An unhappy taxpayer always initiates the case. Tax court disputes run the gamut. Substantiation of deductions, substantiation of charitable contributions. Also common are arguments over how much income was received, and whether money should be classified as income or a gift. Deductions for the self-employed are another big item on the Court's agenda.
Valuation is frequently a point of contention.
Even if someone has grossly overestimated or underestimated an asset, however, he probably won't get sent to the slammer, since it's hard to prove he had criminal intent. But a civil penalty, which is a percentage of the taxes owed, is commonly assessed. Let it be clear that there is a difference between creative accounting and a crime. If the IRS suspects you are seriously cheating on your taxes, then you can face criminal charges. But these are actually quite rare.