NICK KIKALOS and HELEN KIKALOS v. United States of America

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 06-2446
N ICK K IKALOS and H ELEN K IKALOS ,
Plaintiffs-Appellants,
v.
U NITED S TATES OF A MERICA ,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Northern District of Indiana, Hammond Division.
No. 2:04 CV 514—James T. Moody, Judge.
____________
A RGUED J ANUARY 11, 2007—D ECIDED M ARCH 14, 2007
____________
Before B AUER , F LAUM , and R OVNER , Circuit Judges.
F LAUM , Circuit Judge. The IRS audited the Kikaloses’
1998 tax return and determined that they under-reported
their income for that year. The Kikaloses paid additional
taxes and penalties and subsequently sought a refund. The
IRS denied the refund because the Kikaloses failed to
provide the necessary documentation to support their
claim. The Kikaloses filed suit, which the district court
dismissed for lack of subject matter jurisdiction. For the
following reasons, we affirm the district court’s ruling.

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2 No. 06-2446
I. B ACKGROUND
On June 1, 1999, Nick and Helen Kikalos filed a timely
joint federal income tax return for 1998 with the Internal
Revenue Service (“IRS”) Center in Cincinnati, Ohio. The
Kikaloses paid $504,181 in federal income taxes for that
year. On July 28, 1999, the IRS audited the Kikaloses’
1998 return. On July 13, 2001, the Kikaloses filed an
amended 1998 federal income tax return and reported an
additional $35,982 in income taxes and paid $43,609 to
reduce or eliminate penalties in anticipation of the IRS’s
proposed adjustments.
On March 4, 2002, the IRS issued an examination re-
port proposing over seventeen adjustments that would
increase the Kikaloses’ tax liability. On March 14, 2002,
Nick Kikalos wrote a series of letters to the IRS that
objected to each adjustment. On May 3, 2002, the IRS
issued the Kikaloses a statutory notice of deficiency,
finding that they had understated their taxes by $81,704.
The IRS assessed the Kikaloses an additional $98,044.80
in taxes and penalties, which the Kikaloses paid on May
31, 2002.
On September 18, 2002, the Kikaloses filed an amended
federal income tax return that reported a decrease in tax
of $81,704 and sought a refund of $141,654.00, which
included the $43,609 that the Kikaloses paid on July 13,
2001. The instructions on the tax return form stated,
“Enter the line number from page 1 of the form for each
item you are changing and give the reasons for each
change . . . . If you do not attach the required information,
your 1040X may be returned.” The Kikaloses wrote,
“Income was incorrectly assessed to the above named
taxpayer.” On December 18, 2002, the IRS rejected the
refund claim by letter because the Kikaloses failed to
explain or document the decrease in income. The letter
stated that “if you want to sue to recover tax, penalties, or

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No. 06-2446 3
other amounts, you may file a lawsuit with the United
States District court having jurisdiction or with the United
States Court of Federal Claims.” The letter also in-
structed the Kikaloses that they could send in a new
claim if they had the missing information. Although the
Kikaloses had until May 31, 2004 to file another claim
with the necessary information, they did not do so.
On December 13, 2004, the Kikaloses filed a complaint
in federal district court in Indiana to recover $141,654 of
income tax, penalties, and interest. On September 15,
2005, the government filed a motion to dismiss for lack of
subject matter jurisdiction, alleging that the Kikaloses
did not file a valid refund claim. The Kikaloses conceded
that their refund claim was insufficient, but argued that
the IRS waived its formal requirements or, alternatively,
that their amended return should be considered an
informal refund claim. On March 23, 2006, the district
court dismissed the complaint for lack of jurisdiction
holding that the Kikaloses failed to submit a valid re-
fund claim. The Kikaloses appeal.
II. A NALYSIS
The Kikaloses argue that the district court erred by
holding that it lacked jurisdiction to consider the merits of
their claim. This Court reviews de novo the grant of a
motion to dismiss for lack of subject matter jurisdiction.
Maas v. United States, 94 F.3d 291, 294 (7th Cir. 1996).
Section 7422 of the Internal Revenue Code requires that
any taxpayer seeking a refund must first file a valid claim
with the Secretary of the Treasury before filing suit in
federal court. 26 U.S.C. § 7422(a). Treasury Regulation
§ 301.6402-2(b)(1) provides that the claim “must set
forth in detail each ground upon which a credit or refund
is claimed and facts sufficient to apprise the Commissioner

