SAN FRANCISCO — A magistrate judge in San Francisco has tossed out a lawsuit by Facebook Inc. against the IRS, ruling the social media giant does not have a right to challenge its massive tax bill through an internal IRS appeals process.
The company sued the IRS last fall as part of an ongoing dispute with the tax authority over the value of assets Facebook transferred in 2010 to its Irish holding company. The IRS said Facebook undervalued those assets by some $7 billion, which Facebook contests.
In an order Monday, U.S. Magistrate Judge Laurel Beeler of the Northern District of California dismissed Facebook’s case with prejudice, ruling the company could not allege its rights were impinged by being denied access to the IRS Office of Appeals as part of that dispute.
“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,” Beeler wrote. “But Facebook fails to establish that it has a legally protected right to take its tax case to IRS Appeals.”
“Because Facebook has no legally enforceable right to take its tax case to IRS Appeals, the IRS has not invaded a legally protected interest by refusing to refer Facebook’s case to IRS Appeals, and Facebook consequently lacks standing,” the judge added.
Scott Frewing, a partner at Baker McKenzie representing Facebook in the case, declined to comment.
Facebook claimed that IRS counsel stymied the company’s request to pursue an internal IRS appeal by citing a seldom-used rule that allows IRS exam teams to block an appeal if they determine such an appeal is not in the interest of “sound tax administration.” The company brought the claim under the Administrative Procedure Act.
But Beeler ruled the company also could not challenge the rule itself because it was technically not a “final agency action” for the purposes of APA analysis. “Revenue Procedure 2016-22 is an internal procedural rule that does not create or determine any rights, obligations or legal consequences,” she wrote.
Facebook, Beeler added, also cannot challenge the IRS decision denying the appeal because that, too, is not a final agency action.
“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 Appeal foreclosed that right,” she wrote. “But as described above, Facebook does not have this right.”
The IRS did not immediately respond to a request for comment.