Facebook tax suit facing dismissal

SAN FRANCISCO -- With a hefty tax bill of up to $5 billion at stake, a federal judge considered the Internal Revenue Service's motion to dismiss a suit filed by Facebook Inc. Thursday over the government agency's decision to deny the social media giant's request for an independent appeal process to review it.

Facebook claimed it should be afforded an independent administrative forum because the IRS's decision was made arbitrarily while the IRS contended that a forum to dispute tax bills is not an enforceable right and that its commissioner's decision-making to grant or refuse access to its court of appeals is unreviewable.

U.S. Magistrate Judge Laurel Beeler appeared to doubt Facebook's argument that it is guaranteed a review by IRS appeals.

"I'm skeptical for a bunch of different reasons," Beeler said.

Facebook has no standing because it has no legally protected interest, according to lead defense attorney James Weaver. IRS commissioner John Koskinen, who is also named in the suit, is afforded the discretion to manage the agency's docket and settle cases in its appeals forum as he sees fit, the Department of Justice attorney for the tax division added.

"Sound tax administration is unreviewable," Weaver said. "Settlement discretion is not something the court should weigh in on."

But attorney Scott Frewing of Baker & McKenzie LLP, representing Facebook, shot back that the IRS can then "choose any arbitrary position and not offer an explanation" since there is no judicial review. All taxpayers should have a right to access the agency's appeals process, he added. Facebook, Inc. and subsidiaries v. Internal Revenue Service et. al., 17-CV06490 (N.D. Cal., filed Nov. 8, 2017).

The IRS claims Facebook owes billions of dollars because it underreported intangible assets that were transferred to an Ireland-based holding company in 2010.

Frewing argued that Congress restructured the IRS to feature "IRS appeals as a cornerstone of a new foundation" after the Taxpayer Bill of Rights was passed in 1998. It would be nonsense for Congress to create this mechanism and then grant the IRS commissioner the unilateral authority to deny access to it, he added.

"The government's position is that the commissioner can act arbitrarily," Frewing said. "The commissioner has to be held accountable."

But Weaver said it would make even less sense for Congress to create a universal right to review by IRS appeals and have no one realize it until now. He compared Facebook's contention to a taxpayer, who knows he lied on his taxes, requesting access to appeals after being notified of an audit.

A Facebook spokesperson declined to comment.

"I understand your frustrations," Beeler said to Frewing. "But the issue is what you can demand by the court."

Frewing clarified his position that regardless of whether an independent forum to dispute claims is guaranteed, Facebook should be able to challenge any "arbitrary action" by the IRS.