Mycles Cycles, Inc. v. Untied States of America
Filing
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ORDER granting in part and denying in part 19 Defendant's Amended Motion for Summary Judgment. Signed by Judge Janis L. Sammartino on 9/04/2019. (jpp)
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UNITED STATES DISTRICT COURT
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SOUTHERN DISTRICT OF CALIFORNIA
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MYCLES CYCLES, INC. dba SAN
DIEGO HARLEY DAVIDSON,
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ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANT’S
AMENDED MOTION FOR
SUMMARY JUDGMENT
Plaintiff,
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Case No.: 18-CV-314 JLS (AGS)
v.
UNITED STATES OF AMERICA,
Defendant.
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(ECF No. 19)
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Presently before the Court is Defendant and Counter Claimant the United States of
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America’s Amended Motion for Summary Judgment (“MSJ,” ECF No. 19). Plaintiff and
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Counter Defendant Mycles Cycles, Inc. dba San Diego Harley Davidson filed a Response
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in Opposition to (“Opp’n,” ECF No. 22) and the United States filed a Reply in Support of
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(“Reply,” ECF No. 26) the Motion. After reviewing the Parties’ arguments, the evidence,
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and the law, the Court rules as follows.
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18-CV-314 JLS (AGS)
BACKGROUND1
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Plaintiff Mycles Cycles is a family owned Harley Davidson Dealership that has been
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operating in San Diego, California, since 1993. MSJ at 9. Mycles Cycles was founded by
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Michael Shelby, who was the owner during all times relevant to this case. Id.
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Plaintiff’s trouble with the Internal Revenue Service (“IRS”) began in August 2006,
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when the IRS conducted the first of several compliance audits. Id. at 10. The compliance
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audit was to ensure Plaintiff fulfilled its reporting obligations under Internal Revenue Code
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(“I.R.C.”) section 6050I, which requires persons engaged in business to file a Form 8300
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disclosure statement any time the business receives more than $10,000 in cash in a single
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transaction from an individual. 26 U.S.C. § 6050I(a).
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conducted the audit and determined that although Plaintiff had generally complied with the
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reporting requirements, two Forms 8300 were incomplete because they lacked tax payer
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identification numbers (“TINS”). MSJ at 10 (citing Declaration of Carl Hankla (“Hankla
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Decl.”) Ex. 2, ECF No. 19-4). Revenue Agent Burke provided instructional materials
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related to the section 6050I reporting requirements and assessed no penalties. Id.
Revenue Agent Tim Burke
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Seven months later, the IRS returned.2 See Hankla Decl. Ex. 4. Revenue Agent
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Elizabeth Arnold conducted the audit and concluded that Plaintiff had not fully complied
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with the section 6050I requirements during the audit period. See id. Revenue Agent
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Arnold found Plaintiff had failed to file one Form 8300, id. Ex. 17; had failed to file timely
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four Forms 8300, id. Ex. 5; had omitted TINS from three Forms 8300, id. Ex. 17; and had
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failed to send eight customer information statements, id. at Ex. 5. Revenue Agent Arnold
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conducted an in-person closing conference outlining the compliance issues and assessed a
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$600 negligence penalty under I.R.C. sections 6721 and 6722. MSJ at 12.
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Neither Party submitted a separate statement of undisputed material facts. The Court cites primarily to
Defendant’s Motion, noting any discrepancies between the Parties’ factual contentions.
The Parties dispute whether this visit was a “second audit,” as the United States contends, see MSJ at
11, or a “follow-up” to the first audit, as Mycles Cycles contends. See Opp’n at 7.
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18-CV-314 JLS (AGS)
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Following this second visit, Plaintiff’s general manager, Tyler Miller, sent a letter to
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the IRS that acknowledged there had been “a couple of items” that had been “not in
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compliance resulting in a penalty.” Hankla Decl. Ex. 7. The letter stated that Plaintiff was
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“taking immediate measures to become 100% compliant.” Id. The corrective actions
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included “task[ing] its managers in the finance and insurance (“F&I”) department with
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compliance” to ensure completion of all Forms 8300 and notices sent to consumers. Opp’n
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at 11 (citing Deposition of Tyler Miller (“Miller Depo.”) at 19:18–20; 32:10–14, ECF No.
