TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Saturday, July 2, 2011

D.C. Cir.: IRS Can't Make Taxpayers Run 'Obstacle Course' to Get Refund

Blog of the Legal Times, Divided Appeals Court Rules Against IRS In Tax Refund Dispute:

A divided federal appeals court in Washington said a group of taxpayers will be allowed to challenge the procedure the IRS set up to refund billions of dollars collected through an unlawful tax on telephone calls. [Cohen v. United States, No. 08-5808) (D.C. Cir. July 1, 2011) (en banc)]

The full U.S. Court of Appeals for the D.C. Circuit voted 6-3 to send back to the trial court a dispute over whether the IRS refund procedure is unconstitutional. The 10 plaintiffs want an injunction ordering the IRS to craft a new refund method.

The appeals court did not take a stance on the merits of the IRS’s refund scheme, instead addressing only whether the court has oversight. The court ordered additional proceedings in the U.S. District Court for the District of Columbia. ...

At issue is whether the plaintiffs must first file refund claims with the IRS and then litigate their dispute in tax suits or whether the group of taxpayers can sue under the Administrate Procedure Act without taking any of the earlier steps. A report issued by the Treasury Inspector General for Tax Administration said the IRS illegally collected $8 billion between February 2003 and August 2006.

The six judges in the majority, including Janice Rogers Brown, who wrote the opinion for the court, rejected the IRS claim that the suit is barred because it seeks restraint of the assessment and collection of taxes. The IRS, the majority said, sees a world in which “no challenge to its actions is ever outside the closed loop of its taxing authority.”

“This suit is not about the excise tax, its assessment or its illegal collection. Nor is it about the money owed the taxpayers,” Brown said. “This suit is about the obstacle course, and the decisions made by the IRS while setting it up.”

Brown said the suit is permitted under the Administrative Procedure Act because it “questions the administrative procedures by which the IRS allows taxpayers to request refunds for the wrongfully collected excise tax.” ...

The IRS, Brown wrote, is no victim. The taxpayer plaintiffs “are not raiders in pursuit of an unwarranted windfall.” The plaintiffs, the court said, “are aggrieved citizens in search of accountability.”

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Perhaps rather than setting up any special procedure, the IRS should just put them on the same footing as any other individual seeking a refund -- full pay and then sue. Flora v. U.S., 362 U.S. 145 (1960)and I.R.C. sec. 6532(a), right?

Posted by: tax guy | Jul 3, 2011 6:06:49 AM

They are playing fast and loose with Postal Regulations, also. They are receiving mail on their premises, but delaying acknowledgement of receipt, to buy a few days free extra time. We have had Priority mail to the IRS take 16 days for delivery confirmation, when the tracking record shows the mail reaching the receiving post office in 24 hours. It's worthy of dead-beat trash.

Posted by: Lou Gots | Jul 5, 2011 6:24:06 AM

tax guy, it sounds like they already paid in full and this is them suing. If you read up there, the IRS already collected the 8 billion of dollars between 2003 and 2006 through an unlawful tax. This is about the process they have to go through to get the refund.

Posted by: luagha | Jul 5, 2011 10:04:31 AM