Monday, January 05, 2009

Eighth Circuit Holds that Law Firm Shareholder Lacks Standing to Sue for Refund of Penalty Paid by Law Firm

Per Jewell v. U.S., 548 F.3d 1168 (8th Cir. Dec. 10, 2008):

Jewell was a shareholder in the law firm of Jewell, Moser, Fletcher & Holleman, P.A. (“JMFH”). JMFH sponsored four prototype retirement plans, which its clients, mostly small businesses, relied upon to create individual retirement plans. As the plans' sponsor, JMFH had an obligation to ensure that (1) its prototype plans complied with federal law and (2) its clients amended their individual plans to comply with changes in federal law. See Rev. Proc.2000-20, § 3.07.

. . .

In May 2003, the IRS determined that more than sixty of the individual plans sponsored by JMFH were not timely amended to comply with changes in federal law. The IRS proposed that JMFH enter into an umbrella closing agreement, in which it would deem the plans timely amended and JMFH would pay a penalty. . . . Later that month, Moser and Fletcher agreed that JMFH would pay $26,800-almost one third of the IRS's initial settlement offer-to settle with the IRS.

. . .

After unsuccessfully filing a claim for a refund with the IRS, Jewell filed this action in June 2006 against the IRS, seeking a refund of $8,933.33, his pro rata share of JMFH's payment under the closing agreement. Jewell argued that the IRS had obtained the closing agreement through fraud, malfeasance, or misrepresentation of fact. The IRS moved to dismiss on the ground that Jewell lacked standing. The district court denied the motion, holding that because JMFH had stopped operating and Jewell had paid the sanction out of personal funds, Jewell had incurred direct harm and thus had standing to sue.

. . .

Even though Jewell ultimately contributed personal funds to JMFH's effort to pay the tax sanction, Jewel cites no authority for the proposition that this fact, standing alone, gives him standing to sue. We agree with the IRS that “the fact that each of the principals of JMFH agreed to contribute 1/3 of the sanction is simply irrelevant here.” To the extent that any party was entitled to sue, JMFH is the appropriate party to raise its alleged injury as a result of the IRS's conduct.FN2 And the record contains no evidence that Jewell obtained JMFH's causes of action as part of the distribution of the firm's assets. Because Jewell was not the taxpayer from *1173 whom the tax was collected, he cannot raise the rights of JMFH against the IRS. Accordingly, he lacks standing to sue the IRS for a refund. See Murray, 686 F.2d at 1325 n. 8; cf. 20A Fed. Proc., L.Ed. § 48:1345 (“A shareholder cannot bring a refund suit for taxes paid on behalf of a corporation if the shareholder is not legally or contractually obligated to pay the corporate taxes.”).


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