Refund Litigation Continued: District Court vs. Court of Federal Claims

Once administrative prerequisites are satisfied—namely payment of the liability, the filing of a valid refund claim, and the passage of requisite time—a taxpayer may initiate a refund lawsuit. But where and how that lawsuit is filed involves careful consideration about the benefits and drawbacks of each forum.

There are generally two forums in which a tax refund lawsuit can be filed: U.S. District Court or the U.S. Court of Federal Claims. Taxpayers may file a refund lawsuit in the judicial district where the taxpayer resides (or has its principal place of business) or the U.S. Court of Federal Claims in Washington, DC. There are varying reasons for selecting one forum over the other. In some instances, however, taxpayers choose to file in the U.S. Court of Federal Claims due to the uncertainty of which judicial district may be proper for commencing suit.

Some key distinctions between the different forums include:

• District courts allow jury trials, which may be strategic in some factual disputes. Sometimes there can be a benefit in getting a jury of a taxpayer’s peers to weigh in on a thorny disputed factual issue.

• The Court of Federal Claims has nationwide jurisdiction and ample familiarity with disputes against the federal government (indeed that is the court’s purpose). Federal district courts hear many other types of cases, including criminal cases and disputes involving non-governmental parties.

• Each court has different procedural rules. District courts are usually governed by the Federal Rules of Civil Procedure and their own local court rules. The Court of Federal Claims has its own rules, which resemble the Federal Rules of Civil Procedure. In all federal courts, practitioners should also check whether the judge assigned to the case has their own specific rules or preferences. Both district court and Court of Federal Claims rules are more formal and less forgiving than the U.S. Tax Court’s rules.

• The Department of Justice Tax Division represents the IRS in refund litigation, but there is a specialized group that handles litigation in the Court of Federal Claims.

• Appeals from the Court of Federal Claims are taken to the Federal Circuit Court of Appeals in Washington, DC. Whereas district court appeals are taken to one of twelve regional Circuit Courts of Appeals (numbered 1 through 12 and another one for the District of Columbia).

• Cases filed in both forums are generally viewable on PACER, a publicly available system for viewing court records. In the Court of Federal Claims, however, taxpayers must also include a copy of their refund claim when initiating a lawsuit. Due to privacy concerns, in some instances, this requirement alone may be a reason to prefer district court.

Often, the choice whether to proceed in district court or the Court of Federal Claims will come down to whether one of the courts has more favorable authority. Although it is not common, there are instances where cases in one court may be more directly on point or outwardly helpful than the other.

Ultimately, picking the best forum can prove to be one of the most important decisions in a tax refund lawsuit. Carefully weighing the various factors is a must.

If you have any questions about this article, tax litigation, or any civil or criminal tax issue, you can contact me at jglassman@meadowscollier.com or 214-749-2417.