Gaynor v. United States
| Decision Date | 28 October 2020 |
| Docket Number | No. 19-53T,19-53T |
| Parties | GEORGE N. GAYNOR, Plaintiff, v. THE UNITED STATES, Defendant. |
| Court | U.S. Claims Court |
Tax refund claim; I.R.C. § 7422(a); I.R.C. § 6038; payment in full; penalties; administrative refund claim; notice of disallowance; six-month waiting period; IRS Form 5471; RCFC 12(b)(1).
Michael Cavalier Durney, Law Offices of Michael C. Durney, Washington, DC, for plaintiff.
Miranda Bureau, United States Department of Justice, Tax Division, Washington, DC, for defendant. With her on the briefs were Richard E. Zuckerman, Principal Deputy Assistant Attorney General, David I. Pincus, Chief, Court of Federal Claims Section, G. Robson Stewart, Assistant Chief, Court of Federal Claims Section, Tax Division, United States Department of Justice, Washington, DC.
Plaintiff, Mr. George N. Gaynor, seeks the refund of a portion of civil penalties that the Internal Revenue Service ("IRS") assessed against him for his failure to comply with reporting obligations related to his interests in certain foreign corporations. Such claims, when properly filed, are within this Court's tax refund jurisdiction, pursuant to the Tucker Act, 28 U.S.C. § 1491(a), and the Internal Revenue Code ("I.R.C.") § 7422(a).1 See United States v. Clintwood Elkhorn Min. Co., 553 U.S. 1, 4 (2008) ().
To date, Mr. Gaynor has never paid in full the penalties assessed against him for the years 2002 through 2009, or for the years 2011 through 2015. Mr. Gaynor has paid in full the penalties assessed against him for 2010 and has sought a refund from the IRS for that full payment. But because Mr. Gaynor only paid his 2010 penalties after filing his initial Complaint ("Compl."), ECF No. 1 - albeit before filing his First Amended Complaint ("FAC"), ECF No. 9-1 - Mr. Gaynor's payment in full and accompanying refund request for the 2010 penalties are insufficient to confer jurisdiction upon this Court to consider Mr. Gaynor's FAC even for to the 2010 sums at issue.
Moreover, as the Court details infra, even with respect to the 2010 penalties, Mr. Gaynor failed to satisfy yet additional jurisdictional prerequisites. In particular, because Mr. Gaynor never received a notice of disallowance from the IRS for his claimed 2010 refund, he was required to wait six months after filing a refund claim with the IRS before initiating his suit. Thus, Mr. Gaynor first filed the instant action prior to having satisfied any of the jurisdictional prerequisites for any year (including 2010), and he may not circumvent the mandatory six-month waiting period for the 2010-related claims via the FAC or by having that waiting period lapse while the FAC is pending. Although more than six months had passed from the time Mr. Gaynor filed his initial Complaint to the time Mr. Gaynor filed his FAC, such passage of time cannot be used to satisfy a statutory waiting period. See Black v. Secretary of Health and Human Services, 93 F.3d 781, 790 (Fed. Cir. 1996); GAF Bldg. Materials Corp v. Elk Corp. of Dallas, 90 F.3d 479 (Fed. Cir. 1996). As such, even with respect to the 2010 penalties, Mr. Gaynor has not satisfied this Court's tax refund jurisdictional prerequisites.
Accordingly, and for the additional reasons explained infra, the government's motion is GRANTED, and Mr. Gaynor's FAC is DISMISSED pursuant to Rule 12(b)(1) of the Rules of the United States Court of Federal Claims ("RCFC").
The IRS assessed $260,000 in civil penalties against Mr. Gaynor due to his failure to file IRS Form 5471 ("Form 5471"). Mr. Gaynor specifically claims he is entitled to a refund for $23,600 in such penalties paid to the IRS. Mr. Gaynor further seeks a declaration that all penalties assessed against him were "unlawful," and that the penalties assessed for the years 2002-2005 were improper due to the applicable statute of limitations contained in I.R.C. § 6038. FAC ¶ 20-32.
Mr. Gaynor previously assisted in managing his father's investments, which included, among other assets, a Swiss investment account managed by Aquila & Co., AG, in Zurich, Switzerland ("Aquila"). FAC ¶¶ a-e. In the late 1990s, Mr. Gaynor's father requested that Mr. Gaynor begin to visit Zurich twice a year to check on theAquila investment account, as Mr. Gaynor's father no longer felt up to traveling to Switzerland himself due to his deteriorating health and advanced age. FAC ¶ h. Mr. Gaynor agreed and began traveling to Zurich at his own expense. Id. ¶ i.
In October of 2000 - to pay for Mr. Gaynor's business trips to Switzerland - Mr. Gaynor's father created Sonoside Consulting, Inc. ("Sonoside"). FAC ¶¶ j-k. Sonoside is a Panamanian corporation for which Mr. Gaynor was named as a beneficial owner. Id. A few years later, in 2004, Sonoside transferred its control and management to Centapriv Zurich, AG, ("Centapriv") through a management agreement. Id.
