Pellegrino v. United States, No. 1:26-cv-00403, 2026 WL (Fed. Cl. Aug. 20, 2026)

In Pellegrino v. United States, No. 1:26-cv-00403 (Fed. Cl. Aug. 20, 2026), Judge Philip S. Hadji of the United States Court of Federal Claims addressed a pro se tax refund action that, while ultimately dismissed on jurisdictional grounds, raises several issues of practical significance for tax professionals who advise clients on refund claims, withholding credits, and the evidentiary standards governing Forms 1099-B and 1099-MISC.

Plaintiff Mark Pellegrino alleged that he filed his individual income tax return for tax year 2024 in April 2025, submitting a Form 1040, a Schedule C for Mark Pellegrino LLC (a real estate business), a Form 8949 reporting two short-term transactions, and a Schedule D summarizing those transactions. The Form 1040 reported $0 in wages, the standard deduction, and $48,220 in federal tax withheld. The Schedule C reflected $110,417 in gross income and $85,000 in total expenses for the LLC, yielding $25,417 in tentative profit. The Form 8949 included two transactions described as “Real Money Monitized [sic],” one with cost and proceeds of $42,000 and another with cost and proceeds of $66,500, producing neither capital gains nor losses.

The IRS determined that Plaintiff would owe $1,083 in taxes, based on $10,817 in taxable income ($25,417 in adjusted gross income from the LLC’s tentative business profit, minus the standard deduction of $14,600). Initially, the IRS Record of Account reflected the $48,220 in withholdings Plaintiff had listed on his return, but the IRS subsequently disallowed those withholdings “because it could not verify that it received the Forms 1099 or the withholdings claimed by [P]laintiff.” The IRS Wage and Income Transcript listed three Forms 1099, none of which aligned with the forms Plaintiff provided in this case, and the Government represented that the IRS never received the relevant Forms 1099.

The Taxpayer’s Request for Relief

Plaintiff sought a refund of $48,220, challenging the IRS’s handling of his 2024 tax return. He also moved to proceed in forma pauperis (IFP). In support of his claimed withholding credits, Plaintiff submitted two Forms 1099-B and a corrected Form 1099-MISC. The first Form 1099-B, involving a transaction from Truist Bank to Mark Pellegrino LLC, listed $15,960 as federal income tax withheld. The second Form 1099-B, involving a transaction from Mark Pellegrino LLC to Chime Financial, Inc., listed no federal income tax withholdings, $4,200 in “Proceeds,” and $42,000 as “Bartering.” The corrected Form 1099-MISC, involving a transaction from Mark Pellegrino Estate to Mark Pellegrino LLC, listed $26,500 in federal income tax withholdings and $110,416.67 in “Other income.”

In total, these three forms listed $42,460 in federal withholdings (or $46,660 if the “Proceeds” figure were reinterpreted as withholdings), which was internally inconsistent with the $48,220 Plaintiff reported on his tax return.

Jurisdictional Framework and the Full Payment Requirement

The Court of Federal Claims is a court of limited jurisdiction, and its jurisdiction is generally defined by the Tucker Act, 28 U.S.C. § 1491. As the Court noted, citing Southfork Sys., Inc. v. United States, 141 F.3d 1124, 1132 (Fed. Cir. 1998), the Tucker Act grants the Court “jurisdiction to render judgment upon any claim against the United States founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States . . . in cases not sounding in tort.” However, as Smith v. United States, 709 F.3d 1114, 1116 (Fed. Cir. 2013) makes clear, “[t]he Tucker Act does not, of itself, create a substantive right enforceable against the United States . . . the plaintiff must identify a separate contract, regulation, statute, or constitutional provision that provides for money damages against the United States.”

The Court has jurisdiction to adjudicate claims for a federal tax refund under 28 U.S.C. §§ 1491 and 1346(a)(1), as confirmed in Ledford v. United States, 297 F.3d 1378, 1382 (Fed. Cir. 2002). However, the critical jurisdictional prerequisite is the full payment requirement. As the Court stated: “To bring a suit for tax refund in this Court, a taxpayer must first pay the assessed tax deficiency in full.” This requirement, rooted in Flora v. United States, 357 U.S. 63, 75-76 (1958), is jurisdictional in nature, as held in Diversified Grp. Inc. v. United States, 841 F.3d 975, 981 (Fed. Cir. 2016), and applies to tax refund suits brought under Section 1491, per Shore v. United States, 9 F.3d 1524, 1526 (Fed. Cir. 1993).

