LAUREL BEELER, Magistrate Judge.
This case arises in connection with a petition that Facebook, Inc. filed in the U.S. Tax Court. Facebook is contesting a determination by the Internal Revenue Service that it has been underreporting its income for tax purposes since 2010. The IRS asserts that Facebook undervalued certain intangible property that it transferred to its Ireland-based subsidiary by approximately $7 billion; Facebook contests that assertion.
Facebook wants the IRS attorneys who are litigating its tax case before the Tax Court to refer its case to the independent IRS Office of Appeals ("IRS Appeals") for alternative dispute resolution. Facebook maintains that it has an enforceable right to access IRS Appeals. Its main argument is that the Protecting Americans from Tax Hikes Act of 2015 ("PATH Act") enacted a statutory "taxpayer bill of rights," codified at 26 U.S.C. § 7803(a)(3), and that one of these rights — "the right to appeal a decision of the Internal Revenue Service in an independent forum," 26 U.S.C. § 7803(a)(3)(E) — gives it an enforceable right to take its tax case to IRS Appeals in lieu of litigation before the Tax Court.
Facebook brings two claims under the Administrative Procedure Act ("APA"), alleging that the IRS acted arbitrarily, capriciously, and in violation of law, in refusing to refer its tax case to IRS Appeals. Facebook also brings a claim for mandamus, asking the court to order the IRS to refer its tax case to IRS Appeals. The IRS moved to dismiss Facebook's complaint under Federal Rule of Civil Procedure 12(b)(1), arguing that Facebook lacks standing and that the IRS's decision not to refer Facebook's tax case to IRS Appeals is not reviewable under the APA.
Facebook does not have an enforceable right to take its tax case to IRS Appeals or to compel the IRS to do so. Facebook therefore lacks Article III standing, because the deprivation of a nonexistent right to access IRS Appeals does not constitute injury in fact. Additionally, the IRS's decision not to refer Facebook's tax case to IRS Appeals is not reviewable under the APA. The court therefore grants the IRS's motion to dismiss this case. Because the defects in Facebook's complaint cannot be cured, dismissal is with prejudice.
The IRS Office of Appeals is an independent office within the IRS. See Internal Revenue Serv., Appeals — An Independent Organization (Nov. 16, 2017), https://www.irs.gov/compliance/ appeals/appeals-an-independent-organization (last visited May 14, 2018).
While IRS Appeals was administratively formed in 1927, there was no statutory requirement for the IRS to maintain this internal appeals office prior to 1998. In 1998, Congress passed the Internal Revenue Service Restructuring and Reform Act of 1998 ("RRA"). Pub. L. No. 105-206, 112 Stat. 685 (1998). The RRA for the first time specified the creation of an "independent appeals function within the Internal Revenue Service" as a statutory mandate. Id. § 1001(a), 112 Stat. at 689.
The RRA granted taxpayers statutory rights to take certain matters to IRS Appeals. For example, under certain circumstances, the RRA granted taxpayers whose property is subject to an IRS lien under 26 U.S.C. § 6321 a statutory right to a hearing before IRS Appeals. 26 U.S.C. § 6320(b)(1) (enacted by RRA § 3401, 112 Stat. at 746). Similarly, under certain circumstances, the RRA granted taxpayers the right to a hearing before IRS Appeals before the IRS levies the taxpayer's property or right to property. 26 U.S.C. § 6330(b)(1) (enacted by RRA § 3401, 112 Stat. at 748). The RRA also instructed the Treasury Department to establish procedures that allow a taxpayer to appeal IRS rejections of proposed offer-in-compromise or installment agreements under 26 U.S.C. §§ 6159 or 7122 to IRS Appeals. 26 U.S.C. § 7122(e) (enacted by RRA § 2462, 112 Stat. at 766).
The IRS maintains that the RRA did not establish a recognized right for taxpayers to take tax cases to IRS Appeals generally. Before and after the RRA was enacted, the IRS maintained that it had discretion as to whether tax cases would be referred to IRS Appeals. The relevant IRS Revenue Procedure in place before the RRA was enacted provided that the Director of Tax Litigation had the discretion (following consultations) to determine whether a tax case (or particular issues within a case) "should not be considered by Appeals." Rev. Proc. 87-24 § 2.08, 1987-1 C.B. 720, 721 (superseded by Rev. Proc. 2016-22, 2016-15 I.R.B. 577) ("The Director of the Tax Litigation Division . . . may, after consulting with the Director of the Appeals Division and the appropriate Regional Counsel, determine that a case, or an issue or issues in a case, should not be considered by Appeals. In such a situation Appeals will forego settlement authority over such case or issues."). The IRS continued to maintain this procedure for over a decade after the RRA was enacted in 1998 and did not recognize an enforceable right of taxpayers to take their cases to IRS Appeals.
