DOJ Wins One Case and Loses Motions in Another Where POAs Signed First Refund Claims for Taxpayers, Part II

We have run a number of posts involving refund suits where (1) the taxpayer’s representative signed the predicate refund claim on the taxpayer’s signature line, and (2) the Form 2848 power of attorney did not expressly authorize the representative to sign returns.  This is part II of a two-part post on two recent cases presenting this fact pattern, decided one day apart, Dixon v. United States, 2023 U.S. App. LEXIS 11422 (Fed. Cir., May 10, 2023) (Dixon 3), and Cooper v. United States, 2023 U.S. Claims LEXIS (Ct. Cl., May 9, 2023).  The DOJ’s motion to dismiss was successful in Dixon and unsuccessful in Cooper.  So, it may be worthwhile to explain how the courts reached different rulings on such similar fact patterns.  Today’s post discusses Cooper.  You can find part I of this post here.


Cooper Facts

Mr. Cooper filed his 2014 income tax return late (in June 2016), even after having obtained a 6-month extension to file.  Just before the extended due date, his CPA told Mr. Cooper that there would not be any late-filing penalty anyway, since a large payment made with the extension request had overpaid the taxes.  In the end, the preparer was wrong that the taxes had been overpaid, and the IRS assessed about $95,000 in late-filing penalties as it processed the return. 

Mr. Cooper paid the $95,000 and hired a tax attorney (who was not Mr. Castro of Dixon) to try to get the penalty refunded.  The attorney had the taxpayer execute a Form 2848 in his favor, though, just like in the Brown and Dixon 1 cases in part I of this post, box 5a of the form authorizing the attorney to sign tax returns was not checked.

Refund claims for penalties are not made on amended returns (Forms1040X), but via Form 843 refund claims.  The attorney prepared and filed a Form 843, signing the form both on the line for where the taxpayer should sign (under penalties of perjury) and where the preparer should sign.

The IRS denied the claim, and in 2019, Mr. Cooper brought a timely suit in the Court of Federal Claims under IRC § 6532(a).

After the parties filed the complaint and answer and completed discovery, in May 2022, the DOJ moved to dismiss the case under RCFC 12(b)(6) for failure to state a claim on which relief could be granted.  The DOJ cited two reasons:  (1) the Form 2848 had not been attached to the refund claim when the Form 843 was filed (as required), and (2) the attorney was not authorized by the Form 2848 to sign a Form 843 refund claim for the taxpayer.

The timing of the DOJ’s Cooper motion under RCFC 12(b)(6) is important, since it was filed a few months after the Federal Circuit issued its opinion in Brown v. United States, 22 F.4th 1008 (Fed. Cir. 2022) (on which Keith blogged here.  In Brown, the Federal Circuit held that, under recent Supreme Court case law, certain requirements of a proper refund claim under IRC § 7422(a) are no longer jurisdictional to a refund suit, even though the predicate requirement to file a refund claim at all is still jurisdictional.  Brown held that what it called the “duly filed” requirements of the statute (which the court said covered the IRC §§ 6061 and 6065 requirements for a taxpayer to sign a return and under penalties of perjury) are not jurisdictional, but nevertheless are still statutory, so cannot be waived.  Thus, Brown dismissed the suit for failure to state a claim under RCFC 12(b)(6), not for lack of jurisdiction under RCFC 12(b)(1).

Before the CFC ruled on the DOJ’s motion in Cooper, in July 2022, the DOJ withdrew it and filed a new motion to dismiss, this one predicated on lack of jurisdiction under RCFC 12(b)(1).  As the court wore in Cooper:

The motion raises the same grounds for dismissal—i.e., that Mr. Cooper’s refund claim was not “duly filed” due to his failure to comply with the signature verification requirements—but, contrary to its initial motion, the Government relies on circuit precedent preceding Brown to support a jurisdictional argument.  Id. at 1, 12-15.  The Government now contends that Brown is not binding because the Brown panel could not overrule prior panel decisions finding that § 7422(a) sets forth jurisdictional prerequisites to filing suit. Id. at 18-21.

Slip op. at 5.

The DOJ is obviously still smarting from the holding in Brown that the “duly filed” requirement in IRC § 7422(a) is no longer jurisdictional.  That holding was prompted in part by the amicus brief that Keith and I filed in Brown on behalf of The Center for Taxpayer Rights in which we argued that no requirement of IRC § 7422(a) is jurisdictional anymore.  That is, we argued that, even the requirement to file a refund claim at all before bringing suit is no longer jurisdictional.  Since the DOJ won Brown (though not on the ground it wanted), it could not seek cert.  It has apparently decided to keep making the argument rejected in Brown to the CFC, hoping that the jurisdictional question will be revisited in the Federal Circuit again soon.

Cooper Holding

The Cooper court rejected the DOJ argument that the 3-judge Brown panel had no authority to ignore prior Federal Circuit precedent, writing:

Although the Government takes issue with whether Lexmark [International, Inc. v. Static Control Components, Inc., 572 U.S. 118, 128 (2014) (cited by the Brown panel)] expressly or implicitly overruled the Federal Circuit’s prior decisions on the jurisdictional nature of § 7422(a), this Court is not in a position to ignore Brown‘s conclusion that the two are irreconcilable.  See ECF No. 25 at 23 n.23 (noting that Lexmark is not a tax case, nor a case involving the United States’ waiver of sovereign immunity).  Moreover, the Federal Circuit has held that a panel is empowered to overrule a prior panel decision “without en banc action” based on intervening authority, even where such authority does not explicitly overrule the prior decision or address the precise issue.

Slip op. at 11 (citation omitted). 

I am surprised that the DOJ tried to distinguish Lexmark in July 2022 as not being a tax case, since in April 2022, the Supreme Court applied its non-tax precedent restricting the use of the word “jurisdiction” to the Tax Court petition filing deadline in IRC § 6330(d)(1) in Boechler, P.C., v. Commissioner, 142 S. Ct. 1493.

The Cooper court could have stopped there, but it noted that

in a final footnote at the end of its reply the Government posits an alternative ground for dismissal.  If it finds Brown controlling, the Government requests that the Court dismiss the Complaint with prejudice for failure to state a claim.  Def.’s Reply at 18 n.7, ECF No. 27.  Because the pleadings are closed, such request could be raised only by a motion for judgment on the pleadings under RCFC 12(c). 

Slip op. at 12 (citation omitted).

The court decided to consider whether the DOJ was entitled to judgment on the pleadings.

The court held that a factual dispute over whether the Form 2848 was attached to the Form 843 when filed (as required) precluded granting judgment on the pleadings on that ground.

With respect to the ground of failure to properly sign and verify under penalties of perjury, the court looks closely at regulations under the refund claim provisions and the power of attorney provision, Form 843 instructions, and a Technical Advice Memorandum and concludes that, unlike in the case of a Form 1040X (which is a return), a Form 843 is not a return and can be signed by a representative on the line for the signature of the taxpayer, even if box 5a on Form 2848 does not authorize signing returns. 

[T]the regulations do not require specific authorization for non-return refund claims.  Compare Treas. Reg. § 1.6012-1(b)(3)(ii) with id. § 301.6402-2(e).  If that is an inconsistent policy, it is incumbent on the IRS to amend its regulations and forms.

Slip op. at 25 n.6.

Further, the court finds that the language of the Form 2848 authorizing the IRS to deal with the representative provides enough authority for the representative to sign on behalf of the taxpayer.  The court also rejects the DOJ argument that the Form 2848 was required to specifically list “late-filing penalties for 2014” to be valid.  The court finds it enough that the 2014 income taxes were named on the Form 2848.

This being an interlocutory ruling, the DOJ cannot immediately appeal it to the Federal Circuit.  It will be interesting to watch how this case progresses.

