Kikalos v. United States

In June 1999, Nick and Helen Kikalos (plaintiffs) filed their 1998 federal tax return with the Cincinnati, Ohio, office of the Internal Revenue Service (IRS). In July, the IRS’s Merrillville, Indiana, office began auditing the Kikaloses’ 1998 return. In July 2001, the Kikaloses filed an amended 1998 return, which reported approximately $36,000 in additional taxes, and paid an additional approximately $43,600. In March 2002, in response to the IRS’s more than 17 proposed audit adjustments, Nick sent a series of letters to the IRS. The IRS assessed the Kikaloses approximately $98,000 in additional tax, interest, and penalties, which the Kikaloses paid. In September, the Kikaloses filed an amended return for 1998, in which they reported reduced tax and requested a refund of approximately $141,600. The Kikaloses did not comply with the amended return form 1040X instructions to explain each change and did not heed the form’s warning that the failure to do so could lead to the IRS returning the form. Instead, the Kikaloses wrote on the form, “Income was incorrectly assessed to the above named taxpayer.” In December, the IRS rejected the Kikaloses’ refund claim due to their failure to justify it. The IRS also notified the Kikaloses that they could sue to try to obtain a refund or could file a proper refund claim by May 2004. In December 2004, the Kikaloses sued the United States (defendant) in federal district court in Indiana, seeking a refund. The district court dismissed the suit for lack of subject-matter jurisdiction because the Kikaloses did not file a valid refund claim. The Kikaloses appealed, arguing that although they did not submit a valid formal claim under the IRS’s regulations, the IRS waived its formal requirements.