Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca13-16-01014/USCOURTS-ca13-16-01014-0/pdf.json

Parties Involved:
Diversified Group Incorporated
Appellant
James Haber
Appellant
United States
Appellee

Document Text:

United States Court of Appeals 

for the Federal Circuit ______________________ 

DIVERSIFIED GROUP INCORPORATED, JAMES 

HABER,

Plaintiffs-Appellants

v.

UNITED STATES,

Defendant-Appellee

______________________ 

2016-1014

______________________ 

Appeal from the United States Court of Federal 

Claims in No. 1:14-cv-00627-MMS, Judge Margaret M. 

Sweeney. 

______________________ 

Decided: November 10, 2016

______________________ 

JASPER G. TAYLOR, III, Norton Rose Fulbright US 

LLP, Houston, TX, argued for plaintiffs-appellants. Also 

represented by RICHARD LEE HUNN. 

FRANCESCA UGOLINI, Tax Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by IVAN CLAY DALE, 

GILBERT STEVEN ROTHENBERG, CAROLINE D. CIRAOLO, 

DIANA L. ERBSEN. 

______________________ 

Case: 16-1014 Document: 45-2 Page: 1 Filed: 11/10/2016
2 DIVERSIFIED GROUP INC v. US

Before PROST, Chief Judge, NEWMAN and TARANTO, Circuit Judges.

PROST, Chief Judge. 

Diversified Group Incorporated (“Diversified”) and its 

president, James Haber, (collectively, “Appellants”) 

brought this action against the United States, seeking a 

refund of payments made toward a federal tax penalty 

which the Internal Revenue Service (“IRS”) assessed 

under 26 U.S.C. § 6707 for failure to comply with tax 

shelter registration requirements under 26 U.S.C. § 6111. 

The United States Court of Federal Claims (“Claims 

Court”) held that it lacked jurisdiction over the case 

because Appellants did not comply with the full payment 

rule. For the reasons stated below, we affirm. 

BACKGROUND

The circumstances giving rise to this appeal are 

summarized in the Claims Court’s decision, Diversified 

Group, Inc. v. United States, 123 Fed. Cl. 442 (2015). We 

provide information relevant to the issues on appeal here. 

Between 1999 and 2001, Appellants sold two tax 

avoidance strategies to 192 of their clients: the Option 

Partnership Strategy (“OPS”) and the Financial Derivatives Investment Strategy (“FDIS”). Each strategy involved a set series of transactions, which, when exercised 

by an individual client, would yield an artificial tax loss or 

deduction. Each client would contribute the initial 

amount to be invested in these transactions, as well as

pay a fee of 3–4.5%. Diversified did not register any of 

these services as tax shelters. 

The then-applicable version of 26 U.S.C. § 61111 required that “[a]ny tax shelter organizer shall register the 

 

1 This version of 26 U.S.C. § 6111 and the corresponding version of 26 U.S.C. § 6707, referenced below, 

Case: 16-1014 Document: 45-2 Page: 2 Filed: 11/10/2016
DIVERSIFIED GROUP INC v. US 3

tax shelter with the Secretary (in such form and in such 

manner as the Secretary may prescribe) not later than 

the day on which the first offering for sale of interests in 

such tax shelter occurs.” 26 U.S.C. § 6111(a)(1). Under 

§ 6111(c)(1), a “tax shelter” was defined as: 

any investment— (A) with respect to which any 

person could reasonably infer from the representations made, or to be made, in connection with 

the offering for sale of interests in the investment 

that the tax shelter ratio for any investor as of the 

close of any of the first 5 years ending after the 

date on which such investment is offered for sale 

may be greater than 2 to 1, and

(B) which is— 

(i) required to be registered under a Federal or 

State law regulating securities, 

(ii) sold pursuant to an exemption from registration requiring the filing of a notice with a Federal 

or State agency regulating the offering or sale of 

securities, or 

(iii) a substantial investment.

Section 6111(c)(4) defined a “substantial investment” as 

an investment where “(A) the aggregate amount which 

may be offered for sale exceeds $250,000, and (B) there 

are expected to be 5 or more investors.”

