Case 8:17-cv-03418-DKC Document 12 Filed 01/23/18 Page 1 of 8

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MARYLAND

UNITED STATES OF AMERICA,

Plaintiff,
v. Civil Action No. 8:17-CV-03418-DKC
DISCOVERY COMMUNICATIONS, INC.

Defendant.

ANSWER

Defendant Discovery Communications, Inc. (“Discovery”), by its attorneys, hereby

answers the complaint as follows:

1. Paragraph 1 states a legal conclusion to which no response is required.

2. Paragraph 2 states a legal conclusion to which no response is required except that

Discovery admits that its principal place of business was located in Silver Spring, Maryland at

the time the complaint in this case was filed.

3. Paragraph 3 states a legal conclusion to which no response is required. Discovery

avers that Plaintiff did not pay to Discovery any of the refunds alleged to be erroneous.

Discovery further avers that the challenged refunds were paid to Discovery Communications

Holding, LLC (“Discovery Communications Holding”), which is a separate legal entity. In

addition, Discovery avers that Plaintiff has not filed any erroneous refund suit against Discovery

Communications Holding and that the period of limitations for filing an erroneous refund suit

under 26 U.S.C. § 7405 has expired with respect to Discovery Communications Holding’s tax

years ending December 31, 2007 (“2007”) and September 17, 2008 (“2008”).

4. Discovery admits the allegations contained in paragraph 4.

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5. Discovery denies the allegations contained in paragraph 5. Discovery avers that

Plaintiff cannot recover any amounts from Discovery, in part because the Internal Revenue

Service (“IRS”) did not issue refunds to that entity on November 17, 2015, January 14, 2016, or

March 29, 2016.

6. Discovery’s responses set forth in paragraphs 1 through 5 are incorporated by

reference as if fully stated herein.

7. Discovery denies the allegations contained in paragraph 7. Discovery avers that

the United States Department of the Treasury issued a check, dated March 29, 2016, to

Discovery Communications Holding in the amount of $2,501,525.01. Discovery further avers

that Plaintiff paid this amount as a refund for Discovery Communications Holding’s tax year

ending December 31, 2006 (“2006”) in accordance with the terms of a closing agreement

executed by the IRS and Discovery Communications Holding in August 2015 (the “Closing

Agreement”) and that the IRS was legally required to refund such amounts to Discovery

Communications Holding pursuant to 26 U.S.C. § 6401(a), 26 U.S.C. § 7121, and the terms of

the Closing Agreement.

8. Discovery denies the allegations contained in paragraph 8. Discovery avers that

the United States Department of the Treasury issued a check, dated November 17, 2015, to

Discovery Communications Holding in the amount of $5,996,542.11. Discovery further avers

that Plaintiff paid this amount as a refund for Discovery Communications Holding’s 2007 tax

year in accordance with the terms of the Closing Agreement and that the IRS was legally

required to refund such amounts to Discovery Communications Holding pursuant to 26 U.S.C.

§ 6401(a), 26 U.S.C. § 7121, and the terms of the Closing Agreement.

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9. Discovery denies the allegations contained in paragraph 9. Discovery avers that

the United States Department of the Treasury issued a check, dated January 14, 2016, to

Discovery Communications Holding in the amount of $19,588,168.90 for its 2008 tax year.

10. Paragraph 10 states a legal conclusion to which no response is necessary. To the

extent that paragraph 10 contains factual allegations, Discovery denies such allegations.

11. Paragraph 11 states a legal conclusion to which no response is necessary. To the

extent that paragraph 11 contains factual allegations, Discovery denies such allegations.

12. Paragraph 12 states a legal conclusion to which no response is necessary. To the

extent that paragraph 12 contains factual allegations, Discovery denies such allegations.

13. Paragraph 13 states a legal conclusion to which no response is necessary. To the

extent that paragraph 13 contains factual allegations, Discovery denies such allegations.

14. Discovery denies that Plaintiff paid to Discovery any of the amounts alleged in the

complaint to be erroneous. Discovery avers that Discovery Communications Holding fully paid

all tax amounts due and that the IRS has no right to recover any amounts from Discovery or

Discovery Communications Holding with respect to Discovery Communications Holding’s 2006,

2007, or 2008 tax periods. Discovery further avers that the amounts that the IRS refunded to

Discovery Communications Holding for 2006, 2007, and 2008 reflected overpayments of tax to

which the IRS has no legal right. With respect to Discovery Communications Holding’s 2006

and 2007 tax years, Discovery further avers that the challenged refunds arose from payments

made by Discovery Communications Holding in 2012 and 2014 after the period of limitations for

assessment had closed and that the IRS was required to refund those payments pursuant to 26

U.S.C. § 6401(a). Discovery further avers that the IRS agreed to refund to Discovery

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Communications Holding the amounts at issue with respect to 2006 and 2007 pursuant to the

binding Closing Agreement.

15. Paragraph 15 states a legal conclusion to which no response is necessary. To the

extent that paragraph 15 contains factual allegations, Discovery denies such allegations.

Discovery avers that 26 U.S.C. § 7405 provides no jurisdictional or substantive basis for the IRS

to file suit or pursue claims for erroneous refunds against Discovery because it is not the relevant

taxpayer and did not receive the refunds alleged to be erroneous. Discover further avers that the

challenged refunds were properly paid to Discovery Communications Holding and that the IRS

has no right to recover those funds.

A. Paragraph A of Plaintiff’s prayer states a legal conclusion to which no

response is necessary. Discovery denies that it “is indebted to the United States . . . up to

$2,501,525.” Discovery denies that Plaintiff is entitled to any relief from Discovery or

Discovery Communications Holding.