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22-1). Plaintiff also “instituted a training and quality control system for its employees on
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the Form 8300 compliance.” Id. (citing Miller Depo. at 19:6–7). Additionally, Plaintiff
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“create[ed] an internal log so that ‘if for whatever reason a finance manager didn’t fill it
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out, didn’t think it applied, forgot, it would get caught by accounting,’” id. (citing Miller
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Depo at 18:10–15), as well as a “binder to keep track of its Forms 8300 and notices sent to
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consumers.” Id. (citing Miller Depo. at 18:16–19).3
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In 2014, the IRS conducted another audit. After reviewing Plaintiff’s sales, Revenue
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Agent Brian Kuhns found that Plaintiff sold ten motorcycles for cash over $10,000. MSJ
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at 14 (citing Hankla Decl. Ex. 10). Plaintiff filed Forms 8300 for only nine of these
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transactions,4 all of which lacked customers’ TINS. Id. (citing Hankla Decl. Ex. 8). Of
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the nine completed forms, eight lacked the customer’s occupation. Id. After the field visit,
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Revenue Agent Kuhns discovered the 2006 and 2007 audit files, noting Revenue Agents
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Burke and Arnold had found Plaintiff had failed to comply with its section 6050I
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responsibilities, had educated Plaintiff about its filing responsibilities under section 6050I,
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and had assessed negligence penalties. Id. at 16 (citing Hankla Decl. Ex. 10).
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Based on the findings made during the field visit, in addition to the previous
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deficiencies found during the 2006 and 2007 visits, Revenue Agent Kuhns levied
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Defendant disputes the adequacy of these measures and the extent to which Plaintiff implemented them.
See MSJ at 13–14.
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During the audit, the Revenue Agent Kuhns found the missing Form 8300 and assessed a negligence
penalty after deeming the failure to file the form inadvertent. MSJ at 14–15 (citing Hankla Decl. Ex. 10).
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18-CV-314 JLS (AGS)
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intentional disregard penalties under section 6721(e) for filing the nine Forms 8300 without
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TINS. Id. at 17 (citing Hankla Decl. Ex. 12). The IRS assessed penalties of $25,000 for
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each of the nine incomplete Forms 8300 filed by Plaintiff under section 6721(e)(2)(C),
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totaling $225,000. Id. The IRS also assessed negligence penalties under section 6721(a)(2)
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totaling $700 for failure to send ten customer information statements and one late filing.
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Id. The IRS denied Plaintiff’s administrative appeal, after which Plaintiff paid one of the
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$25,000 penalties and requested a refund. Id. After the IRS denied Plaintiff’s request,
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Plaintiff filed this lawsuit. See ECF No. 1.
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LEGAL STANDARD
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Under Federal Rule of Civil Procedure 56(a), a party may move for summary
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judgment as to a claim or defense or part of a claim or defense. Summary judgment is
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appropriate where the Court is satisfied that there is “no genuine dispute as to any material
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fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a);
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Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Material facts are those that may affect
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the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A
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genuine dispute of material fact exists only if “the evidence is such that a reasonable jury
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could return a verdict for the nonmoving party.” Id. When the Court considers the
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evidence presented by the parties, “[t]he evidence of the non-movant is to be believed, and
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all justifiable inferences are to be drawn in his favor.” Id. at 255.
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The initial burden of establishing the absence of a genuine issue of material fact falls
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on the moving party. Celotex, 477 U.S. at 323. The moving party may meet this burden
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by identifying the “portions of ‘the pleadings, depositions, answers to interrogatories, and
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admissions on file, together with the affidavits, if any,’” that show an absence of dispute
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regarding a material fact. Id. When a plaintiff seeks summary judgment as to an element
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for which it bears the burden of proof, “it must come forward with evidence which would
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entitle it to a directed verdict if the evidence went uncontroverted at trial.” C.A.R. Transp.
