Federal tax lawsuits plunge

Federal civil tax lawsuits have fallen by more than half over the past decade, according to a new analysis.

The latest available data from the federal courts indicates that during the first quarter of fiscal year 2020 (Oct. 2019 - Dec. 2019), the government reported 158 new civil filings of federal tax lawsuits. According to the case-by-case information analyzed by the Transactional Records Access Clearinghouse (TRAC) at Syracuse University in New York, that number was down 19 percent over the same period from fiscal year 2019 when the number of civil filings of this type totaled 194.

If the filings continue at the same pace for the rest of this fiscal year, according to TRAC, the total civil tax filings will be 632, down from 736 during the past fiscal year. Ten years ago, in fiscal year 2010, there was a total of 1,205 such suits.

Sign in front of IRS building in Washington, D.C.
The IRS building in Washington, D.C.

TRAC noted that there has been a long-term decline in the number of civil tax suits going back at least to fiscal 2008, when a total of 1,461 suits were filed.

Federal civil tax suits can cover a wide range of issues. Out of the 158 suits filed during the first quarter of FY 2020, a total of 65 (41 percent) were suits filed against the United States.

The largest number of suits filed during the first quarter of this fiscal year occurred in the Central District of California (Los Angeles) where 16 suits were lodged. The majority (12) of these were suits brought by the United States, with most filed to enforce an IRS summons.

To read the full report, visit https://trac.syr.edu/tracreports/civil/592/.

Separately, Microsoft was ordered by a federal judge in Washington State to turn over documents to the Internal Revenue Service after fighting a long-running audit over allegations that it had shifted over $39 billion in profits to Puerto Rico to avoid taxes. The lawsuit gained renewed attention after a report Wednesday by ProPublica and Fortune.

Another group fighting the IRS in court is CIC Services, a Knoxville, Tennessee-based captive insurance company manager, which petitioned the U.S. Supreme Court last week to hear its lawsuit against the IRS regarding IRS Notice 2016-66, which designates certain micro-captive transactions as “transactions of interest,” which could be potentially abusive. Last August, the Sixth Circuit Court of Appeals denied CIC Services’ petition for en banc review by a nine-to-seven vote. But despite being denied, the seven dissenting judges wrote an opinion in CIC Services’ favor. One judge agreed with CIC Services’ position as a legal matter, but nonetheless voted with the majority because he felt the case warranted Supreme Court review, according to the company. CIC Services is seeking an injunction prohibiting the IRS from enforcing IRS Notice 2016-66, arguing it was illegally promulgated in contravention of the Administrative Procedures Act.

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