In re: Long-distance Telephone Service Federal Excise Tax Refund, No. 12-5380 (D.C. Cir. 2014)Annotate this Case
26 U.S.C. 4251 imposes an excise tax on amounts paid for toll telephone service. Technological advances changed cost structures and, as a result, telephone companies began charging only by elapsed transmission time. The IRS, however, continued to collect the tax. Five courts of appeals, including this court, held that section 4251 did not permit the Service to tax telephone service with distance-invariant pricing. Around the same time, plaintiffs (Cohen, Sloan, and Gurrola) filed separate putative class-action suits challenging the tax. After Cohen and Sloan filed their complaint, the Service issued without notice and comment Notice 2006-50, declaring that the Service would no longer tax telephone service priced without regard to distance and established a procedure to refund illegally collected excise taxes. On appeal, plaintiffs challenged the district court's refusal to direct the Service on remand to issue a refund rule and from its denial of their interim request for fees. The court rejected plaintiffs' contention that the district court erred in vacating Notice 2006-50 and remanding, without specifically instructing the Service to promulgate a new refund procedure. Here, the only statutory failure was of notice and comment. Absent a statutory duty to promulgate a new rule, a court cannot order it. The court also concluded that the district court did not abuse its discretion in denying fees. The district court found the government's position to be substantially justified because several circuit judges agreed with the government and dissented from the Cohen I and Cohen II opinions. Accordingly, the court affirmed the judgment of the district court.