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September 30, 1996


The opinion of the court was delivered by: LEVY


 LEVY, United States Magistrate Judge:

 By order dated March 14, 1996, the Honorable Carol Bagley Amon, United States District Judge, referred the above-captioned matter to me for a report and recommendation on defendant's motion to dismiss plaintiffs' complaint. For the reasons set forth below, I respectfully recommend that defendant's motion be granted.


 Plaintiff Sheldon Stern was an insurance agent for the Allstate Insurance Company ("Allstate") for the tax years 1990, 1991 and 1992. He and his wife, Sara Stern, commenced this action on February 23, 1994; they seek a tax refund totaling $ 51,447 in conjunction with amended tax returns for those three tax years.

 Before filing the instant action, plaintiffs filed an administrative claim with the Internal Revenue Service ("I.R.S."), contending that Allstate mistakenly had classified plaintiff Sheldon Stern as an employee instead of granting him independent contractor status. Plaintiffs' petition to the I.R.S. for a redetermination of Sheldon Stern's employment status with Allstate relied exclusively on the United States Tax Court's decision in Butts v. Commissioner of Internal Revenue, T.C. Memo 1993-478, 66 T.C.M. (CCH) 1041, 1993 WL 410704 (1993), aff'd, 49 F.3d 713 (11th Cir. 1995). *fn1" In Butts, an Allstate representative received a judicial redetermination of his employment status as that of an independent contractor, and not an employee. As a result, the plaintiff in Butts was permitted to deduct office expenses as Schedule C business expenses. *fn2"

 The I.R.S. disallowed plaintiffs' claim, citing the uncertainty of I.R.S. policy regarding the Butts decision:


The official word from the National Office is that the decision in the case of Butts v. Commissioner of the Internal Revenue Service is not binding nationwide. The case is currently in appeals, therefore your claim cannot be accepted until this issue is resolved. *fn3"

 After receiving the I.R.S. District Director's letter disallowing their claim, plaintiffs brought their original complaint in this action, which repeated the facts and theory of their administrative action and sought the same amount in tax refunds, i.e., a total of $ 51,447. Shortly thereafter, the United States informed plaintiffs of the potential consequences on their tax liability were they to obtain a ruling that Sheldon Stern was not an employee of Allstate, but instead was an independent contractor. Specifically, the United States explained that, as an independent contractor, Mr. Stern would be required to report the payments made by Allstate on his behalf to FICA, social security, a company pension fund, health insurance, and so forth, as additional taxable income. Furthermore, the tax-exempt status of a substantial IRA rollover undertaken by Mr. Stern during this period would be reevaluated and would potentially accrue additional tax liability. While plaintiffs would receive more favorable tax treatment in terms of exempting certain business expenses, the government explained that the net result of a judicial redetermination concerning Mr. Stern's employment status would likely be an increased tax liability instead of plaintiffs' hoped-for refund. *fn4"

 In light of that information, plaintiffs amended their complaint. In their amended complaint, the subject of the current motion to dismiss, plaintiffs withdraw their claim that Sheldon Stern was not an employee of Allstate. Plaintiffs now allege that Mr. Stern was, for purposes of calculating income taxes, both an employee of Allstate and an independent contractor. They calculate that sixty percent of Mr. Stern's total book income reported can be attributed to his position as an Allstate employee and that the remaining forty percent of Mr. Stern's gross income should be deemed independent contractor income. Thus, according to plaintiffs, the income gained through FICA, social security and other contributions occurred within the employer-employee relationship between Allstate and Mr. Stern.

 The government moves to dismiss plaintiffs' complaint on jurisdictional grounds. It argues that the issue plaintiffs raise in this action "fatally varies" from that raised in plaintiffs' administrative claim.


 It is well-settled that the United States, as sovereign, may not be sued without its consent. United States v. Dalm, 494 U.S. 596, 608, 108 L. Ed. 2d 548, 110 S. Ct. 1361 (1990); United States v. Testan, 424 U.S. 392, 399, 47 L. Ed. 2d 114, 96 S. Ct. 948 (1976); United States v. Sherwood, 312 U.S. 584, 586, 85 L. Ed. 1058, 61 S. Ct. 767 (1941). Moreover, a waiver of sovereign immunity may not be implied, but must be expressed unequivocally. Lehman v. Nakshian, 453 U.S. 156, 161, 69 L. Ed. 2d 548, 101 S. Ct. 2698 (1981). Thus, no suit may be maintained against the United States unless the complaint complies exactly with the terms of the statute pursuant to which the government has consented to be sued. Lehman, 453 U.S. at 160; Sherwood, 312 U.S. at 590.