Courts have agreed that there was no general right to take tax cases to IRS Appeals. The Tax Court — an Article I court independent of the IRS, see 26 U.S.C. § 7441 — affirmed in 1996 (before the RRA) and again in 2005 (after the RRA) that taxpayers did not have an enforceable right to take tax cases to IRS Appeals. Swanson v. Comm'r, 106 T.C. 76, 99-100 (1996) (holding that no right exists to an IRS Appeals conference once a taxpayer's case is docketed in the Tax Court); Estate of Weiss v. Comm'r, 90 T.C.M. (CCH) 566, 2005 WL 3418160, at *1-2 (2005) (holding after enactment of the RRA that taxpayers did not have a substantive right to take their case to IRS Appeals and that there was no statutory basis for such a right). Federal Article III courts also agreed that there was no general right for a taxpayer to take its tax case to IRS Appeals. New Hope Servs., Inc. v. United States, 285 F.3d 568, 572 (7th Cir. 2002) ("there is no provision in the procedural rules for a taxpayer request for an Appeals Office conference" for a case docketed in Tax Court) (citing Swanson, 106 T.C. at 99-100); Vosters v. United States, No. C-88-20458-WAI, 1989 WL 90554, at *2 (N.D. Cal. June 2, 1989) (rejecting claim that "the IRS violated its own procedural rules by denying the taxpayer an administrative hearing before the Appellant Review Division" because the IRS's "procedural rules are directory rather than mandatory") (citing Rosenberg v. Comm'r, 450 F.2d 529, 533 (10th Cir. 1971)).
The Taxpayer Advocate Service is an independent organization within the IRS that advocates on behalf of taxpayers at the IRS. See Taxpayer Advocate Serv., Who We Are, https://taxpayeradvocate.irs.gov/about/who-we-are (last visited May 14, 2018). Among other things, the TAS submits two reports to Congress each year: an annual report that analyzes problems encountered by taxpayers and legislative and administrative recommendations for solving those problems, and an objectives report that describes the goals and activities planned by the Office of the Taxpayer Advocate for the coming fiscal year. See Internal Revenue Serv., Taxpayer Advocate Serv., Reports to Congress, https://taxpayeradvocate.irs.gov/reports (last visited May 14, 2018).
In its 2007 annual report, the TAS recommended that (among other things) Congress enact a statutory taxpayer bill of rights. The TAS report stated:
Taxpayer Advocate Serv., 2007 Annual Report to Congress at 481, 485 (2007) (2007 TAS Report), available at https://www.irs.gov/advocate/national-taxpayer-advocates-2007-annual-report-to-congress (last visited May 14, 2018). The TAS recommended a taxpayer bill of ten rights: (1) the "right to be informed," (2) the "right to be assisted," (3) the "right to be heard," (4) the "right to pay no more than the correct amount of tax," (5) the "right of appeal," (6) the "right to certainty," (7) the "right to privacy," (8) the "right to confidentiality," (9) the "right to representation," and (10) the "right to a fair and just tax system." Id. at 486-88 (capitalization removed).
For the fifth right — the "right of appeal" — the TAS recommended that:
Id. at 487.
Between 2008 and 2012, several representatives and senators, led by Representative Xavier Becerra and Senator Jeff Bingaman, introduced proposed legislation several times that would require the Treasury Department, in consultation with the National Taxpayer Advocate, to publish a TBOR along the lines proposed by the TAS. H.R. 5716, 110th Cong. (introduced Apr. 8, 2008); H.R. 5047, 111th Cong. (introduced Apr. 15, 2010); S. 3215, 111th Cong. (introduced Apr. 15, 2010); H.R. 6050, 112th Cong. (introduced June 28, 2012); S. 3355, 112th Cong. (introduced June 28, 2012). Each of these legislative bills stated that the proposed TBOR statute would "not create or confer any rights or obligations not otherwise provided for under this title" (i.e., Title 26, the Internal Revenue Code). Instead, the purpose of the proposed TBOR legislation was so that taxpayers would have an easy-to-understand list of the rights and obligations established in other sections of the tax code. See 156 Cong. Rec. E559 (daily ed. Apr. 15, 2010) (statement of Rep. Becerra) ("[T]his legislation would require Treasury to publish an easy-to-understand Taxpayer Bill of Rights that would enumerate all taxpayers' rights and obligations, as well as their location in the tax code. Currently, these rights and obligations are scattered throughout the tax code and Internal Revenue Manual, making them neither accessible nor written in plain language that most taxpayers can understand."). None of these bills was enacted into law.
