D.C. Circuit to Rehear Excise Tax Refund Case

(CN) - The full D.C. Circuit will reconsider a taxpayer lawsuit challenging the IRS' scheme for refunding the $8 billion in excise taxes it improperly collected on long-distance phone calls.

The court voted to rehear en banc an August panel decision reviving the lawsuit. The three-judge panel rejected the government's claim that the case should be dismissed, because the IRS' refund notice was a policy statement, not a binding rule.

"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 funds," Judge Janice Rogers Brown wrote in the panel decision.

The IRS collected the 3 percent excise through telephone service providers, even after cell phones made distance-based billing obsolete.

Several corporate taxpayers sued, and the IRS issued a refund notice telling taxpayers to request refunds on their 2006 federal income tax returns. Taxpayers had two options: They could request a "safe harbor" amount or they could seek reimbursement for the actual taxes paid, so long as they provided documentation.

Taxpayers again sued, claiming the refund process was too convoluted and discouraged them from getting their money back.

The district court dismissed the procedural claims, but the D.C. Circuit panel reinstated the lawsuit last August.

The full court has agreed to reconsider that decision.

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