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Monday, November 4, 2024

Judge dismisses taxpayer's claims alleging IRS owes him over $2 million

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FORT MYERS – A federal judge in the U.S. District Court for the Middle District of Florida, Fort Myers Division, recently granted the Internal Revenue’s motion to dismiss two claims in a lawsuit alleging the IRS did not follow protocol before assessing a man over $2 million in penalties. 

In his June 21 opinion, U.S. District Judge John Steele dismissed two of the four claims against the IRS in the complaint filed by A. Scott Logan after being ordered to pay the IRS over $2 million in penalties for a 1999 tax return.

In 1999, Logan used proceeds from the sale of his shares in a company to implement a trade in Euro currency through his trust, Logan Trusts, via his entity Tigers Eye, court filings said. Logan withdrew the trusts from Tigers Eye after the currency investment, and Tigers Eye then “distributed Xerox stock to the Logan Trusts in redemption of their interests,” after which Logan Trusts sold the Xerox stock. Logan reported that the Xerox stock sale resulted in a short-term capital loss on his personal 1999 tax return as well as Tigers Eye’s tax return. The IRS conducted an audit and assessed a $2,456,598.40 gross valuation mis-statement penalty against Logan, stating that he was not entitled to claim the short-term capital loss for the 1999 Xerox stock sale. 

The original complaint filed in June 2017 claims Logan is entitled to a refund of the $2,465,598.40 penalty because Logan “reasonably relied upon the advice of his legal and tax advisers in reporting that the Xerox stock sale resulted in a short-term capital loss.” Logan also claimed that the IRS retroactively enforced a law in the audit that didn’t exist in 1999. 

Logan filed an amended petition in March, adding two additional counts for relief. Logan claims that “the revenue agent that examined Tigers Eye failed to obtain managerial approval to assess the penalty against plaintiff,” and that the IRS did not provide grounds for gross valuation penalties against him because the “IRS failed to compare the correct adjusted basis of the Logan Trusts’ Xerox stock versus the reported adjusted basis of the Xerox stock.”

The IRS filed a motion to dismiss in April, stating that the court lacks subject matter jurisdiction under the variance doctrine because Logan failed to plead the third and fourth counts in his original petition.

Steele stated that the court lacked subject matter jurisdiction because “Counts III and IV substantially vary from plaintiff’s original claim,” noting that the original counts claim Logan was “unaware that he improperly reported the Xerox stock sale proceeds on his 1999 federal tax return,” and the later counts claim the IRS did not follow procedures when assessing the penalty. 

Steele stated, “Plaintiff must first afford the IRS an opportunity to consider the arguments in the amended claim before asserting them in his amended complaint.”

The IRS’ motion was granted, and the court ordered dismissal of Counts III and IV of Logan’s amended complaint without prejudice. 

United States District Court for the Middle District of Florida, Fort Myers Division, Case Number 2:18-cv-99-FtM-29MRM

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