations Division, and state criminal tax cases may arise from fraudulent returns, refund schemes or other intentional tax fraud.

Challenges under anti-abuse theories, likewise, do not convert a case into a criminal one. At the federal level, the US does not have a broad codified general anti-avoidance rule (GAAR), but relies on statutory provisions, regulations and judicial doctrines such as economic substance and substance over form, which typically result in civil adjustments and penalties. In New York, unsupported positions or anti-abuse adjustments likewise generally remain civil, unless the facts support a separate criminal tax fraud charge.

Civil and criminal tax processes are distinct but closely related: the civil process determines tax liability and penalties, while the criminal process addresses whether the taxpayer committed a criminal tax offence. That distinction applies at both the federal and New York state levels.

There is no general rule requiring the criminal matter to be suspended pending civil resolution, and criminal cases often proceed without a final civil determination. Once a matter is referred to Criminal Investigation, the civil process is typically paused or narrowed to avoid interference, and may resume after the criminal matter is resolved. The same practical need for co-ordination may arise in New York where civil audit or collections activity overlaps with a state criminal tax investigation.

The outcome of a criminal case can materially affect a parallel civil matter. A conviction may provide strong support for the assertion of civil fraud penalties, whereas an acquittal does not preclude later civil tax liabilities, which are determined under a lower burden of proof. For that reason, close co-ordination is often critical at both the federal and state levels:

• federally, among the IRS, Criminal Investigation, the IRS Office of Chief Counsel and the Department of Justice (DOJ); and
• in New York, among the Department, its Criminal Investigations Division and the appropriate prosecuting authority.

As discussed in 2.1 Main Rules Determining Tax Audits, administrative tax processes are usually initiated through the relevant audit or examination function. At the federal level, that generally means the IRS examination function. In New York, administrative tax processes are initiated through the Department’s audit, investigation and collection functions. A civil examination can evolve into a criminal investigation if facts developed during the audit suggest fraud or other intentional wrongdoing. Indicators include false documents, concealed income or assets, undisclosed offshore accounts, destruction of records, repeated and unexplained underreporting, or obstructive conduct during the examination. In such cases, the matter may be referred to criminal investigators.

At the federal level, if IRS Criminal Investigation determines that a criminal case should be pursued, the matter is referred to the DOJ for charging and prosecution decisions. In New York, criminal tax cases may arise where the facts support charges under Tax Law Article 37, including criminal tax fraud and repeated failure to file, and may be pursued through the ordinary state criminal process.

On the civil side, the process generally follows the standard tax controversy life cycle:

• examination;
• proposed adjustments;
• administrative review; and
• if unresolved, judicial litigation.

A federal criminal tax case may arise either from an IRS administrative matter, such as an audit, that is referred to Criminal Investigation and, where warranted, to the DOJ, or from a grand jury investigation that, typically, began as a non-tax matter and later expanded to include alleged federal tax violations. A New York criminal tax case may likewise arise from a state audit or investigation where the facts support charges under the Tax Law.

Once on a criminal track, the case proceeds through investigation and, as appropriate, indictment, arraignment, trial and sentencing in the appropriate court. This process is distinct from the civil determination of tax liability, although both may involve the same underlying facts.

At both the federal and state level, payment of tax, interest and penalties does not eliminate criminal exposure, but it can matter. Repayment, restitution, co-operation and other corrective conduct may be considered in charging decisions, plea negotiations and sentencing. Such actions may improve the taxpayer’s position, but they do not create an automatic right to reduced fines, nor foreclose prosecution. From a strategic perspective, early engagement and corrective action can materially affect the course of a matter, especially where criminal exposure exists.

Federal and New York state criminal tax cases may be resolved without trial through plea agreements. Such agreements involve an admission of criminal conduct and may address the offence of conviction, sentencing recommendations, restitution and related matters. Payment of the underlying tax liabilities may support such a resolution, but payment alone is generally insufficient to avoid prosecution. Accordingly, resolution without trial depends on the facts, the evidence and the government’s charging posture, rather than on payment alone.

Federal criminal tax judgments entered by the US district courts may be appealed to the appropriate U.S. Court of Appeals. On appeal, the appellate court reviews legal rulings, procedural issues and, under the applicable standards of review, the factual determinations made below. Further review may be sought from the Supreme Court, but such review is discretionary.

New York state criminal tax judgments follow the ordinary New York criminal appellate process: an appeal is taken to the Appellate Division, with any further review by the New York Court of Appeals generally available only by leave.

