I understand the court’s decision, but I suspect the most interesting part is how this case even got to court.
The issue is almost prosaic:
Somona Lofton filed a
2021 Form 1040X (that is, an amended individual tax return) on May 18, 2022.
She requested a refund of $5,362.
The dates strike me as odd. The 2021 return was due
April 18, 2022. Lofton filed an amended return one month later. Does it happen?
Sure and usually because someone left something out – maybe a W-2 or a broker’s
account. That would normally increase tax though, so I am expecting a story.
The IRS did not immediately process the return.
I am not surprised. This was IRSCOVID202020212022, and
you were lucky to get someone over there to even answer the phone.
Lofton filed a refund case against the IRS on
September 14, 2022.
That was a waste.
Let’s talk about it.
Like any large organization, the IRS has policies and
procedures to follow. I would argue that sometimes the rules approximate self-inflicted
wounds, but I understand that coordinating that many people and processing that
much data requires standardization.
And right there is a reason that many practitioners
got upset during IRSCOVID202020212022. The system broke down. One side of the IRS
was inadequately processing returns, correspondence, penalty appeals or
whatnot, while the Collections side continued undeterred and unhindered.
Why was it broken? Because much of the Collections
side is automated. Those notices go out without passing human eyes. If the IRS
fails to match a 1099-whatever to your return, bank on receiving a CP2000
notice. Ignore it – or submit a response and then have the IRS ignore it - and
you have entered automated hell. A tax practitioner can usually obtain time,
allowing a break for response and processing, but the practitioner likely needs
to speak with someone to obtain that time.
Yeah, no. Didn’t work when the IRS wasn’t answering
the phone.
Back to Lofton.
May, September. I would have advised her to chill.
She however was not using a tax practitioner. She
filed the case pro se, meaning she was representing herself. I am – frankly –
impressed. Filing pro se with the Tax Court is one thing (and bad enough), but
she filed pro se with the US Court of Claims. At first, I thought a tax clinic
may have helped, but – no - that couldn’t be. A tax clinic would have told her
to wait.
Why?
Look at this Code section:
§ 6532 Periods of limitation on suits.
(a) Suits by taxpayers for refund.
No suit or proceeding under section 7422(a) for the recovery of
any internal revenue tax, penalty, or other sum, shall be begun before the
expiration of 6 months from the date of filing the claim required
under such section unless the Secretary renders a decision thereon within that
time, nor after the expiration of 2 years from the date of mailing by certified
mail or registered mail by the Secretary to the taxpayer of a notice of the
disallowance of the part of the claim to which the suit or proceeding relates.
The IRS has six months
to respond to your request for refund. Six months should be sufficient time for
the IRS to adequately review a refund claim (at least in normal times). The flip
side is that Congress did not want the IRS parking on a refund claim,
effectively denying a refund by never processing it.
Lofton filed suit within six months.
The Court immediately dismissed the suit.
Easiest decision they made that week.
I find the rest of her story more
interesting.
For example, she complained that the
California Department of Social Services harassed her and withheld her
benefits.
She was swinging hard.
… Civil damages for Certain Unauthorized collection action 1,000,000”
… Emotional distress $250,000”
I am not certain how that involves the Federal
Court of Claims. The Court noted the same and dismissed her allegations.
Then we learn that she initially filed her
2021 federal tax return claiming a refund of $6,668. The IRS adjusted it for
one of the refundable credits, reducing her refund to $3,918.
OK. She already received some of her
refund as the IRS sent those monthly child tax payments.
Still, let’s do math. $3,918 plus $5,362
from the amended totals refunds of $9,280. Her original refund request was
$6,668.
The woman is a tax Houdini.
Our case this time was Lofton V United
States. U.S. Court of Claims, No 1:22-cv-01335.