 

were enacted on August 5, 1997 as part of the Taxpayer 

Relief Act of 1997, Pub.L. 105–34. They were repealed on 

October 22, 2004, when they were replaced with the 

American Jobs Creation Act of 2004, Pub.L. 108–357. 

Because the actions in question occurred before 2004, we 

will refer to the pre-2004 versions of § 6111 and § 6707.

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4 DIVERSIFIED GROUP INC v. US

Treasury Department regulations provided that 

“[r]egistration is accomplished by filing a properly completed Form 8264 with the Internal Revenue Service. The 

Internal Revenue Service will assign a registration number to each tax shelter that is registered.” Temp. Treas. 

Reg. § 301.611-1T, A-1, A-47. When an investment qualified as a tax shelter because it was a “substantial investment” under § 6111(c)(1)(B)(iii), a separate Form 8264 

needed to be filed for each “investment” that made up the 

“substantial investment” if the investment 

differ[ed] from the other investments in a substantial investment with respect to any of the following: (1) Principal asset, (2) Accounting 

methods, (3) Federal or state agencies with which 

the investment is registered or with which an exemption notice is filed, (4) Methods of financing 

the purchase of an interest in the investment, 

(5) Tax shelter ratio. 

Id. at A-48. The regulations made clear that “[s]uch 

aggregated investments, however, are part of a single tax 

shelter.” Id. 

If a person failed to register a tax shelter under 

§ 6111, they were subject to a penalty under 26 U.S.C. 

§ 6707. Section 6707(a) provided in relevant part:

(1) Imposition of penalty.—If a person who is required to register a tax shelter under section 

6111(a)— 

(A) fails to register such tax shelter on or before 

the date described in section 6111(a)(1), or

(B) files false or incomplete information with the 

Secretary with respect to such registration,

such person shall pay a penalty with respect to 

such registration in the amount determined under 

paragraph (2) or (3), as the case may be. No penalCase: 16-1014 Document: 45-2 Page: 4 Filed: 11/10/2016
DIVERSIFIED GROUP INC v. US 5

ty shall be imposed under the preceding sentence 

with respect to any failure which is due to reasonable cause.

(2) Amount of penalty.—Except as provided in 

paragraph (3), the penalty imposed under paragraph (1) with respect to any tax shelter shall be 

an amount equal to the greater of— 

(A) 1 percent of the aggregate amount invested in 

such tax shelter, or

(B) $500.

In 2002, the IRS began conducting a penalty audit, 

pursuant to § 6707, of Diversified for potential failures to

register a tax shelter under § 6111. Eventually, on December 16, 2013, the IRS issued two “Notices of Proposed 

Adjustment” (“NOPAs”) assessing penalties of 

$24,868,451 for failure to register OPS and $17,241,032 

for failure to register FDIS, respectively. The penalties 

totaled $42,109,483. According to the IRS, OPS and FDIS 

each qualified as a “tax shelter” under § 6111 because the 

computed tax shelter ratio was greater than 2:1 and each 

was a “substantial investment” under § 6111(c)(4). The 

IRS calculated each penalty by, pursuant to 

§ 6707(a)(2)(A), computing the “aggregate amount invested”2 by each client, multiplying this number by 1%, and 

summing this result across clients. On January 16, 2014, 

the IRS reduced the amount due to $24,920,904 because 

the other $17,188,579 had been “[p]aid by [o]thers.” 

 

2 The “aggregate amount invested” was calculated, 

generally speaking, by summing the amount that the 

client contributed to initiate the OPS or FDIS transactions and the fee it paid to Diversified. This methodology 

is not in dispute.

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6 DIVERSIFIED GROUP INC v. US

On February 28, 2014, Diversified made a payment of 

$15,500, which was the portion of the OPS penalty that it 

incurred from its dealings with a single client, Stanley 

Dziedzic, ($15,450) plus interest ($50). Haber made a 

payment of $18,370, which was the portion of the FDIS 

penalty that he incurred from his dealings with another 

client, Albert Kotite, ($18,310) plus interest ($60). They 

filed refund claims for each. The IRS denied these claims 

on April 10, 2014. 