As noted in 7.1 Interaction of Tax Assessments With Tax Infringements, federal law does not have a broad codified GAAR, but it does apply statutory anti-abuse provisions, regulations and judicial doctrines, including economic substance and substance over form. New York likewise relies on specific anti-avoidance rules and disclosure requirements, including its reportable transaction regime for transactions having the potential to be state tax avoidance transactions.

Transactions challenged under those rules are typically addressed through civil examinations, penalties and litigation. That is particularly true for transfer pricing disputes, which ordinarily concern the proper tax treatment of a transaction rather than whether the taxpayer committed a crime. Even where the IRS ultimately prevails and imposes significant civil adjustments or penalties, that does not mean the conduct was criminal. The same general distinction applies in New York, where anti-avoidance challenges and reportable transaction issues ordinarily give rise to civil tax consequences rather than criminal liability, unless the facts support separate criminal tax fraud charges.

In cross-border disputes, taxpayers may seek relief through domestic litigation or treaty-based mechanisms, most notably MAP. In practice, MAP is the primary mechanism for addressing double taxation because it allows competent authorities to negotiate co-ordinated relief. Under some US treaties, arbitration may be available if the competent authorities cannot resolve a case within the prescribed period.

Domestic litigation remains available but is less effective at eliminating double taxation because a US court cannot bind a foreign tax authority. Taxpayers often pursue treaty-based relief first or in parallel with litigation. This sequencing can be significant because, if a taxpayer enters into a closing agreement or similar settlement with the IRS, the US competent authority will generally be limited to seeking correlative relief from the treaty partner and will not reopen the US settlement.

The US has not adopted the OECD Multilateral Instrument (MLI), and the EU Tax Disputes Directive does not apply in the US. For taxpayers with New York filing obligations, however, the resolution of a federal cross-border dispute may still affect state tax treatment because New York corporate tax generally begins with federal taxable income, as modified by New York law.

New York likewise relies on specific anti-avoidance and disclosure rules rather than a broad codified GAAR, including a reportable transaction regime that requires the disclosure of transactions with the potential to be state tax avoidance transactions under New York tax law. That regime covers listed transactions, confidential transactions and transactions with contractual protection, and it is backed by penalties for non-disclosure and an extended assessment period.

Although the US does not employ a codified GAAR, it applies statutory anti-abuse provisions, regulations and judicial doctrines in cross-border cases. These include Code Section 269, the codified economic substance doctrine, limitation-on-benefits provisions in treaties, and specific anti-abuse regulations. These rules apply in both domestic and international contexts, and have been litigated in areas such as transfer pricing, structured transactions and treaty-benefit disputes. US courts begin with the text of the statute, regulation or treaty, but also consider substance, economic reality and whether the taxpayer’s position is consistent with the structure and purpose of the rule.

The principal purpose test under the MLI is not part of US treaty practice, as the US has not adopted the MLI. US treaty policy relies on bilateral limitation-on-benefits provisions and negotiated anti-abuse rules. The 2016 United States Model Income Tax Convention reflects the same objective of eliminating double taxation without enabling non-taxation or reduced taxation, including treaty shopping.

Transfer pricing adjustments are frequently challenged through domestic litigation and treaty-based procedures. There is no separate multilateral transfer pricing convention or EU procedure applicable to US taxpayers.

MAP is often the preferred route where the central concern is double taxation. Domestic litigation remains important, however, where treaty assistance is unavailable or does not produce a satisfactory outcome. In practice, taxpayers must consider the interaction of these paths, as competent authority requests, Appeals, litigation and the APA process must be co-ordinated.

For taxpayers with New York exposure, transfer pricing disputes may also affect state reporting positions because New York corporate tax starts from federal taxable income, subject to New York modifications.

Unilateral and bilateral APAs are well-established mechanisms in the US for managing transfer pricing risk and avoiding litigation, particularly for material or complex intercompany transactions. Bilateral APAs are generally preferred where a treaty partner is involved because they provide co-ordinated certainty and reduce the risk of double taxation.

The APA process is administered by the IRS Advance Pricing and Mutual Agreement (APMA) Program and generally includes pre-filing discussions, application, review and, in bilateral cases, negotiation with foreign competent authorities. If agreed, APAs apply prospectively and may include rollback treatment for open years.

APAs remain important but are time-consuming and resource-intensive, particularly in bilateral cases. At the New York state level, there is no comparable APA programme; the closest advance-ruling analogue is the advisory opinion process, which is binding on the Department only with respect to the requesting party and only if the facts are fully and accurately described.

Some taxpayers also consider tax insurance as a complementary tool. While not a substitute for an APA, insurance may provide financial protection where full certainty cannot be obtained administratively, reflecting a broader trend toward combining traditional resolution mechanisms with market-based solutions.

