When Is an Informal Tax Refund Claim Timely? – Houston Tax Attorneys

We’ve all experienced those moments when we say something and realize our wording wasn’t perfect. Yet from the other person’s nod or response, we can tell they understood our meaning perfectly well. We don’t feel the need to repeat ourselves with better phrasing. This is simply part of being human.

A similar situation occurs with income tax filings. Consider a taxpayer whose e-filed return gets rejected due to a technical issue. The taxpayer then submits a paper filing, perhaps using a slightly incorrect form. In both attempts, the IRS receives the essential tax information and understands what the taxpayer is communicating.

In these cases, can the IRS legitimately claim these tax returns were never filed? The case of McDow v. United States, No.1:21-cv-00732 (Fed. Cir. April 1, 2025) addresses this very question. The decision considers when an informal refund claim meets the timeliness requirements and how tax returns and refund claims work together under statutory deadlines.

Facts & Procedural History

The taxpayer in this case had overpaid taxes for multiple years. We are going to focus on the 2013 tax year in this article.

For tax year 2013, the taxpayer made a payment in January 2014. He tried to file his 2013 tax return with the IRS electronically in April 2015, but the IRS rejected the filing. Instead of immediately resubmitting the return, the taxpayer filed a Form 843 (Claim for Refund and Request for Abatement) in December 2016. This form was filed more than two years after his tax payment but within three years of his first filing. The taxpayer eventually filed a formal tax return for 2013 in June 2018.

After the IRS denied the refund claim, the taxpayer filed suit in the court of federal claims. In its first ruling on the government’s motion to dismiss, the court determined that the Form 843 qualified as an informal refund claim and was timely filed within the three-year statutory period. The government then filed a motion for reconsideration, arguing that without a formally filed tax return, an informal claim must be filed within two years of payment—not three years.

Tax Refund Claim Deadlines Under Sec. 6511

Most questions about timing for refund claims involve the IRS not carrying out its duties timely. The IRS does nothing timely.

The IRS audits years in arrears, routinely forces taxpayers to extend the three year audit period for these old years, and then essentially never processes refund claims timely before the three years expires. This puts taxpayers in a position of having to review the rules in Section 6511 regularly to avoid losing refunds–often not for their own fault, but for the IRS’s inability to act timely.

The timing requirements for refund claims are set out in Section 6511 of the tax code. This section creates two different deadlines depending on whether the taxpayer has previously filed a tax return.

Section 6511(a) says that if a taxpayer must file a return, a refund claim “shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid.”

This creates two paths

This creates two paths: taxpayers who file returns generally have three years from the filing date to request a refund. Those who don’t file returns have only two years from the payment date. This one-year difference matters when dealing with tax audits and refund claims. Whether the 2 or 3 year period applies can be problematic for taxpayers as missing the filing deadline by even a few months can lose substantial refund amounts they would otherwise be entitled to receive.

Beyond these filing deadlines

Beyond these filing deadlines, Section 6511(b) also creates “look-back” periods that limit how much a taxpayer can recover even with a timely claim. If a claim is filed within the three-year period, the refund is limited to taxes paid within three years (plus any extension) before the claim. If the claim is not filed within that three-year period, the refund is limited to taxes paid within two years before the claim.

What Is the Informal Claim Doctrine?

Courts created the informal claim doctrine as an exception to the formal requirements for tax refund claims.

We have previously considered several cases involving informal refund claims, such as claims signed by tax attorneys, substantial variance and informal claims, and whether an IRS audit report itself an informal claim. Under these court cases, a document that doesn’t meet all the technical requirements for a formal refund claim may still work as a placeholder if it tells the IRS of the taxpayer’s intent to seek a refund.

For an informal claim to be valid, it must tell the IRS in writing that the taxpayer wants a refund. It must specify the tax year and reasons for the refund claim. And the taxpayer must follow up with a formal refund claim within a reasonable time.

The informal claim doctrine helps prevent taxpayers from losing refund rights due to technical problems, as long as they give the IRS enough notice of their claim. This doctrine helps taxpayers unfamiliar tax returns and filing requirements avoid tax litigation for not following the precise procedural filing requirements.

