Refund actions are commonly filed in either the Court of Federal Claims or a federal district court to recover taxes that have already been paid.
To bring a refund action the following requirements must be satisfied:
(1) payment of the disputed taxes in full
(2) The of a refund claim must be timely,
(3) The filing of a refund suit must be timely.
If a taxpayer has not satisfy all three requirements, the lawsuit will be dismissed by the applicable federal court.
A taxpayer must full pay the disputed taxes in question before filing the refund action. The full payment rule applies to all taxes for which the taxpayer may seek a refund, including income, estate, gift, and certain excise taxes.
The taxpayer must timely file a refund claim with the IRS prior to bringing a refund action in order to give the IRS a chance to review and act on the claim administratively prior to being faced with litigation. A refund claim is basically a written request asking the IRS to refund taxes, interest, or penalties allegedly overpaid by the taxpayer. Commonly a refund claim of overpaid income tax is made via an amended income tax return. For example, individuals file for a refund using Form 1040X, Amended U.S. Individual Income Tax Return, and corporations file for a refund using Form 1120X, Amended U.S. Corporation Income Tax Return. Claims involving other taxes, such as estate, gift, excise, or employment taxes are requested using Form 843, Claim for Refund and Request for Abatement, is used. Form 843 can also be used for refund claims involving solely penalties and interest where the associated underlying tax in not disputed.
To be filed timely, refund claims must usually be filed within three years of when the return was filed, or within two years of when the tax was paid, whichever is later. Refund claims are generally filed with the IRS Service Center for the state in which the taxpayer lives and where the original return was filed. To be able to prove timely filing, taxpayers should use either certified mail or a designated private delivery service.
If the IRS refuses to issue a refund, the taxpayer has an administrative opportunity to appeal the decision to the IRS Appeals Office.
The taxpayer is required to wait at least six months after filing the refund claim, or until he receives a notice of disallowance from the IRS, before filing a suit for refund. Where a notice of disallowance is mailed to a taxpayer, the taxpayer then has two years from the date of the mailing of the notice of disallowance to file a refund suit.
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