Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-04605/USCOURTS-cand-3_04-cv-04605-2/pdf.json

Parties Involved:
Gamiel C. Gran
Plaintiff
Gail K. Gran
Plaintiff
United States of America
Defendant

Document Text:

United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

GAMIEL C. GRAN and GAIL K. GRAN,

Plaintiffs,

 v.

UNITED STATES OF AMERICA,

Defendant.

 

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No. 04-4605 SC

ORDER DENYING

PLAINTIFFS' MOTION

FOR ABATEMENT OF

PENALTIES 

I. INTRODUCTION

Plaintiffs Gamiel and Gail Gran ("Plaintiffs") filed suit

against Defendant United States of America ("Defendant") following

a dispute with the Internal Revenue Service ("IRS") over the

validity of a claimed tax refund. The dispute centered on whether

Plaintiffs had made a valid and binding election under § 83(b) of

the Internal Revenue Code, 26 U.S.C. § 83. On August 26, 2005,

this Court issued an Order ruling that Plaintiffs were not

entitled to a refund because the § 83(b) election was valid when

made and cannot be later cancelled or reversed. Accordingly, the

Court denied Plaintiffs' motion for partial summary judgment and

granted in part Defendant's motion for summary judgment. The

Order allowed Plaintiffs 30 days to file a renewed motion with

respect to the sole question of whether Plaintiffs had filed a

Form 8275 disclosure statement with their amended tax return,

which, if filed, would support their position that the IRS

improperly imposed an accuracy-related penalty of $35,779.20 under

Case 3:04-cv-04605-SC Document 41 Filed 12/08/05 Page 1 of 6
United States District Court

For the Northern District of California

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Internal Revenue Code Section 6662(a), 26 U.S.C. § 6662. 

Plaintiffs timely filed their renewed motion, together with

evidence they claim addresses the question left open by the

Court's August 26, 2005 Order. Defendant has filed an opposition

to Plaintiffs' motion. For the reasons stated herein, the

Plaintiffs' motion is DENIED. 

II. BACKGROUND

The facts in this case have been set forth in the Court's

August 26, 2005 Order, familiarity with which is presumed. 

Relevant to the instant dispute is the fact that this Court

determined that Plaintiffs' § 83(b) election was valid and binding

when made, and that Defendant was therefore entitled to retain

Plaintiffs' payment of $178,896.00 in satisfaction of their

underreported tax liability for the tax year 2000. The sole issue

currently before the Court is whether Plaintiffs have adequately

demonstrated that they filed a Form 8275 disclosure statement with

their amended tax return that would have explained to the IRS the

basis for Plaintiffs' position with respect to the tax treatment

of Plaintiffs' stock options that were the subject of their 

§ 83(b) election. That question bears directly on the propriety

of the $35,779.20 accuracy penalty assessed by the IRS. 

Plaintiffs have timely filed their motion for abatement of

penalties, and Defendant has submitted an opposition to their

motion.

III. LEGAL STANDARD

Since the question here at issue was left open by the Court's

Order on the parties' cross-motions for summary judgment, the

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United States District Court

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standard imposed by Rule 56 of the Federal Rules of Civil

Procedure continues to govern disposition of the instant motion. 

Under Rule 56, summary judgment in favor of the movant is proper

if "there is no genuine issue as to any material fact." Celotex

Corp. v. Catrett, 477 U.S. 317, 322 (1986). "[T]he movant has the

burden of showing that there is no genuine issue of fact." 

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). 

Furthermore, "[o]n summary judgment the inferences to be drawn

from the underlying facts ... must be viewed in the light most

favorable to the party opposing the motion." United States v.

Diebold, Inc., 369 U.S. 654, 655 (1962).

Under the above standard, with respect to Plaintiffs' motion,

this Court must view the facts in the light most favorable to

Defendants. In addition to the Court's factual inferences for

purposes of the motion, "[i]n any tax-refund case, the [IRS's]

deficiency determination is presumptively correct and the taxpayer

has the burden of proving that such deficiency is erroneous." 

Niles v. United States, 710 F.2d 1391, 1393 (9th Cir. 1983). 

Therefore, the burden is on Plaintiffs to show that the IRS's

determination with respect to the accuracy penalty is erroneous.

