Spanking the IRS

August 07, 2009

The Internal Revenue Service gets a rhetorical spanking and a legal loss Friday, in a decision by the U.S. Circuit Court of Appeals for the D.C. Circuit that looks intriguing.

Take it away, Judge Janice Rogers Brown, who vividly starts the majority opinion in Cohen v. United States this way:

"Comic-strip writer Bob Thaves famously quipped, 'A fool and his money are soon parted. It takes creative tax laws for the rest.' In this case it took the Internal Revenue Service’s (“IRS” or “the Service”) aggressive interpretation of the tax code to part millions of Americans with billions of dollars in excise tax collections. Even this remarkable feat did not end the IRS’s creativity. When it finally conceded defeat on the legal front, the IRS got really inventive and developed a refund scheme under which almost half the funds remained unclaimed."

Ooh, snap. And for the IRS, it gets worse. States Rogers:

"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 gains."

The case argued on Cohen's behalf by Michael A. Bowen and Robert J. Cynkar involves Mr. Cohen's challenge to a 3 percent excise tax for long-distance phone service. In five different appellate circuits, courts ruled against the IRS. The government stopped collecting the tax based solely on transmission time in August 2006 and then constructed a Rube Goldbergian scheme for refunds. So then aggrieved parties sued over the reform scheme. the rest