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Chapter 15 I: 15-61

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Home Products Universal (HPU) wants to file a law suit against the IRS about the payment for consulting in the amount of 150,000. HPU want to deduct it form the tax return but the IRS says it needs to capitalize the amount. If HPU files in either the U.S. district court or the U. S. Court of Federal Claims they must first capitalized the amount and pay the amount due in taxes, then receive a refund if they win. The use of the tax court allows them to file first and then pay interest and penalty if they lose. The tax court allows for appeals and has judges that specialized in tax-related issues. The tax court is also not bound by previous decisions in the other courts.
The district court would be involved only in the district that HPU is located. This court must also follow any previous decisions made by the U. S. Supreme Court. The district court in HPU’s location has a previous rule that the business should be capitalized therefore; it should not be used in this case.
The federal court also follows upper court decisions in its decisions. So this court would follow in the ruling of the IRS. The tax court does not have to follow any other court rulings. The tax court is the one where the claim should be filed. This court goes on bases of the company reason of use for deduction. This point that it is not required to follow other court rulings might help HPU with winning this case.

References
Pope, T. R., Anderson, K. E., & Kramer, J. L. (2011). Prentice Hills Federal Taxation 2011: Individuals. Chapter 1 & Chapter 15. Retrieved May 25, 2012 from University of Phoenix e-campus ACC497.

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