Further Criticism Of The Procedure In Liberty Global

• Published date: 19 July 2023
• Subject Matter: Tax, Income Tax, Tax Authorities
• Law Firm: Caplin & Drysdale
• Author: Mr Christopher Rizek and Robert T. Carney

To the Editor:

We are writing with respect to the excellent article published in Tax Notes on June 26, 2023, by Jenny A. Austin, Anthony D. Pastore, and Jeremy D. Himmelstein.¹ We have a couple of additional comments as to why the district court's June 1 order in Liberty Global² is erroneous and should be reversed on appeal.

The Internal Revenue Code specifically contemplates what should happen when an additional deficiency is determined by the IRS while a refund action for the same tax and tax year is already pending. ³ Section 7422(e) provides that in that event, the IRS may mail a deficiency notice to the taxpayer, and proceedings in the refund action shall be stayed for the period of time in which the taxpayer may file a Tax Court petition (ordinarily 90 days), plus 60 days thereafter. If the taxpayer does file in Tax Court, then the court in which the refund action is pending loses jurisdiction over issues related to the liability. Conversely, if the taxpayer does not timely file in Tax Court, then the United States may counterclaim for the full amount of the deficiency in the refund action, even if the ordinary time for filing such a counterclaim has expired.⁴ Liberty Global cited section 7422(e) in its motion to dismiss and explained that it provided Congress's contemplated approach to this situation, but the court never even mentioned it.

Several facts show that this remedial provision (section 7422(e)) could ' and should ' have been applied in this case. First, the IRS had plenty of time after Liberty Global's initial refund suit was filed to issue a statutory notice of deficiency for the additional amounts it alleges were due ' almost two full years, without even asking for any extensions.⁵ Indeed, the new collection suit was itself filed by the United States on October 7, 2022, four days before the expiration of the applicable limitations period. That simple point undercuts the government's peevish claim⁶ that this situation arose because "tax litigators have been developing strategies to bypass the administrative process for taxpayers that, like LGI [Liberty Global], can afford to pay the tax, and litigate in what is usually a post-payment forum, the district court." Contrary to the government's position, the new action it filed was not "a situation of LGI's own making." Rather, it results from the IRS's failure to issue a statutory notice of deficiency for nearly two years when it could and should have, and the government's deliberate choice...