United States District Court, M.D. Florida, Fort Myers Division
A. SCOTT LOGAN, Plaintiff,
UNITED STATES OF AMERICA, by and through its Agent, the Commissioner of Internal Revenue, Defendant.
OPINION AND ORDER
E. STEELE SR. UNITED STATES DISTRICT JUDGE
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.
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.)
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.
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.)
Amended Complaint asserts four grounds for Plaintiff's
entitlement to a refund. (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. ¶¶
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.
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.
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.
The Variance Doctrine
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