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: 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, 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.

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Stephan Dorsey

Stephan is the sports journalist for the Maple Grove Report.

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Substantial Variance Doctrine for Informal Tax Refund Claims – Houston Tax Attorneys

Taxpayers often submit refund claims when they discover that they overpaid their taxes. Taxpayers usually do this by submitting a formal refund claim using the IRS’s prescribed forms. But this is not always required.

In many cases, taxpayers will submit so-called “informal refund claims” to the IRS during the course of an IRS audit. The IRS treats these informal claims as a refund claim as if the proper tax forms were filed. Given that the tax forms are often not used for informal claims, there may be less certainty as to what the taxpayer’s claim entails. The informal claim itself may just be various business records, complications, etc. or a myriad of other records that the taxpayer submits to the auditor.

This leads to the question as to whether the “variance doctrine,” which can prohibit taxpayers from litigating certain claims in court if they differ substantially from the taxpayer’s position on audit, applies to informal refund claims. The recent Express Scripts, Inc. v. United States, No. 4:21-cv-00035-HEA (E.D. Mo. Feb. 24, 2025) case provides an opportunity to consider this question.

Facts & Procedural History

The taxpayer in this case is a pharmacy benefit manager. It processes prescription drug claims for health plan sponsors and operates mail-order pharmacies.

During an IRS examination, the taxpayer submitted informal claims to the IRS auditor for Section 199 domestic production tax deductions that it omitted from its originally-filed tax returns.

As part of this process, the company provided the IRS with detailed workpapers and memoranda categorizing various revenue streams. These documents specifically identified certain “rebate” revenue and portions of their “mail claims” revenue (those manually entered into their system) as non-qualifying revenue streams that should be excluded from their Domestic Production Gross Receipts (“DPGR”) calculations. The taxpayer took the same positions in the formal administrative refund claims they later filed with the IRS for refunds for the years 2010, 2011, and 2012.

Nearly a decade after the initial claims, the taxpayer determined that both the rebate revenue and manually entered mail claims were qualifying for the Section 199 deduction. The taxpayer filed suit seeking refunds of federal income taxes for tax years 2010, 2011, and 2012, claiming it properly qualified for the Section 199 tax deduction for its rebate revenue and manually entered mail claims.

The government moved to dismiss the portions of the refund claims relating to rebate revenue and manually entered mail claims, arguing that the taxpayer was barred by the “substantial variance doctrine” from including revenue streams in tax litigation when they had specifically excluded them during the administrative claims process.

The Framework for Tax Refund Claims

Section 7422(a) allows taxpayers to sue the government for tax refunds. This is one of the permissible means to litigate a tax issue.

Section 7422 states that no suit for tax recovery can be maintained in any court “until a claim for refund or credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof.”

This is the foundation for what courts often call the “pay first, litigate later” system for tax disputes. Under this framework, taxpayers must first pay the disputed tax, then file an administrative refund claim with the IRS, and only afterward can they pursue litigation if the IRS denies their claim or fails to act within six months.

The treasury regulations provide specific requirements for these administrative refund claims. Treasury Regulation § 301.6402-2(b) states that a claim “must 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.” This regulation serves as the foundation for the substantial variance doctrine that limits what taxpayers can argue once they get to court.

What Is the Substantial Variance Doctrine?

The substantial variance doctrine operates as a jurisdictional limitation on tax refund litigation. As articulated in Lockheed Martin Corp. v. United States, 210 F.3d 1366, 1371 (Fed. Cir. 2000), which involved a research tax credit, a taxpayer is barred from presenting claims in a tax refund action that “substantially vary” the legal theories and factual bases set forth in the tax refund claim presented to the IRS.

The doctrine has two distinct branches: one addressing legal theories and another addressing factual bases. For legal theories, the rule states that “any legal theory not expressly or impliedly contained in the application for refund cannot be considered by a court in which a suit for refund is subsequently initiated.” This means taxpayers cannot pursue entirely new legal arguments in court that weren’t presented to the IRS.

