[00:00:00] Speaker 02: Night Circuit, thank you all for being here. [00:00:02] Speaker 02: We have a few cases that are submitted on the briefs today. [00:00:06] Speaker 02: Rosas Gonzalez versus Bondi, 23-3564. [00:00:13] Speaker 02: United States versus Orduna, 24-7565. [00:00:16] Speaker 02: Hill versus Brasignano, 25-1060. [00:00:24] Speaker 02: United States versus Pritchard, 25-129. [00:00:28] Speaker 02: And Love Lady versus Experian, 25-2720. [00:00:31] Speaker 02: Oh, and also, Amadeus Therapy versus Amadeus Therapy, 25-3867. [00:00:41] Speaker 02: All of those cases are submitted. [00:00:43] Speaker 02: The other cases will be heard in the order in which they appear on the calendar. [00:00:47] Speaker 02: The first is ERC Today versus McAnally, 25-2642. [00:00:54] Speaker 02: Each side has 10 minutes. [00:00:58] Speaker 03: May it please the court. [00:00:59] Speaker 03: Good morning, Your Honors. [00:01:00] Speaker 03: My name is Peter Orhangelski on behalf of the appellants since it's Hamadon ERC today. [00:01:04] Speaker 03: I'd like to try to hang on to maybe upwards of three minutes of my time for rebuttal, if that's okay. [00:01:10] Speaker 03: Your Honors, this case challenges the IRS's material change and procedure for handling tax refund claims under the employee retention tax credit. [00:01:20] Speaker 03: The IRS created a first of its kind program that automates refund decisions using eligibility filters [00:01:26] Speaker 03: developed without first gathering facts needed to evaluate eligibility under the ERC statute. [00:01:32] Speaker 03: Those automated decisions start the two-year statutory window for taxpayers to resolve their claims at the administrative level and prevents meaningful administrative appeals when the IRS diverts these claims into post-denial audits. [00:01:46] Speaker 01: My understanding of the history of this was a program developed during COVID in the aftermath of COVID to help employers [00:01:55] Speaker 01: retain employees is that some pretty substantial fraud was discovered early into the program. [00:02:05] Speaker 01: Am I right about that? [00:02:06] Speaker 03: The IRS has made public statements indicating that fraud was identified by practitioners in the space, but there's been precious little data revealed regarding what level of fraud within the program might exist. [00:02:17] Speaker 01: They discovered that businesses claiming the credit didn't exist. [00:02:25] Speaker 01: and that businesses that did exist claiming the credit had no employees, right? [00:02:32] Speaker 01: So what's wrong with the government developing an audit system to ferret that sort of thing out? [00:02:39] Speaker 03: Because that's not the kind of auditing that we're talking about in this instance, the auditing that you're speaking of that did occur at various times, including in December 23. [00:02:47] Speaker 03: And there are certain types of practices that they use to identify information, which they would have had in their files. [00:02:56] Speaker 03: What we're talking about here, the rules that animate this program, these are going to the eligibility criteria under the statute itself. [00:03:04] Speaker 03: So if you look at Section 3134C2, you have [00:03:07] Speaker 03: various ways in which a business can qualify. [00:03:10] Speaker 03: And one of those would be, let's say, a gross receipts decline. [00:03:14] Speaker 03: Another might be a partial suspension by a government order. [00:03:17] Speaker 03: The IRS never collected the information from the taxpayers. [00:03:20] Speaker 04: But aren't all decisions made at the IRS about eligibility, whether I'm eligible for a charitable contribution or for daycare or for credit because I'm a veteran or because I'm blind? [00:03:33] Speaker 04: Those are all eligibility questions. [00:03:34] Speaker 04: Isn't that everything that the IRS deals with? [00:03:37] Speaker 03: I think that's fair, but I think what we're talking about in this case is how the IRS is dealing with it, and whether the IRS has what it needs to be able to make those decisions in the first instance. [00:03:46] Speaker 04: So the district court dismissed this on standing. [00:03:48] Speaker 04: So let me take you to the, let's talk about, first I'd like to talk about the question of injury in fact, and I want to see how far your theory goes, because your clients are not filing [00:03:57] Speaker 04: with the IRS. [00:03:58] Speaker 04: That is, they're not filing as principals with the IRS. [00:04:01] Speaker 04: They're advisors to clients and their business model is we get paid when you get paid. [00:04:07] Speaker 04: Under your theory, could ERC's employees file this suit because they won't get paid their salaries unless their clients get paid? [00:04:21] Speaker 03: The distinguishing position here is that as tax preparers, they are regulated by the IRS in this capacity and they're required to follow the regulations and the processes. [00:04:31] Speaker 04: Sure, that would describe all CPAs, all tax preparers. [00:04:36] Speaker 04: But I'm trying to figure out about injury in fact, couldn't their employees have brought this suit and say, yeah, if ERC doesn't get paid, we don't get paid. [00:04:46] Speaker 04: And therefore, [00:04:47] Speaker 04: There's injury in fact, we can trace the causation the same way that ERC can, and you claim the same redressability. [00:04:54] Speaker 03: Well, I think the employees in this instance are another layer removed from the direct harm. [00:04:58] Speaker 04: Well, they are a layer removed, but you're a layer removed. [00:05:01] Speaker 04: Now, do I get one more layer removed? [00:05:03] Speaker 04: What about ERC's landlord? [00:05:05] Speaker 04: Can the ERC's landlord come in and say, if ERC's told us that it's going to be a crunch time because things are being delayed at the IRS, and if they don't get paid, they may not make rent. [00:05:15] Speaker 04: So can the landlord, yes, it's one more step removed, but tell me how many steps removed we get. [00:05:20] Speaker 03: Well, I think there's, there