Transfer pricing disputes are the principal source of cross-border tax litigation in the US, often involving valuation of intangible property, intercompany financing, cost-sharing, and pricing of distribution, services and licensing arrangements. These disputes are fact-intensive and expert-driven, and often result in lengthy examinations, prolonged administrative proceedings and litigation.

Other disputes arise over foreign tax credits, withholding obligations and the character, source and timing of income and deductions. Permanent establishment and treaty residence disputes arise less frequently but can be significant.

Information exchange, country-by-country reporting, co-ordinated enforcement and BEPS-style documentation standards have increased issue identification and made it more difficult to manage inconsistent positions across jurisdictions.

In practice, tools to reduce litigation risk include bilateral or multilateral APAs, timely use of competent authority procedures, and consistent global documentation and planning. Where disputes turn on legal interpretation rather than co-ordinated relief, domestic litigation remains necessary.

For taxpayers with New York reporting obligations, a federal cross-border dispute may require corresponding adjustments to New York positions involving the same income, deductions, credits or transfer pricing adjustments.

This is not applicable in the US.

This is not applicable in the US.

This is not applicable in the US.

This is not applicable in the US.

The US has not adopted the MLI and is not a signatory, so Part VI of the MLI (arbitration provisions) does not apply to US tax treaties. Rather than adopting multilateral arbitration through the MLI, US policy has historically favoured bilateral negotiation, in part because changes to US tax treaties require Senate ratification. As a result, arbitration is included selectively in certain bilateral income tax treaties based on negotiated terms with treaty partners. Although arbitration has gained broader acceptance, its application in the US remains limited to treaties that expressly include such provisions. Mandatory binding arbitration is currently included in US income tax treaties with Belgium, Canada, France, Germany, Japan, Spain and Switzerland.

In US tax treaties that include arbitration provisions, arbitration is generally available for cases arising under MAP where the competent authorities are unable to reach agreement within a specified period. These cases typically involve double taxation issues, including transfer pricing adjustments, income allocation and other treaty interpretation matters.

Although US treaty arbitration is not limited to one narrow category of tax issue, it is generally confined to unresolved competent authority cases under MAP and is therefore a back-end mechanism rather than a process elected at the outset. In practice, eligibility depends on the terms of the particular treaty and any implementing arrangement. Some treaties or competent authority arrangements exclude categories of cases or suspend arbitration where the taxpayer has pursued domestic litigation on the same issues.

US treaties that provide for mandatory arbitration generally adopt a “baseball arbitration” (or “final offer”) approach rather than the independent opinion procedure. Under this model, each competent authority submits a proposed resolution, and the arbitration panel must select one of the proposed outcomes without modification. This structure is intended to encourage both authorities to adopt reasonable positions and to reach agreement during the MAP process before arbitration is required.

The US has generally favoured this approach over the independent opinion model because it promotes efficiency, narrows the arbitrators’ role and reduces the risk of unpredictable outcomes. Arbitration is rarely invoked, as the existence of a binding arbitration mechanism incentivises resolution at the competent authority stage.

EU directives do not apply in the US, and the MLI has not been adopted. Arbitration is therefore governed by applicable bilateral tax treaty provisions and competent authority procedures rather than by a multilateral instrument. More generally, current international arbitration trends reflected in the OECD Model and related commentary may inform treaty policy discussions, but they do not alter US law unless incorporated into a bilateral treaty or other binding instrument.

EU directives do not apply in the US, and the MLI has not been adopted. The use of arbitration remains limited, with most disputes resolved through MAP.

The US has not adopted OECD Pillar One or Pillar Two initiatives. Therefore, the related dispute resolution mechanisms are not part of US practice.

For now, US taxpayers must rely on existing treaty-based mechanisms and domestic processes. Foreign implementation of Pillar Two may still affect US taxpayers and could increase reliance on existing competent authority and treaty procedures.

In the US, judicial decisions in tax cases are publicly available, and filings made in court proceedings are generally part of the public record unless protected by court order. This promotes transparency and consistency in the application of tax law. By contrast, MAP and arbitration proceedings are confidential. Information exchanged between competent authorities, as well as the outcome of arbitration, is generally not disclosed publicly, reflecting the diplomatic and taxpayer-specific nature of those processes.

The principal mechanism for resolving international tax disputes involving the US is the MAP provided for under applicable tax treaties. Arbitration, where available, primarily serves to encourage resolution during the MAP process rather than as a routinely invoked mechanism.

