The opinion of the court was delivered by: Ricardo M. Urbina United States District Judge
GRANTING THE DEFENDANT'S MOTION FOR DETERMINATION OF MANDATE'S SCOPE;
REMANDING TO THE INTERNAL REVENUE SERVICE AND PROSPECTIVELY VACATING NOTICE 2006-50
The plaintiffs challenge the adequacy of a tax refund process instituted by the Internal Revenue Service ("IRS" or "the defendant"). The court previously dismissed the plaintiffs' Administrative Procedure Act ("APA") claim, but the Circuit remanded, instructing this court to consider the merits of the plaintiffs' APA claim in accordance with the Circuit's opinion. The matter is now before the court on the defendant's motion to determine the effect of the Circuit's opinion on the plaintiffs' APA claim.*fn1
The parties agree that the Circuit's opinion may suggest that the defendant violated the APA by failing to comply with the required notice-and-comment procedures. The parties further agree that if that is the case, then the only remaining issue for this court to decide is the appropriate remedy. As discussed below, the court determines that the Circuit's opinion, in conjunction with the parties' representations, indicate that a procedural APA violation occurred. Furthermore, the court concludes that a prospective vacatur is an appropriate remedy.
For decades, the IRS has collected a 3% excise tax on all long-distance communications. Cohen v. United States, 650 F.3d 717, 719-20 (D.C. Cir. 2011). With technological advancements, the IRS was unable to base the tax on distance and therefore began to base the tax solely on the duration of a call. Id. at 720. Litigation ensued, challenging the legality of the tax based solely on the duration of a call. Id. Eventually, five circuits held that the tax was illegal, and the IRS thus discontinued the excise tax based solely on transmission time. Id.
The IRS provided notice of a one-time exclusive mechanism for taxpayers to obtain a refund for those excise taxes erroneously collected between February 2003 and August 2006 ("Notice 2006-50"). Id. Notice 2006-50 required that individual taxpayers request this refund on their 2006 federal income tax returns. Id. at 721.
Various lawsuits arose challenging the adequacy of the refund process. Id. The Judicial Panel on Multidistrict Litigation transferred two of those cases, Cohen v. United States, Civ. No. 05-1237 (E.D. Wis. 2005) and Gurrola v. United States, Civ. No. 06-3425 (C.D. Cal. 2006), to this court, where they were consolidated with Sloan v. United States, Civ. No. 06-483 (D.D.C. 2006). Id. Put succinctly, the plaintiffs allege that Notice 2006-50 is substantively flawed because it undercompensates many taxpayers for the actual excise taxes paid, and that it is procedurally flawed because the IRS did not comply with the APA's notice-and-comment procedures. Id.
This court previously dismissed the case after concluding that the plaintiffs had failed to exhaust their administrative remedies for their refund claims and failed to state valid claims under federal law. Id. In so holding, the court determined that the Notice was an "internal policy" that did not adversely affect the plaintiffs' rights, and that therefore the agency action was unreviewable. Id. The plaintiffs appealed, and a divided Circuit panel reversed, holding that the Notice constituted a final agency action reviewable under the APA and that the court maintained proper jurisdiction. Id. at 722. The IRS petitioned for en bancreview. Id. The Circuit "granted rehearing en banc only to determine whether [it had] the authority to hear the case." Id. at 719.
The Circuit held that it had authority to hear the case. Id. at 736. As a threshold matter, the Circuit determined that the government had waived its sovereign immunity. Id. at 723. The Circuit further decided that other limitations to judicial review, namely, the Anti-Injunction Act and the Declaratory Judgment Act, did not apply to the plaintiffs' APA claims. Id. at 724-25. More specifically, the Circuit ruled that the plaintiffs were not required to exhaust their administrative remedies to pursue their claims because they were challenging the adequacy of the agency procedure itself. Id. at 726. Accordingly, the Circuit reversed this court's dismissal and remanded the case, instructing this court "to consider the merits of [the plaintiffs'] APA claim, in accordance with the opinion of [the Circuit]." Id. at 736.
Upon remand, the defendant filed a motion asking this court to decide the effect of the Circuit's mandate on the plaintiffs' remaining APA claims. See generally Def.'s Mot. The plaintiffs have filed a response, clarifying those areas in which they are in agreement and disagreement with the defendant. See generally Pls.' Response. With the defendant's motion now ripe for the ...