548 F.3d 1168 (8th Cir. 2008), 08-1175, Jewell v. United States

Docket Nº:08-1175.
Citation:548 F.3d 1168
Party Name:Barry J. JEWELL, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
Case Date:December 10, 2008
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

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548 F.3d 1168 (8th Cir. 2008)

Barry J. JEWELL, Plaintiff-Appellee,


UNITED STATES of America, Defendant-Appellant.

No. 08-1175.

United States Court of Appeals, Eighth Circuit.

December 10, 2008

Submitted: Sept. 26, 2008.

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Carol Barthel, DOJ, argued, Kenneth Greene, on the brief, Washington, DC, for appellant.

Before RILEY, BRIGHT, and MELLOY, Circuit Judges.

BRIGHT, Circuit Judge.

This appeal stems from a civil action brought by appellee Barry J. Jewell

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against appellant the United States (“ the IRS" ) seeking a refund of his pro rata share of a tax sanction paid in conjunction with a closing agreement between his former law firm and the IRS. On appeal, the IRS challenges the decisions of the district court (1) denying the IRS's motion to dismiss the complaint for lack of standing and (2) granting Jewell summary judgment on his claim that the IRS procured a closing agreement with Jewell by fraud or malfeasance. The IRS argues that Jewell lacked standing to challenge the closing agreement because the agreement was entered with Jewell's law firm, and, even if Jewell had standing, the district court improperly concluded that the undisputed facts showed that the IRS had used fraud or malfeasance in procuring the agreement. We have jurisdiction under 28 U.S.C. § 1291, and we reverse.


Jewell was a shareholder in the law firm of Jewell, Moser, Fletcher & Holleman, P.A. (“ JMFH" ). JMFH sponsored four prototype retirement plans, which its clients, mostly small businesses, relied upon to create individual retirement plans. As the plans' sponsor, JMFH had an obligation to ensure that (1) its prototype plans complied with federal law and (2) its clients amended their individual plans to comply with changes in federal law. See Rev. Proc.2000-20, § 3.07.

After Congress passed a series of laws that affected the retirement plans, the IRS required a sponsor to ensure that individual client plans were amended in accordance with the new laws by February 28, 2002, or the last day of the first plan-year beginning on or after January 1, 2001, whichever was later. See Rev. Proc.2001-55. But if a sponsor submitted an amended prototype plan for IRS approval by December 31, 2000, the IRS extended the deadline for amendments made to individual plans to the later of September 30, 2003 or the last day of the twelfth month after the date on which the IRS approved the prototype plan. See Rev. Proc.2000-20 § 19.07.

JMFH submitted its four amended prototype plans to the IRS on February 5, 2002. Because JMFH failed to submit the prototype plans by December 31, 2000, the individual plans that relied on the prototype plans were not able to receive the extension. Id. As a result, JMFH had to ensure that its four prototype plans and all of its clients' individual plans complied with the new federal laws by, as relevant here, February 28, 2002. But during the summer and fall of 2002, the IRS requested that JMFH make several changes to its plans to bring them in compliance with the changes in federal law. Thus, these individual plans, the IRS argued, were untimely and potentially subject to disqualification or other penalties.

Meanwhile, in July 2002, one of JMFH's shareholders (Scott Fletcher) left the firm. The remaining shareholders (JMFH's president Keith Moser, John Holleman, and Jewell) redeemed Fletcher's interest in the firm and continued to practice together until the end of August 2002. In a September 2002 letter, Jewell informed the IRS that JMFH “ will stay in existence under my control" and will continue to act as the sponsor of the prototype retirement plans.

In May 2003, the IRS determined that more than sixty of the individual plans sponsored by JMFH were not timely amended to comply with changes in federal law. The IRS proposed that JMFH enter into an umbrella closing agreement, in which it would deem the plans timely amended and JMFH would pay a penalty. Jewell, although signaling his willingness to enter into a closing agreement, disputed the nature of the plans' deficiencies in a series of letters sent in the summer of 2003. For its part, the IRS indicated that

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JMFH had two options: (1) negotiate an umbrella closing agreement with the IRS to resolve all of the deficiencies or (2) decline to do so, which would result in the IRS's review of each plan-a contingency that would likely result in plan disqualification or additional penalties. Negotiations between the IRS and Jewell (as a representative of JMFH) continued through the summer and fall of 2003.

In June 2003, Jewell sought judicial dissolution of JMFH in Arkansas state court and an accounting of the firm's receivables.1 In December 2003, Moser, JMFH's president, sent the IRS a signed Form 2848 Power of Attorney and Declaration of Representative, which authorized only Moser and Fletcher to represent JMFH before the IRS. In a letter that accompanied the Power of Attorney, Moser stated that JMFH had not yet been dissolved, that Jewell was not authorized to represent the firm, and that the firm would continue to sponsor the plans.

Later that month, Moser and Fletcher agreed that JMFH would pay $26,800-almost one third of the IRS's initial settlement offer-to settle with the IRS. In return, the IRS would determine that the plans were timely amended. The closing agreement contains a finality provision in accordance with 26 U.S.C. § 7121, which provides that the agreement is “ final and conclusive" except that “ the matter ... may be reopened in the event of fraud, malfeasance, or misrepresentation of material fact." Moser and Fletcher signed the closing agreement and returned the closing agreement to the IRS. Jewell did not sign the agreement. Moser, Fletcher, and Jewell divided the sanction equally, bundled three checks made out to the IRS, and sent the checks to the IRS.

After unsuccessfully filing a claim for a refund with the IRS, Jewell filed this action in June 2006 against the IRS, seeking a refund of $8,933.33, his pro rata share of JMFH's payment under the closing agreement. Jewell argued that the IRS had obtained the closing agreement through fraud, malfeasance, or misrepresentation of fact. The IRS moved to dismiss on the ground that Jewell lacked standing. The district court denied the motion, holding that because JMFH had stopped operating and Jewell had paid the sanction out of personal funds, Jewell had incurred direct harm and thus had standing to sue.

After the parties cross-moved for summary judgment, the district court granted Jewell's motion and denied the Government's motion. The district court held that the IRS's tactics in procuring the closing agreement qualified as “ fraud or malfeasance" and therefore justified setting the agreement aside. Specifically, the district court concluded that the IRS presented JMFH with a “ Hobson's choice" in that the IRS demanded that JMFH “ either accept the closing agreement and pay a penalty or subject its clients to individual plan evaluations as ‘ late...

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