Case: 3:22-cv-00082-TMR-CHG Doc #: 1 Filed: 03/24/22 Page: 1 of 9 PAGEID #: 1
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`IN THE UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF OHIO
`WESTERN DIVISION, DAYTON
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`
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`Plaintiffs,
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`v.
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`MADISON AVENUE PHARMACY, INC.
`640 N. Fountain Ave.
`Springfield, OH 44504
`
`
`
`ERIC JUERGENS
`1108 Xenia Ave.
`Yellow Springs, OH 45387
`
`
`
`UNITED STATES OF AMERICA
`c/o Kenneth L. Parker, U.S. Attorney
`303 Marconi Blvd., Suite 200
`Columbus, OH 43215
`
`and
`
`c/o Merrick Garland, Attorney General
`Department of Justice
`950 Pennsylvania Ave., N.W.
`Washington D.C. 20530
`
`and
`
`c/o Charles P. Rettig, Commissioner
`of Internal Revenue Service
`Internal Revenue Service
`1111 Constitution Ave., N.W.
`Washington D.C. 20224
`
`
`
`Defendant.
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`
`
`JUDGE:
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` CASE NO.:
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`COMPLAINT
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`(Jury Demand Endorsed Hereon)
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`IN THE UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF OHIO
`WESTERN DIVISION, DAYTON
`
`
`
`
`Plaintiffs,
`
`v.
`
`MADISON AVENUE PHARMACY, INC.
`640 N. Fountain Ave.
`Springfield, OH 44504
`
`
`
`ERIC JUERGENS
`1108 Xenia Ave.
`Yellow Springs, OH 45387
`
`
`
`UNITED STATES OF AMERICA
`c/o Kenneth L. Parker, U.S. Attorney
`303 Marconi Blvd., Suite 200
`Columbus, OH 43215
`
`and
`
`c/o Merrick Garland, Attorney General
`Department of Justice
`950 Pennsylvania Ave., N.W.
`Washington D.C. 20530
`
`and
`
`c/o Charles P. Rettig, Commissioner
`of Internal Revenue Service
`Internal Revenue Service
`1111 Constitution Ave., N.W.
`Washington D.C. 20224
`
`
`
`Defendant.
`
`
`
`
`
`JUDGE:
`
` CASE NO.:
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`
`
`
`
`
`COMPLAINT
`
`(Jury Demand Endorsed Hereon)
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`Case: 3:22-cv-00082-TMR-CHG Doc #: 1 Filed: 03/24/22 Page: 2 of 9 PAGEID #: 2
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`Now come Plaintiffs, Madison Avenue Pharmacy, Inc. and Eric Juergens (“Plaintiffs”),
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`and for their Complaint, hereby state as follows:
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`SUMMARY OF THE CASE
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`1.
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`This Complaint has its roots in a matter recently decided by the United States Court
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`of Appeals for the Sixth Circuit: Mann Construction, Inc. et al v. United States of America et al,
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`Case No. 21-1500 (the “Mann Litigation”).
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`2.
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`In 2021, the Internal Revenue Service (“IRS”) imposed penalties on Plaintiffs
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`Madison Avenue Pharmacy, Inc. and Eric Juergens for failing to disclose their participation in a
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`Death Benefit Trust/Restricted Property Trust (“DBT/RPT”), that the IRS unilaterally determined
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`was the “same as or substantially similar” to a certain transaction it had identified in Notice 2007-
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`83 as an alleged listed transaction. The DBT/RPT transaction at issue in this case is virtually
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`identical in all material respects to the transaction at issue in the Mann Litigation.
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`3.
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`On March 3, 2022, the United States Court of Appeals for the Sixth Circuit set aside
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`Notice 2007-83. In a unanimous decision authored by Chief Judge Sutton, the Sixth Circuit held
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`that “the IRS's process for issuing Notice 2007-83 did not satisfy the notice-and-comment
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`procedures for promulgating legislative rules under the APA.” Mann Constr., Inc. v. United States,
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`6th Cir. No. 21-1500, 2022 U.S. App. LEXIS 5668, at *19 (Mar. 3, 2022). Based on the Sixth
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`Circuit’s ruling on this singular issue, the Sixth Circuit was not required to and did not address any
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`other issues raised by the plaintiffs therein on appeal.
