United States District Court, E.D. Michigan, Southern Division
OPINION AND ORDER GRANTING DEFENDANT'S MOTION TO
DISMISS (ECF NO. 7)
D. Borman United States District Judge
Auto Pride Collision East, Inc. ("Auto Pride")
files this action against the United States seeking an
abatement of tax penalties assessed for failure to file
timely tax returns, failure to timely make required tax
payments, and failure to timely make required tax deposits.
Defendant the United States has filed a motion to dismiss
arguing that Plaintiff has failed to satisfy the
jurisdictional prerequisites for maintaining this abatement
action and that therefore this Court lacks subject matter
jurisdiction over the action. Defendant additionally argues
that, even assuming the Court could entertain subject matter
jurisdiction over the suit, the Complaint fails to state a
claim upon which relief can be granted. The Court has
determined that oral argument will not assist the Court in
resolving the matters raised in the motion and therefore will
determine the matter on the briefs. See E.D. Mich.
L.R. 7.1(f)(2). For the reasons that follow, the Court GRANTS
the motion to dismiss.
Pride alleges in the Amended Complaint that it does not
contest and has paid the underlying tax, which was not timely
paid due to the negligence of a third party payroll service.
Auto Pride admits in the Amended Complaint that it has not
paid the penalties assessed for the admitted failures to file
and to pay and seeks an abatement of those penalties in this
action. The United States now moves to dismiss for lack of
subject matter jurisdiction, asserting that Auto Pride has
not met the jurisdictional prerequisites to filing this
action, i.e. full payment of the assessed penalty. The United
States alternatively argues that Auto Pride fails to state a
claim on which relief can be granted because reliance on a
third-party payer, who failed to timely file and pay Auto
Pride's taxes, is not a "reasonable cause"
excuse under the Internal Revenue Code to avoid the failure
to file and failure to pay penalties.
reasons that follow, the Court concludes that Plaintiff has
failed to meet the jurisdictional prerequisites for filing
this action and therefore the Court lacks subject matter
jurisdiction over these claims. Because the Court concludes
that it lacks subject matter jurisdiction, it need not
address Defendant's alternative argument that Plaintiffs
claim fails on the merits because the excuse proffered for
failing to timely file and pay taxes does not meet the
statutory "reasonable cause" standard.
following allegations are taken from Plaintiffs Complaint.
Auto Pride is a tax paying corporation formed under the laws
of the State of Michigan. (ECF No. 3, Amended Complaint
¶ 1.) Plaintiff is subject to the employment and income
tax requirements of withholding and remitting taxes withheld
from employees' payroll checks to deposit and pay over to
the United States Treasury. (Id. ¶ 4.)
Beginning on or about the third quarter of 2011 and
continuing through the last quarter of 2012, specifically:
third quarter 2011, fourth quarter 2011, first quarter 2012,
second quarter 2012, third quarter 2012 and fourth quarter
2012, Plaintiff failed to properly withhold, deposit, file
and pay payroll deposits. (Id. ¶ 5.) At the
time of these failures, Plaintiff had its payroll processes
administered through a third-party payroll administrator who
was a professional tax preparer and bookkeeper. (Id.
Internal Revenue Service sent Plaintiff notices of the
failure to remit and all said notices were received by the
third-party payroll provider as agent of record for
Plaintiff. Unknown to Auto Pride, the bookkeeper attempted to
file and pay all the deficient returns and taxes prior to the
principals of Auto Pride having knowledge of the issue.
(Id. ¶¶ 7-8.) Upon assessment of
significant penalties in addition to the tax, the third party
payroll provider approached the Plaintiff and explained what
had happened. At that point in time, the original tax had
been paid, with the only remaining debt being the penalty.
(Id. ¶¶ 9-10.)
after these events occurred, Plaintiff terminated the third
party payroll provider and hired another firm to provide the
service. The new payroll firm, also an office of certified
public accountants, filed a request to abate the penalties
based in part on Plaintiffs reliance on a professional in
handling the payroll responsibilities for Plaintiff.