DOJ Wins One Case and Loses Motions in Another Where POAs Signed First Refund Claims for Taxpayers, Part I

We have run a number of posts involving refund suits where (1) the taxpayer’s representative signed the predicate refund claim on the taxpayer’s signature line, and (2) the Form 2848 power of attorney did not expressly authorize the representative to sign returns.  This is part I of a two-part post on two recent cases presenting this fact pattern, decided one day apart, Dixon v. United States, 2023 U.S. App. LEXIS 11422 (Fed. Cir., May 10, 2023) (Dixon 3), and Cooper v. United States, 2023 U.S. Claims LEXIS (Ct. Cl., May 9, 2023).  The DOJ’s motion to dismiss was successful in Dixon and unsuccessful in Cooper.  So, it may be worthwhile to explain how the courts reached different rulings on such similar fact patterns.  Today’s post discusses Dixon and its predecessor cases generated by representative John Castro (the original signer in all the cases leading up to Dixon).


Background on Castro Cases

There is a tax attorney/CPA named John Castro, who represents a lot of United States citizens living abroad.  Mr. Castro filed refund claims for them for various issues, frequently the foreign income exclusion of IRC § 911.  Mr. Castro knew it was a big burden to send refund claims to his overseas clients to have the clients sign and return the claims.  So, he obtained powers of attorney (Forms 2848) from them, and Mr. Castro signed the refund claims (Forms 1040X) on the line for the taxpayer’s signature (i.e., the line which contains the affirmation under penalties of perjury).

Line 3 of Form 2848 (rev. 1/2021) states:  “I authorize my representative(s) to receive and inspect my confidential tax information and to perform acts I can perform with respect to the tax matters described below. For example, my representative(s) shall have the authority to sign any agreements, consents, or similar documents (see instructions for line 5a for authorizing a representative to sign a return).”  Line 5a allows taxpayers to give the representative certain further powers, including, “Sign a return”.  Unfortunately, Mr. Castro left that box on line 5a unchecked. 

The IRS audited all the claims and rejected the claims on the merits.  In response, Mr. Castro arranged for counsel he hired to file suits in the Court of Federal Claims (CFC) seeking refunds. 

Mr. Castro’s signature is messy, and so it was not until the suits had commenced that the DOJ discovered that the purported taxpayer signatures on the Forms 1040X were those of Mr. Castro and not the taxpayers.  Thereafter, the DOJ filed motions to dismiss for lack of jurisdiction under RCFC 12(b)(1).  The taxpayers claimed the IRS had waived any defect in the form of the claims by rejecting the claims on the merits, citing Angelus Milling Co. v. Commissioner, 325 U.S. 293 (1945).  In Angelus, the Supreme Court held that the IRS waives the regulatory specificity requirement of a refund claim when the IRS denies the claim on the merits.  But, the Angelus Court stated that, by contrast, statutory refund claim requirements may never be waived.

Keith first did a post ­­on one of the Castro-case opinions in which the CFC granted the IRS’ motion, Gregory v. United States, 149 Fed. Cl. 719 (2020).  Gregory held jurisdictional to a refund suit compliance with the refund claim signature requirement of IRC § 6061 and the verification under penalties of perjury requirement of IRC § 6065.  Jurisdictional requirements can never be waived.  Since Castro did not have authority to sign Forms 1040X, the CFC dismissed Gregory’s suit for lack of jurisdiction. 

Mr. Dixon and Mr. Brown had similar CFC cases dismissed for lack of jurisdiction.  See Dixon v. United States, 147 Fed. Cl. 469 (2020) (Dixon 1); Brown v. United States, 151 Fed. Cl. 530 (2020).  Mr. Dixon and Mr. Brown appealed the dismissals of their CFC cases to the Federal Circuit. 

In Brown v. United States, 22 F.4th 1008 (Fed. Cir. 2022) (on which Keith blogged here), the Federal Circuit affirmed the CFC, but on different reasoning.  Brown held that, under recent Supreme Court case law, certain requirements of a proper refund claim under IRC § 7422(a) are no longer jurisdictional to a refund suit, even though the predicate requirement to file a refund claim at all is still jurisdictional.  Brown held that what it called the “duly filed” requirement of the statute (which the court said covered the IRC §§ 6061 and 6065 requirements) are not jurisdictional, but nevertheless are still statutory, so cannot be waived.  Thus, Brown dismissed the suit for failure to state a claim under RCFC 12(b)(6), not for lack of jurisdiction under RCFC 12(b)(1). (Parenthetically, I question whether any requirement to file a refund claim is still jurisdictional, and I think the comment in Angelus that statutory requirements cannot be waived is also no longer good law and should not have been followed in Brown.)

Dixon 2 and 3 Opinions

Mr. Dixon dropped his appeal of Dixon 1 when Mr. Castro got a bright idea:  Mr. Castro had Mr. Dixon sign and file new Forms 1040X identical to the first set.  This occurred after the IRS had denied the first set of Forms 1040X on the merits.  The new claims were submitted to the IRS after the IRC § 6511 statute of limitations for refund claims had expired.  The IRS denied the claims, and Mr. Dixon filed a new refund suit in the CFC.  The DOJ moved to dismiss the case for lack of jurisdiction on the ground that the prior claims could not be treated as timely informal claims under the doctrine of United States v. Kales, 314 U.S. 186 (1941), arguing that informal claims need properly to be signed under penalties of perjury, as well.  In Dixon v. United States, 158 Fed. Cl. 69 (2022) (Dixon 2) (on which I blogged here, the CFC dismissed the suit for lack of jurisdiction on the grounds sought by the DOJ. 

In Dixon 3, the Federal Circuit recently affirmed the CFC’s dismissal of the case for lack of jurisdiction for late claim filing, but again on different grounds than those stated by the CFC.  The Federal Circuit was concerned about the possible differences between the waiver doctrine cases (Angelus and its progeny, including Brown) and the informal claim doctrine cases (Kales and its progeny).  The court was doubtful that to be a valid informal claim filed before the IRC § 6511 statute expired, all procedural requirements of claims must have been met, such as the signature and verification requirements.  The court wrote:

The government’s argument, at least on its face, is in tension with decisions of both the Supreme Court and this court.  See Kales, 314 U.S. at 194 (“This Court, applying the statute and regulations, has often held that a notice fairly advising the Commissioner of the nature of the taxpayer’s claim, which the Commissioner could reject because too general or because it does not comply with formal requirements of the statute and regulations, will nevertheless be treated as a claim where formal defects and lack of specificity have been remedied by amendment filed after the lapse of the statutory period.” (citations omitted)); Computervision, 445 F.3d at 1364 (“First, formal compliance with the statute and regulations is excused when the informal claim doctrine is applicable.”).  And it is in tension with the above-described case law, see supra pp. 15-18, which has applied the informal-claim doctrine in the absence of writings, signatures, and verification under penalty of perjury.

Slip op. at 22-23.

All that is clear under Kales is that a perfected claim filed after the statute of limitations expires is deemed to be filed on the date the informal claim was filed.

The court pointed out the tension between the waiver and informal claim cases, but declined to resolve the issue of whether all informal claims must be signed by taxpayers under penalties of perjury.  It left that question to another panel in a later case.  “We flag these issues without prejudging the result of a full consideration of these and other issues in a case where deciding the question is necessary to the outcome.”  Slip op. at 24.

The court could dodge the sticky issue because it found another ground for finding the refund suit to lack jurisdiction.  Although the DOJ had not meaningfully presented the argument to the CFC, before the Fed. Cir. the DOJ argued that once an informal claim has been rejected on the merits, and the taxpayer brings suit on it, the ability of the IRS to rule on the claim lapses (authority passes to the DOJ), so the claim cannot be an informal claim for a later, perfected claim.  The Federal Circuit agreed, writing:

On the merits, the Supreme Court in [United States v.] Memphis Cotton [Oil Co., 288 U.S. 62 (1933)], in articulating the informal-claim doctrine, stressed the importance of any amendment to a deficient refund claim being filed while the original claim remains before the IRS.  288 U.S. at 72.  Only when the IRS “holds [a deficient claim] without action until the form has been corrected” is it true that “what is before [the IRS] is not a double claim, but a claim single and indivisible, the new indissolubly welded into the structure of the old.”  Id. at 71.  But “[w]hen correction is . . . postponed, there is no longer anything to amend, any more than in a lawsuit after the complaint has been dismissed.”  Id. at 72.  This court reiterated that principle in Computervision, where we noted that the IRS loses jurisdiction over—and a taxpayer loses the ability to amend—any refund claim that is allowed, disallowed, or the subject of a suit for refund.  445 F.3d at 1371-73.