In 2013, Representative Peter Roskam introduced new proposed TBOR legislation. H.R. 2768, 113th Cong. (introduced July 22, 2013). Whereas the prior legislative bills had required the Treasury Department to publish a TBOR, Representative Roskam's version proposed amending the Internal Revenue Code "to clarify that a duty of the Commissioner of Internal Revenue is to ensure that Internal Revenue Service employees are familiar with and act in accord with certain taxpayer rights." Id. In his introductory remarks, Representative Roskam explained that the ten rights in his bill were all preexisting rights under current law but that he was introducing this proposed legislation because the Commissioner of Internal Revenue apparently did not view it as his responsibility to make sure that both he and other IRS employees knew about those rights:
159 Cong. Rec. H5211 (daily ed. July 31, 2013) (statement of Rep. Roskam). Representative Roskam stated that his bill was meant to "unambiguously say[]" that the Commissioner had a duty to ensure that IRS employees complied with those rights. Id. The House of Representatives passed the bill by voice vote and transmitted it to the Senate with the explanation that it was a bill "to clarify that a duty of the Commissioner of Internal Revenue is to ensure that Internal Revenue Service employees are familiar with and act in accord with certain taxpayer rights." 159 Cong. Rec. S6198 (daily ed. Aug. 1, 2013). The bill was not enacted into law.
In November 2013, the National Taxpayer Advocate issued a report entitled Toward a More Perfect Tax System: A Taxpayer Bill of Rights as a Framework for Effective Tax Administration (2013) (Toward a More Perfect Tax System), available at https://taxpayeradvocate.irs.gov/2013-Annual-Report/downloads/Toward-a-More-Perfect-Tax-System-A-Taxpayer-Bill-of-Rights-as-a-Framework-for-Effective-Tax-Administration.pdf (last visited May 14, 2018). The introduction explained:
Id. at 1. The report recommended a taxpayer bill of ten rights: (1) "the right to be informed," (2) "the right to quality service," (3) "the right to pay no more than the correct amount of tax," (4) "the right to challenge the IRS's position and be heard," (5) "the right to appeal an IRS decision in an independent forum," (6) "the right to finality," (7) "the right to privacy," (8) "the right to confidentiality," (9) "the right to retain representation," and (10) "the right to a fair and just tax system, including access to the Taxpayer Advocate Service." Id. at 2-3 (capitalization removed). The report directed its recommendation for adoption of its proposed TBOR to the Commissioner of Internal Revenue (as opposed to Congress). Id. at 12.
The report stated that its recommended TBOR "does not aim to create new rights or remedies, only to group existing rights into categories that are easier for taxpayers and IRS employees to understand and remember. . . . Thus, a TBOR does not create new rights, but provides organizing principles — a framework — for statutory rights." Id. at 4, 6. The report further characterized its proposed TBOR as a statement of general rights, not absolute rights without exception, analogizing them to the Bill of Rights in the U.S. Constitution. See id. at 2. The report stated:
Id. at 2.
For the fifth right — the "right to appeal an IRS decision in an independent forum" — the report recommended that:
Id. at 10.
The report faulted IRS employees for not knowing about or not communicating information about these rights to taxpayers:
Id. at 23, 24-25. For example, the report discussed IRS employees' not knowing the significance of Tax Court deadlines and why those deadlines were important to taxpayers:
Id. at 27-28 (emphasis in original).
In its December 2013 annual report to Congress, the TAS largely repeated the recommendations from its November 2013 report that the Commissioner and the IRS adopt a TBOR. Taxpayer Advocate Serv., 2013 Annual Report to Congress at 5-19 (2013), available at https://taxpayeradvocate.irs.gov/2013-Annual-Report/full-2013-annual-report-to-congress.html (last visited May 14, 2018).
The IRS engaged in "extensive discussions" with the TAS regarding a TBOR. See I.R.S. News Release IR-2014-72, 2014 WL 2590817, at *1 (June 10, 2014). Following these discussions, on June 10, 2014, the IRS announced the adoption of a TBOR, which it described as "tak[ing] the multiple existing rights embedded in the tax code and group[ing] them into 10 broad categories, making them more visible and easier for taxpayers to find on IRS.gov." Id. The IRS also updated its "Publication 1" describing the adopted TBOR. Internal Revenue Serv., Publication 1: Your Rights as a Taxpayer (Rev. 12-2014), available at https://www.irs.gov/pub/irs-prior/p1-2014.pdf (last visited May 14, 2018).
