The U.S. Tax Court Can Order IRS to Make Refunds

Obtaining Refunds in U.S. Tax Court Cases

There are a number of forums for litigating tax disputes, such as the U.S. Tax Court. There are pros and cons associated with bringing suit in each forum. Taxpayers often pass on litigating cases in the U.S. Tax Court in cases when they are seeking a refund of an amount in excess of the amount reported on their tax returns. This is often based on a belief that the U.S. Tax Court cannot issue refunds.

Federal Tax Litigation

Other than in bankruptcy situations, Federal tax disputes can be litigated in the U.S. Tax Court, U.S. District Courts, or the U.S. Court of Federal Claims. The U.S. Tax Court is generally a preferred choice as taxpayers are allowed to bring suit without having to first pay the IRS’s proposed increase in tax. With the U.S. District Courts, or the U.S. Court of Federal Claims, taxpayers do have to first pay the tax, file a refund claim, and, once the refund claim is denied or more than six months goes by, the taxpayer can bring suit.

An example may help explain the difference. Assume the taxpayer’s tax return shows $100 in tax due. The IRS then conducts an audit and increases the tax by $50 to $150 in total. In many cases the taxpayer may have paid the $100, but not the $50. The taxpayer can bring suit in the U.S. Tax Court before paying the $50. He cannot bring suit in the U.S. District or Court of Federal Claims before paying the $50 and filing a refund claim for $50.

The taxpayer can also pay the $50, file a refund claim for more than the $50, and bring suit in the U.S. District or Court of Federal Claims. To continue the example, the taxpayer could seek a refund of $75 instead of $50. This is the defining characteristic of litigation in the U.S. District and Court of Federal Claims. The term “refund litigation” is what comes to mind when thinking about bringing suit in these courts. Taxpayers and their advisors often forget that they can also obtain a $75 refund in U.S. Tax Court pursuant to Section 6512 in some cases.

Obtaining Refunds in U.S. Tax Court Cases

Section 6512 authorizes the U.S. Tax Court to determine the amount of an overpayment and entitle the taxpayer to a refund. Continuing the prior example, if the taxpayer’s return reported a $100 tax liability and the IRS determined a $150 tax liability, the U.S. Tax Court could agree witht the taxpayer and enter an order granting a $25 refund to the taxpayer.

There are some limits on the U.S. Tax Court’s ability to issue refunds for this type of overpayment. Specifically, the time for filing the refund claim must not have expired at the time the IRS issues the Notice of Deficiency or 90-day letter to the taxpayer. This brings in the refund claim timing rules.

The refund claim timing rules basically say that a refund claim can be submitted within the later of (1) three years of the tax assessment date or (2) two years from the date of payment. With Section 6512, the law presumes that a tax refund claim was submitted (even though it was not) on the date the Notice of Deficiency or 90 day letter was issued to the taxpayer.

By way of explanation, the Notice of Deficiency or 90-day letter is issued at the end of the IRS audit. It is the legal notice that allows the IRS to assess or record the increased tax liability on its books. So if the IRS issued a Notice of Deficiency in 2015 for the 2012 tax year, the taxpayer could have still filed a refund claim on the date the Notice was issued. As such, the U.S. Tax Court could order the IRS to issue a refund in this scenario.

If the IRS issued the Notice of Deficiency in 2016 for the 2012 tax year, which could come up if the taxpayer did not timely file his 2012 tax return, the taxpayer may be precluded from filing a refund claim for 2012 at the time the Notice of Deficiency was issued. This would preclude the U.S. Tax Court from ordering the IRS to issue a refund. The exception would be if the tax was paid in the two years prior to the Notice of Deficiency. The U.S. Tax Court could order the IRS to issue a refund for the overpayment.

There are several exceptions and nuances to these rules that are beyond the scope of this writing. The takeaway is that the taxpayer may be able to obtain a refund via litigation in the U.S. Tax Court, which is typically true in situations where the taxpayer timely files its tax returns. The U.S. Tax Court will usually not have the authority to do this when the taxpayer files its tax returns late.

Call Now, We Can Help!

 

(713) 909-4906

Do you have a tax dispute, under audit by the IRS or state tax authorities, or just have a tax question? We want to hear from you. Call today for a free, confidential, consultation. If you are pressed for time, you can also use the contact form below to reach out to us.

Our Recent Reviews

Grga Brolih
Grga Brolih
09:20 24 Apr 17
I was a bit hesitant at first because I had not really done any research, just my friend told me about Houston Tax Attorney. Anyway i decided to give them a try and I was really impressed and pleased with the outcome of my experience. They were always very pleasant and professional and made me feel free from my tax issues. Good job!
Brown Jones
Brown Jones
08:54 10 Jun 17
Houston Tax Attorney has given me my life back. I was unable to pay my payroll taxes and in combination with the penalties attached to those taxes, my debt had begun to snowball. Houston Tax Attorney genuinely cares about their clients; they helped me throughout the process. I am extremely grateful to them.
Sandra Camacho
Sandra Camacho
03:47 27 May 17
I had a tax problem and needed help, so I went to Houston Tax Attorney. Love the team, they were so organized and communicated. Good work was done!
Turman Villanueva
Turman Villanueva
12:20 21 Apr 17
Dealing with Houston Tax Attorney was simple from the beginning to the end. Every person I spoke to was knowledgeable and helpful. I was guided in all aspects of the process and given the best advice regarding my tax condition. I have been given a second chance with the IRS. Thank you.
Bill Moore
Bill Moore
07:05 02 Jun 17
I want to Thank Houston Tax Attorney team. They took care of my IRS issues with great professionalism. No more sleepless nights. Thank you Guys!
Sharon G. Velasco
Sharon G. Velasco
08:31 24 Jun 17
I had some big tax issues and I was unable to handle it alone. Houston Tax Attorney helped me to settle all my tax problems. They were there all the way. I respect their professionalism and appreciate their commitment to their clients.
See All Reviews