Executor Seeks Refund Of Fiduciary Income Taxes, And The Application of Iqbal/Twombly To Defensive Pleadings In Tax Cases

The executor of the Estate of Tamir Sapir is seeking a refund of more than $25 million of fiduciary income tax alleged to have been overpaid to the Internal Revenue Service (“IRS”).  While the refund suit is currently teed up before a federal district court, the estate sought judgment on the pleadings, attempting to seize on the government’s sparse affirmative-defense pleading.  The case addresses a question on which federal courts have split: Whether a heightened-pleading standard—a la the Supreme Court’s Iqbal/Twombly line of cases—applies to pleadings raising a defense in a tax refund suit.

Background 

The estate had previously filed income tax returns as required by law.  The executor filed the Estate’s initial Form 1041 for FYE 16 in November 2016, and promptly made a payment of $50.2 million to the IRS, consisting of an approximately $48.6 million tax payment and a $1.6 million late penalty and interest payment.

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