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Published:   |   Last Updated: February 8, 2024

Why We Should Repeal the Flora Rule or Find Another Way to Give Taxpayers Who Cannot Pay the Same Access to Judicial Review as Those Who Can (Part 2 of 3)

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In last week’s blog, I discussed how the Flora rule harms low income taxpayers who were not part of the tax system when it was established and sometimes eliminates judicial review for those subject to “assessable penalties,” most of which also did not exist at the time. This week, I discuss the policy justification for the Flora rule, why it has faded, and why the theoretical ability to petition other courts does not provide real access to judicial review for some taxpayers.

The justification for the Flora rule has faded

As we discussed last week, in 1958 in Flora I and again in 1960 in Flora II, the U.S. Supreme Court held that taxpayers must have “fully paid” an assessment before filing suit in U.S. district court or the U.S. Court of Federal Claims. In Flora I the Court said a policy basis for the full payment rule was to protect the “public purse” and cited dicta in earlier decisions, such as Cheatham, which was decided in 1875. This dictum said the rule was needed to protect the very “existence of government” from a “hostile judiciary.” Although the Flora decisions did not repeat the “existence of government” rationale, it relied heavily on CheathamCheatham is cited seven times in Flora I and 20 times in Flora II.

This “existence of government” argument was never very strong and has weakened as we have broadened the tax base. Before Flora, the government could generally continue collecting the taxes that were in dispute even if the taxpayer filed suit in a district court or in the Federal Court of Claims. Thus, the mere filing of suits could not have been a threat to the existence of government. It was not until 1998 that Congress enacted IRC § 6331(i), which bars the IRS from issuing levies to collect the unpaid portions of divisible taxes that are being litigated. Moreover, the revenue concerns the Court expressed in Cheatham in 1875 should have subsided by 1942 when Congress broadened the tax base (as described in my 2011 Annual Report to Congress and here), reducing the risk that a significant percentage of those subject to the income tax would sue instead of paying.

Congress has increasingly provided taxpayers with procedural protections, overriding the sovereign’s ancient power to require immediate payment of taxes (as I discussed here). For example, Congress must not have been concerned about threats to the existence of government by 1924 when it granted the Tax Court jurisdiction for pre-payment reviews, and by 1998 when it expanded this jurisdiction to Collection Due Process (CDP) appeals.

No realistic opportunity for review in other courts

Before assessing additional tax, the IRS is generally required by IRC § 6212 to issue a “notice of deficiency,” which is also called the “ticket to Tax Court” for good reason.
IRC § 6213 authorizes the taxpayer to petition the U.S. Tax Court within 90 days (or 150 days if the notice is addressed to a person outside the U.S.) to review the IRS determination. Access to the Tax Court as a pre-payment forum is incredibly important.

However, there are a wide variety of legitimate reasons for taxpayers—particularly low income taxpayers—to miss the deadline for filing a Tax Court petition. A former Low Income Taxpayer Clinic (LITC) Director has explained (here) why low income taxpayers are less likely to receive notices of deficiency, as follows:

First, the poor tend to move frequently, failing to notify either the IRS or the Post Office of address changes—particularly in cases of eviction. Second, they often live in group housing situations where their names are not on the mailbox, so either the Postal Service employees do not deliver the certified notices, or another household member picks up the notice but fails to give it to the taxpayer. Third, their mail is often stolen from mailboxes that have their locks perpetually broke.

Even if the taxpayer receives a notice, he or she may be too scared to open the envelope. If the taxpayer opens the envelope, he or she may not understand it, for example, because English is not the taxpayer’s first language, due to literacy challenges, or because it is not written clearly.

TAS study (p. 103-104) found that when the IRS sent an audit notice to those claiming the Earned Income Tax Credit (EITC)—a refundable tax credit for the working poor—about 25 percent did not understand they were under audit, almost 40 percent did not understand what the IRS was questioning, and only about half of the respondents felt that they knew what they needed to do. Low income taxpayers are likely to have similar difficulties understanding a notice of deficiency.

Even if the taxpayer understands the notice, he or she may respond by communicating with the sender, rather than by filing a Tax Court petition. Alternatively, he or she may not realize until too late that the adjustments proposed by the IRS are questionable. Therefore, the notice of deficiency is not always a realistic path to judicial review. Moreover, as I noted last week, the IRS is authorized to assess so-called “assessable” penalties without first issuing a notice of deficiency.

In theory, the CDP process should provide another opportunity for judicial review. The Tax Court may review an assessed liability if the IRS issues a levy or lien to collect it and the taxpayer responds by requesting a CDP hearing. However, this path is largely blocked by IRC §§ 6330(c)(2)(B), 6320(c), and Treas. Reg. §§ 301.6320-1(e)(3)A-E2 and 301.6330–1(e)(3)A–E2, which provide that the Tax Court only has jurisdiction to review the underlying liability in a CDP appeal if the taxpayer did not receive a notice of deficiency and did not have an opportunity to raise the dispute in an administrative appeal.

In practice, it is difficult to prove a negative (e.g., non-receipt of a notice of deficiency), and even those who receive a deficiency notice can have good reasons (described above) for missing the deadline. In addition, the IRS generally provides an opportunity for an administrative appeal, which blocks access to a substantive review by the court. However, an administrative appeal is a poor substitute for judicial review.

Finally, while a bankruptcy court “may” review a tax dispute (under 11 U.S.C. § 505(a)(1)), it may decide to abstain from doing so. Thus, bankruptcy provides no reliable avenue for judicial review. Moreover, a taxpayer should not have to go bankrupt to obtain judicial review of a tax dispute. In short, vulnerable populations—populations that were not part of the tax system when Flora was decided—do not always have realistic access to judicial review.

In next week’s blog, we will discuss possible solutions to the problems created by the Flora rule.


The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.

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