You’ve filed an amended return (Form 1040X for an individual or Form 1120X for a Corporation) or a claim for refund (Form 843) and now the IRS owes you money. However, instead of receiving a much-anticipated check from the IRS, you receive a notice of disallowance, or even no response at all. Now what?
What to Do After Receiving a Notice of Disallowance
Significantly, the date the IRS mails you the notice of disallowance starts the clock on a two-year statute of limitations within which you must file a lawsuit pursuant to 26 U.S. C. § 6532(a). This statute of limitations applies even if you timely file a protest with the IRS.
However, in many cases, there are no further avenues of appeal available to you at the IRS agency-level after you receive the notice of disallowance. In addition, 26 U.S.C. § 6532(a) provides that you must wait at least six months after filing your refund claim before you can bring a lawsuit.
If you do not receive a notice of disallowance, you may bring a lawsuit anytime after the six-month waiting period.
Filing a Lawsuit with the IRS
At that point, your only recourse is to bring a lawsuit against the IRS pursuant to 26 U.S. C. § 7422 in either the United States District Court or the Court of Federal Claims. This may or may not be cost-effective depending on how much money is in dispute.
Hiring an attorney familiar with the court’s rules is generally advisable. Unlike the United States Tax Court, which encourages litigants to proceed pro se and even admits non-attorneys to practice before it, the United States District Courts and the Court of Federal Claims have extensive rules. These are not the easiest courts for pro-se litigants to navigate.
Aside from attorney’s fees, the filing fee to commence an action in the United States District Courts is $400.00. The fee to commence an action in the Court of Federal Claims located in Washington DC is $350.00. Then there is the cost of a process server which varies greatly depending upon the firm and the region.
Should I File with the United States District Courts?
One advantage to filing in the United States District Courts is that you are entitled to a jury trial. Neither the Court of Federal Claims nor the United States Tax Court offer the option of a jury trial. Another advantage is that the United States District Courts are located throughout the country, while the Court of Federal Claims is located only in Washington DC.