Taxpayers have the right to appeal a decision of the IRS in an independent forum. Consistent with this right, in the 2018 Annual Report to Congress (ARC) I recommended legislation to provide all taxpayers with a realistic opportunity for judicial review of IRS determinations.
The so-called “Flora rule”—named after a Supreme Court case decided in 1960—limits access to judicial review by those who cannot “fully pay” what the IRS says they owe. In this blog, I explain how the rule is obsolete and harms low income taxpayers who were not part of the tax system in 1960. I also explain how the rule sometimes eliminates judicial review for those subject to “assessable penalties,” most of which did not exist in 1960.
What is the Flora rule?
In general, 28 U.S.C. § 1346(a)(1) authorizes a taxpayer to file suit in a U.S. district court or the U.S. Court of Federal Claims to recover “any … tax,” “any penalty,” or “any sum.” The statute places no explicit limits on how much the taxpayer must have paid before filing suit. In 1958 in Flora I and again in 1960 in Flora II, however, the U.S. Supreme Court held that taxpayers must have “fully paid” an assessment (called the “Flora” or “full payment” rule) before doing so.