Court Rejects Informal Claim

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In Fulham v. United States, 1:20-cv-05871 (N.D. Ill. 2021), the district court adopted a very narrow view of informal claims that makes it difficult for taxpayers who do not follow the exact procedures developed by the IRS for filing a claim.  The decision seems at odds with some prior precedent on informal claims and some decisional law regarding jurisdiction.  We have written about informal claims several times which you can find here, here, here, here and here.  The topic has significance because taxpayers regularly provide the IRS with information suggesting that they have overpaid their taxes, but packaging plays an important role. The informal claim must provide the IRS with sufficient information to allow it to decide whether the claim has merit. In the view of this court the informal claim must also follow the packaging provisions or fail.


The court dismissed the refund suit for lack of jurisdiction for failure to file an income tax refund claim before bringing suit.  The jurisdictional language of the opinion raises additional issues in this refund suit. Mr. Fulham erroneously filed a Form 843. There are times when filing a Form 843 is the appropriate way to file a claim for refund and times when it is not the right form.  For refund claims seeking individual income taxes, the regulations point taxpayers to Form 1040X as the form to file when seeking a refund.  It’s understandable that taxpayers might make the wrong choice of form, particularly if unrepresented. (Mr. Fulham’s complaint was filed by counsel but I do not know if he had representation when he filed Form 843.) Should that wrong choice cause dismissal?

After filing suit, the taxpayer learned that he should have used Form 1040X, so he filed Forms 1040X for the three years at issue electronically with the court.  He never filed the Forms 1040X with the IRS prior to bringing suit.  That failure causes the court to determine that no waiver of sovereign immunity existed prior to the filing of the complaint.  Without that waiver, the court finds that the IRS is shielded from suit stating:

The United States is immune from suit, unless and until the United States says otherwise. The United States decides whether, when, and how it waives sovereign immunity. That means that the United States is free to require potential plaintiffs to jump through hoops before entering the federal courthouse.

Congress constructed such barriers when it comes to challenging the collection of taxes. The United States waived sovereign immunity for taxpayers to sue for a refund of income taxes under 26 U.S.C. § 7422. But the government only waived sovereign immunity under that section if a plaintiff first exhausts his or her administrative remedies. See Amen Ra v. United States, 789 F. App’x 555, 556 (2020); Goldberg v. United States, 881 F.3d 529, 532 (2018).

So exhausting administrative remedies is a prerequisite to suing the United States about a tax issue. That is, a taxpayer must take advantage of administrative remedies — and see if he or she can resolve the dispute with the IRS — before coming to the federal courthouse. The exhaustion of administrative remedies is not an option. “Only taxpayers who have filed timely refund claims and then exhausted these administrative procedures may sue the government for tax refunds in federal court under 28 U.S.C. § 1346. . . .” Goldberg, 881 F.3d at 532.

Although it does not use these exact words, the court finds that a taxpayer can benefit from filing an informal claim by having that document serve as the basis for meeting the statutory requirement to file the claim without a specific time period.  For example, if the taxpayer who pays the tax long after the year closes, as Mr. Fulham did, decides that he has overpaid then the taxpayer must make a claim for the overpayment within two years. 

Here, the Form 843, even though it’s the wrong form for claiming a refund of an individual income tax, could meet the statutory requirement from a timeliness perspective if filed within those two years.  After filing the informal claim, this court would find that the taxpayer must fix that informal claim with the filing of a proper claim on the proper form before bringing suit so that the IRS has an appropriate chance to exhaust administrative remedies.  The court takes that view that the IRS cannot exhaust administrative remedies unless it receives the proper form.  It describes his mistakes as three-fold:

So the submissions by Fulham are triply wrong. He filed the wrong form (Form 843) in the right place (the IRS). And he filed the right form (Form 1040X) in the wrong place (the federal courthouse) and at the wrong time (after filing suit, not before).

The court cites case law in support of its conclusion though I do not think that case law is uniform on this point.  Some courts have required the IRS to act where the document submitted, even if not in the format prescribed by the IRS, gives the IRS enough information for the IRS to make a determination regarding the claim the taxpayer has made.