are prudential considerations under the APA for a claim like this where a party has to be within the zone of regulation. [00:05:26] Speaker 03: And I mean, the tax preparers, they definitely are in that situation. [00:05:30] Speaker 03: When you get down the line and you talk about these, these attenuated parties, they're not contracted directly with the clients like our clients are. [00:05:37] Speaker 03: They haven't entered into agreements. [00:05:39] Speaker 03: In this case, like Sensen Tamadon or yesterday have entered into contracts that require them to assist the clients throughout the administrative process from day one through [00:05:48] Speaker 03: to when they can secure the credit. [00:05:50] Speaker 02: So can I ask, your theory of injury is, as you're just describing, it's your clients either costs for these representations or the money they get from these representations. [00:06:04] Speaker 02: Have you shown anywhere in the record that you're actually worse off under DDP in terms of your finances than you were before? [00:06:12] Speaker 03: Well, in terms of the finances, I think the answer would be obviously yes, because they've been denied the credit that they would otherwise have had an opportunity to secure beforehand. [00:06:22] Speaker 02: But have you shown aggregate numbers at all or percentages of your clients because, sorry, of your clients' clients? [00:06:29] Speaker 02: Because some people were denied before also. [00:06:32] Speaker 02: I couldn't figure out anywhere where you're actually showing that [00:06:35] Speaker 02: alleging any sort of numbers other than just like this client was denied or that client was denied. [00:06:40] Speaker 02: But that would have been true before too that some people would be denied. [00:06:43] Speaker 03: I don't want to speak at a turn on this. [00:06:45] Speaker 03: I believe the declaration of Eric Stenson mentioned the volume of denials that were at issue. [00:06:51] Speaker 03: I'm not 100% certain on that. [00:06:53] Speaker 03: But obviously, Stents and Tamadon has suffered hundreds of disallowances through this program. [00:06:58] Speaker 02: But unless you can show us that whatever those hundreds are are a higher percentage than it was before, I don't see how you've shown an injury from this program. [00:07:09] Speaker 03: Well, the higher percentage, it depends. [00:07:11] Speaker 03: I mean, we're also looking here at a, it's a procedural case in many respects. [00:07:16] Speaker 03: And so we're suffering a procedural harm that makes it more difficult for Stents and Tamadon to obtain. [00:07:21] Speaker 03: the relief for their clients. [00:07:23] Speaker 02: But that only matters for you if it translates to money, right? [00:07:26] Speaker 02: So you need to show then that the procedures under DDP cost more overall per client, per client's client, the underlying person or company applying for this refund, for each client's [00:07:42] Speaker 02: you need to show some kind of worst thing for your client, either in the expenses or the earnings. [00:07:50] Speaker 02: And just saying we have to do a lot of things doesn't show us you didn't have to do a lot of things before. [00:07:55] Speaker 02: Just saying someone was denied doesn't show us that someone wasn't denied before. [00:07:59] Speaker 02: You're not actually, as I understand it, alleging really [00:08:04] Speaker 02: I mean, for your standing, it doesn't depend on the merits of a particular denial because you don't care about that. [00:08:10] Speaker 02: You care about the aggregate. [00:08:11] Speaker 02: And I don't see anything about the aggregate in your allegations. [00:08:14] Speaker 03: Well, because I disagree that it's just based on money. [00:08:17] Speaker 03: And I think, like I mentioned, we have a procedural harm that suffered when we lose some of the elements that we'd normally have in a pre-disallowance audit. [00:08:24] Speaker 03: Now we have a shifting burden in a post-disallowance audit. [00:08:29] Speaker 03: we have the time crunch that's the press of the lack of administrative appellate process, the forced entry into civil litigation, which deprives my client of an ability to actually resolve that in the administrative forum. [00:08:42] Speaker 03: We're not lawyers. [00:08:43] Speaker 03: They're not lawyers. [00:08:44] Speaker 02: But so as the tax preparer, you're saying that your injury in fact is stress? [00:08:50] Speaker 03: Well, I think it's, it's a change in legal burden. [00:08:53] Speaker 03: I mean, this is something that we've accepted for many times over. [00:08:56] Speaker 03: I mean, [00:08:56] Speaker 03: There are different cases that have looked at the change in, let's say, for example, the addition of an affirmative defense and an eviction proceeding. [00:09:03] Speaker 03: There's different types of ways in which you can burden a proceeding, which is the trifle that's required for injury under Article III. [00:09:10] Speaker 03: I mean, and that's what we have here. [00:09:11] Speaker 03: You have a fundamental change in procedure. [00:09:14] Speaker 03: You've shifted these claims from being pending to outright denied. [00:09:18] Speaker 01: I think- Let's say we accept that. [00:09:22] Speaker 01: Where's the harm? [00:09:25] Speaker 03: Well the harm is that our clients have to have I mean even on just day one our clients have to have conversations with serious strategic decisions as to whether they want to even participate in an administrative process at this point because they know that there's a there's at this point almost a near certainty that they cannot go all the way through. [00:09:43] Speaker 03: So you can have a post-denial audit, but it's unlikely that even if you come out the other side of that and you maybe, let's say, have some disputes with the IRS over a squishy issue like partial suspension, now you don't have the administrative forum at your back to be able to resolve these issues and fully mature a record. [00:10:02] Speaker 03: for district court litigation. [00:10:04] Speaker 03: I mean, these