U.S. Magistrate Judge Laurel Beeler said in an opinion Monday that Menlo Park, California-based Facebook was incorrect in claiming a right to contest in the IRS Office of Appeals an IRS finding that undervalued intangible property the company transferred to its Ireland-based subsidiary by about $7 billion on its returns between 2008 and 2010, concluding there is no enforceable right to IRS Appeals for alternative dispute resolution.
“Facebook does not have an enforceable right to take its tax case to IRS Appeals or to compel the IRS to do so,” Judge Beeler said.
“Facebook therefore lacks Article III standing, because the deprivation of a nonexistent right to access IRS Appeals does not constitute injury in fact.”
Facebook asserted that under the Administrative Procedure Act the IRS acted arbitrarily and capriciously in refusing to refer the tax case to IRS Appeals, and the company additionally sought mandamus, asking the California federal court to refer the tax case to IRS Appeals, according to court documents.
The agency said the case should be dismissed because Facebook lacked standing, and the IRS’ choice not to refer Facebook’s tax case was not reviewable under the Administrative Procedure Act, the opinion said.
The only injury Facebook alleged was that “it was denied access to a statutorily mandated appeals process … But Facebook fails to establish that it has a legally protected right to take its tax case to IRS Appeals,” Judge Beeler said.
The Taxpayer Bill of Rights, or Internal Revenue Code § 7803(a)(3), which was enacted in 2015 as part of the PATH Act, did not include an enforceable right to take tax cases to IRS Appeals, nor did it create new substantive rights, the opinion said. And even if IRC § 7803(a)(3) granted new taxpayer rights, the company failed to establish which right it relied on, so the company lacks standing, Judge Beeler said.
Facebook had no enforceable right to take its case to IRS Appeals that predated IRC § 7803(a)(3), because the earlier applicable law, the Internal Revenue Service Restructuring and Reform Act of 1998, P.L. 105-206, granted rights to bring certain issues to IRS Appeals such as those relating to levies and liens, which did not mean Facebook had a right to be heard before IRS Appeals, the opinion said.
Other courts have held that taxpayers in situations similar to Facebook’s did not have an enforceable right to take their tax cases to IRS Appeals, and Facebook does not cite anything in the past or present law that compelled a contrary conclusion, Judge Beeler said.
IRC § 7803(a)(3) did not create a new right to IRS Appeals, the opinion said.
“The statutory TBOR enacted as part of the 2015 PATH Act did not grant new enforceable rights,” Judge Beeler said. “If a right did not exist before the enactment of the TBOR, the TBOR did not create it as a new right.”
IRC § 7803(a)(3) simply imposed an obligation for the IRS commissioner to ensure the agency’s employees are familiar with preexisting taxpayer rights, and the legislative history confirmed this plain reading of the statutory language, she said.
And even if the statute created a new enforceable right to IRS Appeals, Facebook failed to show that the specific independent forum must be IRS Appeals, the opinion said.
The court additionally found the IRS’ decision not to refer Facebook’s tax case to IRS Appeals was not reviewable under the Administrative Procedure Act because it was not a final agency action, Judge Beeler said.
“Neither of the agency actions that Facebook challenges is a final agency action,” the opinion said. “The court therefore may not determine Facebook’s APA claims and must dismiss them for lack of subject-matter jurisdiction.”
The court also rejected Facebook’s mandamus claim because the company had no legal entitlement to the relief it sought, Judge Beeler said.
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