Memorandum Opinion and Order
The parties have filed cross motions for summary judgment under Fed R. Civ. P. 56. The parties agree on the material facts but disagree on the legal significance of those facts. Because Plaintiff has proven as a matter of law the IRS's actions were improper and incorrect, the Court GRANTS his motion for summary judgment and DENIES the United States' motion.
Jewell was a shareholder in the law firm of Jewell, Moser, Fletcher & Holleman, P.A. ("JMFH"). JMFH was the sponsor of four employee-benefit prototype plan documents ("the prototype plans"), which it provided to its clients. After legislation from 1994 to 2000 commonly referred to as "GUST,"*fn1 JMFH was required to amend the prototype plans to comply with GUST. Although no concrete deadline to amend prototype plans was set, the Internal Revenue Service ("IRS") granted an extension of the remedial amendment period for employer plans as long as the employer adopted a prototype plan that was amended by December 31, 2000. Rev. Proc. 2000-20, 2000-6 I.R.B. 553. The IRS set the remedial amendment period for employer plans as February 28, 2002, or the last day of the first plan year beginning on or after January 1, 2001, whichever occurred last. See Rev. Proc. 2000-27, 2000-26 I.R.B. 1272; Rev. Proc. 2001-55, 2001-49 I.R.B. 552. JMFH submitted its amended prototype plans on February 5, 2002. The IRS requested corrections on July 25, 2002. Jewell alleges the corrections were not substantive. He made the corrections and resubmitted the prototype plans on July 26, 2002.
On July 26, JMFH stopped conducting regular business -- the day Scott Fletcher left the firm (doc. # 16). Shortly after, the other attorneys, Jewell, Keith Moser, and John Holleman also left the firm, and each began their own practice. A Pulaski County Circuit Court order entered in JMFH's state dissolution proceeding indicates that each attorney took their own client files and accounts receivable, leaving the JMFH firm with very few assets (doc. # 16). This dissolution proceeding is ongoing.
On October 4, 2002, the IRS responded with additional questions regarding the prototype plans. Jewell made those corrections on October 7. On October 9, the IRS issued opinion letters, approving the prototype plans. The letters state, "Because you submitted this plan for approval after December 31, 2000, the remedial amendment extension period of section 15 of Rev. Proc. 2000-20, 2000-6 I.R.B. 553 is not applicable." (doc. #20-4).
Prior to the IRS's requests for changes, JMFH began submitting individual employer plans for determination letters. Jewell's clients adopted the prototype plans before or within two and a half months of their plan year end, and Jewell submitted them to the IRS for favorable determination letters. At oral argument on the summary judgment, the United States conceded these initial employer plans were timely submitted within the remedial amendment period. After the IRS issued its opinion letters for the prototype plans, Jewell updated his employer plans and resubmitted an adoption agreement incorporating the updated prototype plans. The United States contends that this re-submission proves the earlier filed employer plans did not comply with GUST and thus made the plans "late amenders."
In 2003, two IRS agents, Lori Kay and Rick Parker, began reviewing the employer plans for determination letters. Compl. Exh. A-2. Kay contacted Jewell and informed him they were "late amenders" because of the deficiencies noted in the prototype plans and included in the employer plans. Id. Jewell contested the allegation but discussed the possibility of an umbrella closing agreement that would protect the employers from any interruption of their plans. Compl. Exh. A-3. Jewell's and Kay's correspondence was heated at best, and although a closing agreement was negotiated, no agreement seemed likely.
On December 4, 2003, Moser and Holleman filed an IRS Form 2848 power of attorney with the IRS and "revoked" Jewell's authority to negotiate with the IRS.*fn2 Compl. Exh. A-13. Moser and Fletcher then negotiated a closing agreement ("the agreement") with the IRS under 26 U.S.C. § 7121 on behalf of JMFH and Fletcher's solo firm. Under the agreement, JMFH would pay a penalty of $26,800 and the prototype plans would be considered filed prior to December 31, 2000, thus availing the employer plans to the extension allowed under Revenue Procedure 2000-20 and making the employer's filing timely. The agreement stated it was a final agreement except in the event of fraud, malfeasance, or misrepresentation of material fact. Compl. Exh. A-20. According to Jewell, Kay and Parker threatened that if Jewell removed his clients from consideration under the agreement and did not pay his share of the agreement, the IRS would not enter into the agreement with JMFH, Jewell could face lawsuits from Moser's and Fletcher's clients, and the IRS would conduct individual investigations of each of Jewell's employer plans.
Jewell concluded he had no choice but to pay his portion. Moser and Fletcher executed the agreement on behalf of JMFH. Jewell did not sign the agreement. The penalty was paid with three certified checks: Moser & Associates paid $8,933.34, Fletcher Law Firm P.A. paid $8,933.33, and Jewell personally paid $8,933.33. In the cover letter that Jewell attached to his check and sent to Moser, Jewell stated he paid the penalty under protest. Compl. Exh. A-17. After the penalty was paid, Jewell brought this refund suit for $8,933.33.
Summary judgment is appropriate only when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A fact is "material" if it might affect the outcome of a case, and a factual dispute is "genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc. 477 U.S. 242, 248 (1986). The non-movant "must show there is sufficient evidence to support a jury verdict in [his] favor." Nat'l Bank of Commerce v. Dow Chem. Co., 165 F.3d 602, 607 (8th Cir. 1999). The court views the facts and the inferences to be drawn from the facts in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
The Court has previously addressed standing in its order to the United States' motion for dismissal (doc. # 21). While the closing agreement was negotiated for JMFH and while a shareholder does not usually have standing to claim a corporation's cause of action, this case presents the unique situation where the firm had gone through a de facto dissolution and distribution, and Jewell was forced to personally pay the penalty. He was a taxpayer ...