Courts have used this doctrine in many contexts, including cases where taxpayers sent letters, protests, or other documents that clearly showed they wanted a refund, even if these documents didn’t meet official claim requirements. The doctrine essentially favors substance over form in these situations.

How Does the Informal Claim Doctrine Interact with Sec. 6511’s Deadlines?

The main question in McDow was how the informal claim doctrine works with Section 6511’s timing requirements. Does an informal claim filed before a tax return is filed use the three-year period, or does it use the two-year deadline that applies when “no return was filed”?

The government said an informal claim cannot replace a tax return to trigger the three-year deadline. According to this view, the statute treats “claims” and “returns” as separate documents with separate purposes. While the informal claim doctrine allows an informal document to stand in for a formal refund claim, it doesn’t allow that same document to count as a tax return. Thus, the informal return was never filed for purposes of Sec. 6511.

This matters because Section 6511(a) specifically says that if “no return was filed,” the taxpayer has only two years from payment to file a refund claim. The government argued that an informal claim filed before a tax return must meet this two-year deadline to be timely.

Is a Formal Return Required?

The Court of Federal Claims looked at two key cases: Wertz v. United States and Libitzky v. United States. Both cases dealt with whether an informal claim can use the three-year deadline without a tax return.

In Wertz, another judge on the Court of Federal Claims held that an informal claim must be filed within two years of the tax payment to be timely when no return has been filed. The court said that while the IRS can waive its requirement that a claim be filed on the correct form, it cannot change Congress’s statute of limitations, which represents a waiver of sovereign immunity.

In Libitzky, the Ninth Circuit separated the “limitations period” in Section 6511(a) from the “look-back” period in Section 6511(b). The court defined a “refund claim” as a request for a refund of an overpayment, and the “tax return” as the formal filing with the IRS. The court held that an informal claim filed before a tax return must meet the two-year deadline.

After reviewing these cases, the Court of Federal Claims in McDow agreed with Wertz and Libitzky. The court said the statute requires filing a formal tax return to get the benefit of the longer look-back period. When a taxpayer files an informal claim before filing a tax return, that informal claim must be filed within two years of the tax payment to be timely.

Why Did the 2013 Refund Claim Fail?

When the court applied this to the case, it found that the informal claim for 2013 was untimely. The taxpayer filed Form 843 in December 2016, more than two years after the January 2014 payment to the IRS. While the form might have qualified as an informal claim, it was filed too late to meet the two-year deadline.

The taxpayer also argued that his attempted April 2015 electronic filing should count as a tax return for purposes of the statute of limitations, which would give his Form 843 the benefit of the three-year period. But the court rejected this argument. The court noted that because the IRS rejected the filing, the taxpayer needed to refile. Since the IRS did not consider the rejected filing as a valid return, and the taxpayer did not formally file a return until 2018, the informal claim was subject to the stricter two-year deadline.

The court emphasized that when an electronically filed tax return is rejected, the taxpayer must refile for it to be considered filed. This puts the responsibility on taxpayers to ensure their electronic filings are accepted rather than assuming rejected submissions count as filed returns.

The Takeaway

This case clarifies how the informal claim doctrine works with Section 6511’s timing requirements. An informal claim filed before a tax return must meet the two-year deadline from payment to be timely. This preserves the difference between claims and returns while still allowing the informal claim doctrine to work as an equitable remedy in appropriate cases. For taxpayers seeking refunds, the message is clear: file tax returns promptly, follow up on rejected electronic filings, and watch the deadlines for refund claims. When electronic filings are rejected, taxpayers must act quickly to refile, as rejected submissions do not count as filed returns for purposes of extending the refund claim period.

Watch Our Free On-Demand Webinar

In 40 minutes, we’ll teach you how to survive an IRS audit.

We’ll explain how the IRS conducts audits and how to manage and close the audit.

Source link

Stephan Dorsey

Stephan is the sports journalist for the Maple Grove Report.

Subscribe to Our Newsletter

Get our latest articles delivered straight to your inbox. No spam, we promise.

