United States District Court, D. Maryland, Southern Division
JOHN P. GREGAN, Plaintiff,
UNITED STATES OF AMERICA, Defendant.
MEMORANDUM OPINION AND ORDER
PAUL W. GRIMM, District Judge.
The Internal Revenue Service ("IRS") assessed Plaintiff John P. Gregan, an authorized tax return preparer, with penalties of $107, 000 for allegedly understating taxpayer liability on tax returns that he prepared for 2009 and 2010. Gregan seeks a declaration that he is not liable for understating taxpayer liability on 2009 and 2010 tax returns, as well as a recovery of payments he made on those penalties. The Government moves to dismiss, ECF No. 5, and Gregan moves to amend his Complaint, ECF No. 11. Because Plaintiff has failed to state a claim and his proposed Amended Complaint does not cure this deficiency, I will grant the Government's Motion to Dismiss and deny Plaintiff's Motion for Leave to File First Amended Complaint.
Plaintiff, "an enrolled agent authorized to prepare tax returns, " prepared over 2, 000 tax returns for individuals and small businesses in 2009 and 2010. Compl. ¶¶ 11-12, ECF No. 1. The IRS charged Plaintiff "penalties totaling $66, 000 under 26 U.S.C. § 6694 for understatement of taxpayers' liability on returns prepared for the 2009 tax year due to either knowingly taking an unreasonable position without substantial authority under 26 U.S.C. § 6694(a) or willful and reckless conduct under 26 U.S.C. § 6694(b)." Id. ¶ 19. Also, with regard to tax returns Plaintiff prepared for the 2010 tax year, the IRS charged him penalties of $9, 000 under 26 U.S.C. § 6694(a) and $32, 000 under 26 U.S.C. § 6694(b). Id. ¶¶ 30-32.
Gregan challenged these penalties by filing five administrative claims with the IRS, accompanied by payments of 15% of the assessed amounts. Id. ¶¶ 20-23, 33-38. He filed suit in this Court after six months had passed, without IRS action, from when Plaintiff filed four of his five claims. Id. ¶¶ 27, 43, 44. With regard to Plaintiff's fifth claim, the six-month period had not expired when Plaintiff filed suit, but Plaintiff did not seek to recover the penalty he paid with regard to that claim. Id. ¶ 45. Rather, Plaintiff seeks a refund of the $14, 850 he paid in penalties when he submitted his first four claims; a declaration that he "is not liable for any penalty with respect to the preparation of tax returns pursuant to 26 U.S.C. § 6694 for the 2009 and 2010 tax years"; and attorney's fees and costs. Id. at 7. In his proposed Amended Complaint, filed after six months had passed without IRS action, from when Plaintiff filed his fifth administrative claim, Am. Compl. ¶ 47, ECF No. 11-2, Plaintiff sets forth the same allegations and seeks, in addition to the relief previously requested, to recover the $1, 200 penalty paid when he submitted his fifth claim. Id. at 8.
A. Motion to Dismiss Complaint for Failure to State a Claim
Federal Rule of Civil Procedure 12(b)(6) provides for "the dismissal of a complaint if it fails to state a claim upon which relief can be granted." Velencia v. Drezhlo, No. RDB-12-237, 2012 WL 6562764, at *4 (D. Md. Dec. 13, 2012). This rule's purpose "is to test the sufficiency of a complaint and not to resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.'" Id. (quoting Presley v. City of Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006)). To that end, the Court bears in mind the requirements of Fed.R.Civ.P. 8, Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), when considering a motion to dismiss pursuant to Rule 12(b)(6). Specifically, a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief, " Fed.R.Civ.P. 8(a)(2), and must state "a plausible claim for relief, " as "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice, " Iqbal, 556 U.S. at 678-79. See Velencia, 2012 WL 6562764, at *4 (discussing standard from Iqbal and Twombly ). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 663.
Plaintiff seeks a refund for the penalty assessed under 26 U.S.C. § 6694(a)-(b), which provides:
(a) Understatement due to unreasonable positions.-
(1) In general.-If a tax return preparer-
(A) prepares any return or claim of refund with respect to which any part of an understatement of liability is due to a position described in paragraph (2), and
(B) knew (or reasonably should have known) of the position, such tax return preparer shall pay a penalty with respect ...