For the fifth right — the "right to appeal an IRS decision in an independent forum" — the IRS's revised Publication 1 stated:
Id. at 1.
The IRS did not revise Revenue Procedure 87-24 (which gave the Director of the Tax Litigation Division discretion following consultations to determine that a tax case should not be considered by IRS Appeals) in response to the adoption of this TBOR.
In its 2014 annual report, the TAS recommended that Congress enact the IRS's TBOR into statutory law. Taxpayer Advocate Serv., 2014 Annual Report to Congress at 275-310 (2014) (2014 TAS Report), available at https://taxpayeradvocate.irs.gov/reports-to-congress/2014-annual-report-to-congress/full-report (last visited May 14, 2018). The report stated:
Id. at 275. For the fifth right — the "right to appeal an IRS decision in an independent forum" — the report made recommendations with respect to appeals before both IRS Appeals and the Tax Court. See id. at 284-88.
In February 2015, Representative Roskam re-introduced his proposed legislation to enact a statutory TBOR. H.R. 1058, 114th Cong. (introduced Feb. 25, 2015). The bill was referred to the House Ways and Means Committee, which revised Representative Roskam's bill so that the ten rights listed in the proposed statutory TBOR exactly tracked the language of the IRS's 2014 TBOR. Compare H.R. 1058, 114th Cong. (reported Apr. 13, 2015) with I.R.S. News Release IR-2014-72, 2014 WL 2590817, at *1.
H.R. Rep. No. 114-70, at 4 (2015). The Committee reported that the proposed legislation "adds to the Commissioner's duties the requirement to ensure that employees of the IRS are familiar with and act in accordance with taxpayer rights as afforded by other provisions of the Internal Revenue Code." Id. The House of Representatives passed the bill in April 2015 by voice vote and transmitted it to the Senate.
H.R. 1058 was not enacted as a stand-alone law. But the TBOR language from H.R. 1058 was added — unchanged from the version reported on by the House Ways and Means Committee and that the House passed in April 2015 and transmitted to the Senate — as part of the Protecting Americans from Tax Hikes Act of 2015, which the House added to the Senate's version of the Consolidated Appropriations Act, 2016. H.R. 2029, div. Q, tit. IV, subtit. A, § 401, 114th Cong. (engrossed House amendment Dec. 18, 2015). The Consolidated Appropriations Act, which included the PATH Act and its TBOR, was signed into law on December 18, 2015. Pub. L. No. 114-113, 129 Stat. 2242 (2015).
The PATH Act added a new paragraph (a)(3) to 26 U.S.C. § 7803. Following enactment of the PATH Act, 26 U.S.C. § 7803(a)(3) reads:
In October 2015, the IRS published a notice that it was proposing revisions to Revenue Procedure 87-24 "to more accurately reflect the procedures utilized in managing the flow of docketed cases between the Office of Appeals (Appeals) and the Office of Chief Counsel (Counsel)." I.R.S. Notice 2015-72, 2015-44 I.R.B. 613, 613. The notice stated that "[t]he proposed update to Rev. Proc. 87-24 is not intended to materially modify the current practice of referring docketed cases to Appeals for settlement currently utilized in the vast majority of cases" and that "[t]he proposed revenue procedure clarifies that, except in rare circumstances, Counsel will refer cases docketed in Tax Court to Appeals for settlement consideration." Id. But the notice stated, "the proposed revenue procedure recognizes that there are cases and issues that should not be referred to Appeals or for which Counsel needs additional time before referring the case to Appeals. The proposed revenue procedure clarifies the procedures for when those situations arise." Id. Among other things, the IRS proposed revising the Revenue Procedure to provide that:
Id. § 3.03, 2015-44 I.R.B. at 614. The IRS invited public comment on its proposed revisions. Id. at 613.
The IRS received four comments in response to its notice. 2016-15 I.R.B. 577, 578. One of these comments was from the American Bar Association Section of Taxation, which asked the IRS to clarify the "sound tax administration" standard. Letter from Am. Bar Ass'n Section of Taxation to John Koskinen, Comm'r, Internal Revenue Serv. (Nov. 16, 2015), available at https://www.americanbar.org/content/dam/aba/administrative/taxation/policy/111615comments. authcheckdam.pdf (last visited May 14, 2018).
