IRS Sued over VCP Mismanagement

A federal district court recently denied the IRS’ motion to dismiss the suit.

In a lawsuit filed in 2014, Information Systems and Networks Corporation (ISN) brought action against the Internal Revenue Service under the Administrative Procedure Act, saying the IRS arbitrarily refused to meaningfully consider, and issue a ruling in connection with, ISN’s Voluntary Correction Program (VCP) submission related to its pension plan. 

A federal district court has moved he lawsuit along by denying the IRS’ motion to dismiss the case. 

Specifically, the compliant says that after ISN filed for VCP review, the IRS agreed to review certain errors committed by the plan’s independent fiduciary on the condition that ISN engage a consultant to perform specific analyses related to these errors. But after ISN supplied the requested analyses, the IRS “arbitrarily and capriciously” refused to review or address the errors in the plan’s administration and declined to consider the VCP Submission further.  

In addition, the lawsuit says, with respect to other errors in the administration of the plan, the IRS refused to consider the VCP Submission on the erroneous grounds that problems related to the plan’s independent fiduciary should be addressed to the Department of Labor (DOL). “The Service mistakenly believed that the independent fiduciary was appointed by (and was therefore answerable to) the DOL. DOL does not control or exercise oversight of the independent fiduciary,” the complaint states. 

In its motion to dismiss, the IRS said ISN lacks standing, and its “claims are barred by the Anti-Injunction and Declaratory Judgment Acts.” It also moved to dismiss because there has been no final agency action, and the agency action at issue has been committed to the discretion of the Internal Revenue Service. 

On March 2, the U.S. District Court for the District of Columbia denied the IRS’s motion to dismiss without issuing an opinion. 

The lawsuit seeks relief including, but not limited to, issuing preliminary and permanent injunctions; issuing non-monetary declaratory relief; holding unlawful and setting aside the IRS’ action as arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with law; and compelling the IRS to perform its duty.