A group of taxpayers are trying to revive a suit against the IRS that challenges the procedure the agency set up for the collection of a refund of a tax on phone calls that netted the government billions of dollars.
The full U.S. Court of Appeals for the D.C. Circuit heard argument today in the dispute, which centers on whether federal law bars district judges from issuing injunctions against the IRS.
The plaintiffs’ suit challenging agency procedure was dismissed in March 2008. A divided D.C. Circuit panel revived it and sent it back to the trial court for further hearings under the Administrative Procedures Act. At the Justice Department’s request, the appeals court granted en banc review.
Arguing for the plaintiffs, Akin Gump Strauss Hauer & Feld partner Thomas Goldstein said the suit against the IRS should be allowed to proceed in the U.S. District Court for the District of Columbia. The suit, he said, challenges what he has called a burdensome and unlawful IRS process for taxpayers to receive a refund on long-distance phone calls.
The plaintiffs, Goldstein said, should not be first forced to follow that procedure—which requires filing a tax form and, in some cases, the filing of additional documents—in order to challenge its validity. No class has been certified in the litigation.
Typically, the appeals court hears disputes after there has been “final” agency action. There’s no such agency determination in this case.
Chief Judge David Sentelle questioned whether a ruling in favor of the plaintiffs would open the door to other litigation challenging agency procedure. “That’s a precedent that could have grave implications for the court,” Sentelle said. “We don’t just have the IRS. We have all of the agencies.”
Justice Department lawyer Gilbert Rothenberg, a Tax Division supervisor, opened his argument with a joke about the complexity of the tax system and the simplicity of seeking a refund of the telephone tax.
Rothenberg said the plaintiffs--and the millions of potential plaintiffs--have until 2012 to file for a refund. Check a box on the 2006 tax form and the IRS will return the money, which typically amounts to under $100. A person needs documentation to show entitlement to a greater amount. Individuals who want to challenge the IRS refund determination need to file what Rothenberg called a “proper” refund suit.
Judge David Tatel seemed skeptical the process is a simple one. The government, he noted, has returned about half of the estimated $8 billion owed to consumers. “Nobody has incentive to do it unless you are a big corporation,” Tatel said. Sentelle followed up, saying to Rothenberg: “This program was to make it easier?”
Rothenberg at one point noted there is no requirement that the IRS provide a tax refund in general, a move that he acknowledged would not sit well with Congress. To get a refund in that situation, he said, a taxpayer must file a refund suit.
In an interesting twist to the oral argument, Goldstein's opponent was one of his former law professors. Rothenberg taught Goldstein at the American University Washington College of Law. Goldstein and Rothenberg shook hands after the hourlong hearing.