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`4.
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`In light of the Sixth Circuit’s controlling decision in Mann Constr., Inc. setting
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`aside Notice 2007-83, Plaintiffs, also residents within the jurisdiction of the United States Court
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`of Appeals for the Sixth Circuit, are likewise entitled to a refund of penalties they paid or were
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`2
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`Case: 3:22-cv-00082-TMR-CHG Doc #: 1 Filed: 03/24/22 Page: 3 of 9 PAGEID #: 3
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`subject to pursuant to Notice 2007-83 as a result of the Mann Litigation decision “setting aside”
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`the Notice.
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`5.
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`Defendant must refund the § 6707A penalties Plaintiff Madison Avenue Pharmacy,
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`Inc. paid for years 2014, 2015, 2016 and 2017, and further cease the unauthorized collection of
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`further penalties imposed on both Plaintiffs pursuant to the invalidated Notice 2007-83.
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`PARTIES, JURISDICTION AND VENUE
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`6.
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`Madison Avenue Pharmacy, Inc. (“MAP”) is an Ohio corporation with its principal
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`place of business at the address stated in the caption of this Complaint.
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`7.
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`Eric Juergens (“Juergens”), at all times relevant to this Complaint, was the
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`President and sole shareholder of MAP. Juergens is a resident of the state of Ohio, with his address
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`as stated in the caption of this Complaint.
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`8.
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`9.
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`The Defendant is the United States of America.
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`The IRS is a bureau of the Treasury Department, an administrative agency of the
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`United States of America.
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`10.
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`On or about December 11, 2020, the IRS sent MAP a Notice of Penalty Charge
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`imposing penalties in the amount of $10,000.00 under § 6707A for each of the years 2013-2016.
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`MAP paid the penalty for 2013-2016 on or about December 17, 2020.
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`11.
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`On or about January 26, 2021, MAP filed a Form 843 for years 2013, 2014, 2015,
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`and 2016 requesting refunds of the IRC § 6707A penalties for each of those years. As of the date
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`of filing this Complaint, six months have elapsed since requesting a refund.
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`12.
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`The jurisdiction of this Court is based upon the provisions of 28 U.S.C. § 1346(a)(1)
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`and 5 U.S.C. § 702.
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`13.
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`Venue is proper in this judicial district pursuant to 28 U.S.C. § 1402(a)(1).
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`3
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`Case: 3:22-cv-00082-TMR-CHG Doc #: 1 Filed: 03/24/22 Page: 4 of 9 PAGEID #: 4
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`BACKGROUND AND FACTS
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`Notice 2007-83
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`14.
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`On or about November 5, 2007, the IRS issued Notice 2007-83 entitled “Abusive
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`Trust Arrangements Utilizing Cash Value Life Insurance Policies Purportedly to Provide Welfare
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`Benefits” (the “Notice”).
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`15.
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`The IRS issued the Notice pursuant to IRC § 6707(c)(2), which the IRS erroneously
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`believed granted it authority to specifically identify “Listed Transactions” without following the
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`APA’s notice-and-comment requirements.
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`16.
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`The IRC provides that all parties participating in a transaction that is the same as or
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`substantially similar to the transactions described in the Notice are required to report or disclose
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`their participation in such transaction. The Regulations state that such disclosure is to be made by
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`filing a Form 8886.
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`17.
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`The failure to file the Form 8886 results in penalties under § 6707A. For
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`individuals, this penalty is 75% of the decrease in tax shown on the return as a result of engaging
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`in the transaction, and for an S corporation, which MAP is, the IRS imposes a $10,000 penalty.
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`Assessment of the 6707A Penalty
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`18.
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`On or about December 14, 2018, the IRS issued a proposed adjustment to MAP’s
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`Form 1120S disallowing deductions for contributions to an “employee benefit program” for the
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`years 2013-2015. On or about August 21, 2019, the IRS issued a proposed adjustment to MAP’s
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`Form 1120S disallowing deductions for contributions to an “employee benefit program” for the
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`years 2016-2017. The disallowed deductions related to the contributions MAP made to the Death
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`Benefit Trust in each year 2013-2017.
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`4
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`Case: 3:22-cv-00082-TMR-CHG Doc #: 1 Filed: 03/24/22 Page: 5 of 9 PAGEID #: 5
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`19.