are serious procedural harms at this point, and I think it's cavalier to suggest. [00:10:08] Speaker 04: Your procedural harm, the causation here requires two steps. [00:10:12] Speaker 04: So one is the initial disallowance, that is the filters that seem to be filtering out more cases, though that IRS is more cautious in what it's allowing. [00:10:21] Speaker 04: And the second is a declination on the part of the client to pursue their administrative remedies. [00:10:27] Speaker 04: Why isn't that sort of an intervening cause that's not the IRS's responsibility? [00:10:31] Speaker 03: Well, I mean, for standing purposes, none of the precedents a predictable outcome, the way a third party might react. [00:10:36] Speaker 03: And I think we've definitely seen that courts have accepted that in the past. [00:10:40] Speaker 03: I mean, it's just the reality of a post-disallowance burden is that it is more intense. [00:10:46] Speaker 03: It's broader. [00:10:48] Speaker 03: In many times, the IRS is going to not just audit the disallowed quarters, but they're going to audit all the other quarters that were paid as well. [00:10:56] Speaker 03: I mean it is I think it's and I mentioned that the presumption of correctness that attaches to the disallowance as you move through so I mean it is it is definitely a increase in burden now if you ask me to put a dollar sign on that I think it's difficult because. [00:11:10] Speaker 03: You know, one of the features of the cases that we've we filed a lawsuit to restrain what we perceive to be an unlawful practice likely before you know many of these files played out in the system. [00:11:22] Speaker 03: So it's hard for us to literally look at this and say and run that type of regression analysis. [00:11:27] Speaker 03: And at the start of the case, I mean, that would be something we obviously could do at the district court level. [00:11:31] Speaker 03: But on this frozen record, we can't. [00:11:33] Speaker 03: But I can tell you that it's unquestionably more burdensome on the part of a tax preparer. [00:11:38] Speaker 03: Who, by the way, is the lead in their interacting force with the agency? [00:11:42] Speaker 03: The tax preparer is the party that has to carry the burden through and obviously [00:11:49] Speaker 03: see them over my time. [00:11:50] Speaker 02: But as long as we're still asking questions, you can keep going and I'll give you a bit of time for rebuttal. [00:11:55] Speaker 02: But I'm just wondering how many of your clients' clients' claims are even still pending. [00:12:01] Speaker 02: Is there a mootness problem in this case? [00:12:05] Speaker 03: No, there's and again, I mean, I don't know, I can I can make this representation from the podium, but I will tell you that out of the thousands of parties that have actually made it to a protest, our client has a very significant percentage of those. [00:12:19] Speaker 03: I think at the time at the district court, we were over 10% of those. [00:12:25] Speaker 03: I know that probably, let's say 200 or so were pending. [00:12:28] Speaker 03: We had about 100 potentially resolve at the agency level, but there still are hundreds that are pending at the administrative level. [00:12:35] Speaker 03: And we've even had to put some of those cases into civil refund suits at this point. [00:12:41] Speaker 03: litigation is beginning and that's the outcome here. [00:12:44] Speaker 02: Are you seeking to undo the pending ones or just change the process for when a new claim is filed? [00:12:51] Speaker 03: Well, I think prospectively and yes, and I think to this point, we do have pending claims that are still have not been acted upon by the agency and we are looking for prospective injunctive relief. [00:13:03] Speaker 03: That is of course what we want. [00:13:04] Speaker 03: But I think in order [00:13:06] Speaker 03: If you're looking at preliminary injunctive relief in order to rewind the procedural injury, you either have to require the IRS to extend the statute of limitations for filing a civil refund suit, or you have to put it back before the time of the DDP program so that they have an opportunity to present their evidence to the agency before a denial. [00:13:26] Speaker 04: I'm not sure you can answer this question, but curiosity really has gotten the best of me. [00:13:30] Speaker 04: That is, why didn't you just file this suit on behalf of the clients rather than filing on behalf of the preparers? [00:13:36] Speaker 03: Well, I think one of the concerns is that I don't think we can. [00:13:39] Speaker 03: I mean, if you look at, I guess I would direct you to Cohen v. United States, which is a DC Circuit decision from 2011, which is an en banc decision, which actually deals with a refund mechanism for taxes. [00:13:53] Speaker 03: And the court in that case was very clear that a section 7422 action would be inadequate. [00:14:00] Speaker 03: One of the reasons is because prospective injunctive relief isn't available. [00:14:04] Speaker 03: So I mean, those cases are solely about money. [00:14:07] Speaker 03: And it's just about a specific claim. [00:14:09] Speaker 03: Was this specific client eligible? [00:14:12] Speaker 03: And can we award money for that? [00:14:13] Speaker 03: So you can't breach the procedural. [00:14:15] Speaker 04: But you've got a systematic challenge. [00:14:17] Speaker 04: It wouldn't be a challenge to any particular refund. [00:14:19] Speaker 04: It would be a challenge based on the fact that you have a whole series of people who are applicants for refunds who have been denied relief. [00:14:29] Speaker 04: They've been filtered out by the system. [00:14:32] Speaker 03: Right, so even in a taxpayer case, I think it's important to recognize that that style of claim still has to be presented as an APA theory. [00:14:39] Speaker 03: I mean, it's not going to come in as a taxpayer refund suit. [00:14:42] Speaker 03: It's going to be an attached and a joint claim. [00:14:44] Speaker 03: But the question is, it seems to me that would solve your standing problem. [00:14:48] Speaker 03: Well, I don't think we have a standing problem. [00:14:50] Speaker 03: But also beyond that, I mean, it's relevant. [00:14:52] Speaker 03: You should know that the Department of Justice is advancing argument in these cases around the country saying that taxpayers lack [00:14:59] Speaker 03: standing to pursue APA litigation in these to challenge things like the Notice 2120 and other features of the case. [00:15:07] Speaker 04: Just give me that a class action based on the kind of procedural harm that you've described here might present a more compelling case, let's say, for [00:15:18] Speaker 04: for class relief than an individual taxpayer case. [00:15:23] Speaker 03: Assuming you could meet the elements of a Rule 23 class. [00:15:26] Speaker 03: And I'll tell you, I mean, if you want to write the order for us to say that a class can proceed, then we'll have that case filed. [00:15:32] Speaker 03: But the reality is, I don't think that a Rule 23 action is an appropriate means, because it depends on what you're talking about you're filing. [00:15:39] Speaker 03: Are you filing it in an APS sense? [00:15:41] Speaker 03: And then you're going to confront very similar issues. [00:15:44] Speaker 03: If you're filing it as a tax refund case then you have a problem with prospective injunctive relief and it's still the same APA limitations that we're talking about in this case. [00:15:52] Speaker 02: So if we think you have a standing problem here, that in the current posture goes to the injunctive, the preliminary injunctive relief, but not to whether this case gets dismissed. [00:16:05] Speaker 02: Am I understanding the procedural posture correctly? [00:16:09] Speaker 02: Like the district court didn't dismiss after finding there was no standing. [00:16:12] Speaker 02: So it's a bit of an odd situation. [00:16:14] Speaker 02: This case is still going, regardless of whether we say there's no jurisdiction. [00:16:18] Speaker 02: What's happening right now? [00:16:19] Speaker 03: Well, we agreed, I think, with opposing counsel that it was more or less like a 12 v 6 issue on standing issues. [00:16:27] Speaker 03: And so we stayed the case at the district court level to resolve these questions. [00:16:32] Speaker 03: But again, I mean, there was no question on injury, in fact. [00:16:35] Speaker 02: But what we have before us isn't an appeal of dismissal of the case, it's an appeal of the denial of preliminary injunctive relief, right? [00:16:43] Speaker 02: So if we were to say, correct, there's no standing, would you try to amend? [00:16:50] Speaker 02: Like if you, just hypothetically, I don't know if my colleagues would agree, but if I'm not persuaded that you've shown that there's actually an injury to your clients because of this financial comparison, maybe you could [00:17:01] Speaker 02: add to the record and or add to your allegations, depending on whether we're talking about evidence or the pleading and fix that maybe, but we're not even really in a remand for leave to amend because we're not, we're talking about the PI. [00:17:14] Speaker 02: So I'm a little confused with what, what would you want if we think you don't have standing right now? [00:17:18] Speaker 03: Well, I would, at a minimum, I would ask for the opportunity to amend at the district court level because, and I think we would have that right, because yes, we probably could add facts that would cure standing, including some of the facts that you just, you know, questioned me about. [00:17:30] Speaker 03: I don't know that those are necessary, but we could. [00:17:33] Speaker 02: But we, we're not really in the kind of remand for leave to amend posture right now, are we? [00:17:39] Speaker 03: No, we're asking, I think, [00:17:41] Speaker 03: for review of the limited decision of district court, which in this case was an opinion on redressability and also final agency action. [00:17:49] Speaker 03: We've appealed that. [00:17:52] Speaker 03: We have asked for relief on a preliminary injunction motion. [00:17:55] Speaker 03: But at a minimum, we are asking the court to reverse and send to the district court with instructions for the case to at least continue on the merits. [00:18:04] Speaker 01: Redressability is part of standing, right? [00:18:08] Speaker 03: It is. [00:18:08] Speaker 01: I don't have any. [00:18:11] Speaker 02: You'll still have two minutes for rebuttal, but let's hear from the other side. [00:18:22] Speaker 00: Good morning, your honors. [00:18:23] Speaker 00: May it please the court? [00:18:24] Speaker 00: My name is Nishant Kumar, and I represent the government appellees in this case. [00:18:30] Speaker 00: I would like to just actually address a few things that came up in my friend's presentation. [00:18:38] Speaker 00: Speaking exactly to the standing, we see two problems here. [00:18:43] Speaker 00: One is the lower court found as a matter of fact. [00:18:49] Speaker 00: that it was speculative rather than likely that even if you put the high-risk disallowed claims that Stentum is pointing to through a full examination before disallowing them, they said it was speculative rather than likely that there would be any different outcome. [00:19:09] Speaker 00: Because after all, we're dealing with claims that bear the facial indicia of being [00:19:14] Speaker 00: ineligible. [00:19:15] Speaker 02: I think the other side's argument back to that though is that that's assuming the merits, assumes you win on the merits on the idea that this algorithm is a good algorithm. [00:19:24] Speaker 00: Yes, but I guess it also, so if it's not, so one thing I just want to say is if we treat though as a factual conclusion, the district courts [00:19:42] Speaker 00: finding that they didn't show any concrete instance in which a disallowance led to an eligible claim being improperly disallowed, then they didn't make the clear showing that anything would be different under their preferred process. [00:20:01] Speaker 02: What's odd about this representing their client [00:20:06] Speaker 02: still has another client. [00:20:07] Speaker 