Kline v. United States

• Decision Date: 30 March 1984
• Docket Number: No. C82-3588.,C82-3588.
• Citation: 586 F. Supp. 338
• Parties: Stanley W. KLINE, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Northern District of Ohio

586 F. Supp. 338

Stanley W. KLINE, Plaintiff, v. UNITED STATES of America, Defendant.

No. C82-3588.

United States District Court, N.D. Ohio, E.D.

March 30, 1984.

Gerald A. Berk, Steuer, Escovar & Berk Co., L.P.A., Cleveland, Ohio, for plaintiff.

Seth Heald, Jason Green, Tax Div., Dept. of Justice, Washington, D.C., John M. Siegel, Asst. U.S. Atty., Cleveland, Ohio, for defendant.

MEMORANDUM OF OPINION AND ORDER

KRENZLER, District Judge.

Plaintiff, Stanley W. Kline, filed this action on December 15, 1982, seeking a refund of penalties assessed against him for negligent or intentional disregard of rules and regulations in the preparation of income tax returns.

Presently pending before the Court is the defendant United States of America's motion, pursuant to Fed.R.Civ.P. 12(b)(1), to dismiss this action for lack of subject matter jurisdiction.¹ The defendant asserts in its motion that plaintiff has failed to meet the jurisdictional prerequisites for bringing this action.

Plaintiff, a certified public accountant, prepared a return of partnership income, Form 1065, for a real estate partnership known as Southway Warehouse Properties for the year 1977. Plaintiff also prepared, in addition to the partnership return, associated Schedule K-1s for each of the 19 partners, advising each partner of the amount of loss reportable on the individual's return.

The Internal Revenue Service (IRS) determined on December 22, 1980, pursuant to 26 U.S.C. § 6694(a), that tax return preparer penalties should be assessed against plaintiff on the grounds that excessive deductions were reported on the return. A total of nineteen $100.00 penalties were assessed against plaintiff because the excessive loss reported on the partnership return resulted in deficiencies on each of the 19 individual partners' returns.

The IRS sent plaintiff letters, on December 24, 1980, notifying him that five of the penalties were being assessed immediately due to the imminent expiration of the statute of limitations as to those five penalties. Assessment and demand for payment of the five penalties was made on December 30, 1980.

Plaintiff was advised of the remaining 14 penalties by letter dated February 12, 1981. Assessment and demand for payment of the 14 penalties was made on March 1, 1981.

Plaintiff responded to the two sets of assessments by filing written protests on February 5, 1981, and February 17, 1981, respectively. On December 3, 1981, plaintiff was notified that the administrative appeal of the penalties was denied.

On May 11, 1982, plaintiff made nineteen $15.00 payments representing 15 percent of the nineteen $100.00 penalties. On May 15, 1982, plaintiff filed a claim for a refund with the IRS. The IRS did not act on plaintiff's refund claim and, on December 15, 1982, plaintiff filed the present action seeking a refund of the amounts paid.

It is well established that the entire assessment must first be paid in order to establish jurisdiction for a district court to hear an income tax refund suit. Flora v. United States, 357 U.S. 63, 78 S.Ct. 1079, 2 L.Ed.2d 1165 (1958, aff'd on rehearing, 362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960). However, 26 U.S.C. § 6694(c) provides an exception to the general requirement of full payment.²

Under § 6694(c), a tax return preparer against whom penalties have been assessed may bring an action challenging those assessments in district court, without full payment of the penalties, if, within 30 days after the assessment is made, he pays 15 percent of the penalties, and, thereafter, pursues an unsuccessful claim for a refund with the IRS. An action in district court must be brought within 30 days of the earlier...