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Keith Fogg, Access to Judicial Review in Non-Deficiency Tax Cases, 73 Tax Law. 435 (2020).


Abstract: In 1958 and 1960, the Supreme Court took two tries to decide Flora v. United States and then only by the thinnest of margins with the thinnest of reasons. In the second opinion, the Court concluded that under section 1346(a) a taxpayer must fully pay any asserted tax deficiency prior to bringing a refund suit in federal court. The majority of justices acknowledged, however, that neither the statute nor the legislative history of the statute controlled the outcome. Instead, the majority relied upon the harmony of the carefully structured system of tax litigation involving the district courts and the Tax Court. A decade and a half later, the Solicitor General of the United States argued before the Supreme Court that Flora stood only for the narrow proposition that a taxpayer who had received a statutory notice of deficiency and failed to petition the Tax Court could not sue for a refund in district court by paying only a portion of the liability. Yet today, and for the last few decades, the United States has argued vigorously, and successfully, for a broader interpretation of the decision in Flora, an interpretation that prevents taxpayers in situations quite different from that of Mr. Flora from successfully pursuing a tax refund suit without full payment of the tax or penalty at issue. Importantly, since the Court’s decision on its rehearing of Flora in 1960, Congress has enacted over 50 assessable penalties that do not offer the taxpayer an opportunity to appear before the Tax Court prior to assessment and collection. Consequently, the legal landscape has changed dramatically. The current situation effectively denies many taxpayers the right to judicial review of the taxes or penalties assessed against them. This stark reality played out in Larson v. United States, in which the district court and the Second Circuit denied Mr. Larson the right to bring a refund suit after partial payment of a $163 million assessable penalty. This Article examines the history of how we arrived at the current situation and suggests a solution that would provide taxpayers with the right to litigate in district court any taxes or penalties assessed against them without making full payment under the Flora rule if they did not have the prior opportunity to challenge the assessment in a judicial proceeding.