Taxpayers typically engage legal and economic advisers throughout the competent authority process and any arbitration, to assist with preparing submissions, developing transfer pricing analyses and co-ordinating with tax authorities in multiple jurisdictions. The IRS, by contrast, relies on internal personnel, including attorneys and economists within APMA. The involvement of experienced advisers is often critical for taxpayers, particularly in complex cases involving detailed economic and factual analysis.

At both the federal and New York state levels, taxpayers may pursue ordinary administrative tax disputes without paying government filing fees. Taxpayers may engage with the IRS examination function and Appeals, or with New York administrative processes such as BCMS conciliation and proceedings before the Division of Tax Appeals, without paying government filing fees.

Although no government filing fee is charged, the taxpayer still bears its own costs of participation, including adviser fees, employee time, and the cost of gathering and presenting supporting documentation In more complex matters, particularly those involving transfer pricing or valuation, these costs can be significant. Certain pre-dispute programmes, such as APAs, carry IRS user fees, but those are not fees for pursuing an administrative appeal or audit dispute.

Although administrative resolution is generally less costly than litigation, it can still be resource-intensive, particularly in prolonged or multi-issue audits or state administrative proceedings.

Court filing fees in US tax litigation are modest relative to overall litigation costs but vary by forum. The current Tax Court petition filing fee is USD60, while filing fees in US district courts and the Claims Court are generally USD405. The filing fee is ordinarily paid by the party commencing the case at the outset.

Generally, each party bears its own legal fees and costs, regardless of the outcome. In New York, judicial review of a final Tax Appeals Tribunal decision generally requires payment of a USD210 index number fee and a USD95 request for judicial intervention fee.

Taxpayers may seek recovery of certain litigation costs if they qualify as the prevailing party under applicable statutes, but recovery is limited and uncommon in larger cases.

Litigation may involve significant costs associated with expert analysis, document production and trial preparation. These expenses often make litigation substantially more expensive than administrative resolution.

The US does not indemnify taxpayers where the IRS makes an adjustment that is later reduced or overturned. The same is true in New York state tax disputes.

Limited statutory provisions allow certain taxpayers to seek recovery of administrative or litigation costs, but these are narrowly applied and subject to strict eligibility requirements. In practice, such relief is uncommon in larger or more complex cases.

As discussed in 6.1 Mechanisms for Tax-Related ADR in This Jurisdiction, the US tax system offers ADR mechanisms, primarily administered through Appeals. Programmes such as FTS, RAP and PAM do not generally involve filing fees or administrative charges. Tax Court mediation or arbitration does not carry a separate court filing fee beyond the fees associated with the underlying case, although the parties may incur fees for a private neutral.

Taxpayers will incur professional fees for submissions, participating in conferences and developing supporting analyses. These costs are typically lower than litigation costs but can still be significant in complex matters.

Certain related pre-dispute programmes, such as APAs, involve substantial IRS user fees and require extensive preparation. As of 2024, the published IRS fees are:

• USD121,600 for an original APA;
• USD65,900 for a renewal APA;
• USD57,500 for a small-case APA; and
• USD24,600 for an APA amendment.

In New York, BCMS conciliation conferences likewise do not require government filing fees, so the principal costs are generally taxpayer professional fees and internal resources rather than government charges.

At the end of FY 2025, the Tax Court had 21,406 pending dockets, with approximately USD53.1 billion in dispute. In FY 2025, the Tax Court received 18,549 cases and closed 20,961 cases.

These figures also show why case count and value should not be conflated. According to the FY 2025 Q4 inventory data, only 637 pending cases involved more than USD10 million, yet those cases represented 88.6% of the dollars in dispute.

Public materials do not appear to publish an official average number of pending cases per judge. Using the Tax Court’s own staffing figures as a rough proxy, however, 21,406 pending dockets divided by 45 judicial officers yields approximately 475 pending dockets per judicial officer, although actual assignments differ materially among regular judges, senior judges and special trial judges.

For New York, the more relevant statistics are those of the Division of Tax Appeals and Tax Appeals Tribunal, because prepayment review is generally obtained through the state administrative process rather than through a judicial forum comparable to the Tax Court. In 2025, the Division of Tax Appeals reported an ending inventory of 1,035 formal-hearing cases and 186 small-claims cases, while the Tax Appeals Tribunal reported an ending inventory of 66 cases.

The Tax Court does not publicly report annual commencements and closures by substantive tax type. The closest official breakdown is by jurisdictional category. For FY 2025, filed cases were distributed as follows:

• Deficiency: 16,897 (91.1%);
• Collection Review: 937 (5.1%);
• Partnership: 272 (1.5%);
• Innocent Spouse: 273 (1.5%); and
• Passport Revocation: 82 (0.4%).