 Actions against the United States for tax refunds may only be brought under a narrowly construed set of guidelines set forth in the Internal Revenue Code. See 28 U.S.C. § 1346(a) *fn5" and 26 U.S.C. § 7422(a). *fn6" In the present matter, the relevant rule is 26 C.F.R. § 301.6402-2(b) (Treas. Reg. 1992), which requires all refund claims to "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). See also United States v. Felt & Tarrant Mfg. Co., 283 U.S. 269, 272, 75 L. Ed. 1025, 51 S. Ct. 376 (1931); United States v. Forma, 42 F.3d 759, 767 n. 13 (2d Cir. 1994); Barenfeld v. United States, 194 Ct. Cl. 903, 442 F.2d 371, 373-74 (Ct. Cl. 1971). The Commissioner of Internal Revenue is entitled to insist upon full compliance with this regulation, which affords the I.R.S. an opportunity to examine the facts and legal arguments that are central to a plaintiff's claim before coming to federal court. Angelus Milling Co. v. Commissioner, 325 U.S. 293, 296, 89 L. Ed. 1619, 65 S. Ct. 1162 (1945); Sappington v. United States, 408 F.2d 817, 819 (4th Cir.), cert. denied, 396 U.S. 876, 24 L. Ed. 2d 133, 90 S. Ct. 150 (1969). See also United States v. Memphis Cotton Oil Co., 288 U.S. 62, 71, 77 L. Ed. 619, 53 S. Ct. 278 (1933).

 Thus, before a plaintiff is permitted to seek redress in federal court, it must present its claim to the I.R.S. and give the agency an adequate opportunity to investigate and resolve the claim. According to this rule, known generally as the "variance doctrine," a taxpayer "cannot raise issues in a lawsuit not first raised in a refund claim." McMorrow v. United States, 75 A.F.T.R.2d 95-801, 95-802, 1995 WL 3961, at *1 (N.D. Ill 1995) (citing MOK Partners v. United States, 673 F. Supp. 918, 921 (N.D. Ill. 1987)). Indeed,


"it is an undisputed general rule that a ground for refund neither specifically raised by, nor comprised within the general language of, a timely formal or informal application for refund to the Internal Revenue Service cannot be considered by a court in which a suit for refund is subsequently initiated."

 Niagara Mohawk Power Corp. v. United States, 525 F.2d 1380, 1387 (Ct. Cl. 1975) (quoting Union Pacific Railroad v. United States, 389 F.2d 437, 442, 182 Ct. Cl. 103, 108 (1968)). See also Krasnow v. United States, 508 F. Supp. 1099, 1104 (S.D.N.Y. 1981) (dismissing claim for refund where taxpayer attempted to argue a basis for recovery that was different from that presented in earlier administrative claim).

 In this case, plaintiffs based both their administrative claim and their original complaint exclusively on the holding in Butts, in which "the sole issue for decision [was] whether petitioner Dan P. Butts performed services for Allstate Insurance Company as an employee or as an independent contractor during the year at issue." Butts, 66 T.C.M. at 1041 (emphasis added). As defendant points out, plaintiffs' current "dual status" theory of recovery is wholly inconsistent with and rejects Butts. Rather than arguing that plaintiff Sheldon Stern was an independent contractor, as they did in their administrative claim, plaintiffs now assert that Mr. Stern was an employee of Allstate, as well as an independent contractor. That theory, i.e., that Mr. Stern held a position of "employer entrepreneur" with Allstate, is wholly distinct from plaintiffs' previous claim both legally and factually. In fact, the present claim directly contradicts plaintiffs' earlier allegations regarding Mr. Stern's employment status; the amended complaint asserts that Mr. Stern was, in part, an employee of Allstate, whereas plaintiffs previously had denied that he was an employee. Consequently, the I.R.S. has not had an adequate opportunity to evaluate the claim as amended.

 In opposition to the government's motion to dismiss, plaintiffs argue that the I.R.S. has waived the specificity requirements set forth in the Code of Federal Regulations. In support of that argument, plaintiffs cite Martinez v. United States, 595 F.2d 1147 (9th Cir. 1979). In that case, the plaintiff had filed a claim for a tax refund, which the I.R.S. District Director disallowed in full. Id. at 1147. The district court dismissed the plaintiff's subsequent federal action, holding that his vaguely worded administrative claim had failed to comply with 26 C.F.R. § 301.6402-2(b), which requires that a claim for refund specify in detail all grounds and supporting facts on which the claim is based. The Ninth Circuit reversed and remanded, concluding that the I.R.S. had waived the specificity requirement "by reviewing the appellant's files and considering his claim on the merits." Id. at 1148.

 Contrary to plaintiffs' argument, Martinez is inapposite here. Unlike the defendant-appellee in Martinez, the government in this case does not argue that plaintiffs' administrative claim lacked sufficient specificity. Rather, it contends that plaintiffs never raised their current theory in the administrative action. Since the theory of recovery plaintiffs set forth in their amended complaint is different from, and in fact contradicts, that set forth in their administrative claim, the I.R.S. cannot be deemed to have considered their present claim on the merits. Accordingly, the I.R.S. did not waive the specificity requirement.