The factual variance branch, which was at issue in the Express Scripts case, prohibits taxpayers from substantially varying the factual bases raised in their refund claims. This rule is not all that strict. Minor factual variations are permitted. Taxpayers cannot introduce entirely new factual elements that the IRS never had an opportunity to consider.

Why Does the Variance Doctrine Exist?

The substantial variance rule serves three primary purposes. First, it gives the IRS notice as to the nature of the claim and the specific facts upon which it is predicated. This notice function ensures that the IRS understands exactly what the taxpayer is claiming and why.

Second, it gives the IRS an opportunity to correct errors administratively. This purpose reflects the preference for resolving tax disputes at the administrative level rather than through costly litigation.

Third, it limits any subsequent litigation to those grounds that the IRS had an opportunity to consider and is willing to defend. This purpose helps ensure that courts aren’t faced with entirely new claims that the IRS never had a chance to review.

These purposes reflect the fundamental principle that tax litigation over refund claims is meant to be a review of the IRS’s administrative determination, not an entirely new proceeding where taxpayers can raise new issues.

Applying the Variance Doctrine to Informal Claims

Most refund claims follow the formal procedures outlined in IRS regulations, typically involving the filing of Forms 1040X for individuals, Forms 1120X for corporations, etc. However, courts have long recognized the “informal claim doctrine,” which allows taxpayers to satisfy the administrative claim requirement through less formal means.

An informal claim can suffice when it puts the IRS on notice that the taxpayer is seeking a refund, describes the legal and factual basis for the refund, and has some written component. IRS audits often provide opportunities for taxpayers to make these informal claims as part of the examination process.

The taxpayer in this case made its initial claims through informal claims during an IRS examination, providing detailed workpapers and memoranda. But does the variance doctrine apply differently to informal claims than to formal ones?

The answer is no. Courts have consistently held that the substantial variance doctrine applies equally to informal claims. In fact, the requirements for specificity can be even more important for informal claims, as the IRS must be able to determine from sometimes less structured submissions exactly what the taxpayer is claiming. This case is an example of the court applying the variance doctrine to informal claims.

Merely Additional Evidence of the Amount

The taxpayer argued that the variance doctrine did not apply as the inclusion of rebates and manually entered pharmacy claims merely represented “additional evidence” of the amount of their Section 199 deduction. They contended that because they were still seeking the same Section 199 deduction, there was no substantial variance in their legal theory.

The court rejected this argument, focusing on the fact that the taxpayer had “specifically excluded these amounts throughout the entire administrative claims period and indeed, through this action until it was asserted in the expert reports.” The court found that the taxpayer’s addition of this revenue “changes the facts upon which the IRS assessed Plaintiffs’ claims.”

The court emphasized that Express Scripts “specifically declined to include these items in its claim. As such, the IRS was not given the opportunity to review whether they were properly designated as gross receipts.” Because the IRS never had the opportunity to consider whether these additional revenue streams qualified for the deduction, the substantial variance doctrine barred their inclusion in the litigation.

What if the IRS Reviews the Position on Audit?

The taxpayer also argued that the IRS had waived the substantial variance doctrine by considering the allocation of DPGR. This approach reflects a strategy sometimes used in tax audits where taxpayers argue that the IRS has effectively waived technical requirements by addressing the merits of a claim.

The court rejected this waiver argument on factual grounds, noting that the taxpayer had “specifically exempted the rebates and manually entered mail pharmacy claims” from consideration, so the IRS “could not have considered the merits of these claims because they were not before the IRS for examination.”

The court’s reasoning highlights a critical point: taxpayers cannot claim waiver based on the IRS’s consideration of issues that were never actually presented to the IRS. The waiver argument can only work when the IRS actually considers facts or theories that were raised in the administrative claim.

The Takeaway

This case shows how important it is to provide clear detail and consistency when submitting tax refund claims to the IRS. This includes informal claims submitted to the IRS on audit. Taxpayers who specifically exclude certain factual bases from their administrative refund claims—whether formal or informal—may not be able to later include those bases in litigation, even if their legal theory remains unchanged. The substantial variance doctrine operates as a jurisdictional bar in these cases, which can serve to deny the taxpayer their day in court.