Opinion ID: 656593
Heading Depth: 2
Heading Rank: 2

Heading: The 1984 and 1985 Refund Claims

Text: 23 The Heftis also argue on appeal that the district court erred when it dismissed their claims for 1984 and 1985 for lack of subject matter jurisdiction. We review the district court's decision de novo. Underwood v. Venango River Corp., 995 F.2d 677, 679 (7th Cir.1993). 24 Section 7422(a) of the Internal Revenue Code provides that: 25 No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected ... 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. 26 The regulations promulgated under this statute require that refund claims must be accompanied by supporting evidence, Treas.Reg. § 301.6402-1(a)(2), and must include a detailed statement providing the grounds for the claim. Treas.Reg. § 301.6402-2(b)(1). Claims which do not include the latter requirement will not be considered for any purpose as a claim for refund or credit. Id. 27 These prerequisites serve several purposes. First, they ensure that the IRS has been given adequate notice of the nature of the claim and the specific facts upon which it is predicated, permitting administrative review and determination. Second, they give the IRS an opportunity to correct any errors that may have been made. Third, they limit the scope of the refund litigation. Ottawa Silica Co. v. United States, 699 F.2d 1124, 1138 (Fed.Cir.1983) (quoting Union Pacific R.R. v. United States, 389 F.2d 437, 442, 182 Ct.Cl. 103 (1968)). 28 The taxpayer bears the burden of proving that he or she is entitled to a deduction. Jerome Mirza & Associates, Ltd. v. United States, 882 F.2d 229, 232 (7th Cir.1989), cert. denied, 495 U.S. 929, 110 S.Ct. 2166, 109 L.Ed.2d 496 (1990). Accordingly, the taxpayer must come forth with evidence to substantiate the deduction and must do so prior to filing a suit for refund in order to effect the purposes underlying the statutory and regulatory prerequisites. The court is without jurisdiction to entertain a refund suit where these prerequisites have not been satisfied. Goulding v. United States, 929 F.2d 329, 331 (7th Cir.1991), cert. denied, --- U.S. ----, 113 S.Ct. 188, 121 L.Ed.2d 132 (1992). 29 In the Heftis' opinion, the amended returns constituted a sufficient claim under Internal Revenue Code section 7422(a) because they contain a line by line accounting and establish why they are entitled to a refund. However, the forms they submitted merely reassert the same deductions they claimed on the forms they originally filed and lack the necessary factual basis to satisfy Treas.Reg. § 301.6402-2(b)(1). In addition, the claims were not accompanied by supporting evidence. The amended returns do explain that Charles Hefti is the sole proprietor of a business he operates out of his personal residence and that for the past several years he has been in massive expansion. Supp.Appendix, pp. 76, 99. However, this statement, without documentation to substantiate whatever deductions this activity might warrant, is simply not sufficient to support the refunds claimed. The law requires taxpayers to keep and maintain records supporting claimed deductions before such deductions will be granted. I.R.C. § 6001. Because the Heftis did not make such records available to the IRS, the IRS properly denied their claims. 30 The Heftis also contend that the IRS could have conducted an audit on the basis of their refund claims. This argument flies in the face of the plain language of Treas.Reg. § 301.6402-1(a)(2), which puts the burden on taxpayers to produce supporting evidence. This the Heftis failed to do. 31 We agree with the district court that the Heftis' failure to produce evidence to support their claimed deductions prevented any meaningful review of their refund claims at the administrative level. Therefore, the district court properly dismissed their claims for lack of subject matter jurisdiction.