Appellants filed the instant action in the Claims 

Court on July 18, 2014, seeking refunds of the $15,500 

and $18,370 payments. On August 26, 2015, the Claims 

Court dismissed the case under Rule 12(b)(1) of the Rules 

of the U.S. Court of Federal Claims, finding that it lacked 

jurisdiction because Appellants had failed to satisfy the 

“full payment rule,” which, under Supreme Court precedent, requires that a person seeking a refund for a tax or 

penalty pay in full before filing suit. Flora v. United 

States, 362 U.S. 145, 177 (1960). The Claims Court

reissued its opinion on September 29 to correct certain 

citations to statutory language. 

Appellants timely appealed. We have jurisdiction 

pursuant to 28 U.S.C. § 1295(a)(3).

DISCUSSION

I 

An initial question that we must address is how this

appeal comes to us procedurally. The Claims Court 

issued its opinion on August 26 and entered judgment 

pursuant to this opinion on September 25. However, this 

opinion cited to the post-2004 versions of § 6111 and 

§ 6707, instead of the pre-2004 versions which are applicable here. Accordingly, the Claims Court reissued its 

opinion with corrected citations (but no other changes) on 

September 29 and entered judgment the following day. 

However, just before it did this, on September 28, plainCase: 16-1014 Document: 45-2 Page: 6 Filed: 11/10/2016
DIVERSIFIED GROUP INC v. US 7

tiffs filed a notice of appeal on the Claims Court’s original 

judgment. Appellants argue that this September 28 

notice of appeal divested the Claims Court of its jurisdiction such that it did not have jurisdiction to vacate its 

original judgment and reissue its opinion. 

We disagree with Appellants. “Ordinarily, the act of 

filing a notice of appeal confers jurisdiction on an appellate court and divests the trial court of jurisdiction over 

matters related to the appeal.” Gilda Indus., Inc. v. 

United States, 511 F.3d 1348, 1350 (Fed. Cir. 2008). 

Nevertheless, under Rule 60(a) of the Rules of the U.S. 

Court of Federal Claims, a court “may correct a clerical 

mistake or a mistake arising from oversight or omission 

whenever one is found in a judgment, order, or other part 

of the record.” A court can make these corrections “on its 

own” and “without notice,” even after a party has appealed. See id. The only constraint is that, “after an 

appeal has been docketed in the appellate court and while 

it is pending, such a mistake may be corrected only with 

the appellate court’s leave.” Id. 

Here, Appellants are technically correct that their 

September 28 notice of appeal divested the Claims Court 

of its jurisdiction. Nevertheless, the Claims Court still 

remained able to issue clerical corrections to its opinion, 

and it did not need to seek our permission to do so until 

this appeal was docketed, which did not happen until 

October 6. The only correction the reissued opinion made 

was substituting the current versions of § 6111 and 

§ 6707 with their pre-2004 versions, and this substitution 

did not impact the Claims Court’s legal analysis. As such, 

the corrections were sufficiently separated from the 

Claims Court’s substantive analysis to be considered 

clerical error. Cf. Pfizer Inc. v. Uprichard, 422 F.3d 124, 

130 (3d Cir. 2005) (“[T]he relevant test for the applicability of Rule 60(a) is whether the change affects substantive 

rights of the parties and is therefore beyond the scope of 

Rule 60(a) or is instead a clerical error, a copying or 

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8 DIVERSIFIED GROUP INC v. US

computational mistake, which is correctable under the 

Rule.” (quoting In re W. Tex. Mktg., 12 F.3d 497, 504 (5th 

Cir. 1994))); Vaughter v. E. Air Lines, Inc., 817 F.2d 685, 

689 (11th Cir. 1987) (“As a general proposition, the district court may act under Rule 60(a) only to correct ‘mistakes or oversights that cause the judgment to fail to 

reflect what was intended at the time of the trial.’ Corrections or alterations that ‘affect the substantial rights of 

the parties, however, are beyond the scope of rule 60(a).’” 