Slip op. at 25-26.


When Dixon 2 came down, Keith was worried that the Federal Circuit might affirm the CFC on the ground that a valid informal claim must be signed by the taxpayer under penalties of perjury.  That would seem to go against precedent of the Federal Circuit and many other courts.  Accordingly, the Center for Taxpayer Rights (represented by Keith and Professor Andrew Weiner of Temple) filed an amicus brief pointing out that precedent.  A copy of the amicus brief can be found here.

The Perils of Electing to Carry Forward a Tax Refund When Filing Bankruptcy

In Miller v. Wylie, No. 21-04012 (Bankr. E.D. Mich. 2023) the debtors elect to carry forward their tax refunds for returns filed shortly before bankruptcy and immediately after filing. Although the analysis for the pre- and post-bankruptcy elections turns out differently, the post-bankruptcy election causes the loss of their bankruptcy discharge under BC 727(b)(2)(B).  I have seen occasional cases with this issue over the past few decades but have not written about it previously.  The timing of bankruptcy filing versus return filing and the ability to elect on a return to carry a refund forward has tempted debtors to try this technique for preserving an asset that their creditors deserve.  The existence of both pre- and post-bankruptcy elections in this case provides a detailed look at the considerations undertaken by a bankruptcy court when debtors make this type of election.


The Wylies filed a joint chapter 7 petition on August 27, 2020.  To reach the decision in this case the bankruptcy court held a four-day trial – Wow.  The refund issue relates to both state (Michigan) and federal tax refunds.  I will focus on the federal refunds.

Like many other debtors the Wylie’s filed their tax returns late.  Unlike most debtors, they filed seeking a substantial refund rather than posting more debt.  Their 2018 return was filed almost one year late on March 31, 2020, just five months prior to the filing of their bankruptcy petition.  The return claimed a refund of $21,317.00 and their state return filed at the same time claimed a similar sized refund.  They elected to have the overpayments reflected on these returns applied to their 2019 income tax liabilities as estimated taxes.

There is nothing wrong or underhanded about making such an election as a general matter which is why the Internal Revenue Code permits such an election.  Because the returns were filed with five months of the filing of the bankruptcy petition, the trustee alleges that the election amounted to a transfer which concealed their property with the intent to hinder, delay or defraud a creditor within the meaning of BC 727(a)(2)(A).

The Wylie’s filed their 2019 returns on September 15, 2020, almost immediately after filing their bankruptcy petition.  Note that even though the return was filed after the bankruptcy petition the liability/overpayment for 2019 taxes was a prepetition liability or overpayment because the 2019 tax year ended on December 31, 2019, which date occurred prior to the filing of the bankruptcy petition.

The federal tax overpayment for 2019 on their return was $20,798.00 essentially resulting from the 2018 overpayment election with a similar result for their Michigan taxes resulting in over $40,000 in tax overpayments for 2019.  What did the Wylie’s do with this $40,000?  They elected to apply it to their 2020 tax liability.  The trustee alleges that this election sought to transfer and conceal property of the estate with the intent to hinder, delay, or defraud the trustee within the meaning of BC 727(a)(2)(B).  Because this election occurred after the filing of the bankruptcy petition it triggered a slightly different code section and it creates significantly more problems for the Wylies.

The court next turns to what the Wylies reported on their bankruptcy schedules.  Debtors who file bankruptcy must file extensive schedules disclosing their assets and do so under penalties of perjury.  The Wylies made at least two statements about their tax refunds which troubled the trustee whose job involves collecting all of the available assets for the benefit of the creditors.  First, the Wylies said the value of tax refunds owed to them was unknown.  More troubling they said:

Payment of $13,000 total, $10,000 to IRS and $3,000 to state of Michigan on October 2, 2019, towards estimated income tax liability. 2019 returns have not been filed. Payment amount was estimated to equal the tax liability.

Note the omission of information regarding the election to carry forward their 2018 overpayment.

The bankruptcy court notes the burden of proof here regarding the statute violation rests with the trustee.  It then goes over the elements the trustee must prove and the case law surrounding those elements.  Look to the case for a detailed discussion.

BC 727(a)(2)A) Discharge Denial Request

With respect to the pre-petition election to carry forward their 2018 overpayments the court found the election to be a transfer that concealed their property.  The trustee cited to several of the cases I had read over the past decades in which debtors tried to conceal tax refunds using essentially the same technique as the Wylies:

Case law on this subject, cited by the Trustee, supports the Court’s conclusion that the Debtors made a “transfer,” and the Debtors have cited no case law to the contrary. See United States v. Sims (In re Feiler), 218 F.3d 948, 955, 956 (9th Cir. 2000) (bankruptcy debtors’ pre-petition tax election to carry forward net operating loss (“NOL”) to offset future income, and to waive NOL carryback and resulting tax refund, was a “transfer” of a property interest to the IRS); Gibson v. United States (In re Russell), 927 F.2d 413, 418 (8th Cir. 1991) (same, regarding bankruptcy debtor’s post-petition NOL election); Kapila v. United States (In re Taylor), 386 B.R. 361, 369 (Bankr. S.D. Fla. 2008) (same, regarding bankruptcy debtor’s pre-petition NOL election).

The court decided, however, that the pre-bankruptcy election did not meet the intent element of the statute because the trustee could not prove that the’ Wylies election, made five months prior to bankruptcy, sought to hinder, delay, or defraud a future chapter 7 trustee in a future bankruptcy case.  The court viewed this election as a preference of the IRS over the Wylies other creditors.  This type of preference could cause the funds transferred with a period prior to bankruptcy to be clawed back into the estate but would not rise to the level of denying a discharge.  The court detailed at this point the severe health and financial problems facing Jason Wylie.

The court detailed the various businesses that Jason Wylie ran, his financial and health situation leading up to the bankruptcy, the timing of the hiring of the bankruptcy attorney, the reason for the delay in filing the 2018 return.  Four days of testimony would have flushed out these details which provide crucial background for the court’s decision on discharge.  Denying a discharge is a severe remedy the bankruptcy court would not take without care.

BC 727(a)(4)(A) Discharge Denial Request

The trustee sought to deny the discharge because of the false statements on the bankruptcy schedules.  The court agrees the statements in the schedules were false but finds that the trustee did not prove the Wylies made these false statements fraudulently.  So, as with BC 727(a)(2)(A) discharge denial request, the court turns away the trustee’s attempt to deny the discharge on this ground.  One of the deciding factors for the court was that the Wylies provided their 2018 return to the trustee before or shortly after the filing of the petition and their 2019 return shortly after filing it.  Because they were providing accurate information about the carry forward election at approximately the same time, the court determined that they did not intend to deceive the trustee with the false statements in the schedules.

BC 727(a)(2)(B) Discharge Denial Request

Here, the Wylies lose their discharge.  The bankruptcy petition had already been filed.  The 2019 refunds were clearly property of the estate.  The court finds the carry forward election sought to transfer property of the estate with the intent to hinder, delay or defraud the trustee.  By making the election the Wylies necessarily delayed the trustee since they could have received the refunds from the IRS promptly (a relative term during the pandemic) instead of forcing the trustee to unwind their election causing additional time and expense.  (Under the facts here and probably because of the pandemic, the court finds that the election did not actually hinder or delay the trustee in obtaining the refunds but that is not controlling since they intended to do so.)

Jason Wylie and Leah Wylie both admitted in their trial testimony that the purpose of making their 2019 Tax Refund Transfers was the same kind of purpose they had when they made their 2018 tax refund elections — to try to make sure that their 2020 taxes would be paid.89 As the Court has discussed in Part III.C.1.b of this Opinion, this purpose is essentially a purpose to prefer the Debtors’ two taxing authority creditors (the Internal Revenue Service and the State of Michigan) over their other creditors. That is, the Debtors wanted to insure that their taxing authority creditors were paid in full, for 2020 taxes, in preference to their other creditors, many or most of which could not be paid in full.

