The IRS May Have Made a $100-Million Goof

Somebody at the Internal Revenue Service forgot to look at the calendar--and the goof could cost the government as much as $100 million in taxes.

The IRS confirmed Wednesday that it was one day late in filing a notice of appeal in an important case--an appeal that some legal experts say the IRS would have won. An agency spokesman disputed the estimate of what the error could cost.

On May 26, the U.S. Tax Court entered a decision holding that the IRS was wrong in requiring American Telephone & Telegraph to pay tax currently on customer security deposits. Under the law, the agency had 90 days to appeal, a period that ended Aug. 24. The notice of appeal was filed Aug. 25.

“Underscoring this embarrassment is the fact that the service prevailed in the only appellate decision addressing the issue presented in the AT&T; case,” reported Tax Notes, an authoritative tax journal. The publication noted a previous appeals court verdict in favor of the IRS in a Florida case involving security deposits paid by gas customers.

A similar case, involving deposits paid to Indianapolis Power & Light Co., has been appealed by the IRS to the 7th Circuit Court of Appeals. Despite the error in the AT&T; case, IRS spokesman Frank Keith said Wednesday: “IRS has no intention of abandoning its position on customer deposits.”

Tax Notes estimated that the goof could cost $100 million in disputed taxes and interest. Keith contended, however, that because the issue is essentially one of when taxes should be paid, the potential loss would be less.