Andy Reid Reveals Adam Sandler’s Marriage Advice for Taylor Swift, Travis Kelce

IRS Levy for a Debt It Already Agreed to Payment Over Time? – Houston Tax Attorneys

July 4, 2026

Risk Redux — Conflicts of the Father…, More on Judicial Recusal Reasons, Another Law Firm Data Breach

June 29, 2026

Married Filing Separate, Community Property Reduction – Houston Tax Attorneys

June 27, 2026

Do FBAR Penalties Die With the Taxpayer? – Houston Tax Attorneys

IRS Levy for a Debt It Already Agreed to Payment Over Time? – Houston Tax Attorneys

July 4, 2026

Risk Redux — Conflicts of the Father…, More on Judicial Recusal Reasons, Another Law Firm Data Breach

June 29, 2026

Married Filing Separate, Community Property Reduction – Houston Tax Attorneys

June 27, 2026

Apple TV’s New Camboy Crime Thriller Is the Perfect Summer Binge

IRS Levy for a Debt It Already Agreed to Payment Over Time? – Houston Tax Attorneys

July 4, 2026

Risk Redux — Conflicts of the Father…, More on Judicial Recusal Reasons, Another Law Firm Data Breach

June 29, 2026

Married Filing Separate, Community Property Reduction – Houston Tax Attorneys

June 27, 2026

Recent Reviews

Do FBAR Penalties Die With the Taxpayer? – Houston Tax Attorneys

When someone has an undisclosed foreign bank account that the government has not yet assessed penalties for and they die, can the government still pursue the penalties?

The answer hinges on a fundamental legal classification that courts are actively debating—are FBAR penalties primarily punitive fines or remedial damages? If FBAR penalties are primarily punitive, they might extinguish upon death like other penal sanctions. If they’re primarily remedial, they survive as claims against the estate.

With potential penalties reaching millions of dollars, this distinction could determine whether beneficiaries receive their intended inheritance or whether an estate is largely consumed by government penalties. A recent case United States v. Leeds, No. 22-cv-01234 (D. Idaho March 7, 2025), addresses this issue.

Facts & Procedural History

The taxpayer here was a U.S. citizen. He died in November of 2021. Prior to his death, he had maintained two Swiss bank accounts for more than three decades.

The first account was opened in his name at EFG Bank in 1980. The second account was opened at the same bank in 1997 under the name of an entity that the taxpayer controlled as director and beneficial owner.

Throughout his life, the taxpayer took extraordinary measures to conceal these accounts from the IRS. He used pseudonyms to manage the accounts. He implemented “hold mail” instructions to prevent receiving documentation at his residence. He even consistently denied having foreign accounts when directly asked by his accountant and on his tax returns.

During the tax years at issue (2006-2012), the taxpayer maintained more than half his total income in these accounts. For example, while his original tax return for 2006 reported income of $67,178, his later amended return disclosed his actual income was $184,766, with the difference largely attributable to undisclosed foreign income.

In 2014, with FATCA implementation looming and Swiss banks preparing to share account information with the U.S., the IRS began investigating the taxpayer. He initially applied for the Offshore Voluntary Disclosure Program (“OVDP”) but later opted out. After examination, the IRS determined his FBAR violations were willful and in September 2020 assessed penalties totaling approximately $1.5 million.

After the taxpayer’s death

After the taxpayer’s death, the government filed an action in federal district court against his widow, in her capacity as personal representative of his estate, seeking over $2 million in willful FBAR penalties, late-payment penalties, and interest. The widow was appointed as personal representative solely for defending against this tax litigation, as no formal probate proceedings had been initiated. Following discovery, the government moved for summary judgment against the estate, which resulted in the court’s opinion in this case.

FBAR Requirements and Penalties

The Bank Secrecy Act requires U.S. persons (including estates) to file an FBAR reporting foreign financial accounts exceeding $10,000 in aggregate value during the calendar year. These reports must be filed electronically by April 15 of the following year, with an automatic extension to October 15.

The penalties for non-compliance vary significantly based on whether the violation is deemed willful or non-willful. Non-willful violations carry a maximum penalty of $10,000 per violation. Willful violations, however, result in much harsher penalties: the greater of $100,000 or 50% of the account balance at the time of the violation. We have addressed various aspects of these rules in several other articles on this website, such as there being no collection remedies for FBAR penalties and there being no minimum limit on willful penalties.