In the post-petition context, the Debtors making a transfer of estate property with this purpose is wholly inconsistent with the duties of the Chapter 7 Trustee. This means that in substance, the Debtors had, at a minimum, an intent to hinder the Trustee. In the Debtors’ Chapter 7 bankruptcy case, the Chapter 7 Trustee would not and could not give the Debtors’ intended preferential treatment to these taxing authority creditors for 2020 taxes.

So, the debtors lose their discharge and the refunds come into the estate to pay creditors which could include the IRS depending on the various priorities of the creditors.  The Wylies, unlike debtors in many of the previous cases I have read with this issue, do not appear to have the sneaky intent to use the carry forward to obtain the refund for themselves in a future year filing but rather appear genuinely desirous of making sure they covered their taxes.  While their intentions are more noble than others using this technique to keep property out of the estate, the trustee is right to pursue the refunds for the benefit of all creditors in order that the priority scheme of the bankruptcy code is preserved.  The bankruptcy court struggled with the decision to deny the discharge because of the intent issue.

Play It Again, Sam: The Perils of (Incorrectly) Established Court Analysis

According to the American Film Institute, Casablanca has the most memorable quotes of any film in the 20th Century. Among the ones I can remember are: “Here’s looking at you, kid,” “We’ll always have Paris,” and, of course, “Play it again, Sam.”

Except, as many people know, no one in Casablanca actually says, “Play it again, Sam.” One of the film’s more famous and repeated quotes is, in fact, not one of the film’s quotes. It’s catchy and it’s close to what the characters actually say, but it’s not quite accurate.

Nonetheless, it has been essentially incorporated into Casablanca’s lore, and is part of its enduring appeal. I think that something very similar happens in the law sometimes. A court repeats a (close, but inaccurate) statement enough that it just becomes accepted. Only unlike apocryphal film quotes, which carry little consequence and can be fairly easily corrected, getting a court to revisit an “accepted” truth is a very tall order.


As you’ve possibly guessed, I’m talking about the Tax Court’s (mis)understanding of TIPRA payments. But it surely matters in many more contexts. When one case sets bad precedent or one court mischaracterizes the legislative history, undoing the damage gets successively harder each time the original error is repeated. At some point it may just become implacable.

As quick background, in 2006 Congress amended the Offer in Compromise statute (IRC § 7122) to require that a partial payment be included with most Offers. These partial payments are commonly referred to as “TIPRA” payments after the law (Tax Increase Prevention and Reconciliation Act) that created them.

In a series of posts, I laid out why I thought there was a good argument to be made that TIPRA payments were refundable deposits. Those arguments included (1) the ambiguous statutory language, (2) the equally ambiguous legislative history, and (3) the plain language of the Treasury Regulations. So imagine my surprise when, after having spent all that time, I come to learn that:

“The law is clear that a TIPRA payments are not refundable deposits but rather are non-refundable payments of tax.” So says the 9th Circuit in Brown v. Commissioner, 58 F.4th 1064, 1066 (9th Cir., 2023)). 

But you don’t have to just take the 9th Circuit judges’ word for it. In fact, they cite to (1) a precedential case, (2) the statute, and (3) the legislative Conference Report on point, all saying that the TIPRA payments are non-refundable payments of tax. You don’t get clearer than that!

Until, that is, you actually look at each of the sources. Let’s start with the Conference Report.  

Actually… let’s not start with the Conference Report, because Brown doesn’t quote the Conference Report, but rather to a case that cited to the Conference Report. So let’s start by looking at that case, Isley v. Commissioner, 141 T.C. 349 (2013) and its analysis.

In Isley, the Tax Court directly addresses whether the taxpayer (famous musician Ron Isley) is entitled to a refund of his TIPRA payment on a rejected Offer. The Tax Court found that Mr. Isley was not entitled to a refund of the TIPRA payment because it was a payment towards the underlying tax liability, rather than a deposit. To reach this conclusion, the Tax Court draws on the TIPRA Conference Report, and goes on to say:

“The report’s explanation of the new provision refers to the 20% payment as a ‘partial payment’ or ‘down payment’ of the taxpayer’s liability.”

Case closed, as they say on TV. Except…

What the Conference Report Actually Says

The good news is that the words the Tax Court put in quotes (“partial payment” and “down payment”) are, in fact, words used in the Senate Amendment. The bad news is that the Conference Report doesn’t refer to those as being “applied to the taxpayer’s liability.” Which of course is exactly what the Tax Court is using the Conference Report to argue for.

Maybe a less selective quote from the Conference Report would be helpful:

Senate Amendment:

“The provision requires a taxpayer to make partial payments to the IRS while the taxpayer’s offer is being considered by the IRS. For lump-sum offers, taxpayers must make a down payment of 20 percent of the amount of the offer with any application. […] The provision eliminates the user fee requirement for offers submitted with the appropriate partial payment.” [Emphasis added]

Conference Agreement:

“The conference agreement includes the Senate amendment provision, with the following modifications. Under the conference agreement, any user fee imposed by the IRS for participation in the offer-in-compromise program must be submitted with the appropriate partial payment. The user fee is applied to the taxpayer’s outstanding tax liability.” [Emphasis added.]

It is important to note that a “user fee” is undeniably separate from the partial (i.e. “TIPRA”) payment. The Senate Amendment originally proposed getting rid of the user fee so long as there was a TIPRA payment. The Conference Agreement said, “no, let’s keep the user fee in addition to the TIPRA payment.” Treating the user fee and TIPRA payment distinct is also how the statute operates.

So the Conference Report only makes clear that the user fee must be applied to the outstanding tax. But the Conference Report says absolutely nothing about whether the TIPRA payment must be applied to the outstanding tax. (Somewhat perversely, the IRS has since decided that it will refund the user fee but not the TIPRA payment if the Offer isn’t processed: see Offer terms of Form 656 Section 7 provision (c).)

What about the “down-payment” language that the Tax Court quotes? To me, understood in its proper context, describing TIPRA payments as a “down-payment” makes much more sense if it is thought of as a “down-payment” on the Offer and not on the underlying tax (as Isley claims the report requires). You don’t make “down payments” on tax that is already assessed and owed for prior years. You make a “down payment” on the proposed Offer settling that underlying tax for a lower amount. If I was making a “down payment” on the underlying liability, I would not be making an Offer at all: I’d be fully paying the tax.

But wait, there’s more. Let’s take a look at how the Conference Report characterizes the “Present Law” (i.e. the law prior to TIPRA):

Present Law:

“Taxpayers are permitted (but not required) to make a deposit with their offer; if the offer is rejected, the deposit is generally returned to the taxpayer.” [Emphasis added]

What TIPRA changed from the present law was that it required a partial payment rather than just “permitting” one. That’s it. It did not say a word about changing the character of that partial payment from a refundable deposit to a non-refundable payment of tax. Indeed, since the law prior to TIPRA was “optional deposit” and the only explicit change was to remove the word “optional,” I’d argue that the Conference Report supports a reading that it remains a deposit. Note also IRC § 7809(b), reinforcing the general understanding that Offer payments are deposits.  

Of course, the 9th Circuit in Brown also says the statutory language is clear, and courts focus on the text of the statute rather than a Conference Report. So just how clear is the statute?

Apparently clear enough that the Court doesn’t need to analyze it. Brown doesn’t quote the language of the statute, but parenthetically describes IRC § 7122(c)(2)(A – C) as “establishing that any TIPRA payment goes to the taxpayers liabilities.”

We’ll see if that is a fair characterization in a moment. But note that the same lack of statutory analysis is apparent in Isley. Further, in a twist of fate, petitioner’s counsel in Isley is the same as petitioner’s counsel in Brown, and never appears to have raised the issue of the ambiguous statutory language in either case. Per Isley:

“Thus, it is clear that, in the normal circumstances of a taxpayer’s submission of an OIC to the IRS, the section 7122(c) payment constitutes a nonrefundable, partial payment of the taxpayer’s liability, and petitioner does not argue to the contrary.” 141 T.C. 349, 372. [Emphasis added.]

