Choice Of Forum In Federal Excise Tax Refund Cases

Taxpayers seeking a refund of the Internal Revenue Service's administrative decision to impose additional excise tax may petition either the U.S. district courts or the U.S. Court of Federal Claims. Choosing the best refund forum is one of the most significant decisions that must be made when tax litigation is imminent. The authors provide some practice points in deciding in which court to seek redress.

Introduction

To challenge an administrative determination and assessment of a federal excise tax, a taxpayer has a choice of two different federal courts to bring an action: the U.S. district courts and the U.S. Court of Federal Claims. The choice of a refund forum is one of the most significant decisions that must be made when tax litigation is imminent.

Refund Jurisdiction

The jurisdictional statute for refund suits in the district courts is found in 28 U.S.C. §1346, and provides that the federal district courts have original jurisdiction over suits for the recovery of internal revenue taxes. This would also cover any issues relating to penalties and interest associated with the taxes.

Similarly, the Court of Federal Claims has concurrent jurisdiction with the district courts over suits for the recovery of taxes erroneously and illegally assessed by the United States. See 28 U.S.C. § 1491.

Things to Consider

In deciding whether to seek a refund in the district court or the Court of Federal Claims, a taxpayer should consider several issues in determining the most advantageous forum.

Is There Any Controlling Judicial Precedent?

One of the primary considerations in determining which court to litigate your refund case is the existence of any controlling legal authority. All courts must follow a controlling decision of the Supreme Court of the United States. Similarly, each district court must follow the legal precedent announced by the U.S. Court of Appeals to which an appeal would lie. For example, if the taxpayer's principal place of business is located in New York City, the taxpayer's refund action could be brought in the district court for the Southern District of New York, and the appeal from a final decision would lie in the Court of Appeals for the Second Circuit. Alternatively, the taxpayer could bring a refund action in the Court of Federal Claims, and the appeal from a final decision would lie in the Court of Appeals for the Federal Circuit (CAFC).

If, in our example, there is favorable case law in the Second Circuit, then the taxpayer would...