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Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000) (quoting Houghton
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v. South, 965 F.2d 1532, 1536 (9th Cir. 1992)).
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Once the moving party satisfies this initial burden, the nonmoving party must
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identify specific facts showing that there is a genuine dispute for trial. Celotex, 477 U.S.
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at 324. This requires “more than simply show[ing] that there is some metaphysical doubt
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as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
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586 (1986). Rather, to survive summary judgment, the nonmoving party must “by her own
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affidavits, or by the ‘depositions, answers to interrogatories, and admissions on file,’
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designate ‘specific facts’” that would allow a reasonable fact finder to return a verdict for
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the non-moving party. Celotex, 477 U.S. at 324. The non-moving party cannot oppose a
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properly supported summary judgment motion by “rest[ing] on mere allegations or denials
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of his pleadings.” Anderson, 477 U.S. at 256.
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ANALYSIS
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Defendant contends that Plaintiff intentionally disregarded the section 6050I
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reporting requirements when it knowingly omitted TINS from its Forms 8300. MSJ at
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23–29. According to Defendant, the uncontested material facts show that Plaintiff had
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actual knowledge of its compliance deficiencies, yet willfully failed to take corrective
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measures to fully comply with the law, proving Plaintiff intentionally disregarded its filing
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obligations under 26 U.S.C. § 6721 as a matter of law. MSJ at 23–25. Further, Defendant
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argues that Plaintiff is not entitled to “reasonable cause” relief under 26 U.S.C. § 6724
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because Plaintiff failed to seek that relief in its administrative refund claim or in the
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Complaint and, therefore, Plaintiff cannot raise that claim in this refund suit. Reply at 4.
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I.
Intentional Disregard
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Section 6050I(a) requires “[a]ny person . . . engaged in a trade or business” to file a
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Form 8300 to report any transaction for which it receives “more than $10,000 in cash in 1
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transaction (or 2 or more related transactions).” Additionally, the business must also notify
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the customer who made the payment that it filed a Form 8300. 26 U.S.C. § 6050I(e).
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Penalties for failure to comply with these statutory reporting requirements are set
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forth in sections 6721 (failure to file the Form 8300 disclosure) and 6722 (failure to send
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the customer notification statement) of the I.R.C. 26 U.S.C. §§ 6721, 6722. The ordinary
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18-CV-314 JLS (AGS)
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penalty in both sections is $50 for each failure that occurs, see id.; however, “[b]oth
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Sections 6721 and 6722 provide for greatly enhanced penalties where the failure is due to
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‘intentional disregard’ of the filing or notification requirements.” Purser Truck Sales, Inc.
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v. United States, 710 F. Supp. 2d 1334, 1338 (2008). If the failure to file or complete the
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Form 8300 is due to intentional disregard––as the IRS has alleged here––the penalty for
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each failure is the greater of $25,000 or the amount of cash received in the transaction, up
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to $100,000. 26 U.S.C. § 6721(e)(2)(C).
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Section 6721 does not define the term “intentional disregard.” The accompanying
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IRS regulations provide guidance, stating that “[a] failure is due to intentional disregard if
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it is a knowing or willful . . . [f]ailure to file timely, or . . . [f]ailure to include correct
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information.” 26 C.F.R. § 301.6721-1(f)(2). “Whether a person knowingly or willfully
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fails to file timely or fails to include correct information is determined on the basis of all
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the facts and circumstances in the particular case.” Id. The regulations include suggestions
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as to what the Court should consider when looking at the facts and circumstances:
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The facts and circumstances that are considered in determining
whether a failure is due to intentional disregard include, but are
not limited to––
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(i) Whether the failure to file timely or the failure to
include correct information is part of a pattern of conduct
by the person who filed the return of repeatedly failing to
file timely or repeatedly failing to include correct
information;
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(ii) Whether correction was promptly made upon
discovery of the failure;
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(iii) Whether the filer corrects a failure to file or a failure
to include correct information within 30 days after the date
of any written request from the Internal Revenue Service
to file or to correct; and
(iv) Whether the amount of the information reporting
penalties is less than the cost of complying with the
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requirement to file timely or to include correct information
on an information return.
