Gurrola v. United States ex rel. Internal Revenue Service
751 F.3d 629
D.C. Cir.2014Background
- The IRS historically taxed toll telephone service under 26 U.S.C. § 4251 when prices varied by distance and time; as pricing shifted to time-only charges, several courts held the tax no longer applied.
- Taxpayers (Cohen, Sloan, Gurrola) brought consolidated putative class actions seeking refunds and challenged IRS Notice 2006-50 (which announced the IRS would stop taxing distance-invariant long-distance calls and provided a refund procedure).
- The D.C. District Court dismissed initial suits; a D.C. Circuit panel (Cohen I) reversed as to APA reviewability of Notice 2006-50; the en banc court (Cohen II) allowed APA claims to proceed on remand.
- On remand the district court held Notice 2006-50 violated the APA (promulgated without notice-and-comment), vacated the Notice prospectively, and remanded to the IRS without ordering a specific refund rule.
- Plaintiffs sought (1) an order directing the IRS to promulgate a new refund procedure and (2) attorney’s fees under EAJA; the district court denied both and entered final judgment only for Sloan on a procedural APA claim.
- The D.C. Circuit affirmed: it proceeded to the merits despite finality concerns, held the court could not compel the IRS to adopt a particular refund rule, and affirmed denial of attorney’s fees (finding the government’s position substantially justified).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Appellate jurisdiction over district-court remand order | Appeal permissible because remand effectively forecloses review and IRS says it will not act | Remand orders are typically non-final and not appealable under 28 U.S.C. § 1291 | Court exercised practical jurisdiction given circumstances but noted rule normally bars such appeals; proceeded to merits |
| Vacatur and remand relief — may court compel IRS to promulgate specific refund procedure? | Court should order the IRS to promulgate a workable, specific refund rule to effectuate refunds | APA only permits vacatur; no statute mandates a specific refund procedure and the IRS has discretion over refund processes | Court held it could not order IRS to promulgate a particular refund rule; vacatur/remand was proper because § 706(1) relief requires a discrete, nondiscretionary duty |
| Prevailing-party status for EAJA or § 7430 | Sloan (and others) are prevailing parties entitled to fees; common-benefit theory should allow fee-shifting | Fees must be under § 7430 (tax-specific) or EAJA; prevailing-party status requires a judicially conferred change; common-benefit inapplicable because beneficiary class is massive/indeterminate | Gurrola and Cohen are not prevailing parties; Sloan is prevailing but common-benefit inapplicable (class too large/indeterminate) and § 7430 relief not shown (no administrative exhaustion) |
| Whether the government’s position was "substantially justified" for EAJA § 2412(d) | IRS position was not substantially justified (notice-and-comment violation; failure to provide adequate refund scheme) | Existence of multiple dissents, en banc review, and difficult legal questions shows substantial justification | Court found the district court did not abuse discretion: government was substantially justified given prior dissents, en banc rehearing, and reasonably contestable legal questions; affirmed denial of fees |
Key Cases Cited
- Norton v. S. Utah Wilderness Alliance, 542 U.S. 55 (2004) (limits on mandamus-like relief; agency action unlawfully withheld requires a discrete, nondiscretionary duty)
- Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep’t of Health & Human Res., 532 U.S. 598 (2001) (prevailing party requires a material alteration of legal relationship via judgment or consent decree)
- Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240 (1975) (common-benefit fee-shifting limited to small, identifiable beneficiary classes)
- Pierce v. Underwood, 487 U.S. 552 (1988) (definition of "substantially justified" for fee-shifting purposes)
- Cohen v. United States (Cohen I), 578 F.3d 1 (D.C. Cir. 2009) (panel held Notice 2006-50 reviewable under the APA)
- Cohen v. United States (Cohen II), 650 F.3d 717 (D.C. Cir. 2011) (en banc: permitted APA claims to proceed despite Tax Anti-Injunction and Declaratory Judgment Act arguments)
- LePage’s 2000, Inc. v. Postal Regulatory Comm’n, 674 F.3d 862 (D.C. Cir. 2012) (substantial-justification standard explanation)
- Friends of Boundary Waters Wilderness v. Thomas, 53 F.3d 881 (8th Cir. 1995) (prior dissents relevant but not conclusive on substantial justification)
- EEOC v. Clay Printing Co., 13 F.3d 813 (4th Cir. 1994) (dissenting opinions may be considered but are not alone dispositive for EAJA)
- Sierra Club v. USDA, 716 F.3d 653 (D.C. Cir. 2013) (finality of remand orders and appealability considerations)