Jurisdiction: The Full Payment Rule for Refund Claims and Divisible Taxes

divisible-taxesIf a tax is not subject to Tax Court review, the taxpayer is free to pursue a refund claim, but full payment is a jurisdictional prerequisite. Flora v. United States, 362 U.S. 145, 150-51 (1960). In some contexts the full payment requirement is relaxed because the tax is divisible; for example, a corporate officer challenging a trust fund recovery penalty assessment need only pay the tax for one employee to establish jurisdiction. Psaty v. United States, 442 F.2d 1154, 1159 (3d Cir. 1971). While the trust fund recovery penalty is recognized as a divisible tax, the question whether a tax is divisible remains open in a number of other contexts.… Read More

Jurisdiction: A Refund Action Runs Afoul of Flora, Part II.

Last week, I reported on Diversified Group, Inc. v. United States, 2015 U.S. Claims LEXIS 1101 (Aug. 26, 2015), a case on divisible taxes and jurisdiction, but I did not examine the cases that the taxpayer relied upon in the detail that they deserved.

Two cases were central to the taxpayer’s divisibility argument: Noske v. United States, 911 F.2d 133 (8th Cir. 1990), and Humphrey v. United States, 854 F. Supp. 2d 1301 (N.D. Ga. 2011). See Diversified Group, 2015 U.S. Claims LEXIS 1101, slip op. at *19. The Court of Federal Claims concluded that neither supported the taxpayer’s jurisdictional argument.… Read More

Jurisdiction: A Refund Action Runs Afoul of Flora.

A taxpayer who wants to pursue a refund claim must “pay first and litigate later.” Flora v. United States, 375 U.S. 63, 75 (1958) (citations omitted). Some taxes, however, are divisible, including the trust fund recovery penalty imposed under Section 6672 of the Internal Revenue Code. Pstay v. United States, 442 F.2d 1154, 1159 (3d Cir. 1971). Because the trust fund recovery penalty is a divisible tax, the payment of a single assessment relating to a single employee is sufficient to create jurisdiction over a refund claim, and the government counterclaims for the balance.

Last week, the Court of Federal Claim considered an interesting argument over the full payment rule of Flora.… Read More