SW Legal studies in Business

IRS Notice Was Final Agency Action Subject to Court Review

Appeals court held that a notice issued by the IRS about how to resolve a tax refund issue was a final notice from the agency on a much disputed matter. Since it was a final notice, it could be contested in court. Complaining parties did not have to challenge the matter within the agency first.

Topic Administrative Law
Key Words

IRS Notice; Judicial Review

C A S E   S U M M A R Y

The federal tax code imposes a three percent excise tax on phone calls. Telephone service providers collect the tax and pay it to the IRS. The tax is supposed to vary according to the distance of a call. At the time the tax was imposed, the longer the distance of a call, the higher the rate charged, but today most calls are billed by time, not distance. But the IRS continued to set taxes based on distance of calls. Multiple taxpayers sued seeking refunds, contending the tax rate they were charged was too high. The IRS fought the suits, but lost every one. The IRS then issued Notice 2006-50. It announced that distance based taxes would be discontinued and that those who had paid too much in tax between February 28, 2003 and August 1, 2006 could request a refund. Suits were then filed challenging the refund process, which was a complicated process that resulted in billions of dollars in taxes not being refunded. The district court held that plaintiffs had to exhaust all administrative remedies before appealing to the courts. Plaintiffs appealed.


Reversed. The IRS Notice on the matter was a final agency action subject to judicial review under the Administrative Procedures Act.  The notice set out the procedure that taxpayers must follow to obtain a refund. It was the agency’s final word on the matter that did not indicate further changes forthcoming from the agency. Hence, attacks on the notice could proceed in court, there was no further requirement that those complaining about the Notice had to deal with the IRS first.


Cohen v. U.S., ---F.3d--- (2009 WL 2408557, D.C. Cir., 2009)

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