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From the Editor: this recent court case reiterates the importance of filing a timely tax return to be eligible for tax benefits. It also clarifies that a taxpayer must exhaust all administrative remedies before being able to file suit against the federal government for a tax refund.
A taxpayer suing the U.S Government for failing to receive his economic impact payment from the IRS under the Consolidated Appropriations Act, 2021 had his case dismissed by the United States District Court in the case of Shaw v. Yellen. The taxpayer took the IRS to court over the early 2021 $600 check he was supposed to receive. As the opinion notes:

In his initial Complaint, Petitioner complains that the IRS did not send him the $600 he is owed under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. Petitioner provided a copy of a letter from the IRS dated February 5, 2021 that states a payment of $600 was issued by either check or debit card and that he should check the status of his payment if he has not received it within seven days of receiving the letter. Petitioner also explained that he wrote the IRS to inquire about the status of the missing check. He attached a copy of a letter from the IRS date August 25, 2021 that states that the IRS received his inquiry and needs another sixty days to work on his account to send a complete reply.

The taxpayer clearly was running out of patience with the IRS, so he decided to take this matter to court. And he had a letter from the government indicating they were going to issue him a payment of $600 (which the letter seems to concede he was owed). He had followed the instructions and inquired about the status of his refund, only to have the IRS send a “we’ll get back to you” letter and then never actually send him any additional information about the payment.

So, it’s not surprising he feels he has a very straightforward case to get relief from the Court—the IRS admits they owed him $600, he has no record of ever receiving that payment and the IRS ignored his attempts to obtain information about the payment.

Unfortunately, the law requires that taxpayers exhaust all administrative options available under the law before suing the government in District Court:

The Court found that Petitioner did not appear to have filed a tax refund or have otherwise exhausted the administrative remedies through the IRS to receive this refund. Accordingly, the Court found that Petitioner had not exhausted his administrative remedies and could not bring a suit against the United States.

The taxpayer protested that he had filed a 2019 income tax return. But the Court notes that if he failed to receive an advance payment under the program, he had to file a 2020 income tax return to get the refund:

In his motion to amend the Complaint, Petitioner clarifies that he did file his taxes in 2019 and points to his mentioning filing a form 1040 in his initial Complaint. However, this $600 refund was considered a refund for the tax year 2020. 26 U.S.C. § 6428A(a)(1). The IRS website confirms that individuals who did not receive their first or second payment must first file their 2020 taxes. The website explains that missing “first and second payments may only be claimed on a 2020 tax return.” Parties missing a payment must file a tax return “even if you don't usually file taxes.” Thus, Petitioner needed to file his 2020 taxes and then follow the necessary process if the IRS still denied him the check. He cannot skip this step and immediately seek relief in federal court. While Petitioner has alleged that he filed his 2019 taxes, it remains unclear whether he filed his 2020 taxes.

In this case, although the advance payment arguably should have been made based on his 2019 return information in early 2021, the law provided that if such a payment was not made by the IRS, a taxpayer had to file a 2020 income tax return to claim the credit. The round of payments in question had to be issued by January 15, 2021, and the IRS was prohibited from issuing advance payments after that date, rather now looking to the 2020 Form 1040 for any eligible individuals who may have not been issued an advance payment.

Since the taxpayer did not claim he had filed a 2020 tax return, he is required to file the 2020 return and await IRS action on that claim for the refundable credit before he could file for a refund in the United States District Court.

Service is the taxpayer’s voice at the IRS. For more information taxpayers should, visit the TAS website.