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26 C.F.R. § 301.6721-1(f)(3) (the “301.6721–1 Factors”). “[T]hese considerations are not
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an exhaustive or conclusive list,” Purser Truck Sales, 710 F. Supp. 2d at 1339, they are
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simply “among any of a number of factors which may be considered in concluding that a
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failure to file was due to an intentional disregard.” Kruse, Inc. v. United States, 213 F.
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Supp. 2d 939, 944 (N.D. Ind. 2002).
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Although “Section 6721 does not use the term ‘willful’” and instead “uses the term
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‘intentional disregard’ . . . [,] 26 C.F.R. § 301.6721-1(f)(2)(ii) defines ‘intentional
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disregard’ as synonymous with ‘willfulness.’” Lefcourt v. United States, 125 F.3d 79, 83
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(2nd Cir. 1997). For this reason, the Second Circuit––and the limited number of other
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courts that have considered the question––defines “‘intentional disregard’ set forth in
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§ 6721’s penalty provision” as “conduct that is willful, a term which in this context requires
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only that a party act voluntarily in withholding requested information, rather than
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accidentally or unconsciously.” Id.; cf. Denbo v. United States, 988 F.2d 1029, 1034–35
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(10th Cir. 1993) (defining “willful” conduct under 26 U.S.C. § 6672 as a “voluntary,
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conscious and intentional decision”) (quoting Burden v. United States, 486 F.2d 302, 304
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(10th Cir. 1973), cert. denied, 416 U.S. 904 (1974)); Hansen v. Comm’r of Internal
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Revenue Serv., 820 F.2d 1464, 1469 (9th Cir. 1987) (defining intentional disregard, as it
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concerns 26 U.S.C. § 6653, as when “a taxpayer . . . knows or should know of a rule or
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regulation[ but] chooses to ignore its requirements”). Because of the “extreme harshness”
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of the penalties involved, intentional disregard in this context “is a high standard of
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culpability, requiring much more than merely negligent or reckless disregard.” Purser
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Truck Sales, 710 F. Supp. 2d at 1339. Here, the Court will “[a]pply [the Lefcourt]
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definition as well as § 301.6721-1(f)(3) of the Regulations . . . [to] the facts and
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circumstances in this case.” Am. Vending Grp., Inc. v. United States, No. CIV.A.WGC-
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07-2277, 2008 WL 4605934, *5 (D. Md. Aug. 28, 2008).
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18-CV-314 JLS (AGS)
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Under the first factor suggested by 26 C.F.R. § 301.6721-1(f)(3), Defendant
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contends that the audit history shows a pattern of conduct that amounts to intentional
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disregard. There is no dispute that in 2006 and 2007, the Revenue Agents auditing Plaintiff
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found Plaintiff’s Forms 8300 deficient and “provided instructional materials, made . . .
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field visit[s], met with employees, explained [Plaintiff]’s legal responsibilities, pointed out
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the penalties for noncompliance, and interviewed the [F&I] managers responsible for filing
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[the] Form[s] 8300” for Plaintiff. MSJ at 7. Further, despite the steps taken by the Revenue
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Agents, Plaintiff submitted nine incomplete Forms 8300 in 2014, all of which lacked TINS.
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From these facts, Defendant argues that the Court can infer Plaintiff “was aware of its
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obligations” yet engaged in a “pattern of conduct that reveals intentional disregard of filing
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requirements.” Purser Truck Sales, 710 F. Supp. 2d at 1339.
