IRS nonacquiesces to 47-year-old case.

• Author: Beavers, James A.

The IRS announced it will not follow the decision in International Business Machines Corp., 343 F.2d 914 (Ct. Cl. 1965), in which the Court of Claims held that the IRS could only apply an adverse ruling prospectively if applying it retroactively would treat the taxpayer who requested the ruling differently from a taxpayer who received a favorable ruling on the same subject.

Background

In April 1955, the IRS ruled that certain computer systems sold by a competitor of International Business Machines (IBM) were not subject to an excise tax on business machines and issued a refund of the excise tax for the three previous years. Three years later, the IRS revoked the earlier favorable ruling but made the revocation prospective. This resulted in a six-year period from January 1952 to January 1958 during which the competitor was not subject to the excise tax.

In July 1955, IBM requested the same ruling from the IRS with respect to computer systems it sold and filed a claim for refund of taxes paid in June 1951 through May 1955. After more than a two-year delay, in November 1957, the IRS issued a ruling that IBM's computers were subject to the excise tax. IBM subsequently filed a refund request for the period June 1955 to January 1958, making the period for which it requested refunds approximately equal to the period for which the competitor was not subject to the tax. The IRS denied both of IBM's refund requests, and IBM filed a refund suit in the Court of Claims.

The Court of Claims held in favor of IBM, finding that the IRS had improperly applied its November 1957 ruling to IBM retroactively (refusing refunds back to 1951). Citing Automobile Club of Michigan, 353 U.S. 180 (1957), the court found that it was an abuse of discretion for the IRS to apply a ruling retroactively if doing so would produce inequitable results. According to the court, IBM "was entitled to have the Service's ruling ... controlled by the standard of equality and fairness incorporated in Section 7805(b)." Finding that in this case an inequitable result had occurred as a result of the IRS's retroactively applying the ruling, the court concluded that the IRS had abused its discretion in doing so.

AOD 2012-02

In Action on Decision (AOD) 201202, the IRS announced that it will not follow the decision in International Business Machines Corp. Although the announcement comes 47 years after the Court of Claims decided the case, the IRS averred in the AOD that it has never agreed...