VIRGINIA A. PHILLIPS, District Judge.
On June 19, 2015, Defendant United States of America filed a Motion for Summary Judgment against Plaintiffs Lawrence Kalantari and Yvette Kalantari ("Motion" or "Mot."). (Doc. No. 18.) After consideration of the papers filed in support of, and in opposition to, the Motion, as well as the arguments advanced at the Motion hearing, the Court GRANTS Defendant's motion for summary judgment.
Plaintiffs filed their Complaint against Defendant United States of America on December 17, 2014. (Doc. No. 1.) Plaintiffs seek a federal income tax refund of $644,243.28 for the year 1998. (Compl. ¶ 15.) Plaintiff Kalantari was a partner in the Yucaipa Companies, a partnership audited for the 1998 tax year. (
On November 4, 2008, Mr. Kalantari paid the IRS $620,000 based on an estimate of his tax liability from the settlement agreement. (
A court shall grant a motion for summary judgment when there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a);
Where the non-moving party has the burden at trial, the moving party need not produce evidence negating or disproving every essential element of the non-moving party's case.
A genuine issue of material fact will exist "if the evidence is such that a reasonable jury could return a verdict for the non-moving party."
Both parties cite facts that are not relevant to resolution of the Motion. To the extent certain facts are not mentioned in this Order, the Court has not relied on them in reaching its decision. The Court finds the following material facts are supported adequately by admissible evidence and are uncontroverted. They are "admitted to exist without controversy" for the purposes of this Motion. L.R. 56-3;
Plaintiffs Lawrence and Yvette Kalantari seek a tax refund for the year 1998 in the amount of $644,243.28 from Defendant United States of America. (Doc. No. 19, Statement of Uncontroverted Facts ("SUF") No. 1; Compl. ¶ 15.) Plaintiff Lawrence Kalantari was a partner in a partnership which was audited by the IRS for the tax year 1998. (SUF No. 3; Compl. ¶ 7.) The audit was resolved in 2008 when the partnership and its partners agreed to certain tax adjustments. (SUF No. 4; Compl. ¶ 7.) On November 4, 2008, Mr. Kalantari paid the IRS $620,000 based on an estimate of his tax liability from the settlement agreement resolving the audit. (SUF No. 5; Compl. ¶ 8.) On July 14, 2010, the IRS assessed Plaintiffs $531,762 in additional taxes due for the year 1998. In addition to the tax deficiency assessment, on July 14, 2010, Plaintiffs were also assessed a delinquency penalty and interest in the amounts of $79,764.40 and $564,478.88, respectively. (SUF No. 6; Compl. ¶¶ 8-9.)
The parties here dispute whether: (1) Plaintiffs filed their 1998 federal income tax return timely; (2) settlement of the partnership audit included interest suspension and a waiver of assessment of penalties against Plaintiffs; and (3) Plaintiffs are entitled to interest suspension pursuant to 26 U.S.C. § 6404(g). (
In a refund suit, the taxpayer must prove that he or she is entitled to the refund amount.
The filing of calendar year federal income tax returns must be made before April 15th after the close of the preceding calendar year. 26 U.S.C. § 6072(a). By filing Form 4868 ("Application for Automatic Extension of Time to File U.S. Individual Income Tax Return"), on or before the April 15 deadline, taxpayers may receive an automatic four-month extension to file their return. 26 U.S.C. § 6081; Treas. Regs., 26 C.F.R. §§ 1.6081-4(a) and (b)(1)-(4). If taxpayers require an additional extension of time to file, they may file Form 2688 ("Application for Additional Extension of Time to File U.S. Individual Income Tax Return"), which is not automatic, but discretionary, and may be granted for "good cause."
Form 2688's instructions specifically advise taxpayers that they must show good cause for requesting an additional delay beyond the automatic extension and that the additional extension request should be filed early so that if denied, taxpayers can still file their return on time.
Hence, to show that their 1998 return was filed timely, Plaintiffs must prove: (1) they filed an application for an additional extension with the IRS; (2) they showed good cause why they could not file the return by August 15, 1999; and (3) the IRS granted the additional extension of time.
Here, Plaintiffs' 1998 federal income tax return was due April 15, 1999, but they filed a timely application for an automatic extension. (Exh. A to Compl., date "4-15-1999"; "Extension of Time to File"; and "subsequent payment [$]1,278,476.00".) Plaintiffs' timely filing extended the due date to August 15, 1999. (Exh. A to Compl., "Ext. Date 08-15-1999".) To gain an additional extension, Plaintiffs were required to file Form 2688 by August 15, 1999 showing good cause. The IRS official record does not show that Plaintiffs filed Form 2688 for an additional extension or that the IRS granted a request. (Mot. at 5.)
Plaintiffs contend they did file a timely Form 2688 and reasonably believed the IRS granted the additional extension as it had done in the past. (
It was Mr. Mannino's business practice to file all tax returns and applicable extensions, including Form 2688, on behalf of clients like Plaintiffs. (Mannino Decl. ¶ 8-10.) Moreover, Mr. Mannino recalls, and it is his present belief that, Form 2688 was prepared timely (
Mr. Kalantari declares that it has been his practice, for the past 20 years, to request an additional extension (Kalantari Decl. ¶ 4), and recalls requesting an additional extension for the tax year 1998 (
Defendant argues that the IRS enjoys the presumption of "administrative regularity" with respect to the processing of payments and assessments. (Pltf Supp. at 3 (Doc. No. 24).) According to the doctrine of "administrative regularity," courts presume that IRS officials "discharge their duties" properly, in the absence of clear evidence to the contrary.
Plaintiffs concede that the IRS enjoys a presumption of administrative regularity and try to rebut the presumption by claiming "it is not unheard of that the IRS may well lose, destroy or misfile a document." (Deft Supp. at 2 (Doc. No. 23).) Relying on
These argument are unpersuasive for two reasons. First, speculation that the IRS sometimes loses documents is not enough to rebut the presumption because Plaintiffs must show irregularity of administrative procedures.
Finally, even if Plaintiffs filed Form 2688 on time they cannot show the application was granted. The "Notice to Applicant" section of Form 2688 has five possible responses to an application for an additional extension of time. (
Accordingly, Plaintiffs cannot show that their application for an additional extension of time was filed on time or granted. Since Plaintiffs did not file their 1998 tax return by August 15, 1999, it was late, and they are not entailed to a refund.
As part of the settlement with the IRS over their disputed tax liability for the year 1999, Plaintiffs allege that the IRS agreed they were entitled to interest suspension and that no penalties would be assessed. (Compl. ¶ 13(B).) The settlement agreement (Form 870) states, "IRC Section 6651 failure to file penalty applies to any late filed (or non-filed) returns that are required to report the partnership items adjustments." (Exh. D to Mot. at 1.) Moreover, in the "Schedule of Adjustments" to the settlement agreement, the "Remarks" section outlines four penalties. (
Interest on unpaid taxes is mandated by statute.
Plaintiffs further allege they are entitled to interest suspension under 26 U.S.C. § 6404(g) because the IRS failed to provide notice of delinquency. (Compl. ¶ 13(A).) While § 6404(g) requires interest suspension if the IRS does not provide notice to the taxpayer identifying the particular amount due and the basis for the liability, the suspension applies only to returns filed timely. Since Plaintiffs did not file their 1998 tax return timely, section 640(g) does not apply to them.
Accordingly, Plaintiffs are not entitled to interest suspension for the 1998 tax year under the settlement agreement or section 6404(g).
For the foregoing reasons, the Court GRANTS summary judgment in favor of Defendant United States of America.