Georges Marciano founder of the clothing brand Guess? should have guessed that he was barking up the wrong tree by suing IRS in U.S. District Court seeking declaratory and injunctive relief and a writ of mandamus, “to compel the IRS to provide him with an explanation and documentation of its understanding of his tax liability for certain years.” (Georges Marciano v. Douglas Shulman, Commissioner of IRS, U.S. District Court For the District of Columbia, Civil Action 09-01499 (HHK)).

This Mr. Marciano was certainly not Rocky Marciano for it was IRS that landed the knock out punch. Judge Kennedy granted an IRS motion to dismiss throwing the case out of court.

The dispute was engendered when Marciano learned that employees had engaged in fraud and embezzlement stealing nearly $200 million from his accounts.  Investigating the fraud, he sought from IRS copies of his tax returns for 2000-2004 and 2006.  Marciano returned refund checks received from IRS for some of these years with a request for an explanation of the refunds.  IRS responded and later wrote to Marciano stating that “no tax issues exist” with regard to his returns.  Meanwhile Marciano unsuccessfully sued his former accountant and some former employees. Creditors commenced an involuntary bankruptcy proceeding against him

Why did the court dismiss Marciano’s suit against IRS? Basically, he failed to establish that the court had subject matter jurisdiction or to state a claim upon which the court could grant relief even if jurisdiction were established.

• To obtain tax returns or other documents from IRS, Marciano, the court observed, could have formally requested the documents under the Freedom of Information Act and exhausted all administrative remedies, then sought relief from the court.  The court treated Marciano’s as having made an informal FOIA request which was effectively denied; but, stated it lacked subject matter jurisdiction because Marciano did no exhaust all administrative remedies.
• Marciano, among other assertions, claimed a Fifth Amendment protection to his right to properly pay taxes, or, as the court paraphrased his argument, “he would pay enthusiastically, if asked.” The court stated: “Obviously the extraction by the government of money or property via taxation implicates a constitutionally protected property interest, but…,The Court is aware of no precedent establishing a protected property interest in the ability to pay taxes.” 
• IRS stated that Marciano owed no additional taxes; Marciano believed that he owed additional taxes and wanted IRS to audit or investigate his tax situation.  The court found that tax audits fall within the discretionary duties of IRS and a court cannot order by writ of mandamus that IRS audit a taxpayer.  The court noted that Marciano’s indignation over IRS refusal to assist him is no substitute for legal authority justifying a court ordering such assistance.

Marciano might have been better served to:

1. File a FOIA formal request and, if denied,  exhaust all administrative remedies before seeking judicial relief.
2. File amended returns, using reasonable estimates, if possible, with regard to items he believed were omitted from the original returns and include detailed statements regarding how revised numbers were determined.
3. Request Prompt Assessment under IRC Sec. 6501(d) with regard to the years in question shortening the limitations period on assessment to 18 months (Form 4810: http://www.irs.gov/pub/irs-pdf/f4810.pdf).  This might have triggered IRS action.
4. Seek assistance from the Taxpayer Advocate office if IRS had failed to respond within 30 days to written request on Form 4506  for copies of returns (It is not clear from the court’s decision how Marciano went about requesting return copies).

Litigation with IRS normally should be the last resort not one’s first choice in attempting to resolve disputes with IRS.  Foolish suits are a waste of energy and money: The right to conduct an audit of a taxpayer’s return is a one way street, a private road; and, the IRS is the owner and lone permitted traveller. If Marciano’s gaol was to pay his legally determined, certain tax liability, other devices for obtaining finality were available but regrettably not employed.

Copyright 2011 by Robert S. Steinberg, Esquire

All rights reserved.