An Introduction to Tax Refund Litigation
By Jeffrey M. Glassman on April 10, 2025
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Jeffrey M. Glassman
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When a federal tax issue is not able to be resolved with the IRS, a taxpayer may choose to pursue that issue in court. The vast majority of tax cases are pursued in the United States Tax Court (“Tax Court”). One common reason is that taxpayers can dispute certain tax liabilities, including income tax liabilities, before having to pay them if they seek relief in Tax Court within the applicable time to do so. Other tax cases are pursued in federal district court or the Court of Federal Claims, including international penalty litigation and tax refund litigation. This blog, and more that will follow in the coming weeks, as part of a blog series, focuses on tax refund litigation.
Federal tax refund litigation is the legal process through which a taxpayer seeks to recover “taxes” that have been erroneously or illegally collected by the United States government. “Taxes” is in quotations because I refer to most tax penalties too, which the Tax Code says are treated the same as taxes.
Refund litigation is distinguishable from deficiency litigation, which is what the most common type of litigation handled in the Tax Court is called (i.e., the taxpayer and the IRS are generally disputing whether the taxpayer has a deficiency in the amount of tax reported on their tax return). Deficiency litigation generally happens before the taxpayer has paid the disputed tax. In contrast, refund litigation is pursued after the taxpayer has paid the disputed tax in full, pursuant to the so-called “full payment rule” established by the Supreme Court in Flora v. United States, 362 U.S. 145 (1960). There are pros and cons as to whether the full payment rule is a sensible rule—not to mention if the legal landscape may be changing—but that is a topic for another day.
Taxpayers generally have two venues for refund litigation: (1) the United States District Courts or (2) the United States Court of Federal Claims. The District Courts allow for jury trials, while the Court of Federal Claims does not. The choice of venue may depend on the complexity of the case, the location of the taxpayer, applicable case law, procedural considerations, and the availability of a jury trial. In addition, unlike the Tax Court, it is rare for the judge in refund litigation to have a background in tax law.
Refund litigation is often employed to challenge not just income tax liabilities, but also payroll taxes, estate and gift taxes, and penalties. In many cases, taxpayers use refund litigation to contest the application of civil penalties, such as the accuracy-related penalty under IRC § 6662 or the civil fraud penalty under IRC § 6663.
This blog series will explore the key procedural issues and strategic considerations involved in federal tax refund litigation. Each installment is designed to provide practical insight while reinforcing important legal principles. Whether you are a tax professional, practitioner, or student, I hope to provide enough important details about tax refund litigation to improve your understanding of the topic.
If you have a question of tax refund litigation or any other civil or criminal tax issue, please contact me at jglassman@meadowscollier.com or 214-749-2417.
Federal tax refund litigation is the legal process through which a taxpayer seeks to recover “taxes” that have been erroneously or illegally collected by the United States government. “Taxes” is in quotations because I refer to most tax penalties too, which the Tax Code says are treated the same as taxes.
Refund litigation is distinguishable from deficiency litigation, which is what the most common type of litigation handled in the Tax Court is called (i.e., the taxpayer and the IRS are generally disputing whether the taxpayer has a deficiency in the amount of tax reported on their tax return). Deficiency litigation generally happens before the taxpayer has paid the disputed tax. In contrast, refund litigation is pursued after the taxpayer has paid the disputed tax in full, pursuant to the so-called “full payment rule” established by the Supreme Court in Flora v. United States, 362 U.S. 145 (1960). There are pros and cons as to whether the full payment rule is a sensible rule—not to mention if the legal landscape may be changing—but that is a topic for another day.
Taxpayers generally have two venues for refund litigation: (1) the United States District Courts or (2) the United States Court of Federal Claims. The District Courts allow for jury trials, while the Court of Federal Claims does not. The choice of venue may depend on the complexity of the case, the location of the taxpayer, applicable case law, procedural considerations, and the availability of a jury trial. In addition, unlike the Tax Court, it is rare for the judge in refund litigation to have a background in tax law.
Refund litigation is often employed to challenge not just income tax liabilities, but also payroll taxes, estate and gift taxes, and penalties. In many cases, taxpayers use refund litigation to contest the application of civil penalties, such as the accuracy-related penalty under IRC § 6662 or the civil fraud penalty under IRC § 6663.
This blog series will explore the key procedural issues and strategic considerations involved in federal tax refund litigation. Each installment is designed to provide practical insight while reinforcing important legal principles. Whether you are a tax professional, practitioner, or student, I hope to provide enough important details about tax refund litigation to improve your understanding of the topic.
If you have a question of tax refund litigation or any other civil or criminal tax issue, please contact me at jglassman@meadowscollier.com or 214-749-2417.