On March 23, 2016, the IRS released Revenue Procedure 2016-22, which adopted the proposed October 2015 procedure revisions. Other than one "clarifying modification,"
In November 2011, the IRS initiated an audit of Facebook's tax years ending December 31, 2008 and December 31, 2009.
On January 25, 2016, the IRS asked Facebook to extend of the statute of limitations again.
On July 26, 2016, the IRS issued a Statutory Notice of Deficiency to Facebook.
Facebook brings two claims under the Administrative Procedure Act, 5 U.S.C. §§ 701 et seq. First, Facebook alleges that the IRS's issuing Revenue Procedure 2016-22 (which granted IRS Counsel the authority to deny taxpayers access to IRS Appeals if referral is "not in the interest of sound tax administration") was arbitrary, capricious, an abuse of discretion, not in accordance with the law, exceeded statutory jurisdiction, authority, or limitation, or was short of a statutory right.
A complaint must contain a short and plain statement of the ground for the court's jurisdiction. Fed. R. Civ. P. 8(a)(1). The plaintiff has the burden of establishing jurisdiction. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994); Farmers Ins. Exch. v. Portage La Prairie Mut. Ins. Co., 907 F.2d 911, 912 (9th Cir. 1990).
The IRS has moved to dismiss Facebook's complaint under Federal Rule of Civil Procedure 12(b)(1) for lack of subject-matter jurisdiction.
The IRS raises two main arguments in its Rule 12(b)(1) motion: (1) Facebook lacks standing and (2) the IRS's decision not to refer Facebook's tax case is not reviewable under the APA. Standing pertains to the court's subject-matter jurisdiction and thus is properly raised in a Rule 12(b)(1) motion to dismiss. Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1121-22 (9th Cir. 2010) (citing St. Clair v. City of Chico, 880 F.2d 199, 201 (9th Cir. 1989)). APA reviewability also pertains to the court's subject-matter jurisdiction: the government has sovereign immunity (which limits the subject-matter jurisdiction of federal courts) and can be sued only to the extent that it has waived its immunity, and the scope of its immunity waiver (e.g., through the APA) thus is also properly raised on a Rule 12(b)(1) motion to dismiss. Vacek v. U.S. Postal Serv., 447 F.3d 1248, 1250 (9th Cir. 2006) (citing Dep't of the Army v. Blue Fox, Inc., 525 U.S. 255, 260 (1999)).
If a court dismisses a complaint, it ordinarily will grant leave to amend, but "[i]t is not an abuse of discretion to deny leave to amend when any proposed amendment would be futile." Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th Cir. 1990) (citing Klamath-Lake Pharm. Ass'n v. Klamath Med. Serv. Bureau, 701 F.2d 1276, 1292-93 (9th Cir. 1983)).
Federal-court jurisdiction extends only to "cases" and "controversies." Raines v. Byrd, 521 U.S. 811, 818 (1997). "Standing to sue is a doctrine rooted in the traditional understanding of a case or controversy." Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1547 (2016).
"The `irreducible constitutional minimum' of standing consists of three elements." Id. (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)). "The plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision." Id. (citing Lujan, 504 U.S. at 560; Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180-81 (2000)). "The plaintiff, as the party invoking federal jurisdiction, bears the burden of establishing these elements." Id. (citing FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990)). "Where, as here, a case is at the pleading stage, the plaintiff must `clearly allege facts demonstrating' each element." Id. (internal ellipsis omitted) (quoting Warth v. Seldin, 422 U.S. 490, 518 (1975)).
To establish the first of these elements — injury in fact — "a plaintiff must show that he or she suffered `an invasion of a legally protected interest' that is `concrete and particularized' and `actual or imminent, not conjectural or hypothetical.'" Id. at 1548 (quoting Lujan, 504 U.S. at 560).
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.
The 1998 RRA imposed a statutory requirement for the IRS to create and maintain an independent Office of Appeals. The RRA also granted taxpayers an enforceable right to take certain matters to IRS Appeals, such as certain matters relating to liens and levies. 26 U.S.C. §§ 6320(b)(1), 6330(b)(1). But that does not mean that Facebook has a right to take its tax case to IRS Appeals. Courts have held that taxpayers in Facebook's situation do not have an enforceable right to take their tax cases to IRS Appeals. New Hope Servs., 285 F.3d at 572; Estate of Weiss, 2005 WL 3418160, at *1-2; Swanson, 106 T.C. at 99-100; Vosters, 1989 WL 90554, at *2. Facebook does not cite anything in the RRA or any pre-TBOR law that compels a contrary conclusion.