The Flora decision, delivered by Chief Justice Warren, established that “a taxpayer must pay the full amount of an income tax deficiency assessed by the Commissioner of Internal Revenue before he may challenge its correctness by a suit in a federal district court for refund under 28 U.S.C. § 1346(a)(1).” The Supreme Court traced this requirement through the legislative history of what is now 26 U.S.C. § 7422(a), which provides that “[n]o suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Secretary or his delegate.” The Court in Flora emphasized that this “pay first and litigate later” principle, first articulated in Cheatham v. United States, 92 U.S. 85 (1875), had been “reinforced by the rule that no suit can be maintained for the purpose of restraining the assessment or collection of any tax” (26 U.S.C. § 7421) and by the exclusion of federal tax controversies from the Federal Declaratory Judgments Act (28 U.S.C. § 2201).

The Presumption of Correctness of the Commissioner’s Determination

A second critical legal principle the Court applied is the presumption of correctness afforded to the Commissioner’s tax determinations. Citing KFOX, Inc. v. United States, 510 F.2d 1365, 1369 (Ct. Cl. 1975), the Court observed that “[t]here is a strong presumption that the assessment of taxes owed as determined by the Commissioner of Internal Revenue is correct.” The KFOX court, in turn, traced this principle to Welch v. Helvering, 290 U.S. 111, 115 (1933), and elaborated on its operation: “In order to overcome this presumption on appeal the burden is on the taxpayer to offer substantial evidence as to the wrongfulness of the Commissioner’s determination.” Once the taxpayer meets this burden, “the presumption disappears and the court must resolve the question upon the basis of all of the evidence before it,” per Helvering v. Taylor, 293 U.S. 507 (1935).

The Pellegrino Court further noted, citing Est. of Armitage v. United States, 176 Fed. Cl. 199, 203 (2025), that a plaintiff’s “self-assessed tax liability . . . does not eclipse the IRS’s official assessment.” This is a critical distinction for tax professionals: a taxpayer’s good-faith belief that no tax is owed does not satisfy the Flora requirement. The Court made this explicit: “Flora requires not merely that Plaintiff alleges that he has paid, but that he must actually pay the assessed tax. It does not matter that Plaintiff argues he should have no tax liability.”

Application of the Law to the Factual Record

Applying these principles, the Court found that Plaintiff’s argument that the Flora requirement was satisfied by the IRS’s initial recording of his claimed withholdings was unpersuasive. The Court rejected his contention that the IRS “cannot create a debt by deleting a verified credit,” noting that the IRS Record of Account reflected that the withholding credit was eliminated because the IRS could not verify it. The IRS Wage and Income Transcript listed three Forms 1099, none of which aligned with the forms Plaintiff provided, and the Government represented that the IRS never received the relevant Forms 1099. This left Plaintiff with an unpaid tax deficiency of $1,083 on his IRS Record of Account, which he had not paid.

The Court then turned to the sufficiency of Plaintiff’s evidentiary support for the claimed withholdings, identifying two primary deficiencies. First, the Government raised “compelling objections to the authenticity of the forms.” The second Form 1099-B listed Mark Pellegrino LLC as the payer and Chime Financial, Inc. as the recipient, which the Court found irregular: “When an individual sells an asset, they are the one receiving income from that sale, from which taxes may be withheld on their behalf.” Moreover, both Forms 1099-B, allegedly from different financial institutions, were prepared on Tax1099.com and involved assets described as “Real Money Monetized,” which the Court noted is “an unknown asset class.”

Second, and most critically, the Court identified “a fatal flaw”: “Plaintiff’s Tax Identification Number (TIN) is not listed on any of these forms, and he is not listed in his individual capacity as a party to any of the transactions.” The Court explained: “Because Plaintiff is not identified as a party to the transactions, and his personal TIN is not listed, the forms do not support any inference that any money was withheld on Plaintiff’s behalf for federal taxes.” The Court’s footnote further detailed that the last four digits of the recipient’s TIN on the Truist Bank 1099-B matched the employer identification number associated with Mark Pellegrino LLC, not Plaintiff’s individual Social Security number, and the Chime Financial 1099-B listed yet a different TIN.

The Court concluded: “Because the IRS says it has not received any withholdings from Plaintiff, and Plaintiff has not produced any evidence that he made any payments to the IRS for the 2024 tax year, this claim must be dismissed for lack of jurisdiction.”

The Maliciousness Finding and Denial of IFP Status

Beyond the jurisdictional dismissal, the Court independently found the action to be malicious under 28 U.S.C. § 1915(e)(2)(B)(i), which mandates dismissal of an IFP action if it is “frivolous or malicious.” Citing Crisafi v. Holland, 655 F.2d 1305, 1309 (D.C. Cir. 1981), the Court defined a malicious complaint as one that is “plainly abusive of the judicial process,” and quoting Hardwick v. Brinson, 523 F.2d 798, 800 (5th Cir. 1975), observed that “[n]o one, rich or poor, is entitled to abuse the judicial process.”

