No Enforceable Right to IRS Appeals Review under TBOR (Facebook, Inc., DC Calif.)

A social media company did not have an enforceable right to IRS Appeals review of its tax case. Therefore, the taxpayer lacked standing to compel the IRS to refer the case to Appeals for alternative dispute resolution. In addition, the court could not review the IRS’s decision not to refer the case to Appeals. That decision was not reviewable under the Administrative Procedure Act.

Background

According to the IRS, the taxpayer underreported its taxable income for years. It did this by transferring undervalued intangible property to its Irish subsidiary. The taxpayer filed a petition in the Tax Court contesting the IRS’s determination. Then, the IRS refused to send the case to Appeals for review. The taxpayer filed suit to force the IRS to refer its tax case to Appeals.

IRS Appeals Review Under TBOR

Under the Taxpayer Bill of Rights, taxpayers have the right to appeal an IRS determination in an independent forum. Therefore, the taxpayer claimed it had the right to take its tax case to Appeals instead of the Tax Court. Also, the taxpayer claimed the IRS violated the Administrative Procedures Act when it refused to refer the case to Appeals.

The taxpayer lacked standing to compel the IRS to send the case to Appeals. To prove standing the taxpayer had to show:

  1. it suffered an injury in fact,
  2. the IRS’s conduct caused its injury, and
  3. a favorable court decision could redress its injury.

However, the taxpayer’s only alleged injury was that the IRS denied it access to an Appeals review thereby denying it a review in an independent forum. But, the taxpayer could still appeal the IRS’s decision to the Tax Court, which is an independent forum. Thus, the IRS did not avoid a legally protected right by refusing to refer the taxpayer’s case to Appeals.

Further, the Taxpayer Bill of Rights, as enacted in 2015, did not grant any new, enforceable rights. The ten rights listed in Code Sec. 7803(a)(3) were rights already afforded by other provisions of the Internal Revenue Code. Thus, if a right did not exist before the enactment of the TBOR, it did not exist after.

Administrative Procedures Act

Finally, Rev. Proc. 2016-22, I.R.B. 2016-15, 577, is an internal procedural rule that did not alter or determine any taxpayer rights. Therefore, it was not a final agency decision subject to APA review. In addition, the IRS’s decision not to refer the taxpayer’s case to Appeals was not a final agency action. The taxpayer retained it right to challenge the IRS’s deficiency in the Tax Court. Moreover, that litigation will ultimately determine the taxpayer’s rights.

Facebook Inc. and Subsidiaries, DC Calif.

 

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AUTHOR

CCHTaxGroup

All stories by: CCHTaxGroup