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4 No. 06-2446
of the exact basis thereof.” It also states that “[a] claim
which does not comply with these requirements will not
be considered for any purpose as a claim for refund or
credit.” 26 C.F.R. § 301.6402-2(b)(1).
The Kikaloses’ refund claim stated that “[i]ncome was
incorrectly assessed to the above named taxpayer,” but did
not provide the grounds for their claim. Accordingly, the
government contends, the district court did not have
subject matter jurisdiction over the merits of their claim.
See Martin v. United States, 833 F.2d 655, 658-59 (7th Cir.
1987) (holding that “[a] timely sufficient claim for refund
is a jurisdictional prerequisite to a refund suit”). The
Kikaloses assert that despite the deficiency in their
administrative refund claim, the IRS waived its formal
requirements, or alternatively, they are excused from
the formal requirements pursuant to the informal refund
claim doctrine.
A. Waiver
The Supreme Court has held that while the Treasury
may not waive the congressionally mandated requirement
that a claim be filed, the Treasury can waive its own
formal requirements. See Angelus Milling Co. v. Comm’r of
Internal Revenue, 325 U.S. 293, 296 (1945). The Commis-
sioner may waive the IRS’s specificity requirements if
1) the IRS has sufficient knowledge of the claim, and
2) makes a determination on the merits or leads the
taxpayer to believe that the IRS treated the claim as
formally sufficient. See United States v. Memphis Cotton
Oil Co., 288 U.S. 62, 70 (1933); Goulding v. United States,
929 F.2d 329, 332-33 (7th Cir. 1991).
In Goulding, the IRS issued a deficiency against the
taxpayer. After paying the alleged deficiency, the tax-
payer filed a refund claim stating that the amount “was

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No. 06-2446 5
neither due, nor properly assessed, and therefore illegally
collected.” 929 F.2d at 330. The claim did not provide any
further details about the taxpayer’s grounds for a refund.
The IRS rejected the request “per audit determination.”
The taxpayer filed a complaint, which the district court
dismissed for lack of jurisdiction. This Court held that the
words “per audit determination” were ambiguous and
that the record in the case demonstrated that the IRS
had extensive knowledge of the claim because it had
litigated the same issues in a suit brought by the tax-
payers’ son. Id. at 333. Accordingly, the Court held that
the IRS had waived its defense that the claim was insuf-
ficient. Id.
The Kikaloses maintain that Goulding dictates a find-
ing of waiver in this case. We disagree. Unlike in Gould-
ing, where the IRS communication ambiguously stated
that refund was rejected “per audit determination,” in this
case, the IRS explained that it rejected the Kikaloses’
claim because “[n]o documentation was included to verify
the amount on line 1 [of the 1998 Refund Claim].” This
statement does not indicate that the IRS ruled on the
merits of the Kikaloses’ claim; to the contrary, the state-
ment indicates that the IRS did not have sufficient in-
formation to consider the claim’s merits. In order to find
waiver, the plaintiffs must unmistakably show “that the
Commissioner has in fact seen fit to dispense with his
formal requirements and to examine the merits of the
claim.” Angelus Milling, 325 U.S. at 297. The Kikaloses
have failed to make this showing.
The Kikaloses also argue that, as in Goulding, the IRS
had extensive knowledge of their claim because of the 1999
audit. They point out that the IRS collected over 5,000
documents from them during the audit and that Nick
Kikalos wrote a series of letters on March 14, 2002 object-
ing to the IRS’s proposed adjustments. However, Nick
Kikalos’s March 14 letters only objected to the IRS’s

