Still Undefeated Against Department of Justice

In most court cases concerning federal tax matters, the Department of Justice does not represent the Government. That’s because those cases take place in Tax Court, where the IRS represents itself. Only when a taxpayer first pays up, then sues for a refund, or when a case goes up on appeal, does DOJ take over. Those situations don’t arise very frequently. So I may not be alone as a tax lawyer having only had a few cases against DOJ, and even fewer resulting in an actual court opinion.

And, happy to say, I’m still undefeated, a proud 2-0 after a recent victory. In May v. United States, 115 AFTR 2d ¶2015-827 (D.C. Ariz. 2015), the Federal District Court for the District of Arizona ruled that the assessment of a penalty against the taxpayer was untimely under the applicable statute of limitations. The case was one of first impression. It was decided on a motion for summary judgment.

In my humble opinion, the court got this one exactly right, and it would have been a travesty had it gone the other way. The statute of limitation in question, Internal Revenue Code Section 6501(c)(10), extends the otherwise applicable statute of limitations with respect to liabilities arising from certain transactions until one year from the date information related to the transaction is furnished to the IRS. In this case, the IRS agent auditing the taxpayer’s return asked for and received all the necessary information and was fully prepared to make the assessment, but the IRS nonetheless waited about two years to actually assess the penalty. In defending against the suit for a refund, the Department of Justice claimed that the information the IRS requested, received and acted upon should not be considered “furnished” to it because it was not placed on a certain IRS form. Thus, according to DOJ, the one-year period of Section 6501(c)(10) never commenced to run. It was a hollow argument, and the court appropriately rejected it.