SAN FRANCISCO (CN) – A federal judge barred Facebook from taking its tax case to the appeals wing of the Internal Revenue Service, finding it is not entitled to use that forum to appeal an IRS determination that it had been underreporting its taxable income since 2010.
“Facebook does not have an enforceable right to take its tax case to IRS Appeals or to compel the IRS to do so,” U.S. District Judge Laurel Beeler ruled Tuesday.
In 2013, the IRS began investigating Facebook over its tax liability for 2008, 2009, and 2010, in which it found Facebook had understated its transferred intellectual property assets by about $7.1 billion, “resulting in a substantial underreporting of income for U.S. tax purposes in 2010 and later years.”
Facebook was presumably using a strategy called the “double Irish arrangement,” whereby large U.S. corporations avoid paying substantial federal tax bills by setting up an Irish subsidiary as a tax haven.
In 2016, the IRS sent Facebook a statutory notice of deficiency, also known as a 90-day letter, determining Facebook had underpaid its taxes. Facebook appealed the finding to the U.S. Tax Court, seeking a redetermination of what it owes. On March 16, 2017, the IRS sent Facebook a letter saying, without explanation, that it would refuse a transfer of the case to IRS Appeals.
Facebook had argued at the IRS’ motion to dismiss hearing in April that the Taxpayer Bill of Rights enacted by Congress in 2015, as part of the Protecting Americans from Tax Hikes Act of 2015, granted taxpayers the right to appeal IRS determinations to an independent forum within the IRS.
Beeler strongly disagreed, finding the law did not grant taxpayers any substantive new rights.
“The sole injury that Facebook alleges is that ‘it was denied access to a statutorily mandated
appeals process,’ i.e., the right to take its tax case to IRS Appeals. But Facebook fails to establish that it has a legally protected right to take its tax case to IRS Appeals,” Beeler wrote, adding, “Because Facebook has no legally enforceable right to take its tax case to IRS Appeals, the IRS has not invaded a legally protected interest by refusing to refer Facebook’s case to IRS Appeals, and Facebook consequently lacks standing.”
The Taxpayer Bill of Rights, Beeler said, lists 10 taxpayer rights that already existed in Title 26 of the IRS code, and ensures that the employees of the IRS know about and abide by those pre-existing rights.
Among others, those rights include the right to be informed, the right to quality service, to privacy, to confidentiality, to pay no more than the correct amount of tax, and yes, to “appeal a decision of the Internal Revenue Service in an independent forum.”
“Moreover, Facebook’s argument makes no sense when one considers the ten TBOR rights collectively,” Beeler said.
She took, for example, the right to be informed.
“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 10 new substantive rights that it defined so poorly,” Beeler wrote. “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.”
In dismissing the case with prejudice, Beeler also rejected Facebook’s argument that U.S. Tax Court doesn’t count as an independent forum, saying that the legislative history and Taxpayer Bill of Rights confirms that the right to appeal in such a forum “encompassed the right to appeal in a judicial forum like the tax court, in addition to any rights a taxpayer might have to access IRS Appeals.”
The IRS declined to comment through a spokesperson, as did Facebook’s attorney.