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Logan v. United States

United States District Court, M.D. Florida, Fort Myers Division

June 21, 2018

A. SCOTT LOGAN, Plaintiff,
v.
UNITED STATES OF AMERICA, by and through its Agent, the Commissioner of Internal Revenue, Defendant.

          OPINION AND ORDER

          JOHN E. STEELE SR. UNITED STATES DISTRICT JUDGE

         This matter comes before the Court on defendant's Motion to Dismiss (Doc. #16) filed on April 13, 2018. Plaintiff filed a Response in Opposition (Doc. #20) on May 4, 2018. Defendant filed a Reply to the Response to the Motion to Dismiss (Doc. #27) on May 18, 2018, and Plaintiff filed a Sur-Reply (Doc. #32) on May 31, 2018. For the reasons set forth below, the Court grants defendant's Motion to Dismiss.

         I.

         This cases arises out of the sale of Xerox stock in 1999. According to the Amended Complaint (Doc. #15): In 1986, Plaintiff A. Scott Logan (Plaintiff) co-founded Wood Logan Associates, Inc. (WLA), a variable annuity sales and marketing company. (Doc. #15, ¶¶ 11, 12.) WLA engaged in multiple mergers over the next several years, ultimately merging with Manulife Financial Corporation (Manulife) in 1999. (Id. ¶¶ 25, 26, 33, 34.) As part of that merger, Manulife acquired Plaintiff's shares in WLA. (Id. ¶ 34.) Plaintiff sought to invest a portion of his proceeds from the WLA merger into foreign currencies. (Id. ¶ 45-48.) Upon the advice of his legal and tax advisors, Plaintiff used multiple trusts (the Logan Trusts) to form an entity called Tigers Eye Trading, LLC (Tigers Eye). (Id. ¶¶ 59, 72.) Plaintiff, as trustee of the Logan Trusts, used Tigers Eye to execute a trading strategy in the Euro currency on behalf of the Logan Trusts. (Id. ¶¶ 45, 48, 72.) Plaintiff withdrew the Logan Trusts from Tigers Eye in December of 1999, and “Tigers Eye distributed Xerox stock to the Logan Trusts in redemption of their interests.” (Id. ¶ 73.) The Logan Trusts subsequently sold the Xerox stock. (Id. ¶ 74.)

         In 2000, the Logan Trusts filed their 1999 federal income tax returns and reported that the Xerox stock sale resulted in a short-term capital loss. (Id. ¶¶ 75, 76, 78.) Plaintiff then “reported the trust losses from the sale of Xerox stock on his 1999 Federal income tax return.” (Id. ¶ 79.) In 2002, the IRS audited Tigers Eye, and ultimately determined that Plaintiff was not entitled to claim the short-term capital loss for the 1999 Xerox stock sale. (Id. ¶¶ 82, 96.) As a result, the IRS assessed against Plaintiff a $2, 456, 598.40 gross valuation misstatement penalty. (Id. ¶ 127.)

         In June of 2017, Plaintiff filed an administrative claim for a refund with the IRS (Original Claim). (Doc. #15-1.) In the Original Claim, Plaintiff asserts that he is entitled to a refund of the $2, 465, 598.40 penalty the IRS assessed against him because (1) Plaintiff reasonably relied upon the advice of his legal and tax advisors in reporting that the Xerox stock sale resulted in a short-term capital loss; and (2) when the IRS assessed the penalty against Plaintiff, the IRS retroactively enforced law that did not exist when Plaintiff filed his 1999 tax return. (Id., pp. 4-6.) On March 31, 2018, Plaintiff filed an Amended Complaint (Doc. #15), seeking a refund of the $2, 465, 598.40 penalty the IRS assessed against him. (Id. ¶ 105.)

         The Amended Complaint asserts four grounds for Plaintiff's entitlement to a refund.[1] (Id. ¶¶ 107-141.) Counts One and Two assert the same two grounds for relief stated in the Original Claim. (Doc. #15, ¶¶ 107-119; Doc. #15-1, pp. 4-6.) Count Three asserts that Plaintiff is entitled to a refund because the IRS failed to compare “the correct adjusted basis of the Logan Trusts' Xerox stock versus the reported adjusted basis of the Xerox stock” and therefore “did not provide grounds for gross valuation penalties against” Plaintiff in the Notice of Deficiency. (Doc. #15, ¶¶ 124, 129.) Count Four asserts that Plaintiff is entitled to a refund because the Revenue Agent that examined Tigers Eye failed to obtain managerial approval to assess the penalty against Plaintiff. (Id. ¶¶ 131-141.)

         On April 13, 2018, the United States of America (Defendant) filed a Motion to Dismiss. (Doc. #16.) In it, Defendant argues the Court lacks subject matter jurisdiction over Counts III and IV because, under the variance doctrine, the arguments asserted in those Counts were not first asserted in the Original Claim. On May 1, 2018, Plaintiff filed an amended administrative claim for refund with the IRS (Amended Claim) (Doc. #20-9), which includes the arguments asserted in Counts III and IV of the Amended Complaint.

         II.

         Rule 12(b) (1) of the Federal Rules of Civil Procedure provides for dismissal of an action if the court lacks subject matter jurisdiction. A motion to dismiss under Rule 12(b)(1) may assert either a factual attack or a facial attack on jurisdiction. Morrison v. Amway Corp., 323 F.3d 920, 924 (11th Cir.2003). A facial attack requires the Court to determine whether the pleader has sufficiently alleged a basis for subject matter jurisdiction. Stalley ex rel. U.S. v. Orlando Reg'l Healthcare Sys., Inc., 524 F.3d 1229, 1233 (11th Cir. 2008). In contrast, a factual attack challenges “the existence of subject matter jurisdiction . . . irrespective of the pleadings . . . .” Lawrence v. Dunbar, 919 F.2d 1525, 1529 (11th Cir. 1990) (internal citation and quotation omitted). Thus, in reviewing a factual attack on subject matter jurisdiction, the Court may consider “material extrinsic from the pleadings, such as affidavits or testimony.” Stalley, 524 F.3d at 1233.

         III.

         Defendant asserts a factual attack on the Court's subject matter jurisdiction over Counts III and IV. In particular, Defendant argues the Court lacks subject matter jurisdiction over Counts III and IV because Plaintiff failed to raise the arguments in those Counts in his Original Claim prior to filing the Amended Complaint.

         A. The Variance Doctrine

         Under the variance doctrine, “[a] taxpayer may not sue the United States for a tax refund until [he] first files a refund claim with the government” in compliance with 26 U.S.C. § 7422 and its accompanying treasury regulations. Charter Co. v. United States, 971 F.2d 1576, 1579 (11th Cir. 1992). Section 7422's accompanying regulations “require the taxpayer to detail each ground upon which a refund is claimed.” Id. (citing Treas. Reg. § 301.6402-2(b)(1)). Any subsequent litigation of the “government's denial of a refund claim is limited to the grounds fairly contained within the refund claim.” Id. Thus, a federal court has “no jurisdiction to entertain taxpayer allegations that impermissibly vary or augment the grounds originally specified by the taxpayer in the administrative refund ...


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