(Id. ¶¶ 11-12.) According to Plaintiff,
the Internal Revenue Service did not reply to the requests of
the Taxpayer in a timely manner and the Taxpayer filed a
number of requests for an update or determination of its
request continuing until March, 2017. (Id. ¶13,
Ex. A.) The Plaintiff avers that the Taxpayer appeal was
denied, according to the IRS, some time ago but only recently
communicated to the taxpayer. (Id. ¶14.)
United States submits the Declaration of Thomas P. Cole, the
attorney from the Tax Division of the United States
Department of Justice to whom this case has been assigned,
which the Court may consider in determining whether it has
jurisdiction to hear this case. (ECF No. 7-1, Sept. 6, 2017
Declaration.) Mr. Cole's Declaration attaches certain
documents, including IRS Account Transcripts and
correspondence between Auto Pride and Debra Barker, an IRS
Revenue Officer, and correspondence between Auto Pride and
the IRS Appeals Office. Included among the Exhibits attached
to Mr. Cole's Declaration is a May 28, 2013 letter from
Robert Dunigan, President of Auto Pride, to Ms. Barker,
requesting an abatement of all penalties and interest for
2011 and 2012. (ECF No. 7-3, May 28, 2013 letter.) The letter
explains that in early 2013, the IRS informed Mr. Dunigan
that the required withholding deposits were not being timely
filed and that timely quarterly reports were not being filed.
(Id.) The letter explains that the Mr. Dunigan
inquired of the bookkeeper regarding this notice and was
assured that all taxes were current and up to date. Upon
further investigation, it was discovered that the payments
were not being made, causing the business owner to promptly
pay the outstanding amounts, fire the bookkeeper, and hire a
CPA firm to do the payroll and taxes.
20, 2013, Revenue Officer Barker responded to the May 28,
2013 letter, and denied the request for a penalty adjustment,
explaining that the information contained in the May 28, 2013
letter did not establish reasonable cause for adjusting the
penalty and explaining to Plaintiff the Appeal Procedures.
(ECF No. 7-4, Cole Decl. Ex. 3, June 20, 2013 Letter.) On
July 1, 2013, Robert Taylor of the CPA firm Taylor &
Morgan sent a letter to Ms. Barker stating that Auto Pride
would like to appeal the tax decision regarding their
abatement request and stating that a detailed explanation
would follow explaining Auto Pride's entitlement to
relief. (ECF No. 7- 5, July 1, 2013 Letter.) On October 30,
2013, Leonard Bartold of the IRS Appeals Office sent a letter
to Mr. Dunigan at Auto Pride explaining that based on the
facts presented, "including the additional information
you submitted, " the determination had been made that
there was "no basis for abatement of the penalty(s)...
within the protective framework of reasonable cause."
(Id.) The letter explained that the case was then
closed in Appeals and explaining that in order to file suit
with the United States District Court or the United States
Court of Federal Claims, Auto Pride had to pay the balance of
the assessed penalty, file a Form 843, Claim for Refund and
Request for Abatement, with the IRS Service Center which
would issue a formal notice of claim disallowance, giving
Auto Pride two years to bring formal suit. (Id.)
later, on October 10, 2014, Auto Pride's present counsel
wrote a letter to the IRS attaching Form 843s for Auto Pride
for the last two quarters of 2011 and all quarters of 2012,
dated October 10, 2014, and asking for
"consideration" of the enclosures. (ECF No. 7-7,
Oct. 10, 2014 Letter.) In response to the October 10, 2014
letter from Mr. Salim, on November 5, 2014, the IRS sent Auto
Pride a letter explaining that a review of the case file
shows that Auto Pride had previously exercised its appeal
rights with respect to the penalties assessed. (ECF No. 7-8,
Nov. 5, 2014 Letter.) The letter again explained that the
next level of appeal would be to file a petition with the
court, which could be done "after the penalties are
paid" and a claim for refund had been filed with the
Service Center and a formal disallowance issued.
Plaintiffs Complaint contains three counts for
"abatement of penalty" under IRC §§ 6651,
6652, and 6656.