A tax refund lawsuit begins after a taxpayer pays the disputed tax amount in full, files an administrative claim with the IRS, and either receives a denial or six months pass without action. Refund suits may be filed in a federal district court where the taxpayer resides or has a principal place of business, or in the U.S. Court of Federal Claims, which has nationwide jurisdiction. The rules governing civil procedure apply in each court. District courts use the Federal Rules of Civil Procedure (FRCP); the Court of Federal Claims uses its own Rules of the United States Court of Federal Claims (RCFC) that parallel the FRCP.
Now, let’s look at the pre-trial procedures.
Initiating a lawsuit means formally starting legal proceedings by filing a complaint in the appropriate court, which officially opens the case and notifies the other party.
However, before initiating a lawsuit with the U.S. District Court or the U.S. Court of Federal Claims, the taxpayer should complete these steps:
In District Court, the taxpayer files a complaint in the right jurisdiction and serves the summons and complaint to both the local U.S. Attorney’s Office and the U.S. Attorney General.
In the Court of Federal Claims, the complaint is filed, and usually the clerk serves the Attorney General.
The Department of Justice Tax Division represents the United States and normally has up to 60 days to file a response.
Complaints should identify the tax years at issue, amounts paid, and the refund grounds. The Court of Federal Claims has specific requirements for confidential taxpayer information, which is often filed under seal.
Next, let’s understand the next step in the pre-trial procedure: Early Case Activity and Settlement.
After the complaint is filed, the government can respond or file early motions, such as jurisdictional challenges, if the taxpayer didn’t fully pay the tax. The parties might also start settlement talks at this point.
Unlike in Tax Court, there’s no usual informal sharing of information before formal discovery starts.
Next, let’s understand the next step in the pre-trial procedure: Discovery
Discovery in federal refund cases is more formal and wider in scope than in Tax Court.
Parties can request information relevant to the claims or defenses, including material that might lead to admissible evidence.
Typical tools for discovery include the following:
The parties should meet to create a discovery plan, and then the court sets a schedule for disclosures and discovery.
Next, let’s understand the next step in the pre-trial procedure: Motions
Motions handle specific issues before trial. For example:
Next, let’s understand the next step in the pre-trial procedure: Pretrial Proceedings
Courts usually hold one or more pretrial conferences to set schedules, outline trial issues, and handle procedural matters. The final pretrial order lists witnesses, exhibits, and agreements between the parties.
Next, let’s understand the next step in the pre-trial procedure: Trial Preparation
As the trial approaches, settlement talks may continue, and the parties may fine-tune their trial plans. Preparation usually includes finalizing witness testimony, exhibits, and expert reports. Mediation may also be available in the Court of Federal Claims.
Next, let’s understand the trial stage in international tax litigation. During the trial stage, the parties present evidence, examine witnesses, and make legal arguments before the court for resolution of the dispute.