We have previously discussed the case that Facebook has brought in federal district court, where it argued that it had an enforceable right to Appeals in a matter that spun from its transfer pricing dispute that it is litigating in Tax Court. In particular Facebook brought two claims under the Administrative Procedure Act alleging that the IRS acted arbitrarily and capriciously in refusing to refer its case to Appeals. Facebook also brought a claim for mandamus, asking the court to order the IRS to refer its tax case to IRS Appeals.
In this order, the district court has granted the government’s motion to dismiss the suit, finding that Facebook did not have standing because it failed to establish that there was a statutory right to Appeals. That absence of a statutory right led the court to conclude that it had no legally protected interest, a necessary element to prove standing. In so holding, the district court considered the 2015 codification of TBOR, and Facebook’s argument that TBOR reflected Congress’ direction to give taxpayers a statutory right to Appeals:
[W]hat the statutory TBOR did was to impose an affirmative obligation on the Commissioner of Internal Revenue to “ensure that employees of the Internal Revenue Service are familiar with and act in accord with” preexisting taxpayer rights established in other provisions of the Internal Revenue Code. In other words, the TBOR directed the Commissioner to, for example,better manage and train IRS employees to ensure that IRS employees know what rights taxpayers have and act in a way that respects those rights.
In reaching its conclusion the court emphasized that the government’s interpretation did not render the adoption of TBOR a nullity:
First, the statutory TBOR imposes duties on the IRS Commissioner to manage and train IRS employees regarding taxpayer rights. See generally Toward a More Perfect Tax System at 23–36 (discussing proposals for improved management and training of IRS employees); Amanda Bartmann, Making Taxpayer Rights Real: Overcoming Challenges to Integrate Taxpayer Rights into a Tax Agency’s Operations, 69 Tax Law. 597, 614–24 (2016) (same). Second, Facebook’s interpretation that the TBOR itself created new rights ignores the statutory language that the TBOR rights are “afforded by other provisions of this title.” 26 U.S.C. § 7803(a)(3)
It also considered the rights collectively, rather than solely focus on the right to appeal to an independent forum. That led the court to question whether the codification of TBOR should lead to the creation of substantive or procedural rights:
Facebook focuses on only one TBOR right — “the right to appeal a decision of the Internal Revenue Service in an independent forum” — but Facebook’sarguments, if they were correct, would apply to the other nine rights too. For example, the first right is “the right to be informed[.]” 28 U.S.C. § 7803(a)(3)(A). Applying Facebook’s argument, this provision must have created a new substantive right “beyond those existing prior to [the TBOR’s] codification.” A new right to be informed about what? And when? The TBOR does not say, and neither does Facebook. It is implausible that the TBOR created ten new substantive rights that it defined so poorly. The logical reading of the TBOR is not that it created some new, wholly nebulous rights, but that it created no new rights at all, and instead that Congress meant what it said when it said that the TBOR rights were rights “afforded by other provisions of this title,” not new rights created by the TBOR itself. (footnotes omitted)
The opinion also considered the APA and Facebook’s mandamus claim. The court discussed the Revenue Procedure setting Counsel’s discretion to limit access to Appeals and the agency’s decision to not refer the matter to Appeals, and held that neither constituted final agency action.
This is a quick summary and I suspect not the last we will say about this case, nor this issue. The case was discussed last week at the ABA Tax Section meeting, and advocates will continue to press courts to consider the codification of TBOR in differing settings. As I discussed on a panel with Keith and the National Taxpayer Advocate at the Tax Court judicial conference, and as Chris Rizek raised at the ABA Tax Section meeting in response to a question from Special Trial Judge Leyden, a court’s consideration of TBOR would likely differ in a CDP case, where the Tax Court reviews IRS collection actions for abuse of discretion and is required to balance the government’s interest in collecting taxes with the individual’s right that the collection actions that are no more intrusive than necessary.
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‘[W]hat the statutory TBOR did was to impose an affirmative obligation on the Commissioner of Internal Revenue to “ensure that employees of the Internal Revenue Service are familiar with and act in accord with” preexisting taxpayer rights established in other provisions of the Internal Revenue Code.’
Right, the Commissioner has to ensure that when IRS employees embezzle from taxpayers, that IRS employees will know that taxpayers have a right not to be embezzled from. Surely that’ll stop them, but even if it doesn’t, so what, the taxpayers won’t have standing to sue over it.
‘Applying Facebook’s argument, this provision must have created a new substantive right “beyond those existing prior to [the TBOR’s] codification.” A new right to be informed about what? And when?’
Like maybe if an IRS employee creates a record of a mathematical or clerical error, maybe the taxpayer should have a right to be informed of the creation of the record? Like maybe if an IRS employee alters a record of a declaration of withholding (which was actually declared without knowing about embezzlement) into a declaration of foreign tax credit which has no basis (which was not actually declared), maybe the taxpayer should have a right to be informed of the alteration of the record? And when, maybe within the three-year period beyond which the IRS alleges that the IRS will not comply with the ruling in US v. Kales? Well, even if someone gets a chance to answer the court’s question, the taxpayer still won’t have standing because the law only requires the Commissioner to inform staff that staff are violating taxpayer’s unenforceable rights.
A bit more on what the right to be informed would mean if it were a right:
Like maybe inform a taxpayer that their return was examined, and maybe inform them what characteristics of their return were in question, and what the result of the examination was, and whether or not the IRS is supposed to issue some kind of notice such as CP-2000 or Notice of Deficiency even though they didn’t actually issue the notice. And if in an especially good mood, maybe even inform the taxpayer BEFORE conducting the examination, so that the taxpayer has a chance to participate and maybe learn they need to provide copies of Forms 1099 and 1042-S for maybe the fifth time.
Like maybe do something about a Form 8822 change of address notification instead of ignoring it, so that when the IRS mails letters the letters won’t get “returned” to Panama because the destination country’s post office stops forwarding after a year and the return address ends in “PA” (the international standard abbreviation for Panama).