(citations omitted)). As such, we have jurisdiction over 

this case, triggered by Appellants’ September 28 notice of 

appeal, and we will consider the Claims Court’s reissued 

opinion, which it properly corrected pursuant to Fed. R. 

Civ. P. 60(a).

II

We now turn to the Claims Court’s dismissal of Appellants’ refund suit under Rule 12(b)(1) of the Rules of the 

U.S. Court of Federal Claims. We review a decision by 

the Claims Court to dismiss a case for lack of subject 

matter jurisdiction de novo. Bianchi v. United States, 475 

F.3d 1268, 1273 (Fed. Cir. 2007). Appellants bear the 

burden of establishing that the court has jurisdiction by a 

preponderance of evidence. Trusted Integration, Inc. v. 

United States, 659 F.3d 1159, 1163 (Fed. Cir. 2011). “In 

determining jurisdiction, a court must accept as true all 

undisputed facts asserted in the plaintiff's complaint and 

draw all reasonable inferences in favor of the plaintiff.” 

Id. 

The sole basis for Appellants’ appeal is that the 

Claims Court should have found that their § 6707 penalties were divisible, such that Appellants’ payments of the 

Dziedzic and Kotite portions would have satisfied the full 

payment rule and allowed the Claims Court to exercise 

jurisdiction (assuming no other jurisdictional barriers). 

Based on our review of the full payment rule and its 

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DIVERSIFIED GROUP INC v. US 9

divisibility exception, we disagree that the § 6707 penalties assessed against Appellants are divisible. 

A 

In general, a person can challenge a penalty assessed 

by the IRS in two ways: First, they can appeal to the IRS 

Appeals Office without paying the penalty.3 26 C.F.R. 

§§ 601.106(b), 601.105(b), (c), (e). Second, they can pay 

the penalty, request a refund from the IRS, and, if unsuccessful, sue to recover a refund. 26 U.S.C. § 7422(a); 28 

U.S.C. § 1346(a); Smith v. United States, 495 F. App’x 44, 

48 (Fed. Cir. 2012). Although the United States, as a 

sovereign, is generally immune from suit, 28 U.S.C. 

§ 1346(a) provides the limited waiver of sovereign immunity for refund suits: 

 

3 For taxes assessed by the IRS, a person also has 

the option of filing a petition with the United States Tax 

Court (“Tax Court”) without first paying the tax. See

Flora, 362 U.S. at 163. The Tax Court, however, is a 

court of limited jurisdiction, see 26 U.S.C. § 7442, and 

Congress has generally declined to authorize jurisdiction 

over assessed penalties, such as the § 6707 penalties at 

issue here. See IRM 35.1.1.2 (listing statutory provisions 

under which the Tax Court has been granted jurisdiction, 

including 26 U.S.C. §§ 6015(e), 6110(f)(3), 6211–16, 6226, 

6228, 6247, 6252, 6320, 6330, 7481(c), 6404(i), 7430(f)(2), 

6512(b)(2), 6166, 6863(b)(3)(C), 7429(b)(2)(B)); see also

Smith v. Comm’r, 133 T.C. 424, 430 (2009) (noting that 

“this Court has never exercised jurisdiction over an assessable penalty that was not related to a deficiency, even 

absent Congress’ explicitly circumscribing our jurisdiction” and finding that the Tax Court did not have jurisdiction over penalties assessed under 26 U.S.C. § 6707A).

Case: 16-1014 Document: 45-2 Page: 9 Filed: 11/10/2016
10 DIVERSIFIED GROUP INC v. US

(a) The district courts shall have original jurisdiction, concurrent with the United States Court of 

Federal Claims, of:

(1) Any civil action against the United States for 

the recovery of any internal-revenue tax alleged to 

have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to 

have been excessive or in any manner wrongfully 

collected under the internal-revenue laws . . . .

The Tucker Act, which gives the Claims Court jurisdiction 

over suits for which the United States has waived its 

sovereign immunity, provides the Claims Court with 

jurisdiction for refund suits. 28 U.S.C. § 1491; Shore v. 