IV. DISCUSSION

Having already decided that the IRS's position with respect

to Plaintiffs' § 83(b) election was correct, the sole remaining

issue for resolution by this Court is whether Defendant was

correct in levying an accuracy-related penalty for underpayment

of tax liability pursuant to I.R.C. § 6662(a). Although

Plaintiffs now advance five separate arguments in support of

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their position that the penalty was improper, only one of those

arguments was made in Plaintiffs' original motion for partial

summary judgment, and accordingly, it is that lone argument that

the Court designated as appropriate for additional briefing. 

Compare Plaintiffs' Motion for Partial Summary Judgment at 24

with Plaintiffs' Motion for Abatement of Penalties at 5-19. The

Court declines to allow Plaintiffs a second bite at the apple by

permitting the instant motion to spiral into a far-reaching and

complex dispute regarding the permissibility of IRS accuracy

penalties, and instead will focus on the discrete question left

open by the Court's August 26, 2005 Order, namely, whether

Plaintiffs can prove that they timely filed a Form 8275

disclosure statement along with their amended tax return for the

tax year 2000 ("Amended Return").

The Amended Return submitted by Plaintiffs in support of

their original motion for partial summary judgment did not

contain the Form 8275 allegedly filed along with the return. 

Whatever the reason, the disclosure statement did not appear in

this case until Plaintiffs filed their reply to Defendant's

opposition to Plaintiffs' original motion for partial summary

judgment. However, as evidenced by the Court's August 26, 2005

Order, that filing was insufficient to demonstrate that

Plaintiffs should be awarded an abatement of the accuracy

penalty. Accordingly, the Court allowed Plaintiffs the

opportunity to renew their motion if they could provide evidence

demonstrating that they had filed the disclosure statement along

with the Amended Return.

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United States District Court

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1 Even the materials submitted in support of the instant

motion are internally inconsistent, in that Plaintiffs' attorney,

Brian G. Issacson, stated that the Amended Return and accompanying

attachments, including the disclosure statement, were filed in

February 2003, whereas Plaintiff Gail Gran maintains that the

Amended Return was filed "on or about September 9, 2002." See

Declaration of Brian G. Issacson ("Issacson Decl."), Supplemental

Declaration of Gail K. Gran ("Gran Decl."). 

-5-

Despite submitting lengthy legal arguments and voluminous

exhibits, Plaintiffs have failed to submit any evidence that

would prove that they actually informed the IRS of their tax

position with respect to the § 83(b) election when they filed

their Amended Return in September 2002.1 The Form 8275 submitted

in support of Plaintiffs' motion is undated and does not bear any

indication that it was ever filed. While Plaintiffs' tax

preparer and attorney, Mr. Issacson, asserts in his Declaration

that the Form 8275 was attached to the Amended Return, the Court

notes that Mr. Issacson has no personal knowledge of this, was

not present when the Amended Return was executed and filed, and

consequently is unable to add anything to Plaintiffs' effort to

convince this Court that the IRS did in fact receive their

disclosure statement, contrary to the IRS's position. 

In sum, the facts that (1) the Form 8275 was not attached to

the original Amended Return produced by the IRS as evidence in

this case; (2) the Form 8275 was not attached to Plaintiffs' copy

of their Amended Return submitted as evidence in support of their

original motion for partial summary judgment; and (3) Plaintiffs

have not been able to produce any evidence demonstrating that the

Form 8275 was actually sent or received, all support the Court's

finding that Plaintiffs did not alert the Government as to the

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basis for their tax position with respect to the § 83(b)

election. The Court finds that the IRS was therefore justified

in its decision to impose an accuracy-related penalty on

Plaintiffs pursuant to § 6662(a). The Government's decision not

to abate the penalties imposed under § 6662(a) was therefore

proper. Accordingly, Plaintiffs' motion is DENIED. 

V. CONCLUSION

Plaintiffs have failed to set forth any evidence that would

demonstrate that their Form 8275 was sent to or received by the

IRS along with Plaintiffs' Amended Return. Accordingly, the Court

hereby DENIES Plaintiffs' motion for abatement of penalties. 

IT IS SO ORDERED.

Dated: December 6, 2005

 

UNITED STATES DISTRICT JUDGE

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