02: The odd thing is, I'm not sure the merits of the second-order client, the actual claimant, matter. [00:20:13] Speaker 02: For their client, the preparer, all that matters are aggregate numbers. [00:20:18] Speaker 02: Whether it's a good denial or a bad denial, they just care about whether they're making money or not. [00:20:22] Speaker 00: Well, let me get to the second independent problem. [00:20:25] Speaker 00: I was going to say we could spot them contrary to what the district court found, that let's say they even shown [00:20:33] Speaker 00: maybe they can't make a showing in the aggregate, but they've shown a scattering of instances in which disallowances based on risking happened for clearly eligible claims. [00:20:45] Speaker 02: And it seems like they have alleged that. [00:20:47] Speaker 02: I mean, they're at least, yeah. [00:20:49] Speaker 00: There's at least a, I think there's a central site client that they mentioned. [00:20:53] Speaker 00: Let's just spot them that they've shown that that was clearly eligible, but disallowed because of risking. [00:21:00] Speaker 00: The next question is, so what? [00:21:03] Speaker 00: Because even the risking-based disallowances allow for vindication of actually eligible claims later on, right? [00:21:12] Speaker 00: So the question becomes, is there any proof, and there's not, that the clients who are disallowed based on risking [00:21:23] Speaker 00: that it cost them more to vindicate their claim in the process as in place now versus the process that Stenton would prefer. [00:21:33] Speaker 00: And there's not a shred of evidence like that. [00:21:35] Speaker 02: And that's what my questions were getting at. [00:21:37] Speaker 02: That's my reading of the current record. [00:21:38] Speaker 02: I can't figure out any numbers that would allow such a comparison. [00:21:41] Speaker 02: But so what do we do with this odd procedural posture then? [00:21:45] Speaker 02: I mean, if we agree with that, [00:21:46] Speaker 02: What do we say because it actually does seem like something if we were at a motion to dismiss stage We could say I mean that would be something that could be amended whether they actually can I have no idea But at least in theory they could amend but we're not really at a leave to amend stage, right? [00:22:01] Speaker 02: What where are we at this point? [00:22:02] Speaker 00: So my understanding is if [00:22:07] Speaker 00: You affirmed the decision below. [00:22:09] Speaker 00: Yes, it would go back to the district court and there's still a theoretical possibility because the case hasn't been dismissed and because the showing was slightly different based on, you know, they had to make a clear showing of the standards, Article 3 standards versus a lesser showing if they were just seeking to carry on with their litigation short of an injunction. [00:22:35] Speaker 00: The case would go back. [00:22:36] Speaker 00: Maybe they could seek leave to amend. [00:22:38] Speaker 00: I don't know if there would be something in the district court rules that would foreclose that. [00:22:43] Speaker 00: I imagine the government would file a motion to outright dismiss the case and raise some of the APA problems, the sovereign immunity waiver, like no final agency action or no APA review where there's a specialized judicial review under the tax code. [00:23:03] Speaker 00: The court has not, as a formal matter, decided those. [00:23:08] Speaker 00: It's only technically, I think, decided there's not a likelihood of them being able to show that. [00:23:14] Speaker 00: But you could just recycle the same arguments, I think, on a 12b6, and that would then lead to a final decision. [00:23:20] Speaker 02: Do you think that the final agency action issue is a jurisdictional issue or a merits issue? [00:23:26] Speaker 00: I think it's a jurisdictional issue because I think it goes to whether the government has waived sovereign immunity to the action sovereign immunity is a jurisdictional issue. [00:23:38] Speaker 02: So that issue in theory could be decided before standing on your view. [00:23:43] Speaker 00: Yes, yes. [00:23:45] Speaker 04: So so that could be an entirely sovereign immunity a claim processing rule rather than jurisdiction that the section the APA doesn't refer at all to jurisdiction. [00:23:56] Speaker 04: Our cases, by the way, I think have gone both ways on this question. [00:24:02] Speaker 00: On whether sovereign immunity is jurisdictional. [00:24:05] Speaker 04: Whether it's a 12b1 or a 12b6. [00:24:07] Speaker 04: It may be a very, very firm 12b6, akin to a 12b1, but I'm curious about whether sovereign immunity really is jurisdictional or whether it is... If the government invokes sovereign immunity, that would be one thing. [00:24:24] Speaker 04: But sovereign immunity can also be waived. [00:24:26] Speaker 00: So if the government, your honor, I couldn't presume to add clarity from the podium to the question of whether sovereign immunity is jurisdictional or not. [00:24:39] Speaker 00: We just, you know, have pointed the Ninth Circuit cases holding it was. [00:24:43] Speaker 00: If it's not jurisdictional and district court decides it's not jurisdictional, then I guess it would impact the order in which the district court would have to [00:24:52] Speaker 00: theoretically, you know, potentially allow amendments so that they could do another standing analysis before getting to why the APA doesn't waive the sovereign immunity of the government in this case. [00:25:07] Speaker 04: I want to take you back to something that you said. [00:25:08] Speaker 04: You said that there was no proof that the clients were spending more under the filtering than before. [00:25:16] Speaker 04: So I want to push back on that just a little bit. [00:25:19] Speaker 04: Wasn't that the whole purpose of the filtering was to deny more claims, a larger percentage of claims because you thought that you were overpaying the refunds? [00:25:28] Speaker 04: I'm just wondering how much evidence do we have to have? [00:25:32] Speaker 00: That was exactly what you were