Instead of statutes or case law, Facebook cites various statements by IRS executives and IRS publications that it claims establish that taxpayers had an enforceable right to take their cases to IRS Appeals.
The statutory TBOR enacted as part of the 2015 PATH Act did not grant new enforceable rights. To the contrary, the statutory text explicitly states that the ten rights listed in the TBOR were all "taxpayer rights afforded by other provisions of [Title 26]," 26 U.S.C. § 7803(a)(3) (emphasis added) — meaning, no right was a new right created by the TBOR itself. If a right did not exist before the enactment of the TBOR, the TBOR did not create it as a new right.
Instead, what the statutory TBOR did was to impose an affirmative obligation on the Commissioner of Internal Revenue to "ensure that employees of the Internal Revenue Service are familiar with and act in accord with" preexisting taxpayer rights established in other provisions of the Internal Revenue Code. In other words, the TBOR directed the Commissioner to, for example, better manage and train IRS employees to ensure that IRS employees know what rights taxpayers have and act in a way that respects those rights.
The legislative history confirms this plain reading of the statutory language. While there is no direct legislative history for the 2015 PATH Act or the Consolidated Appropriations Act relating to the TBOR, there is legislative history for the earlier 2015 TBOR bill that the House Ways and Means Committee reported on and the House passed and referred to the Senate (TBOR language that was later enacted without alteration in the PATH Act). The House Ways and Means Committee reported that the reason for the legislation was not to grant taxpayers new rights but instead was to address the issue of "IRS employees showing disregard for the rights and protections afforded taxpayers under the Code" by "add[ing] to the Commissioner's duties the requirement to ensure that employees of the IRS are familiar with and act in accordance with taxpayer rights as afforded by other provisions of the Internal Revenue Code." H.R. Rep. No. 114-70, at 4. While this legislative history is not dispositive, it is consistent with the plain-text reading of the statutory text that the TBOR did not grant new rights but instead imposed a management-and-training obligation on the Commissioner to make sure that IRS employees knew about and acted in accordance with preexisting rights. Facebook does not cite any legislative history from any of the attempts to enact a statutory TBOR that suggests that any proposal would have granted new substantive rights. Instead, the legislative history shows that none of the proposed TBORs was intended to create new rights. See, e.g., H.R. 5716, 110th Cong. (introduced Apr. 8, 2008) ("This statement of rights and obligations does not create or confer any rights or obligations not otherwise provided for under this title."); H.R. 5047, 111th Cong. (introduced Apr. 15, 2010) (same); S. 3215, 111th Cong. (introduced Apr. 15, 2010) (same); H.R. 6050, 112th Cong. (introduced June 28, 2012) (same); S. 3355, 112th Cong. (introduced June 28, 2012) (same); 159 Cong. Rec. H5211 (daily ed. July 31, 2013) (statement of Rep. Roskam) (describing TBOR rights as "current law"); see also Toward a More Perfect Tax System at 4, 6 (proposed TBOR "does not aim to create new rights or remedies, only to group existing rights into categories that are easier for taxpayers and IRS employees to understand and remember. . . . Thus, a TBOR does not create new rights, but provides organizing principles — a framework — for statutory rights."); I.R.S. News Release IR-2014-72, 2014 WL 2590817, at *1 (TBOR is made up of "multiple existing rights embedded in the tax code").
Facebook argues that the PATH Act's statutory TBOR must have created new rights "beyond those existing prior to [the TBOR's] codification," because if it created no new rights, it would be a nullity.
Moreover, Facebook's argument makes no sense when one considers the ten TBOR rights collectively. Cf. Bayview Hunters Point Cmty. Advocates v. Metro. Transp. Comm'n, 366 F.3d 692, 700 (9th Cir. 2004) ("A `basic rule of statutory construction is that one provision should not be interpreted in a way which is internally contradictory or that renders other provisions of the same statute inconsistent or meaningless.'") (quoting Hughes Air Corp. v. Pub. Utils. Comm'n, 644 F.2d 1334, 1338 (9th Cir. 1981)). Facebook focuses on only one TBOR right — "the right to appeal a decision of the Internal Revenue Service in an independent forum" — but Facebook's arguments, if they were correct, would apply to the other nine rights too. For example, the first right is "the right to be informed[.]" 28 U.S.C. § 7803(a)(3)(A). Applying Facebook's argument, this provision must have created a new substantive right "beyond those existing prior to [the TBOR's] codification."
