The opinion of the court was delivered by: SAND
SAND, District Judge: Framk M. Crocker seeks a refund of federal income taxes, penalties and interest paid in 1980 for the tax years 1974 and 1975. Jurisdiction over the Internal Revenue Service ("IRS") is conferred by 28 U.S.C. § 1346(a)(1). The government has moved for dismissal of the complaint for lack of subject matter jurisdiction. Fed. R. Civ. P. 12(b)(1).
In 1975 and 1976, Crocker produced and submitted to a grand jury all of his financial records for the tax years 1974 and 1975 in compliance with subpoenas issued by the United States District Court, District of New Jersey. These records were not returned to Crocker until April 6, 1979. Plaintiff claims that in the interim, he was without access to his business records, and thus was unable to file returns for the two years in question.Therefore, plaintiff instructed the Internal Revenue Service ("IRS") in 1977 to prepare and file his returns for 1974 and 1975 based on the financial records in its possession.
In August, 1977, the plaintiff received a notice of deficiency in tax and interest in the amount of $171,496 and additional penalties for fraudulent record keeping in the amount of $85,733 for the two years in question. The deficiency notice advised Crocker of the amount of income he had received from wages, interest and business as well as his tax and penalty liabilities as determined by the IRS. In addition, the amount of deduction allowed for business expenses was indicated. The notice did not disclose either the method by which the tax was computed, nor the factual basis for the income and expense computations. Crocker failed to file a petition to contest the deficiency assessment within the ninety day statutory period of limitations, and collection proceedings were instituted.
Between 1977 and 1980, Crocker made numerous requests that the IRS agent who had prepared the deficiency notice disclose the factual and legal bases of the IRS determinations. Plaintiff received no response to these requests. Crocker's financial records were returned to him in 1979, and he claims to have filed returns for 1974 and 1975 in December, 1979. In calculating the tax liability on his returns, plaintiff utilized the maximum on tax personal service income ("Maxi-tax"). The resulting liability was considerably lower than that computed in the deficiency notice. Nevertheless, Crocker paid the assessed deficiency in September 1980 to prevent foreclosure on his house.
On November 14, 1980, plaintiff filed his original claims for refund of overpayment of taxes for 1974 and 1975. He based his claims on the ground that the IRS agent who had prepared the deficiency assessment had "had no help in classifying [plaintiff's] expenses, and . . . lacked a complete understanding of [plaintiff's] finances," and that as a result, plaintiff's tax liability was incorrectly calculated. The refund claims also detailed the conclusions of the IRS agent with respect to income and tax liability and those that plaintiff claimed to be correct. Plaintiff subsequently filed a complaint in this Court, predicating jurisdiction upon the failure of the IRS to respond within six months of the date of filing. 26 U.S.C. § 6532(a)(1).
On January 5, 1983, after the statute of limitations had expired on plaintiff's claims for refund, the defendant submitted this motion to dismiss the complaint for lack of subject matter jurisdiction. The government contends that plaintiff's claims for refund submitted to the IRS stated no factual or legal justification for the amounts claimed and that as such, they were insufficient to enable the IRS to review the matter. As a result, the government claims, this Court has no jurisdiction over Crocker's case.26 U.S.C. § 7422 (suit may not be maintained for recovery of tax unless a claim for refund has been filed with the IRS). See Stoller v. United States, 444 F.2d 1391 (5th Cir.1971). On January 24, 1983, Crocker filed an amended claim for refund with the IRS in which he explicitly detailed the basis of his calculations of income and expenses and disputed the IRS agent's failure to apply the Maxi-tax method of calculation.The government contends that plaintiff's amended claim for refund is time barred because he filed it after the termination of the period of limitations. It is further argued that the original claim filed by plaintiff was a "nullity" and therefore did not toll the statute of limitations.
In his defense, plaintiff claims that the IRS has waived any objection to the informality of his original claim by admitting in its answer to the complaint that plaintiff had filed a claim for refund. As a result, plaintiff argues, he has exhausted administrative remedies and the Court should decide the merits on his original claim. In the alternative, plaintiff contends that the government was given notice by his original claim sufficient to toll the statute of limitations and that his January 1983 amended claim for refund perfected the claim with respect to formalities required by the regulations.
No suit may be maintained in court for recovery of taxes "until a claim for refund or credit has been duly filed with the [IRS], according to the provisions of law in that regard, and the regulations of the [IRS] established in pursuance thereof." 26 U.S.C. § 7422(a). Regulations require that a claim for refund "set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof." 26 C.F.R. § 301.6402-2(b) (1982). The Court of Appeals for the Second Circuit has held that the taxpayer must "reasonably and substantially" comply with the statute. Scovill Manufacturing Co. v. Fitzpatrick, 215 F.2d 567, 570 (2d Cir. 1954). Furthermore, plaintiff may not raise before the court any claim not previously addressed in a claim for refund filed with the IRS. United States v. Felt & Tarrant Mfg. Co., 283 U.S. 269, 272, 75 L. Ed. 1025, 51 S. Ct. 376 (1931) (where claim filed with IRS on one ground plaintiff was barred from raising an entirely separate claim in court proceedings); Stoller, supra, 444 F.2d at 1393 (plaintiff's claim for refund stated no factual or legal ground for relief); Krasnow v. United States of America, No. 78 Civ. 3939 (S.D.N.Y. March 9, 1981) (plaintiff raised a wholly new legal ground for relief which IRS could not have anticipated).
Crocker's original claim for refund stated all the facts and legal grounds for relief that he had available to him at that time. He made it clear that the IRS agent who calculated the deficiency assessment had miscalculated and misunderstood plaintiff's expenses and income.
The government's argument, therefore, that Crocker failed to raise in this original claim for refund either his claim that the Maxi-tax should have been applied, or his claim contesting the government's penalty assessment, is wholly unpersuasive. It is true that Crocker did not at that time specifically raise the Maxi-tax issue. The reason for his omission, he alleges, is that in 1980, when the original claim was filed, he had still not been successful in obtaining from the IRS information about the methods of calculation used in the deficiency assessment. Therefore, he did not know that the IRS agent who had prepared the deficiency notice had failed to recognize that much of Crocker's income was personal service income to which the Maxi-tax limit should have been applied.
The government may not require that "the taxpayer provide details which only the government possesses." Neal v. United States, 402 F. Supp. 678, 679 (D.N.J. 1975). See also Cumberland Portland Cement Co. v. United States, 122 Ct. Cl. 580, 104 F. Supp. 1010, 1014 (Ct. Cl. 1952) (where IRS had itself notified plaintiff of overassessment, it was held to have notice of the details of plaintiff's claim).
Apart from the issue of the Maxi-tax method of calculation of Crocker's income, the deficiency notice asserted a penalty, calculated as a percentage of the deficiency, based on plaintiff's alleged fraudulent bookkeeping. The government contends that Crocker's original refund claims failed to dispute this fraud penalty. To the extent that plaintiff claims that the penalty was calculated as a percentage of his tax liability, his claim as to the amount of the penalty was fairly implied in the original refund claim and therefore properly raised below. See American National Bank & Trust Co. v. United States, 59 ...