United States, 9 F.3d 1524, 1525 (Fed. Cir. 1993); Rocovich v. United States, 933 F.2d 991, 993 (Fed. Cir. 1991).

In Flora, the Supreme Court determined that 

§ 1346(a)’s jurisdictional grant includes a “full payment 

requirement,” which demands—as a jurisdictional prerequisite—full payment of the tax or penalty before a 

party could sue for a refund. 362 U.S. at 177 (“[Section] 

1346(a)(1), correctly construed, requires full payment of 

the assessment before an income tax refund suit can be 

maintained in a Federal District Court.”). It did, however, recognize that in cases such as those involving excise

taxes where the tax “may be divisible into a tax on each 

transaction or event,” satisfaction of “the full-payment 

rule would probably require no more than payment of a 

small amount.” Id. at 171 n.37, 176 n.38. This is because 

each excise tax is, legally, its own assessment (e.g., if a 

person is taxed $100 per widget for 5000 widgets, they 

receive 5000 different assessments), so paying the “small 

amount” that is the excise tax for one good would satisfy 

the full payment rule for that good. See id. 

This observation forms the basis for what courts have 

recognized as the “divisibility exception” to Flora’s full 

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DIVERSIFIED GROUP INC v. US 11

payment rule. If an assessment or penalty is merely “the 

sum of several independent assessments triggered by 

separate transactions,”4 Korobkin v. United States, 988 

F.2d 975, 976 (9th Cir. 1993), it is considered “divisible” 

such that “the taxpayer may pay the full amount on one 

transaction, sue for a refund for that transaction, and 

have the outcome of this suit determine his liability for all 

the other, similar transactions.” Cencast Servs., L.P. v. 

United States, 729 F.3d 1352, 1366 (Fed. Cir. 2013) (quoting Univ. of Chi. v. United States, 547 F.3d 773, 785 (7th 

Cir. 2008)). In practice, the government will generally 

counterclaim for the remainder of the tax due and both 

the paid assessment and the unpaid assessments will be 

litigated in one action. Univ. of Chi. 547 F.3d at 785; 

Ruth v. United States, 823 F.2d 1091, 1093 (7th Cir. 

1987); Oral Argument at 12:22–47, available at

http://oralarguments.cafc.uscourts.gov/default.aspx?fl=20

16-1014.mp3. If the government does not counterclaim, 

the challenger remains free to litigate the paid assessment as a test case.5 

Nevertheless, divisibility remains a “narrow exception,” Korobkin, 988 F.2d at 976, applied when an as-

 

4 We have also stated that “[a] divisible tax . . . is 

one that represents the aggregate of taxes due on multiple 

transactions (e.g., sales of items subject to excise taxes).” 

Rocovich, 933 F.2d at 995.

5 At oral argument, Appellants posited that, in this 

scenario, issue preclusion may be available as a way to 

expediently dispose of the remaining assessments. Oral 

Argument at 12:51–13:58. Of course, in this scenario, the 

full payment rule would still require that the challenger 

pay before they could challenge these assessments in 

subsequent refund suit(s). We provide no opinion on this 

approach generally, or whether issue preclusion would be 

available to Appellants in this case. 

Case: 16-1014 Document: 45-2 Page: 11 Filed: 11/10/2016
12 DIVERSIFIED GROUP INC v. US

sessed tax or penalty is the aggregate of independent tax 

liabilities arising from different transactions. See, e.g., 

Cook v. United States, 32 Fed. Cl. 170, 172 (1994) (recognizing that excise tax on sales of diesel fuel and environmental tax on importation of petroleum products are 

divisible by sale), aff’d, 86 F.3d 1095 (Fed. Cir. 1996); 

Cencast Servs., 729 F.3d at 1357 (acknowledging that 

payroll taxes are divisible by employee). Where the 

liability is singular—even if the penalty base involves 

summing multiple figures—the assessment is not divisible. See, e.g., Rocovich, 933 F.2d at 995 (estate tax not 

divisible because “it arises from a single event”); Korobkin, 988 F.2d at 977 (pre-1990 § 6700 penalty for failure 

to register abusive tax shelter not divisible because it was 

“based on the aggregate of a person’s abusive tax shelter 

sales during the year” and not “assessed on each individual transaction”); Ardalan v. United States, 748 F.2d 

1411, 1414 (10th Cir. 1984) (personal income tax not 

divisible).