Even assuming that the statutory TBOR granted taxpayers new enforceable rights, Facebook does not establish that "the right to appeal a decision of the Internal Revenue Service in an independent forum," 26 U.S.C. § 7803(a)(3)(E), necessarily confers a right to take its tax case to IRS Appeals, as opposed to other independent forums such as the Tax Court.
When Congress intends to grant a right of access to IRS Appeals, it says "the Internal Revenue Service Office of Appeals." See, e.g., 26 U.S.C. §§ 6320(b)(1), 6330(b)(1), 7122(e)(2). Congress could have chosen to similarly codify a right to appeal to IRS Appeals in the 2015 TBOR. It did not. Instead, it used the term "independent forum" — which includes other forums such as Tax Court. See A. & A. Tool & Supply Co. v. Comm'r, 182 F.3d 300, 304 (10th Cir. 1950) ("The Tax Court and the Board of Tax Appeals, which it succeeded, was created to afford a taxpayer an independent forum where he could be heard speedily, equitably and impartially on a tax assessment which he thought had been improperly levied or assessed."). Indeed, in the PATH Act that enacted the 2015 statutory TBOR, Congress amended the Tax Court's establishing statute to clarify that the Tax Court is an independent forum. PATH Act, tit. IV, subtit. B, pt. 3, § 441, 129 Stat. at 3126 ("The Tax Court is not an agency of, and shall be independent of, the executive branch of the Government.") (amending 26 U.S.C. § 7441).
Facebook points to the lead-in to the statutory TBOR, which reads, "the Commissioner shall ensure that employees of the Internal Revenue Service . . . act in accord with taxpayer rights as afforded by other provisions of this title."
As before, it is helpful to look at the ten TBOR rights collectively. All of them are subject to the same lead-in language. For example, the ninth TBOR right is "the right to retain representation[.]" 28 U.S.C. § 7803(a)(3)(I). Facebook's interpretation of the lead-in language obviously does not apply because a taxpayer's representation cannot "be controlled by the Commissioner or employees of the IRS."
Facebook argues that the TBOR's "independent forum" cannot include the Tax Court because access to the Tax Court was guaranteed by statute before the enactment of the TBOR.
Facebook claims that "the legislative history of the RRA, the advocacy by the TAS, and the legislative history of the PATH Act each compels the conclusion that 26 U.S.C. § 7803 refers to an independent administrative forum," and hence it must refer to IRS Appeals (and not to non-administrative forums like the Tax Court).
Facebook did not have an enforceable right to take its tax case to IRS Appeals under the RRA or at any point before the enactment of the PATH Act. New Hope Servs., 285 F.3d at 572; Estate of Weiss, 2005 WL 3418160, at *1-2; Swanson, 106 T.C. at 99-100; Vosters, 1989 WL 90554, at *2. The PATH Act and its statutory TBOR did not grant Facebook any new enforceable rights. And even if they had, they did not grant Facebook a new enforceable right to take its tax case to IRS Appeals specifically, as opposed to other independent forums such as the Tax Court. Facebook has no legally protected right to take its tax case to IRS Appeals. Facebook therefore does not meet the essential element of Article III standing that it suffered an invasion to a legally protected interest. Spokeo, 136 S. Ct. at 1548; see, e.g., Claybrook v. Slater, 111 F.3d 904, 907 (D.C. Cir. 1997) ("[I]f the plaintiff's claim has no foundation in law, he has no legally protected interest and thus no standing to sue."); Arjay, Inc. v. Bush, 891 F.2d 894, 898 (Fed. Cir. 1989) (plaintiffs lack standing where "the injury they assert is to a nonexistent right").
"Sovereign immunity is an important limitation on the subject matter jurisdiction of federal courts." Vacek, 447 F.3d at 1250. "The United States, as sovereign, can only be sued to the extent it has waived its sovereign immunity." Id. (citing Blue Fox, 525 U.S. at 260). "The Supreme Court has `frequently held that a waiver of sovereign immunity is to be strictly construed, in terms of its scope, in favor of the sovereign.'" Id. (internal ellipsis omitted) (quoting Blue Fox, 525 U.S. at 261).
