Another Battle in the Spanish-American War?

Remember the Maine? That was the battle cry for the Spanish-American War. That war was fought in 1898 and was funded by an excise tax on a then luxury, telephone service.

Move forward 90 years. The excise tax was still being collected, but now it was also collected on long distance service and other telecommunications devices such as cellular phones. Business entities began to challenge the tax.

Let’s move forward again, now to 2006. The IRS has lost battles challenging the tax in thirteen federal appeals courts. The IRS folds their hand, and announces that refunds will be given out in 2007 (with the filing of your 2006 tax returns). And you (and your businesses) likely filed claims for the refunds, and you received them a couple of years ago.

But not everyone was happy with the IRS’ procedure to get the refunds. A Milwaukee tax consultant, Neiland Cohen, EA, didn’t like the IRS’ procedure and decided to sue the agency under the Administrative Procedures Act (APA). The District Court dismissed his claims. However, the DC Circuit last week ruled on Mr. Cohen’s appeal, and the case has been reinstated.

Here is an excerpt from the decision:

[T]he IRS still has the chutzpah to chide taxpayers for failing to intuit that neither the agency’s express instructions nor the warning on its forms should be taken seriously. According to the IRS, taxpayers should have realized all the options the Service said were closed to them—using forms that proclaim their inapplicability in bold letter or filing informal claims that could not be perfected—were nonetheless sufficient to fulfill their administrative refund obligations and to serve as a prerequisite to judicial review. Not hardly. Taxpayers bear a heavy burden when pursuing refund claims, but we have yet to demand clairvoyance. …

In sum, the IRS unlawfully expropriated billions of dollars from taxpayers, conceded the illegitimacy of its actions, and developed a mandatory process as the sole avenue by which the agency would consider refunding its ill-gotten gains. It cannot avoid judicial review of that process by simply designating it a policy statement. Notice 2006-50 constituted a final agency action that aggrieved taxpayers by hindering their access to court. Accordingly, we reverse the district court and remand Appellants’ APA claims for further consideration. …

I’d expect the IRS to appeal this case to the Supreme Court. However, even if the IRS loses Mr. Cohen faces a long battle. He still must prove his claims in District Court, and then likely face appeals on those claims. Still, it’s nice to see arbitrariness at the IRS slapped down by the Courts.

Hat Tip: TaxProf Blog
News Coverage: Bloomberg

Comments are closed.