B 

In this case, Appellants contend that their § 6707 

penalties are divisible because they were assessed against 

each of the 192 instances6 in which they implemented 

OPS or FDIS for an individual client. In effect, Appellants argue that this case involves 192 different tax 

shelters which § 6111 required them to register. In 

support of their position, Appellants emphasize that a 

separate Form 8264 (the form by which a tax shelter is 

registered, Temp. Treas. Reg. § 301.611-1T, A-1, A-47) 

would need to be filled out for each of the 192, as it is 

 

6 The attachments to the NOPAs list 193 total client entries. However, one client is unnumbered and two 

entries that are numbered do not list corresponding 

clients, so the correct total is 192. Neither party appears 

to dispute this point. 

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DIVERSIFIED GROUP INC v. US 13

impossible to know all of the information that this form 

requires until OPS or FDIS is implemented for a particular client. Appellants also point out that the IRS computed the penalty amount—under the applicable portion of 

§ 6707(a)(2), “1 percent of the aggregate amount invested 

in such tax shelter”—by computing the “aggregate 

amount invested” for each client implementation and 

summing. Accordingly, Appellants argue, § 6707 penalties should be divisible on this basis.

The government takes a different view. In its view, 

this case involves not 192 tax shelters, but two: OPS and 

FDIS. The government argues that, with respect to each 

of these offerings, the § 6707 penalty is not divisible 

because liability is triggered by a single event: failure to 

register the tax shelter. The government emphasizes 

that, under the plain language of § 6111(a)(1) and Treasury Department regulations, tax shelters must be registered by the first day that interests in the shelter are 

offered for sale (e.g., in this case, OPS and FDIS had to be 

registered by the first day Appellants offered them to its 

clients), and failure to do so—regardless of how many 

sales are made with respect to that tax shelter—triggers 

the § 6707 penalty. The government also counters that 

neither aggregating transactions to calculate the penalty 

nor filing separate Forms 8264 makes the § 6707 penalty 

divisible, because the first is only a method of quantifying 

liability (but does not trigger liability itself) and the 

second elevates form over substance. 

We agree with the government. Section 6707(a) provides that “if a person . . . fails to register such tax shelter 

. . . such person shall pay a penalty with respect to such 

registration.” This language makes clear that liability for 

a § 6707 penalty arises from the single act of failing to 

register the tax shelter (which, under Temp. Treas. Reg.

§ 301.611-1T, A-1, A-47, is failing to file the necessary 

Form(s) 8264). This omission creates a single source of 

liability, regardless of how many individuals or transacCase: 16-1014 Document: 45-2 Page: 13 Filed: 11/10/2016
14 DIVERSIFIED GROUP INC v. US

tions are involved in the tax shelter. Liability cannot be 

sub-divided beyond this. 

This same principle holds for tax shelters—such as 

the ones at issue—that qualify as such because they are 

“substantial investments” under § 6111(c)(1)(B)(iii). 

Section 6111(c)(4) defines a “substantial investment” as 

an investment where “(A) the aggregate amount which 

may be offered for sale exceeds $250,000, and (B) there 

are expected to be 5 or more investors.” Although the 

“substantial investment” is the aggregation of several 

transactions that involve multiple people (individually or 

collectively), the statutory language makes clear that it is 

this aggregation that qualifies as a single “tax shelter.” 

Section 6111(c)(1) states that “the term ‘tax shelter’ 

means any investment . . . which is . . . a substantial 

investment,” and § 6111(c)(4) states that “[a]n investment 

is a substantial investment if [it meets the criteria quoted 

above].” Reading these provisions together, it is clear that 

“tax shelter” refers to the aggregate “substantial investment,” not the individual transactions that comprise it. 