What the Statute Actually Says

We are told in Brown that IRC § 7122(c)(2)(A – C) establishes “that any TIPRA payment goes to the taxpayers liabilities.” Maybe. But just for fun, let’s look at what the statutory language actually says:

(A) Use of payment

The application of any payment made under this subsection to the assessed tax or other amounts imposed under this title with respect to such tax may be specified by the taxpayer.

(B) Application of user fee

In the case of any assessed tax or other amounts imposed under this title with respect to such tax which is the subject of an offer-in-compromise to which this subsection applies, such tax or other amounts shall be reduced by any user fee imposed under this title with respect to such offer-in-compromise.

(For present purposes, Subparagraph (C) is mostly irrelevant and gives the Treasury the authority to waive the TIPRA payment requirement via regulation. Why that might matter in a different context will be discussed in my next post, which deals with admin law.)

The statute breaks down two different types of payments: (1) Subparagraph A pertaining to TIPRA payments and (2) Subparagraph B pertaining to user fees. They are distinct, and clearly lay out different standards: (A) sets out flexibility for taxpayers on TIPRA payments, whereas (B) gives no flexibility. Subsection (A) never says a word about TIPRA payments being nonrefundable, or otherwise required to be applied to taxpayer liabilities.

So while the statute (like the Conference Report) is clear on user fees, it is decidedly ambiguous on TIPRA payments. All it really says is that the taxpayer can specify how TIPRA payments are applied if they want to.

If I wanted to go further down the statutory interpretation rabbit-hole, I’d note that the Supreme Court has said that when “Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.” Russello v. United States, 464 U.S. 16, 23 (1983). The Tax Court has frequently quoted this language approvingly in precedential decisions. See, e.g., Whistleblower 21276-13W v. Commissioner, 147 T.C. 111 (2016); Grajales v. Commissioner, 156 T.C. 55 (2021); and most recently, Thomas v. Commissioner, 160 T.C. No. 4 (2023). Applied here, one might argue that Congress specifically said underlying tax is reduced by user fees but did then omits that language with regards to TIPRA payments.


Play It Again, Sam

So the statute doesn’t clearly say, “TIPRA is non-refundable payment towards the liability.” Nor does the Conference Report. And yet here we are, told again and again that both the statute and Conference Report make “clear” that TIPRA is non-refundable. Play it again, Sam: if we just say it enough, it becomes part of the lore.

But for posterity’s sake, let’s be clear: the law is not clear that TIPRA payments are non-refundable payments of tax. And the 9th Circuit and Tax Court are, I think, clearly wrong about that. Changing that understanding, however, will not come easy.

How Much Does Brown Limit Tax Court Refund Jurisdiction in CDP?

In my previous post, I discussed how the 9th Circuit appears dismissive of the notion that Boechler affects “refund jurisdiction” in Tax Court CDP cases. However, because the 9th Circuit didn’t directly address Boechler (despite the taxpayer’s urging), we don’t know exactly how or if Boechler interfaces with the Tax Court’s determination that it “lacks jurisdiction” to issue refunds in CDP cases.

Even disregarding Boechler, I have argued that the Tax Court may have jurisdiction to order some types of refunds. Summarizing my prior posts in a nutshell, I argued that the Tax Court could/should order money be returned to petitioners so long as the money was not a “rebate” refund resulting from an overpayment of tax. See IRC § 6401(a). As something of an oversimplification, a non-rebate refund is one that does not result from an “overpayment” of tax.

A good example of a “non-rebate” refund would be returning the “TIPRA” payment, which can be thought of as a “down payment” sent in by a taxpayer on an Offer in Compromise. And it just so happens that refunding TIPRA payments is exactly what the Tax Court said it lacks the jurisdiction to do in Brown. So much for my theory.

Or perhaps there is still hope… Indeed, perhaps Brown actually strengthens my theory! Read on to see for yourself if I am delusional.


At this point, there are four separate Brown opinions from the Tax Court and 9th Circuit, so it may be helpful to reorient ourselves with the procedural posture. That should also help us to determine exactly what is (or should be) at issue on the jurisdictional question.

In Brown I (T.C. Memo. 2019-121), the Tax Court found that there was no abuse of discretion in the IRS’s refusal to return a TIPRA payment on a rejected/returned Offer. The 9th Circuit affirmed that there was no abuse of discretion in Brown II (826 Fed. Appx. 673, (9th Cir., 2020)), but remanded the case to the Tax Court solely on the question of “whether it has jurisdiction over Brown’s TIPRA payment.” Apparently, the Tax Court hadn’t “meaningfully” addressed the foundational, jurisdictional question so the 9th Circuit wanted to know.

Which brings us to Brown III, where the Tax Court (in T.C. Memo. 2021-112) “shockingly” determining that it is a “court of limited jurisdiction.” Accordingly, the Tax Court found that it had no jurisdiction over the TIPRA issue. The 9th Circuit blessed this determination in Brown IV (58 F.4th 1064 (9th Cir. 2023)) and in a sentence that made me cringe, approvingly reiterated that the Tax Court “is a court of limited jurisdiction.”

Ok. So the question addressed on remand (“is there Tax Court CDP jurisdiction over the TIPRA payment”) was answered with a resounding “no.” How is that possibly a win in my “Tax Court might have jurisdiction over some refunds” argument?

It is a (possible) win because of the analysis leading to the conclusion, and the fact that the courts thought it necessary to analyze exactly what a TIPRA payment “is.” Allow me to explain…

Questions Presented, Answers Provided

Both the 9th Circuit and Tax Court frame the issue solely on jurisdictional grounds: does the Tax Court have jurisdiction to order a refund of a TIPRA payment? This is not a merits issue (i.e. “Should Mr. Brown get his TIPRA payment back?”) because that was already decided “no” in Brown I. Thus, it is a question of whether the Tax Court ever has the power to order a TIPRA payment be refunded.

If Greene-Thapedi were interpreted broadly (as it all too often is), it wouldn’t really matter what the “character” of a TIPRA payment is. All that would matter is that the taxpayer is asking for “money back” in a CDP hearing. The TIPRA payment could be a deposit, it could be a non-rebate refund, it could be, well anything and the Tax Court would say “no jurisdiction” if Greene-Thapedi is interpreted expansively enough.

But here, the parties wrestle with that exact issue (“what is a TIPRA payment?”) in their briefing, and the courts continue to wrestle with that issue in their opinion. That the courts find that question to be relevant to their jurisdictional inquiry is (I’d say) a win for team “Tax Court can sometimes issue refunds in CDP.”
I’ve argued that the character of the payment you’re asking for back (and the reason for its return) does or should matter to CDP “refund” jurisdiction questions. Arguably, Brown could be seen as support for that proposition, for the very reason that the court thinks the character of TIPRA payments matters to its jurisdictional inquiry. Or I could just be engaging in wishful thinking.

Tightening the Jurisdictional Straitjacket?

In my previous post I lamented how the Tax Court seems to read its jurisdictional grant in CDP cases as a straitjacket, preventing it from doing essentially anything to remedy an abusive IRS action if that remedy that isn’t explicitly stated in the statute. Since the statute just says that a person can petition the Tax Court to “review” CDP determinations (see IRC § 6330(d)(1)), any step beyond “reviewing” the action (say, ordering the IRS to remedy the problem identified) would fly in the face of the jurisdictional mandate. End snarky depiction of Greene-Thapedi.

Still, on occasion the Tax Court will subtly move beyond the role of observer in the sky to actual arbiter of outcomes in CDP cases. For example, we saw in Schwartz that the Tax Court may determine that there were overpayments that, via “credit elects,” wipe out other liabilities. In other words, the Tax Court may functionally determine an overpayment, and even functionally apply that overpayment to a back year… just don’t ask them to take one further leap and put that money in the petitioner’s pocket.