trying to do. [00:25:39] Speaker 00: more claims were disallowed or not. [00:25:42] Speaker 00: The question, and obviously, if Stentum has a claim that was disallowed as a result or one of its clients' claims was disallowed as a result of risking, obviously, in the counterfactual, if that claim were allowed, wouldn't Stentum be in a better position? [00:26:00] Speaker 00: The answer is yes. [00:26:01] Speaker 00: But that's not really the question here because there [00:26:05] Speaker 00: Their beef is with the order of operations here. [00:26:08] Speaker 00: As they mentioned, it's just a procedural problem. [00:26:11] Speaker 00: The problem is whether the claims disallowed by risking, have they shown that it costs them any more to vindicate those incorrectly disallowed claims [00:26:24] Speaker 00: that are through the process in place right now versus what their proposal is, is you must have a pre-disallowance, full-bore examination of even the most facially risky claims, right? [00:26:40] Speaker 00: Because that's the only ones that are disallowed in the first place. [00:26:44] Speaker 00: Delta the the only thing that's risking programs really impacting and they're saying even for the riskiest claims we want Stenton wants a full scale examination before you can issue a disallowance the question is how is that going to save Stenton money in representing their clients before the IRS and there's not a [00:27:08] Speaker 00: a single piece of evidence in the record that somehow that would be less costly. [00:27:13] Speaker 00: There's a part in their brief on page 8. [00:27:18] Speaker 00: where of their reply brief where they complain about quote, the unreimbursed cost of collecting documents, preparing responses to the IRS questions and justifying eligibility. [00:27:29] Speaker 00: The question is, if you want pre-disallowance examinations of the IRS by these high-risk claims, aren't you going to have to collect documents, prepare responses and justify eligibility in a [00:27:45] Speaker 00: quite thorough examination that's happening prior to the disallowance. [00:27:49] Speaker 00: So what's the cost differential to you, to the plaintiffs? [00:27:54] Speaker 00: And there's no – page 24 of the reply brief I think is where they most squarely try to contend with this. [00:28:03] Speaker 00: What's it to you if we switch the order in which the process is happening? [00:28:10] Speaker 00: Give us some dollars and cents and they don't. [00:28:13] Speaker 00: There's not a single record site in that section of their discussion, page 24 of their reply brief. [00:28:19] Speaker 00: The only difference they've pointed to is this theoretical difference where you've got this two-year deadline for filing a refund suit from the time of disallowance and they've pointed out that [00:28:33] Speaker 00: That kind of hinges on the time of disallowance. [00:28:36] Speaker 00: So when you get a disallowance at the very front end and then you pursue an appeals that often gets routed back through an examination. [00:28:45] Speaker 00: you're eating into this two years in a way you would not have under their preferred process. [00:28:51] Speaker 00: But the question again is, there's already in the statute, in the code 6532, 26 USC 6532, there's a provision that allows IRS appeals or IRS to extend this two-year deadline. [00:29:07] Speaker 00: for one, and they just haven't shown that any client has actually run up. [00:29:12] Speaker 00: They haven't shown a concrete instance in which a client has run up against the two-year deadline and therefore been forced to abandon a claim that they were just on the verge of vindicating it in the administrative posture, and now they have to go to a refund claim. [00:29:29] Speaker 02: Can I ask a question? [00:29:31] Speaker 02: I want to get back to final agency action for a moment. [00:29:35] Speaker 02: Imagine that we learn that this DDP algorithm is based on the political registration of the claimant. [00:29:45] Speaker 02: So it's denying all Republicans and granting all Democrats or vice versa. [00:29:48] Speaker 02: That's the algorithm. [00:29:51] Speaker 02: Do you really think someone couldn't sue about that or say it's denying red states and granting blue states? [00:29:57] Speaker 02: You don't think a red state attorney general could sue about this and say it's final agency action to adopt that algorithm? [00:30:03] Speaker 02: I have trouble understanding how [00:30:07] Speaker 02: there isn't a possibility that an algorithm is, the adoption of an algorithm is so improper that you couldn't sue over it. [00:30:13] Speaker 00: Got it, your honor. [00:30:14] Speaker 00: And can I just, I promise I will get to that, but I also just at one point wanted to address their allegations that the risking is somehow completely arbitrary and unmoored from the actual eligibility of the claims. [00:30:28] Speaker 00: And we see that as about as like misguided as saying when a court takes a look, [00:30:35] Speaker 00: at the likelihood of the merits, its finding is completely arbitrary with regard to the actual merits. [00:30:42] Speaker 02: I think that answer goes sort of to my question. [00:30:46] Speaker 02: You're trying to get us to believe that the algorithm is good, and maybe it is good, and if it's good, you probably should win on the merits. [00:30:53] Speaker 02: the algorithm is secret right now. [00:30:55] Speaker 02: And so what I'm getting at is there could be an algorithm that would be very improper, and it would seem like the adoption of such an algorithm would be an action that someone should be able to do something about. [00:31:06] Speaker 00: Sure. [00:31:07] Speaker 00: So I'll handle that first, and then I'll go back to I'd like to make clear what the risking is based on, because while we don't know the specific parameters of it, we know some of the criteria that go into it. [00:31:20] Speaker 00: And it's not, you know, [00:31:22] Speaker 00: whether your last name starts with one letter as opposed to another red state blues. [00:31:26] Speaker 02: But