The Court noted that this was Plaintiff’s second case in the Court of Federal Claims involving “suspicious, unexplained transactions involving entities that bear his name.” The prior matter, Pellegrino v. United States, 178 Fed. Cl. 759 (2025), had been dismissed for failure to state a claim because Plaintiff “did not provide information to substantiate the millions of dollars he claimed to be owed.” The Court found that Plaintiff was “trying again, seeking a smaller amount, but still never explaining the basis for his alleged transactions,” and concluded: “These claims abuse the judicial process and waste this Court’s resources.”

The Court accordingly denied Plaintiff’s IFP application, noting that “Receiving IFP status is a privilege, not a right, and the decision to allow a litigant to proceed in such status is committed to the courts’ sound discretion,” per Nagy v. United States, No. 23-0505, 2023 WL 4677033, at *2 (Fed. Cl. July 20, 2023). The Court also observed that “at no point in this case or his previous case has Plaintiff attempted to explain the incongruence between his indigent status and the purportedly significant transactions being conducted by entities bearing his name.”

Practical Implications for Tax Professionals

Several aspects of this decision warrant attention for CPAs and enrolled agents who prepare tax returns and advise clients on refund claims.

First, the Flora full payment requirement remains an absolute jurisdictional bar. A client who believes the IRS has erroneously disallowed a withholding credit cannot file a refund suit in the Court of Federal Claims or a federal district court until the assessed deficiency is paid in full. The fact that the taxpayer’s own return reported a net refund position does not alter this analysis. As the Court stated, the taxpayer’s “self-assessed tax liability . . . does not eclipse the IRS’s official assessment.” Tax professionals should advise clients that the proper pre-litigation remedy for a disputed deficiency is a petition to the United States Tax Court under 26 U.S.C. § 6213, which does not require prior payment, or, if the Tax Court window has closed, payment of the deficiency followed by a refund suit.
Second, the evidentiary standards for substantiating withholding credits are exacting. The Court’s analysis of the Forms 1099-B and 1099-MISC demonstrates that merely producing forms bearing dollar amounts designated as “federal tax withheld” is insufficient. The forms must be authentic, must identify the taxpayer by correct TIN in his individual capacity, and must be consistent with the IRS’s own records of received information returns. Tax professionals should ensure that any Forms 1099 relied upon for withholding credits are properly issued by the withholding agent, bear the correct recipient TIN, and are consistent with the IRS transcript. The Court’s observation that both 1099-B forms were prepared on a third-party website (Tax1099.com) and described an “unknown asset class” underscores the importance of verifying the provenance and substance of information returns before reporting the associated withholdings on a tax return.
Third, the presumption of correctness under KFOX and Welch places a substantial burden on the taxpayer to produce “substantial evidence” to overcome the Commissioner’s determination. In the context of withholding credits, this means the taxpayer must produce evidence that the IRS actually received the withheld funds, not merely that a form purporting to report such withholding exists. The Court’s finding that the IRS Wage and Income Transcript listed three Forms 1099 that did not match those submitted by Plaintiff was dispositive. Tax professionals should reconcile Forms 1099 reported on a client’s return against the IRS transcript before filing, and should advise clients of the consequences if the IRS cannot verify the underlying information returns.
Fourth, the Court’s maliciousness finding and denial of IFP status serve as a cautionary note regarding the use of the federal courts for claims that lack a factual foundation. The Court’s reference to the prior Pellegrino case, in which the taxpayer claimed millions of dollars in refunds based on similarly unexplained transactions, illustrates that repeated filings of substantively similar but unsupported claims will be treated as an abuse of the judicial process under 28 U.S.C. § 1915(e)(2)(B)(i).

Conclusion

The Pellegrino decision, while factually narrow, reaffirms several bedrock principles of federal tax litigation that tax professionals must keep in mind when advising clients on refund claims. The Flora full payment requirement is jurisdictional and non-waivable. The Commissioner’s assessment carries a strong presumption of correctness that can only be overcome by substantial evidence. Information returns must be authentic, properly identified, and consistent with the IRS’s records to support claimed withholding credits. And the federal courts will not serve as a forum for claims that are, in the Court’s words, “plainly abusive of the judicial process.” For the tax professional, the lesson is clear: before advising a client to pursue a refund claim in court, ensure that the deficiency has been paid in full, that the evidentiary record is complete and internally consistent, and that the claim is supported by verifiable documentation that will withstand the IRS’s presumption of correctness.

Prepared with assistance from LM Studio qwen/qwen3.6-27b.