Refund Claims: The Substantial Variance Rule and Legal Theories.

To obtain a tax refund, a taxpayer must submit an administrative claim to the IRS. There are regulations that address the content of the claim, and they require that a refund claim “set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof.” Proc. & Admin. Regs. § 301.6402-2(b).

Based upon the requirement that taxpayers exhaust administrative remedies, along with the regulations imposing requirements on the content of refund claims, courts have developed a “substantial variance rule,” which limits the extent to which a taxpayer can vary the legal theories and factual basis that support a refund claim.Read More