Yeah, that makes sense as the mechanics go. Avoidance doesn't do anything but extend your current Vengance buff, which starts at 0. So you have 20 seconds of 0.
Fun times tonight; four of our DPS died on Alysrazor, and she went into Phase 4. For eight minutes the OT (a warrior) and I traded taunts on Alysrasor at about 15 seconds in. No diminishing returns. No problem keeping threat or Vengance up, and we actually gutted it out from 39% down to 0%. My Vengance was up around 40K by the time we were done.
Just as a note, unless they changed it from WotLK (where I tested it), Taunts diminish based on the 18 second mark, which falls in line with GC's remark that it is 15s after the taunt, which initially lasts 3 seconds. Then there is the fact that not all bosses have DR on taunt anymore (they made that change that in 3.3). In fact, as a general rule, there is not DR on Taunt unless they flag a specific encounter for DR:
# Taunt Diminishing Returns: We've revised the system for diminishing returns on Taunt so that creatures do not become immune to Taunt until after 5 Taunts have landed. The duration of the Taunt effect will be reduced by 35% instead of 50% for each taunt landed. In addition, most creatures in the world will not be affected by Taunt diminishing returns at all. Creatures will only have Taunt diminishing returns if they have been specifically flagged for that behavior based on the design of a given encounter.