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6 No. 06-2446
proposed adjustments from March 4, 2002. The letters
made no mention of the $43,609.00 that the Kikaloses
paid on July 13, 2001, which comprised part of the insuf-
ficient refund claim. Thus, the IRS had no information
regarding the refund request related to the $43,609.00.
Moreover, the IRS handled the 1999 audit out of its
Merrillville, Indiana office, while the Kikaloses sent their
refund claim to the Cincinnati, Ohio office. Additionally,
the Kikaloses’ insufficient refund claim made no reference
to the audit or to Nick Kikalos’s letters. The Supreme
Court has cautioned that “it is not enough that some-
where under the Commissioner’s roof is the information
which might enable him to pass on a claim for refund . . .”
Angelus Milling Co., 325 U.S. at 299. Consequently, the
Kikaloses have not demonstrated that the IRS had suf-
ficient knowledge of their claim and proceeded on the
merits.
B. Informal Claim Doctrine
The Kikaloses next argue that they are excused from the
Treasury’s formal requirements under the judicially-
created informal claim doctrine. The informal claim
doctrine allows an insufficient refund claim to be “treated
as adequate where formal defects and lack of specificity
have been remedied by amendment filed after the lapse
of the statutory period.” United States v. Kales, 314 U.S.
186, 194 (1941); see also George Moore Ice Cream Co. v.
Rose, 289 U.S. 373, 384 (1933); Memphis Cotton, 288 U.S.
at 72; United States v. Factors’ & Fin. Co., 288 U.S. 89, 94
(1933). In other words, the doctrine excuses “harmless
noncompliance with the formalities prescribed for refund
claims by the treasury regulations.” BCS Fin. Corp v.
United States, 118 F.3d 522, 524 (7th Cir. 1997). This
Court has provided the following example: “suppose that
on the last day [before the statute of limitations runs], the

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No. 06-2446 7
taxpayer files a claim for a refund complete except for
the omission of his signature. Two days later the tax-
payer discovers and repairs the omission. It would be
absurd rigorism . . . to make the taxpayer’s utterly harm-
less mistake a basis for forfeiting a claim conceded to
be substantively valid.” Id.
In this case, however, the Kikaloses’ failure to provide
any information regarding the grounds for the refund
sought was more than harmless noncompliance. The
insufficient refund claim contained no facts “sufficient
to apprise the Commissioner” of the claim’s merits. More-
over, the IRS sent the Kikaloses a letter informing them
of their claim’s deficiency. The letter specifically stated
that the Kikaloses could re-file a new claim with the
missing information. Although the Kikaloses had over a
year to do so, they did not. Courts created the informal
claim doctrine to provide equitable relief to taxpayers
who made good faith attempts to amend harmless errors
in their refund claims even though the statute of limita-
tions would otherwise bar those amendments. Based on
the facts before the Court, the informal claim doctrine
cannot help the Kikaloses.
However, this does not end our inquiry because the
Kikaloses point out that some courts have applied the
doctrine to hold that several timely-but-insufficient
submissions may comprise one adequate claim even in the
absence of a later-filed amendment. See Weisman v.
Comm’r Internal Revenue Serv., 103 F. Supp. 2d 621, 628
(E.D.N.Y. 2000); Davis v. United States, 21 Cl. Ct. 84, 86
(Cl. Ct. 1990); Am. Radiator & Standard Sanitary Corp. v.
United States, 318 F.2d 915, 920 (Ct. Cl. 1963). They ar-
gue that their insufficient claim combined with Nick
Kikalos’s letters, and the documents gathered from the
1999 audit comply with the treasury regulations. The Su-
preme Court has not favored this argument. See Angelus
Milling Co., 325 U.S. at 299.

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8 No. 06-2446
In Angelus Milling, Angelus Milling Company, a wheat
processor, was closely connected with a second company,
Niagra Falls Milling Company. The companies had the
same officers, employees, and majority stockholder. They
also had a joint bank account and a common set of books.
The companies filed joint processing tax returns. Angelus
Milling filed its own series of refund claims that did not
satisfy the treasury regulations. While Angelus Milling’s
claims were pending, Niagra filed its own sufficient re-
fund claim. The IRS then denied Angelus Milling’s claim,
and the company brought suit arguing that its refund
claims, taken together with Niagra’s claim, furnished all
of the data required by the treasury regulations. The
Supreme Court held that “the protection of the revenue
authorizes the Commissioner to demand information in a
particular form, and he is entitled to insist that the form
be observed so as to advise him expeditiously and accu-
rately of the true nature of the claim.” Id.
Likewise, in this case, the Commissioner was entitled
to require that the Kikaloses follow the treasury regula-
tions and “focus attention on the merits of the dispute.”
Martin, 833 F.2d at 660-61. Consequently, the district
court did not err by finding that the Kikaloses did not
file an informal refund claim.
III. C ONCLUSION
For the foregoing reasons, we A FFIRM the district court’s
ruling.

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No. 06-2446 9
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—3-14-07

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