assuming- As a matter of final agency action, whether it's good or bad on the merits, I don't really see how that should be the answer. [00:31:32] Speaker 02: It's like the category of things should be final or not. [00:31:34] Speaker 02: And it feels to me like this is final. [00:31:37] Speaker 00: So I think it's still a little ways away from, I think the easiest way maybe to see it is to compare it to the cases they've cited, Shoal in their opening brief and Multnomah in their reply brief. [00:31:52] Speaker 00: about if there was these, if the criteria were really binary, and it was like, if you are this, you will be disallowed, if you are this, you will be disallowed, if you're this, you'll be disallowed, and yet there was just a black box as to what those, the criteria were undisclosed, but the nature of them was, if you could only lift the veil, you would see a very clear cut, [00:32:17] Speaker 00: you could compare a credit claim and just the now disclosed criteria and be able to tell, well, you don't have to submit a claim to know that if like in Skoll, the Skoll case, if you're- Isn't that the situation? [00:32:32] Speaker 00: I don't know that that's the situation. [00:32:35] Speaker 02: Okay, so by keeping it secret, how can the agency prevent something from being a final agency action by just keeping the action secret? [00:32:42] Speaker 02: That seems completely backward because [00:32:45] Speaker 02: I mean, then nothing can ever be challenged. [00:32:47] Speaker 02: You just keep everything secret. [00:32:48] Speaker 02: That doesn't sound like a very democratic approach. [00:32:52] Speaker 00: So, Your Honor, I'll say, I guess what we know of the program is that it applies some sort of risk score to criteria, which I assumed was not a binary. [00:33:06] Speaker 00: Like, there are dispositive disqualifiers. [00:33:11] Speaker 00: But then there's also probably factors which are somehow risked and if you have an accumulation of these factors that it's a certain threshold you you know your claim is sorted into a certain bucket but before applying the program you can't really. [00:33:26] Speaker 00: Tell what a. [00:33:30] Speaker 00: what an individual claim, like what the outcome would be of risking that claim in the way that you could tell in your hypo, what the outcome would be of a... I mean, is that just a complicated way of saying it's AI or a complicated way of saying it's secret? [00:33:45] Speaker 02: I mean, I think going back to the question, why shouldn't that approach be the choice to adopt such an approach that is going to deny certain people something that could be challenged as a final agency action? [00:33:59] Speaker 02: So I think, you know, if... Like once you concede that if it was binary, it would be, I just don't understand the difference. [00:34:10] Speaker 00: I mean, I think if we knew for sure it was binary, I agree. [00:34:15] Speaker 04: I couldn't say, you know, you have... Why would the question as to whether it's binary? [00:34:19] Speaker 04: That's a merits question. [00:34:21] Speaker 04: That's going to be whether it's arbitrary and capricious. [00:34:23] Speaker 04: But Judge Friedland's question is a really good, what more does the agency have to do to make this final? [00:34:29] Speaker 04: I mean, I guess you could hold a notice and comment hearing as to whether you should do all of this, but you didn't do that. [00:34:36] Speaker 04: I'm not sure the IRS has to do that, but I also don't think that if it chooses not to proceed in a formal rulemaking to say, this is the way we're going to handle these claims, that it now gets to claim, well, it's not final. [00:34:48] Speaker 04: What's not final here? [00:34:50] Speaker 04: What has the agency still got under consideration that would be interfered with if there were a court review of what it's doing? [00:34:59] Speaker 00: So I guess, you know, maybe we can't hang our hat on it not being final agency action. [00:35:07] Speaker 00: Though I suppose it's worth mentioning that when we're talking sovereign immunity and whether this claim, APA claim, can be brought. [00:35:17] Speaker 00: So surviving the final agency action thing is just one hurdle. [00:35:22] Speaker 00: There's also the problem for them that [00:35:27] Speaker 00: tax code provides its specialized channel for judicial review. [00:35:31] Speaker 00: Those are, those are all really good arguments and we're just not close to them yet. [00:35:35] Speaker 00: Right. [00:35:35] Speaker 00: But then, yes. [00:35:37] Speaker 02: And that one, that second one is sort of a sea clamors type of thing. [00:35:41] Speaker 02: That's, that's just, that's not jurisdictional, right? [00:35:46] Speaker 00: Um, I can't speak to sea clamors. [00:35:49] Speaker 02: I mean, it's just the idea that there is some other kind of claim other than the one that you shouldn't bring. [00:35:55] Speaker 02: Because there is a specific kind of claim, you can't bring this general kind of claim. [00:35:58] Speaker 02: That sort of theory is more of a merits kind of theory, right? [00:36:01] Speaker 00: No. [00:36:01] Speaker 00: So I thought, again, that's a condition in the APA for the APA in 702, 5702, 5 USC 703 and 704 say, APA review shall not be available when [00:36:16] Speaker 00: And so it's yet another condition on the waiver of sovereign immunity of the government. [00:36:20] Speaker 04: It just says that APA review is a default provision if there is no other avenue for review. [00:36:26] Speaker 04: So if you have a special review statute in an organic act, then that is your remedy rather than an APA remedy. [00:36:37] Speaker 04: But these are all arguments that you could make in the future. [00:36:40] Speaker 04: They're really not before us here. [00:36:42] Speaker 00: And I agree, because we haven't established standing, we really don't have to drill down on yet whether it's final agency action or not, whether they have another, a separate adequate remedy within the Internal Revenue Code that forecloses APA review. [00:36:58] Speaker 00: Frankly, whether