Intermountain Electronics, Inc. v. United States

July 16, 2021 | Jill N. Parrish, District Judge | District of Utah | Docket No. 2:20-cv-00501-JNP 

Short Summary 

This case involves Intermountain Electronics, Inc., a Utah-based company, suing the United States after the IRS denied its claim for a federal tax refund based on the Research and Development (R&D) tax credit for 2010 and 2011. Intermountain argued it was entitled to over $1.7 million in credits, but the IRS said the company’s work didn’t qualify as research and that Intermountain hadn’t provided enough proof. The court ruled that it had the authority to hear the case because the IRS had fully investigated the claim, but dismissed Intermountain’s complaint for lacking specific supporting facts, while giving Intermountain the opportunity to submit a more detailed amended complaint. 

Key Issues 

• Did the court have subject-matter jurisdiction to hear the case?

  The government argued that Intermountain hadn’t properly filed its tax refund claim with the IRS, which would mean the court lacked the authority to decide the case. The court needed to determine whether the IRS’s full investigation of Intermountain’s claim meant it had waived certain technical requirements, allowing the court to have jurisdiction. 

• Did Intermountain’s complaint state a valid legal claim for relief?

  The government also argued that Intermountain’s lawsuit did not include enough specific facts to plausibly show it was entitled to the R&D tax credit. The court had to decide whether Intermountain’s complaint provided sufficient detail to support its request for a tax refund or if it was too vague and needed to be amended.

Primary Holding 

The court ultimately decided that it had the authority (subject-matter jurisdiction) to hear Intermountain’s case because the IRS had fully investigated and denied the company’s tax refund claim on its merits, which meant the IRS had waived strict technical filing requirements. However, the court dismissed Intermountain’s complaint because it did not include enough specific facts to show why the company was entitled to the R&D tax credit—the complaint relied mostly on broad statements and legal conclusions rather than details about its activities. The court allowed Intermountain the opportunity to file an amended complaint with more factual detail explaining the basis for its tax refund claim and how the IRS was wrong to deny it. 

Specific Rulings

1. Motion to Dismiss for Lack of Subject-Matter Jurisdiction 

   • Ruling: The court denied the government’s motion to dismiss for lack of subject-matter jurisdiction.he court denied the government’s motion to dismiss for lack of subject-matter jurisdiction.
   • Reasoning: The government argued that Intermountain hadn’t properly filed its tax refund claim, which would mean the court couldn’t hear the case. However, the court found that the IRS had spent five years investigating Intermountain’s claim, repeatedly requested and reviewed information, and then issued a detailed denial based on the merits. Because the IRS fully examined and ruled on the substance of the claim, the court said the IRS had effectively waived any technical deficiencies in how Intermountain filed its claim, so the court did have authority to hear the case. 
     
     

2. Motion to Dismiss for Failure to State a Claim 

   • Ruling: The court granted the government’s motion to dismiss for failure to state a claim, but allowed Intermountain to amend its complaint. 
     
   • Reasoning: The court found that Intermountain’s complaint was too vague, relying mostly on general statements that repeated the legal requirements for the R&D tax credit without offering enough details about what activities or facts actually supported its claim for a refund. The law requires more than just stating conclusions—a complaint must give enough specific information to show a plausible right to relief. However, rather than ending the case, the court allowed Intermountain to submit a new, amended complaint with more detail about the specific facts behind its tax credit claim and why the IRS was wrong to deny it.

Helpful Takeaways for Taxpayers

• Be thorough and specific in tax refund claims 

  When seeking tax credits or refunds, provide detailed factual support—such as clear descriptions of qualifying activities and supporting documents—to strengthen your claim and meet legal requirements. 

• IRS review can waive some technical filing defects 

  If the IRS fully investigates and makes a decision on your claim, minor technical errors in your initial filing may not prevent your case from being heard in court. 

• Complaints must include concrete facts, not just legal conclusions 

  If you take a dispute to court, your complaint should do more than simply state that you qualify for a tax benefit. Include specific facts that show why you are entitled to the credit or refund. 

• Work closely with advisors and document everything 

  Collaborate with tax professionals and keep thorough records of your activities, expenses, and justifications for tax credits to help you respond to IRS inquiries and support your case if challenged.