The United States enacted a limited waiver of sovereign immunity in Section 702 of the APA, which reads, in relevant part:
5 U.S.C. § 702. Facebook relies on the APA in bringing its claims against the IRS here.
The APA sets out several requirements for plaintiffs bringing APA claims. Among other things, for a claim to proceed under the APA, the challenged agency action (if not made reviewable by statute
The IRS's issuance of Revenue Procedure 2016-22 is not a final agency action because it is not an action "by which rights or obligations have been determined, or from which legal consequences will flow." Revenue Procedure 2016-22 is an internal procedural rule that does not create or determine any rights, obligations, or legal consequences. See, e.g., Estate of Shapiro v. Comm'r, 111 F.3d 1010, 1018 (2d Cir. 1997) (a Revenue Procedure "is not considered as a rule which confers rights upon taxpayers but rather is a mere internal procedural guide and is not mandatory"); Estate of Weiss, 2005 WL 3418160, at *1 ("It is well established that general statements of policy and rules governing internal agency operations or `housekeeping' matters, which do not have the force and effect of law, are not binding on the agency issuing them and do not create substantive rights in the public.") (internal quotation marks omitted) (citing cases). It is thus not reviewable under the APA. Cf. Alliance for the Wild Rockies v. U.S. Forest Serv., 351 F. App'x 167, 168 (9th Cir. 2009) (holding that internal rule set was not reviewable under the APA because it "was simply an internal document that is not final agency action") (citing Franklin v. Massachusetts, 505 U.S. 788, 797 (1992); Stauffer Chem. Co. v. FDA, 670 F.2d 106, 108 (9th Cir. 1982)). Facebook's argument to the contrary depends on its assumption that taxpayers had an enforceable right to take their tax cases to IRS Appeals, and that the IRS's issuance of Revenue Procedure 2016-22 altered or abrogated that right. But as described above, taxpayers do not have an enforceable right to take their tax cases to IRS Appeals. Revenue Procedure 2016-22 did not alter this non-right or otherwise determine any rights, obligations, or legal consequences. It therefore is not a final agency action that is reviewable under the APA.
The IRS's decision not to refer Facebook's tax case to IRS Appeals similarly is not a final agency action because it is not an action "by which rights or obligations have been determined, or from which legal consequences will flow." Facebook retains its right to challenge the IRS's tax-deficiency determination before the Tax Court (or to try to negotiate a settlement with IRS Counsel), and it is Facebook's and the IRS's litigation (and/or negotiation) going forward that will ultimately determine the parties' rights, obligations, and legal consequences. Cf. City of Oakland v. Holder, 798 F.3d 1159, 1166-67 (9th Cir. 2015) (government decision to file a lawsuit is not a final agency action, because filing a lawsuit does not determine any rights or obligations; "any rights, obligations, and legal consequences are to be determined later by a judge"). Again, Facebook's argument to the contrary depends on its assumption that it had an enforceable right to take its tax case to IRS Appeals, and that the IRS's decision not to refer its case to IRS Appeals foreclosed that right. But as described above, Facebook does not have this right. The IRS's decision not to refer Facebook's tax case to IRS appeals did not alter this non-right or otherwise determine any rights, obligations, or legal consequences. It therefore is not a final agency action that is reviewable under the APA.
Neither of the agency actions that Facebook challenges is a final agency action. The court therefore may not determine Facebook's APA claims and must dismiss them for lack of subject-matter jurisdiction. Navajo Nation, 876 F.3d at 1171; Gallo Cattle, 159 F.3d at 1198.
"The district courts shall have original jurisdiction of any action in the nature of mandamus to compel an officer or employee of the United States or any agency thereof to perform a duty owed to the plaintiff." 28 U.S.C. § 1361. "Mandamus is available only when `(1) the plaintiff's claim is clear and certain; (2) the duty is ministerial and so plainly prescribed as to be free from doubt; and (3) no other adequate remedy is available.'" Lowry v. Barnhart, 329 F.3d 1019, 1021 (9th Cir. 2003) (quoting Or. Natural Res. Council v. Harrell, 52 F.3d 1499, 1508 (9th Cir. 1995)). "If a plaintiff has no legal entitlement to the relief sought, a `clear and certain' claim cannot exist, and the writ will not lie." Id.
Facebook's claim is not clear, certain, or free from doubt, and it has no legal entitlement to the relief sought. The court thus denies Facebook's claim for mandamus.
The court grants the IRS's motion to dismiss.
Because the court rules as a matter of law that Facebook has no legally enforceable right to compel the IRS to refer its case to IRS Appeals, the court dismisses the complaint with prejudice. There are no deficiencies in the complaint that can be cured, and thus leave to amend would be futile. Cf. Serra v. Lapin, 600 F.3d 1191, 1195 (9th Cir. 2010).