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Plaintiff disputes that the prior audit history shows a pattern of conduct sufficient to
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infer intentional disregard. Plaintiff contends that, although it was aware of deficiencies in
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its compliance, the Revenue Agents never specifically mentioned TINS and none of the
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instructional materials provided by the IRS stated that failure to include TINS constituted
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a violation. Opp’n at 7–8. The deposition testimony of Plaintiff’s employees, in which the
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employees claim they do not remember the Revenue Agents identifying concerns related
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to providing TINS, supports this. See, e.g., Prask Decl. Ex. D (Deposition of Tyler Miller)
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at 16:16–17:18 (Plaintiff’s general manager stating he had no recollection of any discussion
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about leaving out Social Security numbers during the 2007 audit); Prask Decl. Ex. D
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(Deposition of Kim Walters) at 27:23–25 (Plaintiff’s controller stating same regarding
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2006 and 2007 audits). Further support comes from Plaintiff’s 2007 letter that it submitted
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to the IRS, which identified several deficiencies it would work to improve but made no
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mention of TINS. See generally Hankla Decl. Ex. 7. Finally, Plaintiff notes it voluntarily
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filed the Forms 8300 with all required information other than TINS, which supports its
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claims that it mistakenly omitted TINS from the forms. Opp’n at 11–12. Defendant offers
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no evidence to refute Plaintiff’s contention, merely stating that “[i]t is likely [Revenue
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Agent] Arnold would have mentioned the omission of the TINS as part of the basis for
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asserting the negligence penalties” during the 2007 audit. Reply at 7.
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Based on the above facts, the Court finds that a trier of fact could conclude that
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Plaintiff did not intentionally disregard its obligation to file complete Forms 8300.
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Although a trier of fact could conclude that, based on the prior audits, Plaintiff knew of its
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obligations yet continued its pattern of filing incomplete Forms 8300, knowledge alone
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does not lead to an automatic finding of willfulness. See Tysinger Motor Co., Inc. v. United
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States, 428 F. Supp. 2d 480, 485 (E.D. Vir. 2006) (noting section 6721 is an “intent based
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statute” rather than “one of strict liability”). Indeed, a trier of fact could conclude that,
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despite the prior audits, Plaintiff did not have sufficient knowledge to comply with the
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regulations. The Court therefore finds a dispute of material fact as to this factor.
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Next, the Court notes that neither party has introduced evidence concerning any
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corrective actions taken by Plaintiff, as suggested by the second and third factors of the
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regulation. It seems from the record that Plaintiff discovered its omissions only after the
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IRS notifications and there is no indication that Plaintiff corrected the omissions within
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thirty days of notification.
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Regarding the fourth factor, cost of compliance, the Court finds there are material
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disputes of fact. The cost to comply with section 6050I “appears to be minimal.” See
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Purser Truck Sales, 710 F. Supp 2d at 1343. “Section 6050I does not require [Plaintiff]
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to pay any additional tax; it merely requires [Plaintiff] to fill out a form and mail a letter to
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the customer.” Id. Defendant, however, argues that Plaintiff’s F&I managers knew that
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Form 8300 required TINS, yet did not request TINS from customers “because [they] w[ere]
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afraid of losing a sale.” MSJ. at 8. Plaintiff views the evidence differently, noting that in
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her deposition, Plaintiff’s F&I manager Vanessa Hunsaker stated that not asking for TINS
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“wasn’t about not obtaining [a] sale, because there are no commissions paid on a cash
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deal. . . . It was about not tipping the customer off that [filing the Form 8300 with the IRS]
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was going to be happening after they left the dealership.” Prask Decl. Ex. E (Deposition
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of Vanessa Hunsaker) at 27:21–28:14.
A trier of fact could view this evidence and
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conclude that Plaintiff had a financial motive to omit TINS from the forms; however, a
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trier of fact could also reasonably conclude that Plaintiff had no financial motive. A
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genuine dispute of material fact therefore exists as to this factor.
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In addition to the regulatory factors, Plaintiff claims it took remedial measures after
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the 2006/2007 audits that show it intended to comply with the law.
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Plaintiff claims it “instituted a training and quality control system for its employees on the
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Form 8300 compliance.” Id. (citing Miller Depo. at 19:6–7). Plaintiff also “create[ed] an
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internal log so that ‘if for whatever reason a finance manager didn’t fill it out, didn’t think
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it applied, forgot, it would get caught by accounting,’” id. (citing Miller Depo at 18:10–
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15), as well as a “binder to keep track of its Forms 8300 and notices sent to consumers.”