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`The proposed disallowed deductions on the Form 1120S resulted in an increase in
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`income (and tax) to Juergens as the sole shareholder of MAP. This alleged increase in tax was the
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`basis by which the IRS proposed the § 6707A penalty of $10,000 on MAP in each year 2013-2017.
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`20.
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`The alleged increase in tax was the basis upon which the IRS computed and
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`proposes a § 6707A penalty on Juergens in each of the years 2013-2017. In addition to the §
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`6707A penalty imposed in 2013, Juergens was assessed § 6707A penalties in 2014-2017 as
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`follows: $22,297.50 (2014); $31,869.00 (2015); $9,836.25 (2016); and $16,653.00 (2017)
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`21. MAP and Juergens timely appealed the proposed income tax changes, and Juergens
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`filed a Petition with the United States Tax Court.
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`22.
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`Despite the IRS not even knowing if MAP improperly deducted contributions to
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`the “employee benefits program,” the IRS issued proposed assessments to both Juergens and MAP
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`for § 6707A penalties for tax years 2013-2017 on the basis that MAP and Juergens engaged in an
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`allegedly abusive transaction identified by the Notice.
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`23. MAP and Juergens each timely appealed the proposed assessments of the § 6707A
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`penalties, but the penalties were upheld on appeal.
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`24.
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`The IRS claims that MAP and Juergens were required to, but failed to, file Form
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`8886 for Tax Years 2013-2017 and has assessed § 6707A penalties as a result thereof.
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`25. MAP paid the § 6707A penalty for 2013-2016 on or about December 17, 2020 and
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`filed a Form 843 requesting a refund of such amount. This refund is the same refund that was at
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`issue in the Mann Litigation. Juergens has not paid or filed a refund claim for the § 6707A penalty
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`imposed on him personally as of the date of this Complaint; nonetheless, Juergens remains subject
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`to the unlawful penalty imposed as a result of the IRS’s improper reliance on the invalid Notice
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`5
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`Case: 3:22-cv-00082-TMR-CHG Doc #: 1 Filed: 03/24/22 Page: 6 of 9 PAGEID #: 6
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`and the IRS is seeking to collect the penalty despite the unlawfulness of the Notice giving rise to
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`the penalty.
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`26.
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`Despite the Sixth Circuit’s ruling in Mann setting aside the Notice, the IRS refuses
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`to issue MAP a refund for the § 6707A penalties for Tax Years 2013-2016 and has not rescinded
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`the § 6707A penalties improperly imposed on Juergens. The IRS’s refusal to issue the refund to
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`MAP is not substantially justified, as defined in 26 U.S.C. § 7430.
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`COUNT 1
`MAP- Refund of § 6707A Penalties for 2013, 2014, 2015, and 2016
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`Plaintiffs incorporate by reference the above paragraphs of the within Complaint.
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`The IRS cited the Notice as the basis for the § 6707A penalties assessed against
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`27.
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`28.
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`Plaintiffs.
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`29.
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`The IRS unilaterally determined that the MAP DBT/RPT was allegedly “the same
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`as or substantially similar to” the transaction identified in the Notice. This determination led the
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`IRS to assess § 6707A penalties against Plaintiffs for their failure to file a Form 8886 for Plaintiffs’
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`participation in the MAP DBT/RPT, an alleged listed transaction.
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`30.
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`The IRS assessed, collected, and refused to refund the § 6707A penalty imposed on
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`MAP for Tax Years 2013, 2014, 2015, and 2016.
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`31.
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`On March 3, 2022, the United States Court of Appeals for the Sixth Circuit set aside
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`the Notice. Mann Constr., Inc. v. United States, 6th Cir. No. 21-1500, 2022 U.S. App. LEXIS
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`5668, at *19 (Mar. 3, 2022).
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`32.
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`Because the Sixth Circuit set aside the Notice as unlawful, Plaintiffs were not
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`required to disclose their participation in the MAP DBT/RPT on a Form 8886.
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`33.
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`Plaintiffs have sustained actual damages that are concrete and particularized in
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`nature.
