## Facts

- Malcolm Decker and Ms. Decker entered into a separation agreement in 1969 requiring Malcolm to make support payments to Ms. Decker.
- Malcolm failed to make the required payments, resulting in multiple rounds of litigation over support and maintenance.
- In 1985, the Deckers settled: Ms. Decker’s maintenance claims would be discharged by Malcolm’s transfer to her of a parcel of Connecticut real property, with the understanding that she would sell it for at least $100,000.
- In December 1985, Malcolm recorded a deed conveying the Connecticut property to Ms. Decker.
- In February 1986, Ms. Decker sold the property and realized net proceeds of about $113,000.
- Section 71 of the Internal Revenue Code, governing alimony and separate maintenance, had been amended in 1984 (often described as “old § 71” versus “new § 71”).
- Ms. Decker did not report the $113,000 proceeds as alimony income.
- The IRS determined the proceeds were includible as alimony income for 1985 and assessed a deficiency and interest.
- Ms. Decker paid the assessment and filed an administrative claim for refund, but the claim did not specify whether she relied on old § 71 or new § 71 as the basis for refund.
- The IRS did not act on the refund claim, and Ms. Decker filed a refund suit in the U.S. District Court for the District of Connecticut.
- In district court briefing (in opposition to a government motion), Ms. Decker argued for the first time that amended (“new”) § 71 governed and supported her entitlement to a refund.
- The United States argued that Ms. Decker could not raise new § 71 in court because she did not raise it in her administrative refund claim, invoking the refund-claim rules and the “substantial variance” doctrine.

## Issues

1. Whether a taxpayer in a refund suit is barred from arguing that amended I.R.C. § 71 applies when her administrative refund claim did not expressly raise that statutory basis.
2. Whether Ms. Decker’s administrative claim gave the IRS sufficient notice of the nature of her refund ground to permit litigation of the amended-§ 71 theory.

## Decision

- The court rejected the government’s attempt to bar Ms. Decker from relying on amended (“new”) § 71.
- The court concluded that Ms. Decker’s reliance on new § 71 did not amount to an impermissible “substantial variance” from the grounds presented in her refund claim.
- The court treated Ms. Decker’s new-§ 71 position as a legal theory concerning the same transaction and facts identified in the refund claim—namely, the IRS’s treatment of the property transfer/sale proceeds as taxable alimony—rather than a new claim based on different operative facts.

## Legal Principles

- A tax refund suit against the United States generally requires a timely administrative claim for refund before filing suit. (26 U.S.C. § 7422(a))
- Treasury regulations require the refund claim to state in detail each ground for refund and facts sufficient to inform the IRS of the basis for the claim. (Treas. Reg. § 301.6402-2(b)(1))
- Under the “substantial variance” doctrine, a taxpayer ordinarily may not present in court a refund ground that materially differs from what was presented to the IRS, because the IRS must have a fair chance to consider the claim administratively.
- A shift in legal reasoning in court is less likely to be barred when it rests on the same core facts and the same challenged assessment identified in the administrative claim, and when the administrative claim adequately alerted the IRS to the nature of the dispute.

## Conclusion

Decker v. United States held that Ms. Decker was not precluded in her refund action from arguing that amended I.R.C. § 71 governed the tax treatment of proceeds she received from a marital settlement property transfer, even though her administrative refund claim did not expressly identify “new § 71,” because her court theory did not materially depart from the factual basis and dispute presented to the IRS.


Decker v. United States, 93-2 U.S. Tax Cas. (CCH) ¶ 50408 (1993)