PORTFOLIO

Refund Litigation (Portfolio 631)

Tax Management Portfolio, Refund Litigation, No. 631-4th, analyzes the process of filing and litigating a refund suit in a federal district court or the Court of Federal Claims. When a taxpayer decides to contest a proposed deficiency with respect to income, estate or gift taxes, or certain excise taxes, he can file a petition in the Tax Court or pay the tax and sue for a refund in a federal district court or the Court of Federal Claims.

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DESCRIPTION

Tax Management Portfolio, Refund Litigation, No. 631-4th, analyzes the process of filing and litigating a refund suit in a federal district court or the Court of Federal Claims. When a taxpayer decides to contest a proposed deficiency with respect to income, estate or gift taxes, or certain excise taxes, he can file a petition in the Tax Court or pay the tax and sue for a refund in a federal district court or the Court of Federal Claims.


If the taxpayer elects the refund route, he must pay all of the tax assessed pursuant to the notice of deficiency and file a refund claim. The claim must be filed within three years of the date the return was filed or two years from the date the tax was paid, whichever is later. A suit on the claim may not be instituted before six months from the date the claim was filed (unless the IRS renders a decision on the claim at some earlier date) or after two years following the mailing of a notice of disallowance, although this period may be extended by agreement.


This Portfolio considers the problems that arise in instituting and prosecuting a refund suit, from filing the refund claim through the satisfaction of a favorable judgment. The pertinent jurisdictional and procedural rules in both the federal district courts and the Court of Federal Claims are also discussed.


For a discussion of examination and appeals procedures for refund claims, see 623 T.M., IRS Procedures: Examinations and Appeals. For a discussion of the special rules applicable to refund claims involving partnership items, see 624 T.M., Audit Procedures for Pass-Through Entities.


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AUTHORS

THEODORE D. PEYSER
Theodore D. Peyser (deceased), B.A., Princeton University (1950); LL.B., Yale Law School (1955); Tax Division, U.S. Department of Justic e, trial attorney (1955–1973), Chief, Claims Court Section (1974–1984), Special Litigation Counsel (1985–1987); author, 627 T.M., Limitations Periods, Interest on Underpayments and Overpayments, and Mitigation and 628 T.M., Transferee Liability; co-author, 630 T.M., Tax Court Litigation; contributor, Tax Practice Series.

RICHARD A. LEVINE
Richard A. Levine, B.S., Economics, University of Pennsylvania (1964); J.D., Harvard Law School (1967); L.L.M., New York University (1968); member, New York, U.S. Tax Court, Court of Federal Claims, U.S. Supreme Court, U.S. Court of Appeals (Second Circuit), U.S. District Court, and Southern and Eastern Districts of New York Bars; editor, Harvard Law Review (1965-1 967); editor-in-chief, Roberts & Holland, Annotated Tax Forms—Practice and Procedure (3d ed.); co-author, “Tax Court's Revised and Expanded Partnership Rules Leave Questions Open,” 69 Journal of Taxation 164 (Sept. 1988); member, The Association of the Bar of the City of New York, New York State and American Bar Associations Sections on Taxation; Litigation); contributor, Journal of Taxation and other tax periodicals.

ELLEN S. BRODY
Ellen S. Brody, B.S. in Economics, magna cum laude, University of Pennsylvania (1991); J.D., cum laude, New York University School of Law School (1994); L.L.M. (in Taxation), New York University School of Law (1996); member, New York, U.S. Tax Court, Court of Federal Claims, and U.S. Court of Appeals (Federal Circuit); Certified Public Accountant, South Dakota (1991) and New York (2011); editor, New York University Law Review (1 991-1 994); member, The Association of the Bar of the City of New York, New York State and American Bar Associations (Sections on Taxation; Litigation), New York State Society of Certified Professional Accountants; contributor, Journal of Taxation and other tax periodicals.

TABLE OF CONTENTS

Detailed Analysis

I. Introduction

II. Evolution of the Tax Refund Suit

III. Jurisdictional Prerequisites

Introductory Material

A. The Full Payment Requirement

1. Tax

2. Interest and Penalties

a. Interest

b. Penalties

3. Installments

B. The Timely Filed Claim Requirement

1. The Time Limits

a. Limitations Period for Filing Refund Claim

b. Limitations on Amount of Refund

c. Refund of Additional Assessment

d. Effects of Extensions

e. Equitable Tolling for Financial Disability

f. Special Limitations Rules

2. The Place and Manner of Filing

a. Timely Mailing/Timely Filing

b. Electronic Postmarks

c. Designated Private Delivery Service

d. Presumption of Delivery

3. Formal Requirements

a. Claims for Income Tax

b. Claims Filed by an Employer for Refund of FICA or RRTA Taxes

c. Claims for Refunds of Air Transportation Excise Taxes

d. Claim for Missing Refund Check

e. Claims for Arbitrage Overpayments on Exempt Bonds

4. Informal Claims

a. Qualifying Informal Claims

b. Nonqualifying Informal Claims.