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`6
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`Case: 3:22-cv-00082-TMR-CHG Doc #: 1 Filed: 03/24/22 Page: 7 of 9 PAGEID #: 7
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`34. MAP is entitled to a refund of the § 6707A penalties it paid for Tax Years 2013,
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`2014, 2015, and 2016 as the Notice providing for such penalties is invalid. .
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`COUNT 2
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`Declaratory Judgment Rescinding Assessed but Unpaid § 6707A Penalties
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`35.
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`36.
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`Plaintiffs incorporate by reference the above paragraphs of the within Complaint.
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`The Declaratory Judgment Act, 28 U.S.C. § 2201, and Rule 57 of the Federal Rules
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`of Civil Procedure grant this Court authority to declare Plaintiffs’ legal rights when an actual
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`controversy exists between the parties.
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`37.
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`As stated herein, Plaintiffs and Defendant have adverse legal interests that are of
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`sufficient immediacy and reality to warrant the issuance of a declaratory judgment in accordance
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`with 28 U.S.C. § 2201.
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`38.
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`Having failed to comply with the notice-and-comment rulemaking requirements
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`mandated by the APA, the Notice was promulgated unlawfully and Plaintiffs have been and will
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`continue to be adversely affected by Defendant’s unlawful conduct, which is reviewable by this
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`Court under the APA, 5 U.S.C. § 706.
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`39.
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`The IRS acted unlawfully in promulgating the Notice, and continues to act
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`unlawfully by its failure and/or refusal to rescind penalties assessed on Plaintiff MAP in 2017 and
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`Plaintiff Juergens in 2013-2017.
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`40.
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`Plaintiffs continue to incur actual damages as a result of the unlawful collection of
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`the unlawfully assessed penalties, which damages Plaintiffs seek to mitigate, despite the remedies
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`available to the Plaintiffs under 26 U.S.C. § 7433, by having all penalties imposed under the
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`unlawful Notice rescinded.
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`7
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`Case: 3:22-cv-00082-TMR-CHG Doc #: 1 Filed: 03/24/22 Page: 8 of 9 PAGEID #: 8
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`41.
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`Plaintiffs have no adequate or available administrative remedy despite the
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`Defendant’s substantially unjustified continued collection efforts. In the alternative, any effort to
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`obtain an administrative remedy would be futile.
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`42.
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`Plaintiffs are entitled to have the penalties assessed on Plaintiff MAP in 2017 and
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`Plaintiff Juergens in 2013-2017 rescinded and, accordingly, requests that the Court issue a
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`declaratory judgment providing for this specific remedy.
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`PRAYER FOR RELIEF
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`WHEREFORE, Plaintiffs respectfully request the following relief:
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`a)
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`An order requiring Defendant to issue a refund to Plaintiff MAP for the § 6707A
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`penalties paid for years 2013, 2014, 2015, and 2016;
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`b)
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`An order declaring that Notice 2007-83 is unlawful and invalid as it has been set
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`aside in the Mann Litigation and, therefore, the MAP DBT/RPT is not subject to the reporting
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`requirements of Notice 2007-83;
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`c)
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`An order requiring Defendant to rescind the § 6707A penalties imposed on Plaintiff
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`Juergens in each of the years 2013-2017 and Plaintiff MAP for 2017; and
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`d)
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`All other relief to which Plaintiffs may be entitled, including an award of costs and
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`attorneys’ fees in accordance with 26 U.S.C. § 7430.
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`8
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`Case: 3:22-cv-00082-TMR-CHG Doc #: 1 Filed: 03/24/22 Page: 9 of 9 PAGEID #: 9
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`Respectfully submitted,
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`/s/ Samuel J. Lauricia III
`SAMUEL J. LAURICIA III (0078158)
`SLauricia@westonhurd.com
`WALTER A. LUCAS (0068150)
`SLucas@westonhurd.com
`MATTHEW C. MILLER (0084977)
`MMiller@westonhurd.com
`ROBERT E. GOFF (0069529)
`RGoff@wesonthurd.com
`Weston Hurd LLP
`1300 East 9th Street, Suite 1400
`Cleveland, OH 44114
`(216) 241-6602 / (216) 621-8369 (fax)
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`
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`Counsel for Plaintiffs
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`JURY DEMAND
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`Plaintiffs demand a trial by jury on all issues so triable.
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`/s/ Samuel J. Lauricia III
`SAMUEL J. LAURICIA III (0078158)
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