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STERN v. UNITED STATES

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK


December 11, 1996

SHELDON STERN and SARA STERN, Plaintiffs, against UNITED STATES OF AMERICA, Defendant.

The opinion of the court was delivered by: AMON

MEMORANDUM & ORDER

 AMON, U.S. DISTRICT JUDGE

 INTRODUCTION

 The Court has received the well-reasoned Report and Recommendation of the Honorable Robert M. Levy, United States Magistrate Judge on defendant's motion to dismiss the amended complaint in the above-captioned action. Magistrate Judge Levy recommends that the defendant's motion to dismiss for lack of jurisdiction be granted. Having received and reviewed plaintiffs' objections to the Magistrate Judge's Report and Recommendation, and having conducted a de novo review of the record, the Court adopts the Report and Recommendation of the Magistrate Judge in its entirety, and dismisses the amended complaint. Plaintiffs may file a motion to reinstate their original complaint.

 As set forth in the Magistrate Judge's Report and Recommendation, suits against the United States may only be maintained pursuant to a waiver of sovereign immunity. 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). The Internal Revenue Code establishes the conditions for suit against the United States for tax refunds. 26 U.S.C. § 7422(a) provides that no suit may be brought "until a claim for refund or credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof." All refund claims must "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). As described in the Report and Recommendation, the "variance doctrine" bars a taxpayer from raising issues in a suit against the United States that were not first raised in a claim for refund. See cases cited in R & R at 6-7.

 The Magistrate Judge properly found that plaintiffs' amended complaint seeks to assert claims that are "both legally and factually" distinct from plaintiffs' administrative claims for refund. R & R at 7. Plaintiffs initially asserted, in their administrative claim for refund and in their original complaint, that Mr. Stern was an independent contractor rather than an employee of Allstate Insurance Company. Through their amended complaint, plaintiffs alter their theory and suggest that Mr. Stern was operating under a dual status of employee and independent contractor during the years in question. The Magistrate Judge found that the Internal Revenue Service (IRS) had not had an adequate opportunity to evaluate the claim as asserted in the amended complaint.

 Where the fact that plaintiffs have materially changed position is so obvious on its face, their objection that they should be allowed an opportunity to show that defendant was not surprised or prejudiced by the assertions in the amended complaint is completely without merit. Indeed, courts have noted that the propriety of refusing an amendment does not depend on a showing of prejudice to the government. Sappington v. United States, 408 F.2d 817, 820 (4th Cir.), cert. denied, 396 U.S. 876, 24 L. Ed. 2d 133, 90 S. Ct. 150 (1969) (citing United States v. Hancock Bank, 400 F.2d 975, 981 (5th Cir. 1968)). The Magistrate Judge properly concluded that the IRS had not had an adequate opportunity to evaluate the claim as presented by plaintiffs through their amended complaint.

 Plaintiffs also object to the Report and Recommendation as a matter of equity. Plaintiffs assert that the Court should permit them to file a motion reinstating the original complaint and allowing the trier of fact to rule on the actual status of plaintiff; "either as an independent contractor, employee or dual status." The Court grants plaintiffs leave to move to reinstate the original complaint to the extent that it raises the same claim that was before the Secretary of the IRS; namely, claimant's status as an independent contractor. Plaintiffs cannot, however, assert their theory of dual status under the original complaint for the same reasons that Magistrate Judge Levy found that they could not assert it through their amended complaint.

 The Report and Recommendation of Magistrate Judge Levy is thus adopted in its entirety and the amended complaint is dismissed. Plaintiffs have ten days from the date of this Order to move to reinstate the original complaint.

 SO ORDERED.

 Dated: Brooklyn, New York

 December 11, 1996

 Carol Bagley Amon

 United State District Judge

19961211

© 1992-2004 VersusLaw Inc.



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