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Id. (citing Miller Depo. at 18:16–19).
As noted above,
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Defendant refutes Plaintiff’s claims, arguing that Plaintiff did “nothing meaningful
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to achieve 100 percent compliance on a regular basis.” MSJ at 24. According to
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Defendant, after the 2006/2007 audits, Plaintiff “did not provide its F&I managers with
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training, did not pay them extra for filling out the Forms 8300 and sending customer
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information statements, did not adopt any system of internal controls, and did not hold
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them accountable for their mistakes.” Reply at 8. This nonaction “allow[ed] a pattern of
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noncompliance to continue to grow.” Id. at 8.
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The Court cannot resolve this factual dispute on summary judgment. Further, “it is
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not clear” that Plaintiff’s corrective measures––whatever they were and however
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effective—“were the result of intentional disregard of the law.” See Purser Truck Sales,
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710 F. Supp. 2d at 1344. “A trier of fact could find that these efforts, ineffective though
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they were, indicated an intent to comply with the law, not an intent to disregard it.” Id.;
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see also Tysinger Motor Co., 428 F. Supp. 2d at 486 (noting that with regard to compliance
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efforts, “[s]loppiness is not the same as willfulness”).
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After reviewing the evidence and applying the regulatory factors to the facts and
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circumstances of this case, the Court concludes that a trier of fact could find that Plaintiff
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met its burden to show it did not intentionally disregard its section 6050I filing
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requirements. This conclusion is supported by other courts that have faced similar factual
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circumstances. For example, in Tysinger Motor Co., the district court sitting as trier of fact
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in a bench trial held the plaintiff taxpayer had met its burden in showing intentional
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disregard penalties were inappropriate. 428 F. Supp. 2d 480. The court found persuasive
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evidence similar to that which Plaintiff presented in this case, including the tax payer’s
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“efforts to set up a system that would identify reportable transactions,” “the fact that [the
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tax payer] filed a Form 8300 for half the reportable transactions,” and the fact that the “IRS
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. . . produced no evidence from which the Court could even infer that [the tax payer’s CFO]
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intentionally designed a flawed compliance system.” Id. at 485.
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Similarly, in Purser Truck Sales, the court determined that genuine issues of material
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fact precluded summary judgment on the issue of whether the IRS was authorized to
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impose intentional disregard penalties for the plaintiff’s failure to file Forms 8300. 710 F.
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Supp. 2d at 1342. There, after an audit uncovered a failure to comply with section 6050I’s
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filing requirements, the plaintiff taxpayer attempted to comply with the requirements by
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setting up an excel spreadsheet to track sales. Id. at 1342. The court found that, although
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the government produced evidence that the plaintiff’s failure to file any Forms 8300 over
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a two-year period after the initial audit could “be construed as a pattern of conduct that
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reveal[ed] intentional disregard of filing requirements,” there was “substantial evidence
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that [the plaintiff]’s failures were not due to intentional disregard but were simply mistakes
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resulting from unsophisticated office procedures” and, thus, summary judgment was not
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warranted. Id. at 1342–43. The same can be said here, as there is ample evidence presented
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in this case, including far more robust compliance efforts, from which a trier of fact could
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conclude Plaintiff’s failures were not due to intentional disregard.
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In sum, Plaintiff has brought forth evidence sufficient to create a genuine dispute of
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material fact as to whether it intentionally disregarded its filing requirements. Thus,
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Defendant is not entitled to summary judgment as to Plaintiff’s claims under section 6721.
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II.
Reasonable Cause
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Defendant argues that Plaintiff cannot avoid penalties under 26 U.S.C. § 6724(a)
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because Plaintiff failed to raise its claim of reasonable cause in its administrative refund
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claim.
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Under 26 U.S.C. § 6724, “[n]o penalty shall be imposed . . . with respect to any
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failure if it is shown that such failure is due to reasonable cause and not to willful neglect.”
