Two Years to File Refund Suit in District Court, Six Years in Federal Court of Claims

If the IRS owes the taxpayer a refund, the general rule is that the taxpayer has to file a refund claim with the IRS, wait for the IRS to disallow the claim, and then, within two years of the date the claim is disallowed, file suit to recoup the refund. This is the general rule. When the refund claim is for interest owed to the taxpayer, the taxpayer may have an additional four years to file suit. The court addressed this in the recent Pfizer, Inc. v. United States, No. 16 Civ. 1870 (S.D.N.Y. 2017) case.

The Facts and Procedural History

The facts in the Pfizer court case are as follows: The taxpayer filed a tax return reporting a $769,665,651 overpayment on its 2008 tax return. The taxpayer asked that $500 million of the overpayment be refunded and the balance of $269,665,651 be applied to its 2009 estimated tax. The IRS issued and immediately canceled the refund checks. Six months after the taxpayer filed its 2008 tax return, the IRS deposited $499,528,499 into the taxpayer’s bank account. The IRS did not pay the interest on the overpayment. The taxpayer filed a refund claim for $8,298,048 of interest. The IRS disallowed the refund claim on March 13, 2013. The taxpayer filed suit in the U.S. district court to recoup the refund on March 11, 2016.

The U.S. District Court’s Jurisdiction

To file suit against the IRS, the court must first have jurisdiction over the case. The U.S. district court’s jurisdiction is conferred by 28 U.S.C. § 1346(a)(1). This law incorporates Section 7422 and 6532 of the Tax Code. These Tax Code sections say that suit must be brought within two years of the mailing of the refund claim disallowance notice by the IRS.

The court concluded that it did not have jurisdiction over the case, as the refund suit was brought one year too late. The refund claim was disallowed on March 13, 2013, and the refund suit was not filed until March 22, 2016–almost exactly three years after the claim was disallowed.

The Court of Federal Claims Jurisdiction

The U.S. district court also addressed the court cases from the Court of Federal Claims which say that a six year time period applies. As the court noted, the rules that confer jurisdiction on the Court of Federal Claims differ from those that confer jurisdiction on the U.S. District Courts.

So the company here choose the wrong forum for litigating its interest refund suit. Had it opted to litigate in the Court of Federal Claims, it would not have had its case dismissed for want of jurisdiction.

The same result could have bene obtained by getting an extension from the government on the time to file suit. Taxpayers in this situation should ask for the extension so they can preserve their choice of forum for bringing suit.

The Curious Timing of the Refund Suit

As a separate note, in addition to filing in the U.S. District Court, one is left wondering why the company filed a refund suit in what seems to be exactly three years from the date of disallowance. I didn’t check the calendar to count the days, but I can’t help but wonder if the refund suit was brought on the very last day as if the company believed it had three years to bring suit. The nearly exact one-year late filing could suggest that the company confused the refund claim rules (which can allow a three-year period for filing a refund claim) with the refund claim suit rules.

It is more likely the taxpayer did not realize it had received a notice of disallowance. A quick review of the company’s most recent Form 10-K reveals that the company is under continuous audit by the IRS, has a pending appeal, and has multiple audits in foreign jurisdictions. If it did not realize it had received the notice of disallowance, this would mean the 2-year limit in Section 7422 and 6532 would also not apply and the refund suit would have been timely under those rules as well. These rules are triggered by the mailing of the notice and the IRS does not enforce the rule where the statute does not start running if a notice is not mailed.

Regardless of the cause, the case serves as a reminder of how important it is to carefully track the time period for filing refund claims and refund suits and to chose the proper court to litigate the claims in.