there's another problem with their, they're complaining about the internal administrative process for refund claims, and I think [00:37:11] Speaker 00: My friend on the other side mentioned in Rayco in the 2011 DC Circuit case. [00:37:16] Speaker 00: If you look at that, I think it's worth looking at the sequel, the 2014 case, where what happened was the IRS had a refund mechanism that in the 2011 DC Circuit case was found to be susceptible to APA review. [00:37:35] Speaker 00: What the IRS did was just retract that refund mechanism. [00:37:40] Speaker 00: They said, well, we're not going to have a refund procedure at all. [00:37:44] Speaker 00: You can bring your refund suits in court, which is what you're allowed to do under the statute. [00:37:48] Speaker 00: And the court, the DC Circuit said, well, yeah, there's no entitlement to any sort of administrative review. [00:37:57] Speaker 00: So the fact that they can retract it entirely and leave nothing to review [00:38:05] Speaker 00: you know, also would be another problem for litigating the contours of this internal administrative process. [00:38:18] Speaker 02: I think the one last thing... I think I need to cut you off because you're way over your time. [00:38:21] Speaker 02: Thank you very much. [00:38:22] Speaker 02: Let's put two minutes on the clock for rebuttal, please. [00:38:31] Speaker 03: Thank you. [00:38:32] Speaker 03: I wanted to just start by identifying circling back to the address ability issue, which seems like it's a gating issue here. [00:38:41] Speaker 03: And I wanted to point out, and I didn't have this available to me before, but there was discussion at the district court level and the district court's order at page 19 of that court's order, which is page 20 in our record. [00:38:52] Speaker 03: And the court did note that, and we did provide data [00:38:56] Speaker 03: on ERC today's filings prior to the moratorium when this program was set in and afterwards and ERC today. [00:39:02] Speaker 02: The district court seems to have thought that you showed you were worse off, but I can't find anything that supports that. [00:39:08] Speaker 02: So we are an appellate court because sometimes district courts make mistakes. [00:39:12] Speaker 02: And if you want to rely on that, I'd love for you to point me to the underlying data. [00:39:16] Speaker 03: Well, I mean, it was an allegation in our verified complaint, which was, I believe, in pair of 34 of our complaints citing the data that ERC today saw. [00:39:25] Speaker 03: It was, you know, they quoted, I think it was something like, you know, approval of several thousand claims before the moratorium, which had dropped to 75 after this program went into place. [00:39:35] Speaker 02: Right. [00:39:35] Speaker 02: But we don't know how many you have, you say it approved. [00:39:39] Speaker 02: seven thousand before it approved seventy five per week, whatever, without the denominator. [00:39:44] Speaker 02: We don't know how many that's out of. [00:39:47] Speaker 02: So we don't know if you're losing money or gaining money or anything from that allegation. [00:39:52] Speaker 03: Well, I want to I mean, it's I mean, there's a reason why the district court then went on to write that if it if it took our pleadings at face value, it would have found redressability. [00:40:02] Speaker 03: And I don't know why it then went on one step further to speculate that we hadn't after it said that we had [00:40:07] Speaker 03: But I think also speaking to that issue is this issue of are you better off before, are you better off later? [00:40:14] Speaker 03: And my counsel mentioned, I think he made a comment that what we're asking for is full audits prior and that's the whole premise of why we're not worse off afterwards. [00:40:25] Speaker 03: And I want to clarify a point here. [00:40:27] Speaker 03: We're not stating and we're not saying that the IRS has to perform a full audit of these claims beforehand. [00:40:33] Speaker 03: And in fact, that's in the record that that doesn't happen. [00:40:36] Speaker 03: So I want to point you to what was Mister commit a deputy commissioner of Donald's declaration which is in our record that you are 8.25. [00:40:43] Speaker 03: And I think it's paragraph 55 he discusses a more streamlined procedure that they use prior to this allowance which is again it's one of the various ways the IRS [00:40:54] Speaker 03: process is these claims before disallowance that is not a full audit they can also do what they call information document requests there are ways they can reach out to the taxpayer even in these high-risk claims and they can say we just need some more information to verify [00:41:09] Speaker 03: What are you even claiming here? [00:41:10] Speaker 03: What are your gross receipts? [00:41:12] Speaker 03: That can skip the process of having to go to a full blown audit, but once you have a disallowance after a 105C, that's a hard stop. [00:41:21] Speaker 03: Now you have to have a full audit because now you basically have to treat this like a claim has been denied. [00:41:28] Speaker 03: And just for context, before this program went into effect, a 105C was basically used only for the [00:41:35] Speaker 03: clear cut situations like if somebody filed and they were outside the statute of limitations, the IRS would say, hard stop, you're disallowed. [00:41:44] Speaker 03: But now we have this sort of shoot first, ask questions later process where only after you have a actual, it's like in a criminal case, having a conviction first and then sending it to the police department for investigation. [00:41:55] Speaker 03: And I think we're sort of [00:41:58] Speaker 03: you know, we're kidding ourselves if we don't think that that process is going to complicate things very significantly for the parties that have to go through the administrative process under that banner. [00:42:08] Speaker 02: You're over your time. [00:42:09] Speaker 02: Thank you. [00:42:09] Speaker 02: Thank you both sides for the helpful arguments. [00:42:11] Speaker 02: This case is submitted.