I worry that Brown may represent further needless tightening of the straitjacket because the decision can (and probably will) be cited as another example of how little the Tax Court will do when “getting money back” is at issue in CDP. Undeniably, the Tax Court holds that does not have the jurisdiction to return TIPRA payments. To some degree, that must be a tightening of the jurisdictional straitjacket, since a TIPRA payment is not your traditional “overpayment/refund” case. And yet, to conclude the straitjacket metaphor, there may yet be some wiggle room due to how the Tax Court characterizes TIPRA payments in reaching its determination.

The Tax Court characterizes TIPRA payments as “non-refundable payments” that must be applied to the “underlying tax liability.” On this understanding, the ability to get TIPRA payments is more restrictive than writing a general check to the IRS on a potential underpayment (in a deficiency proceeding), because under normal circumstances you could designate the payment as a “deposit.” See IRC § 6603. Not so with TIPRA payments.

Brown may require that I narrow my suggestion from “Tax Court can order non-rebate refunds in CDP,” to “Tax Court can order return of deposits in CDP.” That would be really cold comfort: I’d bet deposits are very rare in CDP contexts.

Oddly enough, however, one of the few collection statutes that deals directly with deposits strongly suggests that a TIPRA payment would be a deposit and that, on rejection of an Offer, the deposit should be returned to the taxpayer. See IRC § 7809(b)(1) and the hanging paragraph at the end of 7809(b). In any event, if the Tax Court can’t at the very least order the return of deposits in CDP jurisdiction I have no idea why it had to explain that a TIPRA payment isn’t a deposit before determining it lacked jurisdiction to refund it.

Perhaps, however, I can also read Brown in a more optimistic (perhaps delusional) way. On my optimistic reading, the reason the Tax Court can’t refund TIPRA payments is because they are explicitly “nonrefundable payments on the underlying liability.” Surely there are other nonrebate refunds that are not explicitly “nonrefundable,” such that the Tax Court wouldn’t be thumbing its nose at Congress if it ordered that they be refunded. At least one can hope.

Of course, I’ve saved the badnews for last: the Tax Court (and 9th Circuit) analysis of what TIPRA payments “are” is extremely weak. Why is that bad news? I guess you’ll just have to read my next post.

Refund Claims and Section 7508A – Progress!

We welcome back Bob Probasco as today’s guest blogger.  Bob has written several guest posts parsing the code with a particular emphasis on issues involving interest.  He teaches at Texas A&M Law School where he is a Senior Lecturer and Director of the Tax Dispute Resolution Clinic.  Today, he parses the IRS guidance on when a taxpayer can successfully file a refund claim three years after COVID changed normal tax return filing deadlines.  Keith

Relax – you have more time to file a refund claim for the 2019 tax year.  For many taxpayers, April 15, 2023, is no longer a hard deadline.  But you still need to pay attention to exactly what relief the IRS offered; there are some situations in which taxpayers may assume they have more time than they do.

The IRS issued Notice 2023-21 on February 27, protecting taxpayers from falling into an inadvertent trap that might have precluded recovery for some refund claims.  The IRS website tells us that it has this effect for 2019 income tax returns:

  • If taxpayers filed their 2019 return after April 15, 2000, but on or before July 15, 2020, they can recover the maximum amount if they file their claim within 3 years of the date the original return was filed.
  • If taxpayers filed their 2019 return after July 15, 2020, they can recover the maximum amount if they file their refund claim by July 17, 2023.

The Notice also adjusts the date by which refund claims for the 2020 tax year must be filed to ensure full recovery.  For this blog post, though, I’m focusing on the 2019 tax year, and income tax returns for individuals, for simplicity.

This is welcome relief although short of a complete solution.  The National Taxpayer Advocate’s blog had some observations, praising the Notice and pointing out what more still has to be accomplished.  I have a few thoughts as well.



Why was this a problem?  Because of the COVID emergency declaration and IRS responses, most taxpayers had until July 15, 2020, to file their 2019 tax returns and until May 17, 2021, to file their 2020 tax returns.  And most taxpayers have been conditioned to assume, from multiple reminders over the years, a general rule that they must file refund claims (including filing an original return claiming a refund) within three years of the original filing due date to receive that refund.  Thus, some were likely to assume that they had until July 15, 2023, to file refund claims for the 2019 tax year.  Before Notice 2023-21 was issued, that was not a safe assumption, and still isn’t for some taxpayers.

This problem was identified more than a year ago.  The National Taxpayer Advocate submitted her 2021 Annual Report on January 12, 2022.  The Purple Book included a legislative recommendation (starting at page 30) to address problems with the interaction between section 7508A and refund claims.  Notice 2020-23 allowed taxpayers with 2019 tax returns due on April 15, 2020, to be filed as late as July 15, 2020.  As a result, refund claims for 2019 would satisfy the section 6511(a) deadline if filed within three years after the return was filed, potentially (I’ll come back to this adverb later) as late as July 15, 2023. 

Unfortunately, even when a refund claim is filed by the section 6511(a) deadline, section 6511(b)(2)(A) limits the amount of the recovery to the amounts paid within “3 years plus the period of any extension of time for filing the return.”  Section 7508A doesn’t extend the deadline for filing returns.  It suspends or postpones it.  Thus, a refund claim for 2019 filed on July 15, 2023, could only recover amounts paid by the taxpayer (including refundable credits) by July 15, 2020. Most payments (including income tax withholding and estimated tax payments) and refund credits for the 2019 tax year are deemed to have been paid as of April 15, 2020.  As a result, that timely filed refund claim might result in no recovery.  In effect, we would be forcing taxpayers to file the refund claim earlier than the section 6511(a) deadline and most taxpayers wouldn’t realize that.

I looked at the Purple Book suggestion back in January 2022 and concluded that there were some arguments, even before Notice 2023-21, to protect the unwary taxpayer.  TL;DR summary: section 7508A(a)(3) arguably provided the IRS the authority to provide relief regarding the lookback rule, and Regulation § 301.7508A-1(f), Example 5 provided an example where the suspension period was disregarded in determining the lookback period.  But that example was of a situation in which the section 7508A suspension period included the section 6511(a) deadline; it didn’t address situations in which the suspension period under section 7508A included the deadline for filing the original return.  Could you make an argument for the latter even without legislative or regulatory change?  Sure, but it might not succeed and taxpayers without representation wouldn’t even know to make that argument if their refund claim were denied.

Notice 2023-21 – details

The new Notice takes a straightforward approach to solving the problem.  As with the previous COVID questions, it defines Affected Taxpayers and then specifies the relief.  Affected Taxpayers are:

  • “any person with a Federal tax return filing or payment obligation that was postponed by Notice 2020-23 to July 15, 2020”
  • “any person with a Federal tax return filing or payment obligation that was postponed by Notice 2021-21 to May 17, 2021”

Notice 2020-23 applied to filing and payment obligations due, including as a result of a valid extension, on or after April 1, 2020, and before July 15, 2020; Notice 2021-21 was more narrowly focused on filing and payment obligations normally due on April 15, 2021, or June 1, 2021, but didn’t take into account extensions.  (This is a vast over-simplification; it’s always best to carefully parse any such notices.)

Essentially, under Notice 2023-21, all individual taxpayers for both years are Affected Taxpayers and some entities are Affected Taxpayers with respect to the 2019 tax returns.  The relief granted was to disregard the two different suspension periods in determining the beginning of the lookback period.  But the two different suspension periods were stated in separate sentences and the relief granted was qualified as “relating to the tax for which the return filing or payment due date was postponed.”

That last phrase, I assume, was because the lookback period for individual taxpayers filing a refund claim for the 2019 tax year included both suspension periods.  The IRS apparently decided that they should be allowed to disregard the first suspension period (4/1/2020 – 7/15/2020) but not the second suspension period (4/15/2021 – 5/17/2021).

I was particularly interested in how this relief affected a couple of our clients who had not yet filed their original 2019 tax returns, which would show overpayments.  The only example in Notice 2023-21 wasn’t very helpful, as it involved a taxpayer who filed the 2019 tax return on June 22, 2020.  The notice doesn’t specify anywhere that relief was not available who had not filed their original returns by the postponed due date, but the absence of “no” doesn’t always mean “yes.”  But the description on the IRS website did say “yes” to this question.