In this case, the willful FBAR penalties assessed against the taxpayer were approximately $1.5 million, with late-payment penalties and interest bringing the total to over $2 million by the time of the government’s action against his estate.

Penal vs. Remedial Sanction?

The taxpayer’s widow argued that the FBAR penalties were “extinguished” when the taxpayer died. This argument is based on the long-standing legal principle that purely penal sanctions abate upon death, while remedial ones survive.

The distinction makes intuitive sense—punishment serves no purpose when the wrongdoer is deceased, but compensation for damages remains valid regardless of the wrongdoer’s status.

To determine whether a penalty is penal or remedial, court in this case applied factors from Hudson v. United States, 522 U.S. 93, 99-100 (1997), examining whether the sanction:

Involves an affirmative disability or restraint
Has historically been regarded as punishment
Comes into play only on a finding of scienter (knowledge of wrongdoing)
Promotes retribution and deterrence
Applies to behavior that is already a crime
Has an alternative purpose
Appears excessive in relation to the alternative purpose

In applying these factors, the court concluded that FBAR penalties are “primarily remedial with incidental penal effects” for purposes of survival. Under this classification, the penalties survived Richard’s death and remained enforceable against his estate.

Remedial for Survival, Punitive for the 8th Amendment

The court also addressed whether these same FBAR penalties constitute “fines” subject to the Eighth Amendment’s Excessive Fines Clause. This raises the question as to how can a penalty be remedial enough to survive death but punitive enough to qualify as a “fine” under the Constitution?

This precise issue has created a circuit split. The First Circuit in United States v. Toth, 33 F.4th 1 (1st Cir. 2022) held that FBAR penalties are not “fines” under the Eighth Amendment because they merely represent “liquidated damages” that compensate the government for investigation costs. The Supreme Court denied certiorari in Toth, though Justice Gorsuch dissented, criticizing the government for making no effort to prove the remedial nature of the penalties.

In direct conflict, the Eleventh Circuit in United States v. Schwarzbaum, No. 22-14058 (11th Cir. Jan. 23, 2025) held that FBAR penalties are “fines” subject to Eighth Amendment review because they are calculated “irrespective of the magnitude of financial injury to the United States.” In Schwarzbaum, the court found a $300,000 penalty for failing to report a $16,000 account was “grossly disproportional” and violated the Constitution.

In the present case

In the present case, the court found the Eleventh Circuit’s reasoning more persuasive, concluding that while FBAR penalties have remedial aspects sufficient to survive death, they also have significant punitive characteristics that trigger Eighth Amendment scrutiny. The court acknowledged this apparent contradiction in a footnote, stating that the conclusion “is not inconsistent” because “the test in the Excessive Fines context remains whether the purpose of the penalty is solely compensatory.”

Why This Matters for Executors

This contradiction creates both uncertainty and opportunity for executors. If the Supreme Court eventually resolves the circuit split by deciding that FBAR penalties are primarily punitive, it could undermine the rationale for their survival after death. This would fundamentally change how executors handle estates with unreported foreign accounts.

Until such resolution occurs, executors should approach estates with potential FBAR issues with caution, understanding that:

Currently, courts uniformly hold that FBAR penalties survive death and remain enforceable against estates.
The constitutional question about whether these penalties are “fines” subject to Eighth Amendment protection remains unresolved, with a clear circuit split.
Even in jurisdictions following Schwarzbaum and Leeds, where FBAR penalties are considered “fines,” the excessive fines analysis only provides protection against grossly disproportional penalties—not against all penalties.
The Leeds case created an important distinction between estate liability and personal liability, finding that penalties that were not excessive against the taxpayer’s estate would be excessive if imposed against the surviving spouse personally due to her lack of knowledge about the accounts.

The Takeaway

For executors, this case explains that FBAR penalties survive death and remain enforceable against the estate regardless of how they’re classified for constitutional purposes. However, the seemingly conflicting legal analysis—remedial enough to survive death but potentially punitive enough for Eighth Amendment protection—suggests this area of law may continue to evolve. The constitutional classification of FBAR penalties as “fines” offers a potential defense against grossly disproportional penalties, but doesn’t currently change the fundamental rule that these obligations survive the death of the account holder and must be addressed during estate administration.