Region IV Mental Health Services v. United States, No. 3:26-CV-12-RPC-JMV, 2026 WL ___ (N.D. Miss. July 1, 2026)

The controversy in Region IV Mental Health Services v. United States centers on the Employee Retention Credit (ERC) provided under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Pub. L. 116-136, 134 Stat. 281 (2020). Specifically, the plaintiff, Region IV Mental Health Services (Region IV), sought refundable tax credits for employment taxes for the first, second, and third quarters (Q1, Q2, and Q3) of 2021.

On October 24, 2022, Region IV filed administrative refund claims totaling $5,381,683.35 for these three quarters. On June 5, 2023, the Internal Revenue Service (IRS) issued a refund for Q2 2021 in the amount of $1,990,593.87. However, following a subsequent review, the IRS issued a letter on April 17, 2024, disallowing the ERC refund claims for all three quarters. Region IV protested this disallowance. While the taxpayer claimed the IRS did not directly communicate the final decision, the IRS issued an assessment for Q2 2021 to recover the previously refunded amount. The IRS subsequently provided letters stating the protests were denied and notifying the taxpayer of the right to challenge the determination in a United States District Court or the United States Court of Federal Claims.

Taxpayer Request for Relief

Region IV initiated the present lawsuit seeking two primary forms of relief. First, the taxpayer requested a judgment for the refund of the disallowed ERCs for Q1, Q2, and Q3 of 2021. Second, the taxpayer sought a declaratory judgment that it was "entitled to keep the money the IRS previously paid it on Q2 2021, without penalty."

Jurisdictional Analysis Regarding Administrative Claims

The United States moved to dismiss the Q2 refund claim under Federal Rule of Civil Procedure 12(b)(1), arguing a lack of subject-matter jurisdiction. The government contended that once the IRS paid the Q2 refund, the original administrative claim was extinguished. Consequently, the government argued that the subsequent reversal of the credit and the issuance of a new assessment created a new tax liability, which required a new administrative claim before a suit could be filed.

To support this position, the government relied upon Bilzerian v. United States, 86 F.3d 1067 (11th Cir. 1996) and United States v. Wilkes, 946 F.2d 1143 (5th Cir. 1991), which hold that once a tax assessment is paid, it is extinguished and cannot be revived by an erroneous refund.

The Court rejected this application of the law, distinguishing the present facts from the cited precedents. The Court noted that Bilzerian and Wilkes addressed whether a tax liability could be resurrected after an erroneous refund, not whether a contest of a disallowance remains viable after a new assessment. The Court observed that Region IV had followed the necessary procedural steps: filing a claim, receiving a refund that was later disallowed, appealing that disallowance, and receiving a denial of that appeal.

The Court ruled that the taxpayer had met the jurisdictional prerequisites, stating: "Requiring Region IV to file a new administrative claim for Q2 when the IRS has already denied an administrative claim for Q2, simply because a new assessment was issued for the very money at issue in the already denied administrative claim, would—as well as defying the circular logic it would require—be ineffective, a waste of time and, most importantly, not required by law."

Declaratory Judgment and the Anti-Injunction Act

The Court addressed the taxpayer's request to retain the Q2 refund via a declaratory judgment. The government argued that the Declaratory Judgment Act (DJA) and the Anti-Injunction Act barred such relief.

The Court agreed, citing 28 U.S.C. § 2201(a), which explicitly excludes controversies "with respect to Federal taxes." Furthermore, the Court referenced the Anti-Injunction Act, 26 U.S.C. § 7421(a), which provides that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person." Accordingly, the Court granted the Motion to Dismiss regarding the request for a declaratory judgment.

Pleading Standards and the Shotgun Pleading Argument

Under Federal Rule of Civil Procedure 12(b)(6), the government sought dismissal on the grounds that the complaint was a "shotgun pleading." The government argued that Region IV failed to link specific government orders to the suspension of its business in each specific tax quarter, thereby failing to plead proximate cause. The government relied on JMP Restaurant, LLC v. United States, No. 1:24-cv-357, 2026 WL 561147 (E.D. Tenn. Feb. 27, 2026), to argue that a plaintiff must show how a specific government order caused a specific suspension.

The Court disagreed, finding the reasoning in Plastic Film, LLC v. United States, 5:25-cv-20-DCB-LGI, 2026 WL 144343 (S.D. Miss. Jan. 20, 2026), more applicable to a motion to dismiss. In Plastic Film, the court held that there is no requirement for such specificity at the pleading stage.

The Court adopted this reasoning, stating: "Region IV is not required to plead with specificity the government orders that caused its alleged suspensions at this stage." The Court further noted that determining whether referenced orders substantiate eligibility "presents a fact-intensive issue appropriately addressed through discovery or at summary judgment."

Court Conclusions

The Court granted the Motion to Dismiss in part and denied it in part. Specifically, the Court dismissed the taxpayer's request for a declaratory judgment to retain the Q2 refund without penalty due to the limitations of the Declaratory Judgment Act and the Anti-Injunction Act. However, the Court denied the motion to dismiss regarding the refund claims for Q1, Q2, and Q3, finding that the taxpayer had satisfied the jurisdictional requirements for the Q2 claim and had sufficiently pleaded its claims under Rule 12(b)(6).

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