On Thursday a case was filed in the Southern District of Ohio by Madison Avenue Pharmacy Inc. and Eric Juergens against the United States of America and the Commissioner of the Internal Revenue Service (IRS). The case is regarding tax penalties that were imposed on the plaintiffs subject to IRS Notice 2007-83.
The notice, titled “Abusive Trust Arrangements Utilizing Cash Value Life Insurance Policies Purportedly to Provide Welfare Benefits” was issued by the IRS on November 5, 2007. The notice was issued pursuant to Internal Revenue Code § 6707(c)(2), which at the time was thought to grant the IRS authority to specifically identify certain types of transactions as being subject to disclosure requirements.
These disclosure requirements were to be fulfilled by filing Form 8886, and failure to submit such forms would result in penalties under § 6707A. “For individuals, this penalty is 75% of the decrease in tax shown on the return as a result of engaging in the transaction, and for an S corporation, which MAP is, the IRS imposes a $10,000 penalty.” This penalty was imposed on the plaintiffs for tax years 2013-2017.
The complaint explained that the Sixth Circuit addressed this penalty in Mann Construction, Inc. et al v. United States of America et al. According to Madison Avenue Pharmacy, the Circuit Court indicated that the authority extended to the IRS in § 6707(c)(2) does not exempt the IRS from complying with the Administrative Procedures Act.
In line with this precedent, the plaintiffs now seek refunds of the fines that they paid in regards to the now defunct Notice, as well as recission of the penalties that have been assessed but not collected to date. Plaintiffs are represented by Weston Hurd LLP.