 Plaintiffs further argue that the United States has waived the use of the variance doctrine in this case by raising "new issues by way of defense, first with respect to taxing a $ 750,00.00 [sic] IRA rollover and secondly with respect to taxing various employee benefits by means of an offset which helped clarify in Plaintiffs [sic] mind the need and factual correctness for the dual status position." It is true that a taxpayer plaintiff generally is permitted to raise new issues in federal court that respond directly to a defense raised by the United States. See Brown v. United States, 427 F.2d 57 (9th Cir. 1970); Mennen Co. v. Kelly, 137 F.2d 866 (3d Cir. 1943). However, the United States has not raised any new defenses in this case. It simply stated its intention to treat Mr. Stern consistently as an independent contractor if he were to win on his original claim for reclassification, and explained the potential consequences of such consistent treatment. Therefore, this argument is misplaced.

 Next, plaintiffs cite Aetna Life Ins. Co. v. United States, 89-1 U.S. Tax Cas. (CCH) 9182, 16 Cl. Ct. 364 (1989), aff'd, 935 F.2d 280 (Fed.Cir. 1991), for the proposition that the variance doctrine does not apply when the I.R.S. changes its position on the tax treatment of items subject to a refund claim. In Aetna, the I.R.S. had disallowed the same claimed deduction for nineteen successive years, but had stated different reasons for doing so over time. The court held that, while Aetna's administrative refund documents were vague, they did generally encompass the legal theory later raised in the federal court action. The court further held that Aetna's lack of specificity could not be used to deny the plaintiff its day in court, since "the failure to define the insurance contracts at issue was not due to any fault on the part of plaintiff." Id., 16 Cl. Ct. at 373. As the court explained, "it was not plaintiff who changed its position, but defendant." Id.

  In the instant case, by contrast, the United States has not changed its legal position or its tax treatment of plaintiffs in any way. Rather, the plaintiffs have changed their theory of recovery. Plaintiffs argue that if their claim "lacked clarity," it was "not due to any error on the part of Plaintiff[s] but attributable to the failure of Congress, the Courts and the Internal Revenue Service to deal with the current uncertainties in the law dealing with a workers [sic] classification as an independent contractor, employee or both. There can be no question as to how unclear the present law is and how difficult it was for Plaintiff[s] to develop a refund position with any exactitude." *fn7" Concededly, I.R.S. policy appears to be in a state of flux regarding the tax status of Allstate's "Neighborhood Office Agents." However, Aetna does not stand for the broad proposition that the variance doctrine is inapplicable when the law is in a state of flux. Rather, that case allows the court to excuse vagueness or ambiguity in a taxpayer's administrative claim when the I.R.S. has caused confusion by changing its position with regard to that taxpayer's particular claim over time. As explained above, there is no allegation in this case that plaintiffs' administrative claim lacked specificity; plaintiffs' amended returns clearly sought independent contractor status. Moreover, plaintiffs do not contend that the I.R.S. has ever changed its tax treatment with respect to Mr. Stern. Accordingly, Aetna is not relevant to this case. *fn8"

 Finally, citing Tucker v. Alexander, 275 U.S. 228, 72 L. Ed. 253, 48 S. Ct. 45 (1927), and First Nat'l Bank of Fayetteville v. United States, 727 F.2d 741 (8th Cir. 1984), plaintiffs assert that defendant "should be estopped from utilizing the Variance Doctrine because the Defendant failed to raise the defense until very late in the refund litigation matter thereby significantly prejudicing Plaintiff." *fn9" Plaintiffs filed their amended complaint on November 1, 1995, raising their "dual status" theory for the first time more than a year after filing their original complaint. Defendant filed its motion to dismiss on March 5, 1996, having received plaintiffs' responses to interrogatories on December 30, 1995. The court further takes judicial notice of the fact that the intervening four months saw a number of federal government shutdowns due to budget disputes between Congress and the President. Accordingly, the United States did not delay unreasonably in moving to dismiss on variance grounds.

 Since plaintiffs did not raise their current "dual status" theory in their administrative refund claim, the variance doctrine bars them from doing so in the instant case. Accordingly, I respectfully recommend that plaintiffs' amended complaint be dismissed for lack of subject matter jurisdiction.


 For the reasons stated herein, the court finds that the allegations contained in plaintiffs' amended complaint are distinct from the claims plaintiffs presented previously in their administrative claim and in their original complaint. As a result, this matter no longer falls within the narrow jurisdiction granted to this court by 28 U.S.C. § 1346(a) and 26 U.S.C. § 7422(a). The undersigned thus respectfully recommends that the court grant the United States' motion to dismiss for lack of jurisdiction.

 Objections to this report and recommendation must be filed with the Clerk of the Court within ten (10) days to preserve appellate review. See 28 U.S.C. § 636(b)(1).

 Respectfully submitted,


 United States Magistrate Judge

 Eastern District of New York

  Dated: Brooklyn, New York

 September 30, 1996

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