U.S.C. §§ 1340, 1346(a)(1). Defendant United States of America moves, pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, to dismiss the Complaint on the ground that this Court lacks subject matter jurisdiction; in the alternative, Defendant moves this Court for summary judgment in its favor, pursuant to Rule 56. Agreeing that the documents submitted by Defendant in support of its summary judgment motion are controlling, Plaintiffs cross-move for summary judgment in their favor pursuant to Rule 56. For the reasons set forth below, Defendant's motion to dismiss is granted; the Court, therefore, need not decide Plaintiffs' cross-motion.
The facts are, with only minor exceptions, undisputed. Plaintiffs timely filed a joint federal income tax return for the calendar year 1983. In 1983, Charles Kuralt was a shareholder in Country Music, Inc. ("Country"), a Subchapter S corporation. On March 15, 1984, Country timely filed its federal income tax return for the calendar year 1983. On or about September 20, 1986, Seymour Klempner executed a document entitled "Consent to Extend the Time to Assess Tax" ("Extension"), purportedly on behalf of Country. Defendant claims, while Plaintiffs contend that Defendant in fact fails to sufficiently allege, that Klempner was the tax matters person for Country at the time; accordingly, Defendant argues, and Plaintiffs deny, that Klempner's execution of the document extended the time for the Internal Revenue Service ("IRS" or "Service") to assess tax with respect to Country to December 31, 1987.
On April 14, 1987, the IRS issued a Notice of Final S Corporation Administrative Adjustment ("FSAA") to Klempner, adjusting Country's treatment of Subchapter S items
for its 1983 taxable year. On May 8, 1987, Klempner, purportedly acting as tax matters person for Country, filed a petition in the United States Tax Court challenging the FSAA. Plaintiffs did not participate in the Tax Court proceeding. On February 14, 1989, the IRS and Klempner, acting on behalf of Country, entered into a stipulation and decision under Tax Court Rule 248(a) with respect to taxable year 1983. As a result, on February 12, 1990, the Service assessed tax against Plaintiffs in the amount of $ 35,591.00 (the "Subject Tax"), plus interest in the amount of $ 30,465.57. Plaintiffs paid the Subject Tax in full on April 17, 1990. On May 4, 1990, Plaintiffs, in response to the February 12, 1990, interest demand and an additional demand made on April 23, 1990, paid $ 32,288.44 for interest and payment penalty on account of the Subject Tax. On January 25, 1991, Plaintiffs filed a claim for a refund asserting that the FSAA for Country was not timely issued by the IRS, due to the expiration of the applicable statute of limitations. The Service denied the refund claim on October 4, 1991.
The instant action implicates Subchapter S corporation audit and litigation procedures of the Internal Revenue Code ("Code"), which provide for uniform treatment of Subchapter S items among the shareholders of an S corporation. See 26 U.S.C. § 6241 et seq. The tax treatment of Subchapter S items is generally determined at the corporate level by way of a unified proceeding, rather than in separate proceedings for each shareholder. See 26§ U.S.C. § 6241.
A Subchapter S item is defined as any item of an S corporation which by Regulation the Service determines is more appropriately determined at the corporate level as opposed to the shareholder level. A shareholder of an S corporation is required to treat Subchapter S items on his or her return in a manner consistent with the treatment of such items on the [S corporation's] corporate return or notify the [IRS] of the inconsistency.