Accordingly, it is the entire “substantial investment” that 

must be registered as a “tax shelter” under § 6111, and 

the point at which a tax shelter organizer fails to do this 

is when § 6707 liability arises.

Corresponding regulations accord with this understanding. Temp. Treas. Reg. § 301.611-1T, A-48, which 

governs the registration of “a tax shelter that is a substantial investment only by reason of an aggregation of 

multiple investments,” states that a separate Form 8264 

may need to be filed for each individual investment in 

certain circumstances (specifically, when the investment 

varies with respect to: “(1) Principal asset, (2) Accounting 

methods, (3) Federal or state agencies with which the 

investment is registered or with which an exemption 

notice is filed, (4) Methods of financing the purchase of an 

interest in the investment, [and/or] (5) Tax shelter ratio”). 

However, it is clear that, even in that case, “[s]uch aggreCase: 16-1014 Document: 45-2 Page: 14 Filed: 11/10/2016
DIVERSIFIED GROUP INC v. US 15

gated investments . . . are part of a single tax shelter.” Id. 

Accordingly, the regulations contemplate that a “substantial investment” comprised of multiple “investments” still 

constitutes a single “tax shelter” that must be registered 

as one. Even if registration required filing multiple 

forms, registration is still a singular act. The only difference is the amount of paperwork necessary. 

Accordingly, because, in either case, liability “arises 

from a single event”—the failure to register a tax shelter—§ 6707 penalties are not divisible into the individual 

transactions or investors that may comprise a single tax 

shelter. Rocovich, 933 F.2d at 995. 

The only question that remains, then, is what qualified as a “tax shelter” in this case such that, when Appellants failed to register it, they incurred § 6707 liability. 

On this point, the parties differ substantially: Appellants 

contend that each of the 192 instances in which they 

implemented OPS or FDIS for a given client is a “tax 

shelter,” whereas the government contends that OPS and 

FDIS are each a “tax shelter,” and the instances in which 

Appellants carried these out for various customers were 

simply “interests” in those shelters.

The language of the statute answers this question. 

Section 6111(c)(1) simply states that a “tax shelter” is 

“any investment,” with no other qualifiers as to the types 

of financial instruments that count as “investments.” 

Read in isolation, this language may be ambiguous: 

“investment” could refer to a plan or strategy that clients 

put money into (such as OPS or FDIS), an individual 

instance of that plan or strategy implemented for a particular client (such as the Dziedzic and Kotite transactions), or the actual money that was put into the plan 

(such as the $15,450 that Dziedzic invested with OPS or 

the $18,310 that Kotite invested with FDIS).

However, the context in which this term appears 

makes it clear that Congress intended “tax shelter” to 

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16 DIVERSIFIED GROUP INC v. US

refer to the first. Section 6111(a)(1) requires that “[a]ny 

tax shelter organizer shall register the tax shelter . . . not 

later than the day on which the first offering for sale of 

interests in such tax shelter occurs.” If “tax shelter” was 

intended to refer to an individual implementation of a tax 

avoidance strategy instead of the tax avoidance strategy 

itself, it is hard to understand how one could register it 

“not later than the day on which the first offering for sale

of interests.” § 6111(a)(1) (emphasis added). This is 

because there would be no period of time for which the 

“tax shelter” would be “offered” but not already sold—it 

would have come into existence when it was implemented 

for a specific client, but at that point it would have already been sold. In addition, interpreting “tax shelter” to 

mean only the individual implementation of a tax avoidance strategy would allow tax shelter organizers to freely 

market tax avoidance services—potentially for substantial periods of time—without having to disclose anything 

to the IRS until a first client purchases these services. 

Congress could not have intended such a result. Instead, 

a better interpretation for “tax shelter” is that it refers to 

the tax avoidance strategy itself, such that, when a tax 

shelter organizer first offers the strategy to clients (e.g., in 

this case, when Appellants first offered OPS or FDIS to 

clients), the duty to register the tax shelter under § 6111 

triggers. Accordingly, we agree with the government that, 

in a case like this where a specific tax avoidance strategy 

was marketed and uniformly implemented for multiple 

customers, “tax shelter” is broad enough to cover the tax 

avoidance strategy itself.