Some observations

I began looking at this with a vague impression that the interaction of Notice 2020-23 (suspending the period for filing and payment obligations for the 2019 tax year) and Notice 2023-21 (disregarding the suspension period for purposes of determining the lookback period for refund claims) might lead to some strange results.  After close reading of Notice 2023-21, it seems to have been very well drafted.  I think it achieves the IRS’s immediate goals, in terms of resolving issues of a specific, nationwide emergency that affects imminent (normal) deadlines for refund claims.  The NTA is still advocating for a solution that is statutory, permanent, and inclusive of all section 7508A relief.  Tax professionals would like the same thing.  But Notice 2023-21, if nothing more, has been a useful exercise in starting to work through the complexity.

However, I still have a few concerns.

Policy choice leading to (somewhat) strange results?

A suspension of the section 6511(a) deadline for filing refund claims – such as was included in Notice 2020-23 for the 2016 tax year, normally due 4/15/2020 – automatically results in disregarding the suspension period when determining the lookback period.  That’s in the regulation above, which relies on language that mirrors section 7508A(a)(3).  That keeps the two deadlines in sync, so that a timely filed return followed by a timely filed refund claim will always be able to recover the maximum amount.

A suspension of the deadline for filing the tax return would – once the principles of Notice 2023-21 are implemented more broadly by regulation or legislation – automatically result in disregarding the suspension period when determining the lookback period.  A suspension of the deadline for filing the tax return, however, would not change the section 6511(a) deadline.  The two deadlines would not be in sync. 

You can see that in looking at the effect on three different hypothetical taxpayers.  Consider A, B, and C, all of whom are Affected Taxpayers for purposes of Notice 2023-21.  A filed his 2019 return on 4/15/2020; B filed her 2019 return on 6/1/2020; and C filed his 2019 return on 7/15/2020.  All three returns were filed timely because of Notice 2020-23.  For all three returns, the lookback rule allows a refund claim filed by 7/15/2023 to reach all payments and refundable credits.  Yet section 6511(a) requires that A must file his refund claim by 4/15/2023; B must file her refund claim by 6/1/2023; and C can file his refund claim as late as 7/15/2023.  In effect, C is rewarded for filing his return later than A and B filed theirs.

The Code includes several provisions to ensure that a timely filed refund claim, following a timely filed return, can recover all payments and refundable credits:

  • Amounts paid before the filing due date are deemed to have been paid as of the filing due date.
  • An extension of the filing due date results in an extension of the deadline for filing a refund claim and of the lookback period.
  • The lookback period is also adjusted for several special circumstances leading to a later deadline for filing a refund claim – e.g., section 6511(d)(1)(B), (2)(A), (3)(B), and (4)(A).

Notice 2023-21 does not do the same thing, because it disregards the suspension period with respect to section 6511(b) but not with respect to section 6511(a).  This leads to a relatively rare situation in which section 6511(b) would not limit the amount of a refund, but section 6511(a) would preclude any refund at all.

I assume this was a deliberate choice; the example in Notice 2023-21, as well as the description on the IRS website, both state that refund claims must be filed within three years of the date they filed the original return, with an outer limit of July 15, 2023.  The argument for the IRS choice here may be that, in the example above, taxpayers A and B evidently didn’t need the postponed due date.  The counter-argument might be that we don’t apply the same principle with respect to the original due date.  For the 2022 tax year, for example, taxpayers could file returns as early as January 23, 2023, but would still have until April 15, 2026, to file refund claims.

I perhaps would have preferred a different policy choice here.  In part to treat taxpayers equally with respect to COVID relief that was made available to everyone, not just those who needed extra time.  In part because of the potential for misunderstanding.  Let’s turn to that topic.

Communicating to taxpayers

I commend the IRS for their efforts to publicize the effects of Notice 2023-21, as well as many others who have been spreading the word.  But I still have some concerns about whether that message will be received by taxpayers, particularly since most of them do not read the IRS website, let alone Notice 2023-21.  They get their information (condensed and simplified) from other sources and don’t always read closely for the details.

For example, one of our clients – with a more sophisticated understanding than most taxpayers – heard about the postponement of the filing date for 2019 tax returns to July 15, 2020.  Unfortunately, he did not catch the qualification, that the postponement was for acts due between Apri1 1, 2020, and July 15, 2020.  That took care of his personal tax return but he and his wife also had a small partnership.  The partnership return was still due March 15, 2020, and he filed late.  There was no partnership activity or taxable income to pass through to their Form 1040 but the partnership was hit with a $1,640 penalty under section 6698(a)(1).  (The IRS refused to abate the penalty but there was still a happy ending when the IRS eventually issued Notice 2022-36, a general abatement of penalties for late filing.)

We will almost certainly have similar misunderstandings with some aspects of this relief that may not be intuitively clear for some taxpayers, despite all of our best efforts.  If they reach out to tax professionals, we can explain in the context of their particular facts, but some won’t until it’s too late.

Nominal Refund Claims

Chief Counsel’s office issued Program Manger Technical Assistance (PMTA) 2023-001 to address the issue of a $1 claim filed in order to try to protect the statute of limitations for filing claims.  The advice concludes that the $1 or any nominal claim will not protect the taxpayer but it also distinguishes nominal claims from protective claims.  The distinction can be quite important.

The PMTA comes from an expert in Chief Counsel’s National Office and is written to the Director (Examination – Specialty Policy) person in the headquarters office of the IRS.  In this case the author (aka the expert) has a narrow practice within the Procedure and Administration Division of Chief Counsel.  The author will generally field all questions and appeal decisions within the narrow scope of their duties.  So, the person brings significant knowledge to the question.  Chief Counsel’s Office has made this type of advice public for about 25 years.  Because it does not receive a high level of review, this advice does not bind the IRS.  Still, it provides excellent insight into the thinking of the IRS on the specific issue addressed and the likely litigating position should the issue move forward.


The question coming from the IRS to Chief Counsel is:

whether the Service may allow and make a refund of an overpayment of excise taxes requested on a claim for refund that is filed after the section 6511(a) claim-filing period if, shortly before the period elapsed, the taxpayer had filed an identical request for only $1 or for some other nominal amount.

The advice notes that the IRS cannot make an administrative refund nor may the taxpayer successfully bring a suit to recover a refund if the claim filing period has lapsed before the taxpayer files the claim.  Citing a 90-year-old case, the opinion states that a claim that calculates the amount of the overpayment claimed by the taxpayer for the first time that is filed after the time for filing a claim would not be considered.

A taxpayer filing before the deadline with a less than fulsome claim wants the ability to supplement the timely filed document after the deadline for filing a claim.  The advice provides that:

A late-filed claim will not be treated as an amendment or “supplement” to an original claim if it would require the investigation of new matters that would not have been disclosed by the investigation of the original claim.

Providing further explanation of this statement, the PMTA states that:

a late-filed claim that alleges a large increase from an earlier mere nominal request would represent the first formal indication of the ballpark in which the controversy lies. Such a nominal request, therefore, would not provide the Service the opportunity to make an informed decision regarding where to invest its examination resources (e.g., into examining the support for the amount of the alleged overpayment, as opposed to the merits of a legal assertion or argument). And the Service cannot be said to be on notice with respect to a claim for refund or credit until it is in a position to make such an informed decision.

Essentially, the PMTA takes the position that putting down a nominal amount does not create the type of informal claim a taxpayer can later fix.  The timely claim must give the IRS a fair change to know the problem for which the taxpayer seeks a refund.  The PMTA cites to the “substantial variance” rule as a reason for its position.  Variance in the refund setting is all about providing the IRS with the opportunity to administratively determine the correctness of a claim – an exhaustion of administrative remedies doctrine issue.

