Let the Poor Sue for Refund Without Full Payment

Abstract

In Flora v. United States, 362 U.S. 145 (1960), the Supreme Court held that 28 USC section 1346(a)(1) requires the full payment of all assessed tax before a refund lawsuit can be maintained in a district court or the Court of Federal Claims. Justice Whittaker, in his dissent (joined by three other Justices), railed against a side consequence of the holding, noting that, under the ruling, "taxpayers who pay assessments in installments would be without remedy to recover early installments that were wrongfully collected should the period of limitations run before the last installment is paid." He thought it "grossly unfair and, to me, shockingly inequitable" to apply the full payment requirement where a taxpayer "is unable to pay the balance within the two-year period of limitations." Since 1960, Congress has overruled the Flora full payment rule in one situation where the rich asked it to: In 1998, in 26 USC section 7422(j), Congress allowed an estate that had elected to pay estate taxes in installment lasting 10 years to bring a refund lawsuit without full payment as long as the estate was current on its installment payments. The author now proposes a similar exception from the full payment rule for the poor - one that would finally end the "shocking inequit[y]": Add a new subsection to the Internal Revenue Code that would allow a taxpayer to maintain a refund lawsuit, even without full payment, if the taxpayer is paying all or part of the remaining uncollected balance of any tax under an installment payment agreement or the IRS has placed the taxpayer into currently not collectible status.

Keywords: Flora, refund, internal revenue code, IRS, Tax Court, collection due process