For these reasons, OPS and FDIS each qualify as a 

single “tax shelter” within the meaning of § 6111 and 

§ 6707. Accordingly, Appellants were required under 

§ 6111 to register each of these strategies on the first day 

that they offered them for sale, and their failure to do so 

gave rise to their § 6707 penalties. Because each of the 

Case: 16-1014 Document: 45-2 Page: 16 Filed: 11/10/2016
DIVERSIFIED GROUP INC v. US 17

OPS and FDIS penalties “ar[ose] from a single event,” 

they are not divisible. Rocovich, 933 F.2d at 995.

C 

In light of this reasoning, Appellants’ arguments to 

the contrary are not persuasive. Appellants contend that 

it would have been impossible to fill out a Form 8264 for 

all of OPS or all of FDIS on the first day they were offered 

for sale because many of the details that the form requires would be unknown. Instead, according to Appellants, they would have needed to file a new Form 8264 

each time they implemented one of these strategies for a 

client, so each of these filings should be considered separate instances of tax shelter registration under § 6111. 

We disagree. The fact that Appellants may have needed 

to file multiple Forms 8264 to keep the government 

apprised of their tax shelter activities does not override 

the clear statutory directive on the source of § 6707 liability. Even though “[r]egistration is accomplished by filing 

a properly completed Form 8264 with the Internal Revenue Service,” Temp. Treas. Reg. § 301.611-1T, A-1, § 6707 

is clear that what determines § 6707 liability is registration, not the completion of a form. In many cases, there 

will be a 1:1 correspondence between the two such that a 

failure to file Form 8264 is a failure to register. However, 

in the case of “substantial investments” (such as OPS and 

FDIS) where multiple forms must be filed,7 filing multiple 

 

7 As discussed above, under Temp. Treas. Reg.

§ 301.611-1T, A-48, a separate Form 8264 may need to be 

filed for each individual investment in a tax shelter that 

qualifies as a “substantial investment” “only by reason of 

an aggregation of multiple investments” when the investment varies with respect to: “(1) Principal asset, 

(2) Accounting methods, (3) Federal or state agencies with 

which the investment is registered or with which an 

exemption notice is filed, (4) Methods of financing the 

Case: 16-1014 Document: 45-2 Page: 17 Filed: 11/10/2016
18 DIVERSIFIED GROUP INC v. US

forms for multiple investments still effects a single registration for a single tax shelter. Temp. Treas. Reg.

§ 301.611-1T, A-48 (“[s]uch aggregated investments, 

however, are part of a single tax shelter”). Accordingly, 

simply because the regulations require multiple forms 

does not mean that there are multiple sources of liability 

in these instances.

Appellants also argue that the § 6707 penalty is divisible because the penalty base was computed by summing the “aggregate amount invested” for each client 

implementation. This consideration is irrelevant. This 

process of aggregation simply calculates penalty 

amount—it does not create multiple liabilities under 

§ 6707. Because the liability remains singular, the § 6707 

penalty is not divisible.

We have carefully considered Appellants’ remaining 

arguments and find them unpersuasive. In sum, because 

Appellants’ § 6707 liability arises from their failure to 

register OPS and FDIS as tax shelters—two singular 

events—their § 6707 penalties are not divisible into the 

individual transactions or investors that participated in 

OPS or FDIS. Accordingly, Appellants failed to satisfy 

the full payment rule, precluding the Claims Court from 

exercising jurisdiction over their complaint.

CONCLUSION

For the foregoing reasons, we affirm the Claims 

Court’s dismissal for lack of subject matter jurisdiction.

AFFIRMED

 

purchase of an interest in the investment, [and/or] (5) Tax 

shelter ratio.”

Case: 16-1014 Document: 45-2 Page: 18 Filed: 11/10/2016