B. Paragraph B of Plaintiff’s prayer states a legal conclusion to which no

response is necessary. Discovery denies that it “is indebted to the United States . . . up to

$4,556,827.” Discovery further denies that Plaintiff is entitled to any relief from Discovery or

Discovery Communications Holding.

C. Paragraph C of Plaintiff’s prayer states a legal conclusion to which no

response is necessary. Discovery denies that it “is indebted to the United States . . . up to

$1,804,286.” Discovery further denies that Plaintiff is entitled to any relief from Discovery or

Discovery Communications Holding.

D. Discovery denies that Plaintiff is entitled to any relief from Discovery or

Discovery Communications Holding.

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E. Discovery denies that Plaintiff is entitled to any relief from Discovery or

Discovery Communications Holding.

Discovery denies each and every allegation of the complaint that is not expressly

admitted above.

DEFENSES

16. Discovery’s responses set forth in paragraphs 1 through 15 are incorporated by

reference as if fully stated herein.

17. Discovery did not receive any of the challenged refunds from the IRS and, as such,

Plaintiff may not collect any amounts from Discovery pursuant to 26 U.S.C. § 7405.

18. The period of limitations for filing an erroneous refund suit under 26 U.S.C. §

7405 has expired with respect to Discovery Communications Holding’s 2007 and 2008 taxable

years.

19. For Discovery Communications Holding’s 2006 and 2007 tax years, the period of

limitations for assessment of tax under 26 U.S.C. § 6501 expired on December 31, 2011.

20. When the statute of limitations for assessment closed on December 31, 2011,

Discovery Communications Holding had paid all of the tax and interest that the IRS had assessed

for its 2006 and 2007 tax years.

21. After the statute of limitations for assessment for tax years 2006 and 2007 had

expired, Discovery Communications Holding filed amended returns that collectively reported

additional tax due for its 2006 and 2007 tax years. Discovery Communications Holding made

additional payments to the IRS in 2012 and 2014 totaling $52,114,670 for its 2006 tax year and

$23,997,598 for its 2007 tax year (the “2012 and 2014 Tax Payments”). These payments

reflected amounts that were not previously assessed by the IRS.

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22. Because the statute of limitations for assessment had expired and all amounts

previously assessed had been paid, Discovery Communications Holding’s 2012 and 2014 Tax

Payments constituted “overpayments” under 26 U.S.C. § 6401(a). The IRS was not permitted to

assess or collect those amounts unless Discovery Communications Holding expressly agreed to

allow the IRS to do so.

23. In August 2015, the IRS and Discovery Communications Holding executed the

binding Closing Agreement. The Closing Agreement permitted the IRS to assess and collect

additional tax (above that previously assessed by the IRS) in the amounts of $44,040,833 for

2006 and $8,778,806 for 2007 because Discovery Communications Holding waived its period of

limitations defenses with respect to those (and only those) amounts. The Closing Agreement

specified that the IRS would apply the 2012 and 2014 Tax Payments to satisfy this additional

assessed tax, plus interest, and refund the remainder to Discovery Communications Holding.

24. Discovery’s 2012 and 2014 Tax Payments exceeded the agreed tax and interest

due under the Closing Agreement by approximately $8.5 million. Consistent with the Closing

Agreement, the IRS refunded these excess payments to Discovery Communications Holding,

issuing refund checks in the amounts of $2,501,525.01 for 2006 and $5,996,542.11 for 2007.

Because these amounts were paid by Discovery Communications Holding after the period of

limitations for assessment had expired and because Discovery Communications Holding did not

expressly waive its period of limitations defense with respect those payments, they constituted

“overpayments” that the IRS was required to refund under 26 U.S.C. § 6401(a). The refund of

these amounts was required by law and thus was not “erroneous.”

25. The Closing Agreement was final and conclusive for the matters addressed therein.

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26. The IRS made assessments of tax in the amounts of $44,040,833 for 2006 and

$8,778,806 for 2007 on November 9, 2015 in accordance with the Closing Agreement. 26 U.S.C.

§ 7121(b)(2) prohibits the IRS from modifying these assessments.

27. The IRS paid the refunds of $2,501,525.01 for 2006 and $5,996,542 for 2007 in

accordance with the Closing Agreement. 26 U.S.C. § 7121(b)(2) prohibits the IRS from

annulling, modifying, or setting aside these refunds.

28. 26 U.S.C. § 7121 and the Closing Agreement prohibit the IRS from recovering the

refunds that it paid to Discovery Communications Holding for 2006 and 2007.

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WHEREFORE, Discovery prays that the complaint be dismissed with prejudice and for

other relief as the Court deems appropriate.

Respectfully submitted,

BAKER & McKENZIE LLP

/s/
George M. Clarke III (Bar No. 16688)
815 Connecticut Avenue, N.W.
Washington, DC 20006
Phone: (202) 835-6184
Fax: (202) 416-7184
Email: george.clarke@bakermckenzie.com

Phillip J. Taylor, Pro Hac Vice (Bar No. 807985)

815 Connecticut Avenue, N.W.
Washington, DC 20006
Phone: (202) 452-7082
Fax: (202) 416-7071
Email: phillip.taylor@bakermckenzie.com

Mireille R. Oldak, Pro Hac Vice (Bar No. 808006)

815 Connecticut Avenue, N.W.
Washington, DC 20006
Phone: (202) 835-6176
Fax: (202) 416-7176
Email: mireille.oldak@bakermckenzie.com

Allison M. De Tal, Pro Hac Vice (Bar No. 808100)

815 Connecticut Avenue, N.W.
Washington, DC 20006
Phone: (202) 835-6242
Fax: (202) 416-7074
Email: allison.detal@bakermckenzie.com

Counsel for Defendant

Dated: January 23, 2018