Whistle-blower, interest abatement, worker classification, declaratory judgment and other matters accounted for the balance.

Cases under USD50,000 represent about 62% of dockets but only 0.3% of dollars, while 637 cases exceeding USD10 million account for 88.6% of the dollars in dispute.

Overall, in the Tax Court, lower-dollar cases dominate by volume, while a small number of large cases dominate by value.

New York publishes a more substantive tax-type breakdown. In 2025, Administrative Law Judges issued 116 determinations, of which 67 involved income tax (57%), 29 sales tax (25%), two corporate franchise tax (2%) and 18 miscellaneous taxes (16%).

Comprehensive official statistics on taxpayer-versus-government success rates are not publicly available in a way that meaningfully captures the Tax Court docket. That omission matters because most docketed cases do not end in a litigated opinion; rather, they are resolved through settlement or other pretrial disposition.

The Tax Court’s own case-management materials show multiple paths to disposition before trial, and the Tax Court expressly notes that many cases close by settlement. In FY 2025, the Tax Court closed 20,961 cases, but issued only 187 opinions and saw 114 appealed cases. Published “win-loss” assessments drawn only from opinions therefore describe only a small subset of the docket.

For New York state tax disputes, official statistics are available on adjudicated outcomes, although they likewise do not capture settlements and other non-merits resolutions. In 2025, Administrative Law Judges issued 116 determinations, of which 99 sustained the deficiency or other action, ten cancelled it, and seven modified it. In the same year, the Tax Appeals Tribunal issued 24 decisions, of which 19 sustained the deficiency or other action, three cancelled it, and one modified it. As in federal practice, those figures should be read with caution because many New York cases are withdrawn, closed by order, defaulted, referred or otherwise resolved without a merits determination.

For taxpayers and advisers operating in the New York market, tax controversy strategy begins with deciding early where the controversy should end and managing the case accordingly. Current disputes are more targeted, theory-driven and procedurally demanding, so taxpayers who wait until Appeals or litigation to develop the case are often behind. In practice, that means focusing on the following five priorities.

Define the Objective Early

The first step is to identify the disputed issues and desired outcome. The goal may be no change, a narrower adjustment, review by Appeals, BCMS or the Division of Tax Appeals, preservation of a MAP request, or litigation in a preferred forum. That early assessment should include the tax at issue, penalties, interest, effects on other years or entities, financial reporting, and related New York, multi-state or foreign tax consequences.

Control the Factual Record

Most tax controversies are won or lost on the factual record. The IRS increasingly begins with a theory of the case, so taxpayers should respond to IDRs carefully, produce what is responsive, avoid volunteering unnecessary material, and ensure that statements are accurate and consistent. Documentation remains especially important in valuation, transfer pricing and cross-border matters. In New York, the same discipline is critical in residency and domicile audits, sourcing disputes, sales and use tax matters, and controversies arising from federal adjustments. If expert analysis is likely to matter, it should begin early to shape the case. Privilege, work-product protection and criminal exposure should also be considered from the beginning.

Treat Procedure as Strategy

Procedure is not secondary to substance. Statute extensions, the scope of information requests, the sequencing of issues and whether to proceed through a 30-day letter or toward a notice of deficiency can affect leverage and outcome. A limited consent may be preferable to a broad one, and a disciplined response to IDRs may narrow the case while a disorganised one may expand it. Good strategy often means preventing the case from becoming broader or more formal than necessary. In New York, strategy must likewise account for protest deadlines, the choice between BCMS and the Division of Tax Appeals where available, and the possible effect of federal developments on the state case.

Use Appeals and ADR Deliberately

Appeals remains the principal federal forum for resolving disputes because it can evaluate cases based on litigation risk rather than simply defending the Examination function’s position. Depending on the posture of the case, FTS, Early Referral, RAP or PAM may be effective, but only if the issues are sufficiently developed and the real dispute is identified. In cross-border matters, strategy should be co-ordinated with MAP or APA before a settlement limits later options. In New York, BCMS serves a different but often important role as the principal non-judicial forum for resolving protested notices before a case proceeds further.

Choose the Forum With Care

If litigation becomes necessary, forum selection is a strategic choice, not an afterthought. Taxpayers must decide whether to seek pre-payment review in the Tax Court or proceed in a refund forum, considering cost, timing, interest, precedent and appellate consequences. For New York state disputes, strategy must also account for the administrative path through BCMS or the Division of Tax Appeals and, if judicial review becomes necessary, the record-based nature of Article 78 review. The best strategies preserve flexibility, reassess risk at each stage, and keep the endgame in view from the first contact with the taxing authority.