Court of Federal Claims

Taxes and tax litigation can be complex and confusing. Taxpayers have the option of filing a petition in the United States Tax Court (Tax Court) prior to payment of any asserted deficiency. Alternatively, taxpayers can pay the deficiency, file a claim for refund with the Internal Revenue Service and, if that claim is denied or more than six months have elapsed, file a complaint in local District Court or the Court of Federal Claims requesting a refund. These forum rules sometimes trip up taxpayers and can lead to the filing of a suit in the wrong court.

In the Protecting Access to the Courts for Taxpayers Act (H.R. 3996), Congress has provided relief for taxpayers in this type of situation through an amendment to 28 USC section 1631:

Whenever a civil action is filed in a court as defined in section 610 of this title or an appeal, including a petition for review of administrative action, is noticed for or filed with such a court and that court finds that there is a want of jurisdiction, the court shall, if it is in the interest of justice, transfer such action or appeal to any other such court (or, for cases within the jurisdiction of the United States Tax Court) in which the action or appeal could have been brought at the time it was filed or noticed, and the action or appeal shall proceed as if it had been filed in or noticed for the court to which it is transferred on the date upon which it was actually filed in or noticed for the court from which it is transferred.

Practice Point: Allowing improperly filed cases to be transferred to the Tax Court is a welcome development for taxpayers. The amendment to 28 USC section 1631 protects taxpayers in situations where a complaint is filed within 90 days of receipt of a Notice of Deficiency in a refund jurisdiction when it should have been filed in the Tax Court.

Taxpayers are running out of time to file refund claims against the government. If the government reduced or denied your Section 1603 cash grant, you can file suit in the Court of Federal Claims against the government to reclaim your lost grant money. Don’t worry, you will not be alone. There are numerous taxpayers lining up actions against the government and seeking refunds from this mismanaged renewable energy incentive program. Indeed, the government lost in round one of Alta Wind I Owner-Lessor C. v. United States, 128 Fed. Cl. 702 (2016). In that case, the trial court awarded the plaintiffs more than $206 million in damages ruling that the government unreasonably reduced their Section 1603 cash grants.

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Faced with the prospect of potential tax liability after an unsuccessful audit, taxpayers are faced with the options of filing a petition in the US Tax Court (Tax Court) prior to paying the liability or paying the liability, making a claim for refund, and (if denied or more than six months have passed) suing the government for a refund in local district court or the Court of Federal Claims. For taxpayers that select the Tax Court route, sometimes a question later arises as to whether they can seek to dismiss their case in order to refile in a different forum. The problem that arises is that Internal Revenue Code (Code) Section 7459(d) provides that if a Tax Court petition in a deficiency proceeding is dismissed (other than for lack of jurisdiction), the dismissal is considered as a decision that the deficiency is the amount determined by the Internal Revenue Service (IRS).

Taxpayers have attempted to avoid this rule in the past, presumably so that they could refile a lawsuit in another forum either because they believe that forum would be more favorable or because they desire a jury trial (Tax Court cases are bench trial; no juries are allowed). More than 40 years ago, the Tax Court rejected this tactic in Estate of Ming v. Commissioner, 62 TC 519 (1974),  holding that under Code Section 7459(d), a taxpayer who petitions the court for a redetermination of a deficiency may not withdraw a petition to avoid the entry of decision. Specifically, the court held: “It is now a settled principle that a taxpayer may not unilaterally oust the Tax Court from jurisdiction which, once invoked, remains unimpaired until it decides the controversy.” Since Ming, the Tax Court has distinguished its holding in collection due process cases which involve the review of the IRS’s collection action, not the redetermination of a tax deficiency. See Wagner v. Commissioner, 118 TC 330 (2002). The Tax Court has further extended Wagner to non-deficiency cases involving whistleblower claims under Code Section 7623(b)(4) and stand-alone innocent spouse cases under Code Section 6015(e)(1). See Jacobson v. Commissioner, 148 TC No. 4 (Feb. 8, 2017); Davidson v. Commissioner, 144 TC 273 (2015). Continue Reading When Can a Taxpayer Dismiss a Tax Court Case as Moot?

Taxpayers can choose whether to litigate tax disputes with the Internal Revenue Service (IRS) in the US Tax Court (Tax Court), federal district court or the Court of Federal Claims. Claims brought in federal district court and the Court of Federal Claims are tax refund litigation: the taxpayer must first pay the tax, file a claim for refund, and file a complaint against the United States if the claim is not allowed. Claims brought in the Tax Court are deficiency cases: the taxpayer can file a petition against the IRS Commissioner after receiving a notice of deficiency and does not need to pay the tax beforehand.

As demonstrated in the chart below, approximately 97 percent of tax claims are instituted in the Tax Court. It should be noted that, after a taxpayer files a petition in Tax Court, the taxpayer no longer has the option of bringing the claim in any other court for the year(s) at issue.

Tax Court Versus Tax Refund Litigation

Source: https://www.irs.gov/uac/soi-tax-stats-chief-counsel-workload-tax-litigation-cases-by-type-of-case-irs-data-book-table-27

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