The Claims Court held that “[t]he independent contractor theory [could not] be said to be ‘fairly contained within the refund claim’ [originally filed in 2001] and [wa]s [therefore] barred by the variance doctrine.” Cencast II, 94 Fed.Cl. at 441 (citing Blakley v. United States, 593 F.3d 1337, 1342 (Fed.Cir.2010)). The Claims Court considered and rejected Cencast's arguments that various exceptions to the variance doctrine applied, see id. at 441–47, and also held that, even if the variance doctrine had not barred the independent contractor theory, “the [c]ourt would nonetheless [have] preclude[d] [Cencast] from injecting [the theory] into the litigation at th[at] point because it simply c[ame] too late,” id. at 448–49.

The Claims Court held that "[t]he independent contractor theory [could not] be said to be 'fairly contained within the refund claim' [originally filed in 2001] and [wa]s [therefore] barred by the variance doctrine." Cencast II, 94 Fed. Cl. at 441 (citing Blakley v. United States, 593 F.3d 1337, 1342 (Fed. Cir. 2010)). The Claims Court considered and rejected Cen-cast's arguments that various exceptions to the variance doctrine applied, see id. at 441-47, and also held that, even if the variance doctrine had not barred the independent contractor theory, "the [c]ourt would nonetheless [have] preclude[d] [Cencast] from injecting [the theory] into the litigation at th[at] point because it simply c[ame] too late," id. at 448-49.

Thus, when the IRS denies a taxpayer's refund claim, the taxpayer is limited in subsequent litigation to the grounds contained in the refund claim by the “substantial variance doctrine.” Blakely v. United States, 593 F.3d 1337, 1342 (Fed. Cir. 2010); see also Charter Co. v. United States, 971 F.2d 1576, 1579 (11th Cir. 1992) (explaining that only “grounds fairly contained within the refund claim” may be raised in a refund suit).

, the taxpayer is limited in subsequent litigation to the grounds contained with the refund claim. Blakely v. United States, 593 F.3d 1337, 1342 (Fed. Cir. 2010).

Under the EAJA, "'position of the United States'" means, in addition to the position taken by the United States in the civil action, the action or failure to act by the agency upon which the civil action is based . . . .", and whether that position was substantially justified "shall be determined on the basis of the record (including the record with respect to the action or failure to act by the agency upon which the civil action is based) which is made in the civil action for which fees and other expenses are sought." 28 U.S.C. §§ 2412(d)(2)(D), 2412(d)(1)(B); see also Blakley v. United States, 593 F.3d 1337, 1341 (Fed. Cir. 2010) ("In the context of EAJA claims, we have held that the 'position of the United States' in judicial proceedings refers to the United States' position 'throughout the dispute, including not only its litigating position but also the agency's administrative position.'" (citation omitted)). Respondents assert that they had two positions in this matter: "that removal proceedings precluded judicial review of Plaintiff's naturalization application," and "that removal proceedings were ongoing because the Notice to Appear was valid."

The government's conduct must be substantially justified "both in its litigation position and its posture during the underlying administrative proceedings." Id.; accord Blakley v. United States, 593 F.3d 1337, 1341 (Fed. Cir. 2010) ("In the context of EAJA claims, we have held that the 'position of the United States' in judicial proceedings refers to the United States' position 'throughout the dispute, including not only its litigating position but also the agency's administrative position.'" (quoting Doty v. United States, 71 F.3d 384, 386 (Fed. Cir. 1995))); Chiu v. United States, 948 F.2d 711, 715 (Fed. Cir. 1991) ("[T]rial courts are instructed to look at the entirety of the government's conduct.").

The government's conduct must be substantially justified “both in its litigation position and its posture during the underlying administrative proceedings.” Id.; accord Blakley v. United States, 593 F.3d 1337, 1341 (Fed.Cir.2010) (“In the context of EAJA claims, we have held that the ‘position of the United States' in judicial proceedings refers to the United States' position ‘throughout the dispute, including not only its litigating position but also the agency's administrative position.’ ” (quoting Doty v. United States, 71 F.3d 384, 386 (Fed.Cir.1995))); Chiu v. United States, 948 F.2d 711, 715 (Fed.Cir.1991) ( “[T]rial courts are instructed to look at the entirety of the government's conduct.”). This showing may be based on the government's decision to file and/or maintain the lawsuit or by demonstrating “an abuse of the judicial process in the method of prosecution.” S.E.C. v. Cuban, 2009 WL 4544178, *2 (N.D.Tex. Dec. 4, 2009) (citing Batson v. Neal Spelce Assocs., Inc., 805 F.2d 546, 550 (5th Cir.1986)).

For example, taxes on firearms are not imposed on devices that “the Secretary finds” have certain characteristics, sec. 5845(a), (f). Pursuant to 27 C.F .R. sections 479.24 and 479.25 (2009), a taxpayer requests such a determination from the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), but before ATF makes any ruling, the manufacturer may claim and sue for a refund of firearms tax, see, e.g., Blakley v. United States, 593 F.3d 1337 (Fed.Cir.2010); 27 C.F.R. sec. 70.123 (2009). Congress certainly committed to ATF the duty of classifying firearms, but ATF's ruling is not a prerequisite to a taxpayer's claim and is not immune from the taxpayer's challenge.

Pierce v. Underwood, 487 U.S. 552, 565 (1988). In that respect, the court must determine "whether the government's overall position [both prior to and during the litigation] had a reasonable basis in both law and fact," Chiu v. United States, 948 F.2d 711, 715 (Fed. Cir. 1991); see also Blakley v. United States, 593 F.3d 1337, 1341 (Fed. Cir. 2010) ("In the context of EAJA claims, we have held that the 'position of the United States' in judicial proceedings refers to the United States' position 'throughout the dispute, including not only its litigating position but also the agency's administrative position.'" (quoting Doty v. United States, 71 F.3d 384, 386 (Fed. Cir. 1995))). The government's position "can be justified even though it is incorrect."

Pierce v. Underwood, 487 U.S. 552, 565 (1988) (citations omitted). The Government's overall position "both prior to and during the litigation" must have a reasonable basis in both law and fact. United Partition Sys., 95 Fed. Cl. at 50 (citing Chiu v. United States, 948 F.2d 711, 715 (Fed. Cir. 1991) and Blakley v. United States, 593 F.3d 1337, 1341 (Fed. Cir. 2010)). The key inquiry is "not what the law now is, but what the Government was substantially justified in believing it to have been."