As alleged in the FAC, Mr. Gaynor was not aware of Sonoside's transfer to Centapriv or even Sonoside's existence altogether until Aquila, the Swiss investment manager of Sonoside, so informed Mr. Gaynor. Id. ¶ l. Mr. Gaynor alleges that Aquila never advised him that he possessed any IRS reporting responsibilities with regard to Sonoside. Id. Following Sonoside's formation, Centrapriv formed a separate corporation, owned and funded by Sonoside, called Runcar Limited ("Runcar"). Id. ¶ m. Centrapriv advised Mr. Gaynor that Runcar was created as a separate entity, based in Zug, Switzerland, for the purpose of licensing an automobile which was to be driven by Mr. Gaynor while he was in Switzerland tending to his father's investments. Id. ¶ m. Mr. Gaynor alleges that "[a]s was the case with Sonoside, Plaintiff was assured by Centrapriv that Runcar was a Swiss corporation as to which Plaintiff had no [IRS] reporting responsibilities. Id. ¶ n.
Sometime in 2010, Mr. Gaynor learned that there likely were IRS filing requirements for corporate-owned foreign bank accounts. FAC ¶ r. Following that, in October of 2011, an employee of Centrapriv took Mr. Gaynor to meet with Steven Kraft, an American certified public accountant ("CPA") who worked in Zurich. Id. ¶ s. Mr. Gaynor maintains that Mr. Kraft first advised Mr. Gaynor that he had IRS reporting responsibilities for the Swiss bank accounts. Id. ¶ t. Mr. Gaynor alleges, however, that at that point - even after learning of IRS reporting requirements for the Swiss bank accounts - Mr. Gaynor still was unaware that he possessed separate reporting responsibilities for both Sonoside and Runcar. Id.
Several years later, Mr. Gaynor received a notice from the IRS captioned "Failure to File Form 5471" for Sonoside (the "Sonoside Failure Notice"), dated May 8, 2017.3 FAC ¶ v. Mr. Gaynor maintains that it was not until he received the Sonoside Failure Notice that he learned of a Form 5471 filing responsibility regarding Sonoside. Id. Furthermore, because the IRS did not mention Runcar in the Sonoside Failure Notice, Mr. Gaynor believed that he was not required to separately file a Form 5471 for Runcar. FAC ¶ v.; see also id. ¶ ff ("At no time did Plaintiff ever knowingly or intentionallydisregard any legal obligation with respect to either Sonoside or Runcar.").4 On July 26, 2017, Mr. Gaynor transmitted Form 5471 for Sonoside to the IRS for the years 2004 through 2015, accompanied by a Statement of Reasonable Cause, explaining his failure to file the forms in a timely manner. Id. ¶ w.
Mr. Gaynor then received a notice from the IRS which was entitled "Failure to File Form 5471" for Runcar ("Runcar Failure Notice"), dated September 12, 2017. FAC ¶ x. Just as Mr. Gaynor maintains with regard to Sonoside, Mr. Gaynor alleges that he first became aware that he also was required to file Form 5471 for Runcar when he received the Runcar Failure Notice. Id. On December 5, 2017, Mr. Gaynor transmitted Form 5471 for Runcar covering the years 2002 through 2015, once again accompanied by a Statement of Reasonable Cause. Id. ¶ y.
The IRS responded to Mr. Gaynor in a letter dated June 6, 2018, advising Mr. Gaynor that the IRS had rejected his Statement of Reasonable Cause concerning the Sonoside Form 5471 filings. FAC ¶ z. As such, the IRS informed Mr. Gaynor that the IRS would assess a $10,000 penalty against Mr. Gaynor for each of the years 2004 through 2015 for which he had failed to submit the required forms for Sonoside, for a total of $120,000. Id. The IRS further advised Mr. Gaynor that if he disagreed with the IRS's decision, he could submit a reconsideration request to the IRS Office of Appeals. Id. In turn, Mr. Gaynor transmitted a Protest of the Sonoside Form 5471 penalties to the IRS, as well as a Request for Consideration by the Office of Appeals. Id. ¶ aa.
Similarly, on June 6, 2018, the IRS sent a letter denying Mr. Gaynor's Runcar Statement of Reasonable Cause, as well. FAC ¶ cc. Accordingly, the IRS informed Mr. Gaynor that the IRS would assess a $10,000 penalty against Mr. Gaynor for each of the years 2002 through 2015 for which he had failed to submit the required forms for Runcar, for a total of $140,000 (i.e., in addition to the $120,000 for Sonoside). Id. That IRS letter further advised Mr. Gaynor that if he did not agree with the decision, he could seek reconsideration. Id. ¶ cc. As Mr. Gaynor had done for Sonoside, he transmitted to the IRS a Protest of the Runcar Form 5471 penalties, as well as a Request for Consideration by the IRS Office of Appeals. Id. ¶ dd.5
As highlighted supra, to date, Mr. Gaynor has paid $23,600 towards the penalties assessed against him. See FAC ¶¶ 13-19. Mr. Gaynor did so through a number of different lump-sum payments, of varying amounts, and at different times, related todifferent tax years. These payments can be divided into two groups - those made prior to Mr....
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