## Facts

- Donald A. Statland and Iris R. Statland alleged they overpaid their federal income tax for 1976 and sought a refund of $8,929.
- In 1992, they filed a refund suit in the Northern District of Illinois under 28 U.S.C. § 1346(a)(1), based on proposed adjustments to their 1976 return (including partnership income and an additional dependency exemption).
- After the refund suit was filed, the IRS issued a notice of deficiency for 1976 asserting an underpayment of $4,023.
- The Statlands then petitioned the U.S. Tax Court to redetermine their 1976 tax liability.
- The government moved to dismiss the district court refund action for lack of subject-matter jurisdiction under 26 U.S.C. § 7422(e).
- A magistrate judge (by consent) dismissed the refund suit under Rule 12(b)(1), and the Statlands appealed.

## Issues

1. Whether 26 U.S.C. § 7422(e) required the district court to lose jurisdiction over a pending refund suit once the taxpayers, after receiving a notice of deficiency, filed a Tax Court petition for the same tax year.
2. Whether the district court erred by dismissing on jurisdictional grounds without reaching the merits of the claimed refund and despite the taxpayers’ objections to the dismissal process.

## Decision

- The Seventh Circuit affirmed the dismissal for lack of subject-matter jurisdiction.
- The court held that § 7422(e) applied because (1) a refund suit was pending, (2) a notice of deficiency issued for the same year, and (3) the taxpayers filed a Tax Court petition for that year.
- Once the Tax Court petition was filed, the district court was statutorily divested of jurisdiction over the refund action for the same taxable year.
- The court rejected arguments that the district court should have addressed substantive tax issues, because jurisdiction is a threshold requirement.

## Legal Principles

- 26 U.S.C. § 7422(e) coordinates refund litigation and deficiency litigation by preventing simultaneous proceedings in district court and the Tax Court concerning the same taxable year.
- When § 7422(e) is triggered by a taxpayer’s post-deficiency Tax Court petition, the district court must dismiss (or otherwise relinquish) the refund suit for lack of jurisdiction as to that year.
- Federal courts may not decide the merits of a refund claim when Congress has removed subject-matter jurisdiction; jurisdictional questions must be resolved first.

## Conclusion

Because the Statlands filed a Tax Court petition for 1976 after the IRS issued a deficiency notice while their district court refund suit was pending, § 7422(e) required the district court to lose jurisdiction, and dismissal under Rule 12(b)(1) was proper.


Statland v. United States, 178 F.3d 465 (7th Cir. 1999)