Having laid down the strict rule, the PMTA then, however, begins to offer hope in certain situations.  In this section of hope, it first describes a situation in which and incomplete or nominal claim might start a conversation:

For example, if the calculation of an overpayment is burdensome or expensive, the Service may allow a taxpayer initially to file a request that might not otherwise be treated as a complete claim.3 But any consideration of the request would be at the discretion of the Service and the Service may reject such a request as being unprocessible as a claim. Such a request will not preserve the taxpayer’s right to sue for refund if the matter becomes controversial or otherwise remains unresolved. To the extent the Service does not both allow and make a refund before the section 6511(a) claim-filing period elapses, the above-referenced statutes prohibit the Service from doing so afterwards and prohibit the controversy from proceeding to suit (except, perhaps, merely to the extent of the nominally claimed amount). This is true regardless of whether the denial or mere Service inaction is because the Service disagrees with the position, an interpretation of law, or with the alleged facts. It also would be true when a denial has nothing to do with the merits of the claim, but instead is issued solely because the Service treats the request as being a defective and non-processible claim. It is not the case that a taxpayer has the absolute right to file a $1 claim, or a “$1-plus” claim, and simply refrain from calculating the correct amount of an alleged overpayment, to then later be afforded administrative or litigation refund rights.

The PMTA then discusses those situations in which the claimed overpayment cannot be currently calculated.  It describes this situation as one involving protective claims.

The concept of a “protective” claim being sufficient to satisfy the section 6511(a) claim-filing period, to allow for a complete and formal claim at the end of some existing, known, and identified contingency, is established by case law. See United States v. Kales, 314 U.S. 186 (1941).

Protective claims resulted from judicial doctrine created by the courts to avoid situations in which taxpayers faced an almost impossible situation in trying to timely submit a meaningful claim.  According to the PMTA the protective claim doctrine helps courts in interpreting the meaning of the term “claim” in certain situations.

the satisfaction of the contingency after the section 6511(a) claim-filing period elapses is necessary to enable this later-in-time-determination of what the overpayment had been as of the close of the tax period at issue. Accordingly, in a situation in which the exact amount of an alleged overpayment is not subject to precise determination, a taxpayer may both satisfy the section 7422 “duly-filed” requirement, and also avoid any section 6514 considerations, by timely-filing a “protective” claim.

A protective claim should satisfy four elements:

(1) must have a written component; (2) must identify and describe the contingencies affecting the claim; (3) must be sufficiently clear and definite to alert the Service as to the essential nature of the claim; and (4) must identify a specific year or years for which a refund is sought.

In filing a protective claim, the taxpayer should describe the right to the overpayment clearly and explain the contingency that exists which makes the determination of the precise amount impossible.

So, timely filed claims with a nominal dollar amount can be amended after the expiration of the statute of limitations if the taxpayer can demonstrate why the amount cannot be calculated at the time of the submission of the claim.  If the taxpayer cannot demonstrate why the amount cannot be calculated, the taxpayer had better do their best to timely file a claim and put in an amount that as closely as possible calculates the claimed overpayment.  The PMTA sheds light on the times when a nominal claim will work and when it will not but the line between the two situations will not always be a clear line.

Husband Who Paid Wife’s Taxes Finds it’s Not Easy to Sue For a Tax Refund

We welcome back guest blogger Marilyn Ames who writes today about a case in which a third party pays the tax – perhaps under duress – and seeks to recover the payment.  As he finds out the path to recovery is not simple. Keith

One of my professors in law school was fond of explaining unusual results in court opinions with the statement that bad facts make bad law.  The Court of Appeals for the Federal Circuit illustrated this principle in the recent case of Roman v. United States, which if not totally bad law is possibly unnecessary and at the least is undeveloped in terms of its application within the structure of the tax system. 

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When Mr. Roman and his wife, Iris Espinosa, divorced in 2009, the property settlement they entered resulted in Mr. Roman receiving the family home in exchange for a payment of $150,000 to his former spouse.  The agreement was later amended to provide that Mr. Roman would pay any taxes Ms. Espinosa would owe for the sale of her share of the residence to him.  Ms. Espinosa filed her return for 2010, reporting the $150,000 as income but apparently not claiming it as being excluded under the provisions of IRC Section 121. An assessment was made in the amount of $50,002.04 in taxes and penalties, and according to the Court of Appeals, Ms. Espinosa received a “notice of intent to take possession of her property, including the previously shared home.” Presumably this was the usual notice and demand issued after an assessment, but the opinion does not make that clear.

Mr. Roman and Ms. Espinosa then met with an IRS employee, who indicated that that the IRS had not “placed a lien” on his home but Mr. Roman would have to pay the outstanding tax liability to avoid his residence being levied. Mr. Roman claims he believed he had no realistic alternative but to pay a tax he felt he did not owe, but claimed he was also told he could appeal the assessment once the tax was fully paid. Mr. Roman made a large initial payment and then paid the remainder of the tax over a period of time, beginning at some unspecified date and completing the payments on March 8, 2017.

Almost three years later, on January 13, 2020, Mr. Roman filed a refund suit in the Court of Federal Claims, asserting that the income tax was not owed as the amount should have been excluded from Ms. Espinosa’s gross income pursuant to Section 121(a), asserting he had standing to contest Ms. Espinosa’s tax liability in a refund suit under 28 USC § 1346(a)(1), and to claim monetary damages under the implied contract clause of 28 USC §1491(a)(1), also known as the Tucker Act. The Court of Federal Claims held it had jurisdiction as to Mr. Roman’s third-party tax refund claim, finding that Mr. Roman was a taxpayer for purposes of a refund suit. (There is no discussion in the opinion as to whether a refund claim was actually filed, whether the suit in the Court of Federal Claims was timely, or how much of the amount paid could be recovered under the look back rules of IRC Section 6511(b)). The government appealed.

The Court of Appeals reversed on the question of refund suit jurisdiction, holding that the Supreme Court decision in United States v. Williams was inapplicable to make Mr. Roman a taxpayer for purposes of 28 USC § 1346(a)(1), as the holding that a third party could be a taxpayer when the third party had no other remedy had been limited when Congress added a remedy to the Internal Revenue Code to address the situation in Williams. But apparently then feeling some sympathy for Mr. Roman’s situation, the Court of Appeals held that the Court of Federal Claims had jurisdiction to address Mr. Roman’s complaint under the provisions of 28 USC § 1491(a), the Tucker Act.

The Tucker Act gives the Court of Federal Claims jurisdiction to hear a suit and to enter a judgment for damages against the United States or one of its agencies for an action based on the Constitution, any statute, any regulation of an agency, or on an express or implied contract with the United States.   Citing prior authority, the Court of Appeals held that the Tucker Act gives the Court of Federal Claims jurisdiction to hear a suit brought by a party to recover a tax for which he is not liable if the tax was paid under duress, as the duress creates an “implied in fact” contract.  The Court of Appeals then held that duress requires: (1) involuntary acceptance with (2) no alternative and (3) coercive acts by the government,  and the question of duress is fact-specific to the case. Because Mr. Roman alleged that he was told by the IRS employee that he had to pay, the employee suggested no alternative, and the IRS had threatened to levy his home, the Court of Appeals held that the allegations were sufficient to support the claim of an implied contract, giving the Court of Federal Claims jurisdiction to hear the suit.

Much is left unanswered by the Court of Appeals’ opinion.  Because the Court of Federal Claims decided based on Mr. Roman’s claim that he was a taxpayer and could bring a refund suit, we don’t know if the Court of Federal Claims or the Court of Appeals was briefed on whether Mr. Roman actually had no other alternative.  Section 7426(a)(1)  permits a third party to bring a wrongful levy action if a levy has been made on the third party’s property.  A simple search on Westlaw finds numerous cases with holdings that Mr. Roman could have brought such an action, although a suit filed in 2020 would have been untimely.  Does the Court of Appeals’ holding imply that an employee in the Internal Revenue Service must suggest every possible way in which the third party can avoid payment to avoid a claim of duress?  Did the Court of Appeals reach the conclusion that Mr. Roman had an implied contract claim because the time for bringing suit under Section 7426(a) had expired?  And when did the statute of limitations for the implied contract claim begin to run – was it when Mr. Roman made the first payment,  or when he made the last, or on some other date?

Granted, Mr. Roman deserves sympathy for having paid tax that was probably not owed, but the solution reached by the Court of Appeals for the Federal Circuit is not one that can be applied by the United States or by taxpayers, and seems destined to create further rounds of litigation.