5. The Variance Defense

6. Amending a Claim After the Statute Has Run

C. Limitations on Filing Suit

D. The Preclusive Effect of a Tax Court Decision

IV. Choice of Forum

A. The Applicable Precedent

B. The Judges

C. Jury Trials

D. Prepayment of Tax and Interest Rules

E. Discovery and Other Procedural Considerations

1. Depositions

2. Experts

3. Other Procedures

F. The Attorneys Representing the Government

G. Test Cases

V. Procedural Doctrines

A. Res Judicata

B. Collateral Estoppel

C. Nonmutual Collateral Estoppel

D. Equitable Recoupment

E. Equitable Estoppel

1. Estoppel Against a Taxpayer

2. Estoppel Against the Government

F. Judicial Estoppel

G. Class Actions

H. Act-of-State Doctrine

VI. Initiation of a Refund Suit

A. Jurisdiction

B. Standing

C. Venue

D. Preparing and Filing the Complaint

1. District Court Suits

2. Court of Federal Claims Suit

VII. Pretrial Procedure

A. Scheduling Orders

B. Discovery from the Government

1. IRS Administrative File Regarding Periods in Question

2. Section 6103 Return Information

3. Ruling and Regulations Back-up Files

4. Freedom of Information Act Requests

C. Failure to Disclose

D. Additional Deficiency Procedure

E. Pretrial Submissions

VIII. Summary Judgment Practice

Introductory Material

A. Basic Rules

B. The Moving Party's Initial Burden

C. The Moving Party's Burden of Persuasion

D. Rule 56(e) Affidavits

IX. Settlement

Introductory Material

A. Authority to Settle

B. The Role of Chief Counsel

C. Negotiation of an Offer

D. Alternate Dispute Resolution Techniques

1. Department of Justice Policy

2. Court of Federal Claims Procedures

3. Binding Arbitration

4. District Court Procedures

X. Trials

A. Burden of Proof Rules

B. Offsets

C. Witnesses

1. Attendance of Witnesses

a. Service in Federal District Courts

b. Service in Court of Federal Claims

2. Expert Witness

D. Jury Trials

E. The Clearly Erroneous Rule

XI. Judgments, Costs, and Fees

A. Entry of Judgment

B. Costs Under 28 USC § 1920

C. Section 7430 Attorney's Fees and Costs

1. Eligibility for an Award

2. Determining the Amount of the Award

3. Applying for an Award

4. Disposition by the District Court

D. Bad Faith Attorney's Fees

XII. Initiating an Appeal

A. The Notice of Appeal

B. Interlocutory Appeals

C. Writs of Mandamus

D. The Government Appeal Process

XIII. Satisfaction of Judgments Against the Government


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 Form 1040X, Amended U.S. Individual Income Tax Return

Worksheet 2 Form 1120X, Amended U.S. Corporation Income Tax Return

Worksheet 3 Form 843, Claim for Refund and Request for Abatement

Worksheet 4 Sample Refund Complaint

Worksheet 5 Department of Justice Authority to Compromise and Close Civil Claims and Responsibility for Judgments, Fines, Penalties, and Forfeitures

Worksheet 6 Justice Department Final Rule With Tax Division Directive No. 135 on Settlement Authority for Various Court Sections, Offices, Attorney General Deputy Assistants

Worksheet 7 IRS Chief Counsel Directive Manual, Settlement Option Procedures General Litigation Cases from CCDM 34.8.1

Worksheet 8 Department of Justice Order No. 1109–85, 28 CFR Section 50.20

Worksheet 9 Tax Division Alternative Dispute Resolution Case Selection Criteria

Worksheet 10 United States Court of Federal Claims Second Amended General Order No. 40 and ADR Pilot Procedures

Worksheet 11 Executive Order 12998 of February 5, 1996, Civil Justice Reform

Worksheet 12 Appendix H to RCFC

Bibliography

OFFICIAL

Statutes:

Public Laws:

Legislative History:

Regulations:

Court Rules:

Local rules:

Treasury Publications:

Miscellaneous:

Treasury Procedures and Rulings:

Cases:

UNOFFICIAL

Miscellaneous:

Periodicals:

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