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To fall under this mandatory waiver provision, the taxpayer must prove: “(1) that
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significant mitigating factors excuse the failure to file; or (2) the failure to file arose from
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events beyond the taxpayer’s control.” Tysinger Motor Co., 428 F. Supp. 2d at 486 (citing
“The taxpayer must also prove that he acted in a
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26 C.F.R. § 301.6724-1(a)(2)).
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‘responsible manner’ both before and after the failure occurred.”
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responsible manner means:
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Id.
Acting in a
(i) That the filer exercised reasonable care, which is that standard
of care that a reasonably prudent person would use under the
circumstances in the course of its business in determining its
filing obligations . . . and
(ii) That the filer undertook significant steps to avoid or mitigate
the failure.
26 C.F.R. § 301.6724-1(d).
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Before filing a claim in a refund suit, taxpayers must first file an administrative
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refund claim. 26 U.S.C. § 7422(a). The administrative refund claim “must set forth in
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detail each ground upon which a credit or refund is claimed and facts sufficient to apprise
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the Commissioner of the exact basis.” 26 C.F.R. § 301.6402-2(b)(1). Compliance with
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the specificity requirements of section 301.6402-2(b)(1) is a prerequisite to subject matter
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jurisdiction over a claim for a refund. New Gaming Sys., Inc. v. United States, No. 2:11-
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CV-00627-MCE-AC, 2013 WL 5798998, at *10 (E.D. Cal. Oct. 28, 2013) (citing Quarty
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v. United States, 170 F.3d 961, 972–73 (9th Cir. 1999); Bear Valley Mut. Water Co. v.
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Riddell, 493 F.2d 948, 950–51 (9th Cir. 1974)). To meet these specifications, neither a
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“detailed explanation” of the legal theories nor a “full factual background” is required in
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the tax payer’s refund claim; rather, “the claim on its face” must apprise the IRS of points
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to which it must examine and direct its attention. Boyd v. United States, 762 F.2d 1369,
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1371–72 (9th Cir. 1985).
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question, the taxpayer may not later raise that question in a refund suit.” Id. at 1372.
“If the claim on its face does not call for investigation of a
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Here, Defendant argues that Plaintiff may not seek relief based on reasonable cause
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under 26 U.S.C. § 6724 because it “did not seek such relief in its administrative refund
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claim.” Reply at 4. The Court must agree. The first time Plaintiff raised its claim for
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reasonable cause was in its Opposition. See generally Opp’n. Plaintiff’s refund claim and
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Complaint mention only section 6721, not section 6724. See generally Compl. & Ex. 3.
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Importantly, the refund claim fails to mention any facts to support an inference that there
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occurred “significant mitigating factors” that must “excuse the failure to file” or that “the
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failure to file arose from events beyond [Plaintiff]’s control.” See Tysinger Motor Co., 428
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F. Supp. 2d at 486. The claim also fails to raise any facts that Plaintiff’s employees “acted
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in a responsible manner” before and after the alleged failure. The Court thus concludes
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that Plaintiff’s refund claim failed to present “facts sufficient to enable the Commissioner
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of Internal Revenue to make an intelligent administrative review of the claim,” see Lemoge
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v. United States, 378 F. Supp. 228, 232 (N.D. Cal. 1974), and, therefore, Plaintiff may not
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raise a claim for reasonable cause under section 6724 at this late stage.
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CONCLUSION
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Based on the foregoing, the Court GRANTS IN PART AND DENIES IN PART
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Defendant’s Motion for Summary Judgment (ECF No. 19). Specifically, the Court
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GRANTS Defendant’s Motion as it concerns the mandatory waiver of penalties under 26
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U.S.C. § 6724 and DENIES Defendant’s Motion with regards to the penalties assessed
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under 26 U.S.C. § 6721. The Parties SHALL CONFER and SHALL FILE a proposed
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///
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18-CV-314 JLS (AGS)
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schedule of pretrial dates and deadlines within fourteen (14) days of the electronic
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docketing of this Order.
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IT IS SO ORDERED.
Dated: September 4, 2019
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18-CV-314 JLS (AGS)
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