Mr. Fulham also tried an additional argument in order to save his suit as it relates to the penalties and interest that he paid.  This portion of his claim was probably a decent fraction of the liability given that he paid many years after the due dates of the returns at issue.  Here he argues that for interest and penalties filing Form 843 followed the correct procedure.  His argument shows a developing appreciation for the IRS forms but the court rejects this argument as well stating:

Fulham is not challenging the penalties and the interest, independently. That is, he is not advancing a freestanding challenge to the penalties and interest assessed by the IRS. Instead, the challenge to the penalties and interest is dependent on his challenge to the income taxes. Fulham argues that he overpaid his income taxes, and therefore the IRS should not have assessed penalties and interest.

The challenges are intertwined, not independent. They rise or fall together. Without a challenge to the income taxes, he has no other challenge to the penalties and interest. So the Forms 843 cannot save the day.

So, if he were just challenging the penalties and interest which some taxpayers do, the Form 843 would work; however, because he challenges the penalties and interest in conjunction with the determination of the appropriate amount of tax, he cannot meet the exhaustion requirement by using this form.

I find the court’s interpretation of the requirement to submit a refund claim on the precisely correct form before filing suit more narrow than I think appropriate.  A nice victory here for the IRS which looks for ways to knock out these cases on procedural grounds.  I have no idea if his claim has any merit.  If it does and if what he put on the Form 843 provided the IRS with sufficient information to consider his refund request, I would like to see some burden placed on the IRS to inform taxpayers of the need to submit a claim on the proper form if they seek to move forward.  I do not believe that the IRS does that. The process provides an expensive tax procedure lesson.


  1. Kathryn M Morgan says

    Nice job as always. So my read here isn’t so much that the court is changing it’s historical stance on informal claims but that this particular case had a specifically different set of facts and circumstances that did not allow the court to pull it into the broad leeway they have grants before. In particular the fact the plaintiff never actually filed the 1040X’s with the IRS themselves, timely or not. Correct?

  2. Robert Nassau says

    As I read the opinion, if he sends 1040Xs to the IRS now, those could “perfect” his timely 843s and he can get himself back into federal court. If that’s right, it seems like that’ll be easy to do, and this is all just wasting everybody’s time.

  3. I don’t know whether this is the appropriate forum to raise this question. If not, then, can anyone point to another source for guidance? During a pending OIC (filed/accepted for processing in 2019), taxpayer complied with the required 2019 ETP. When filing the 2019 Form 1040, taxpayer indicated that the balance of 2019’s ETP be applied to taxpayer’s 2020 ETP overpayment. Taxpayer believed that IRS’ being prohibited from executing any levy, during an OIC’s pendency, also prohibited IRS taking the excess 2020 ETP and applying it to a previously existing tax liability (i.e., the subject of the pending OIC). Nonetheless, IRS confiscated the excess ETP, on the grounds that any “tax refunds” can be applied to that previously existing liability and returned the OIC, citing non-compliance with taxpayer’s 2020 ETP requirement. Taxpayer argued that (1) the excess ETP was not a “tax refund” but had been designated, per IRS 1040 instructions, as an “overpayment” to be applied to taxpayer’s 2020 ETP; and, (2) confiscating the excess 2020 ETP was covered by OIC’s own terms and conditions that prohibiting executing levies, during a pending OIC. IRS rejected the arguments.

    • Bob Probasco says

      (1) I think there is substantial law out there to the effect that the IRS need not accept the taxpayer’s designation to apply an overpayment for Year 1 to estimated tax obligations for Year 2. They almost always will, but not if there’s an outstanding tax liability for another year. Credit elect transfers to the following year’s estimated tax obligations are discretionary for the IRS.

      (2) What you describe is a section 6402(a) offset, rather than a section 6331 levy. Those happen all the time even when nothing like an OIC or CDP hearing request is pending. The IRS doesn’t have to first file a notice of intent to levy, they just transfer the funds from one year to another. But even if an OIC or CDP hearing request is pending, a section 6402(a) offset does not constitute a prohibited “collection” action.

      Not that I’m advocating for either of those, but the law is clearly enough established that not only the IRS but also a court will reject those arguments. I think.

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