What if the IRS gets it wrong and then fails to respond to the taxpayer for several years. Can the IRS then agree with the taxpayer, but argue that the taxpayer responded late? The informal claim doctrine can help in these situations. The Chenette v. United States, No. 19-cv-02998-JCS (N.D. Cali. 2019) case provides an example of how the informal claim doctrine can help.
Facts & Procedural History
The taxpayer timely-filed her tax return for the 2012 tax year. The return reported certain stock sales.
In 2014, the IRS sent the taxpayer a notice proposing changes to her 2012 taxes stemming from the stock sales.
The taxpayer sent the IRS a detailed explanation as to why the tax was not owed in October of 2014. She included a check with the letter to pay the taxes.
In December of 2014, the IRS assessed additional tax for the stock sales and recorded the payment against the taxes.
The taxpayer attempted to work with the IRS for two years, but the IRS failed to respond to her inquiries. In November of 2016 the taxpayer submitted a Form 1040X, amended return, to officially ask for a refund of the taxes paid.
In June of 2017, the IRS notified the taxpayer that it agreed with her. But before issuing a refund, it notified her that the 1040X was filed late and therefore no refund could be issued.
In March of 2019, the taxpayer brought suit to recoup the amount she had paid. The IRS maintained its argument that the claim had been filed late and, as a result, the court did not have jurisdiction over the claim.
Filing a Timely Refund Claim
To be able to bring suit against the government for taxes paid, one generally has to first file a refund claim. There is a time limit for filing refund claims.
The time limit is “within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid.”
Since the tax was paid in this case, the taxpayer had to file a refund claim within two years of the payment. The payment was made in October of 2014. Thus, the claim had to be filed by October 2016. But the amended return, the refund claim, was not submitted until November of 2016.
The Informal Claim Doctrine
It would seem that the taxpayer was out of luck in this case, as the amended return was not filed timely. But the taxpayer argued that the informal claim doctrine applied.
The court describes the informal claim doctrine as follows:
Under the informal claim doctrine, an informal claim with “technical deficiencies” that is filed within the statutory period may stop the running of the statute of limitations for a refund claim where it is followed by a valid refund claim filed after the statutory period has run. Comm’r of Internal Revenue v. Ewing, 439 F.3d 1009, 1015 (9th Cir. 2006) (citing First Sec. Bank of Idaho, N.A. v. Comm’r, 592 F.2d 1046, 1049 (9th Cir.1979)); see also Weiler v. United States, 82 F.3d 424 (9th Cir. 1996) (noting that there are “limited circumstances in which the IRS can be deemed to have waived the formal requirements of refund claims”) (citing United States v. Kales, 314 U.S. 186 (1941), and Angelus Milling Co. v. Commissioner, 325 U.S. 293 (1945)). In Ewing, the Ninth Circuit explained that the doctrine is “concerned with claims that are `deficient merely in one or two of the technical requirements imposed by the Treasury regulation [26 C.F.R. § 301.6402-2(b)(1)].'” Id. (citing BCS Fin. Corp. v. United States, 118 F.3d 522, 524 (7th Cir. 1997); and citing Kaffenberger v. United States, 314 F.3d 944, 954 (8th Cir. 2003) (citing Kales and stating that “the Supreme Court has endorsed informal claims filed within the statutory period that have technical deficiencies, as long as a valid refund claim is subsequently made after the period has run”).
Thus, the taxpayer argued that her October 2014 letter was an informal refund claim and it was merely perfected by filing the Form 1040X in November of 2016.
The court agreed with the taxpayer. It concluded that the letter she submitted in October 2014 included sufficient information to apprise the IRS of the overpayment and the circumstances of her position.
This case is a good example of how to use the informal claim doctrine. The doctrine is particularly helpful where a taxpayer responds to the IRS with full information, but the IRS does not respond timely. A late-filed amended return, can be considered timely filed in these cases. This can allow the taxpayer to recoup payments made in the past even though the time for filing a refund has passed.