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Mycles Cycles, Inc. v. United States

United States District Court, S.D. California

September 4, 2019



          Hon. Janis L. Sammartino, United States District Judge.

         Presently before the Court is Defendant and Counter Claimant the United States of America's Amended Motion for Summary Judgment (“MSJ, ” ECF No. 19). Plaintiff and Counter Defendant Mycles Cycles, Inc. dba San Diego Harley Davidson filed a Response in Opposition to (“Opp'n, ” ECF No. 22) and the United States filed a Reply in Support of (“Reply, ” ECF No. 26) the Motion. After reviewing the Parties' arguments, the evidence, and the law, the Court rules as follows.

         BACKGROUND [1]

         Plaintiff Mycles Cycles is a family owned Harley Davidson Dealership that has been operating in San Diego, California, since 1993. MSJ at 9. Mycles Cycles was founded by Michael Shelby, who was the owner during all times relevant to this case. Id.

         Plaintiff's trouble with the Internal Revenue Service (“IRS”) began in August 2006, when the IRS conducted the first of several compliance audits. Id. at 10. The compliance audit was to ensure Plaintiff fulfilled its reporting obligations under Internal Revenue Code (“I.R.C.”) section 6050I, which requires persons engaged in business to file a Form 8300 disclosure statement any time the business receives more than $10, 000 in cash in a single transaction from an individual. 26 U.S.C. § 6050I(a). Revenue Agent Tim Burke conducted the audit and determined that although Plaintiff had generally complied with the reporting requirements, two Forms 8300 were incomplete because they lacked tax payer identification numbers (“TINS”). MSJ at 10 (citing Declaration of Carl Hankla (“Hankla Decl.”) Ex. 2, ECF No. 19-4). Revenue Agent Burke provided instructional materials related to the section 6050I reporting requirements and assessed no penalties. Id.

         Seven months later, the IRS returned.[2] See Hankla Decl. Ex. 4. Revenue Agent Elizabeth Arnold conducted the audit and concluded that Plaintiff had not fully complied with the section 6050I requirements during the audit period. See Id. Revenue Agent Arnold found Plaintiff had failed to file one Form 8300, id. Ex. 17; had failed to file timely four Forms 8300, id. Ex. 5; had omitted TINS from three Forms 8300, id. Ex. 17; and had failed to send eight customer information statements, id. at Ex. 5. Revenue Agent Arnold conducted an in-person closing conference outlining the compliance issues and assessed a $600 negligence penalty under I.R.C. sections 6721 and 6722. MSJ at 12.

         Following this second visit, Plaintiff's general manager, Tyler Miller, sent a letter to the IRS that acknowledged there had been “a couple of items” that had been “not in compliance resulting in a penalty.” Hankla Decl. Ex. 7. The letter stated that Plaintiff was “taking immediate measures to become 100% compliant.” Id. The corrective actions included “task[ing] its managers in the finance and insurance (“F&I”) department with compliance” to ensure completion of all Forms 8300 and notices sent to consumers. Opp'n at 11 (citing Deposition of Tyler Miller (“Miller Depo.”) at 19:18-20; 32:10-14, ECF No. 22-1). Plaintiff also “instituted a training and quality control system for its employees on the Form 8300 compliance.” Id. (citing Miller Depo. at 19:6-7). Additionally, Plaintiff “create[ed] an internal log so that ‘if for whatever reason a finance manager didn't fill it out, didn't think it applied, forgot, it would get caught by accounting, '” id. (citing Miller Depo at 18:10-15), as well as a “binder to keep track of its Forms 8300 and notices sent to consumers.” Id. (citing Miller Depo. at 18:16-19).[3]

         In 2014, the IRS conducted another audit. After reviewing Plaintiff's sales, Revenue Agent Brian Kuhns found that Plaintiff sold ten motorcycles for cash over $10, 000. MSJ at 14 (citing Hankla Decl. Ex. 10). Plaintiff filed Forms 8300 for only nine of these transactions, [4] all of which lacked customers' TINS. Id. (citing Hankla Decl. Ex. 8). Of the nine completed forms, eight lacked the customer's occupation. Id. After the field visit, Revenue Agent Kuhns discovered the 2006 and 2007 audit files, noting Revenue Agents Burke and Arnold had found Plaintiff had failed to comply with its section 6050I responsibilities, had educated Plaintiff about its filing responsibilities under section 6050I, and had assessed negligence penalties. Id. at 16 (citing Hankla Decl. Ex. 10).

         Based on the findings made during the field visit, in addition to the previous deficiencies found during the 2006 and 2007 visits, Revenue Agent Kuhns levied intentional disregard penalties under section 6721(e) for filing the nine Forms 8300 without TINS. Id. at 17 (citing Hankla Decl. Ex. 12). The IRS assessed penalties of $25, 000 for each of the nine incomplete Forms 8300 filed by Plaintiff under section 6721(e)(2)(C), totaling $225, 000. Id. The IRS also assessed negligence penalties under section 6721(a)(2) totaling $700 for failure to send ten customer information statements and one late filing. Id. The IRS denied Plaintiff's administrative appeal, after which Plaintiff paid one of the $25, 000 penalties and requested a refund. Id. After the IRS denied Plaintiff's request, Plaintiff filed this lawsuit. See ECF No. 1.


         Under Federal Rule of Civil Procedure 56(a), a party may move for summary judgment as to a claim or defense or part of a claim or defense. Summary judgment is appropriate where the Court is satisfied that there is “no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Material facts are those that may affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine dispute of material fact exists only if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. When the Court considers the evidence presented by the parties, “[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor.” Id. at 255.

         The initial burden of establishing the absence of a genuine issue of material fact falls on the moving party. Celotex, 477 U.S. at 323. The moving party may meet this burden by identifying the “portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, '” that show an absence of dispute regarding a material fact. Id. When a plaintiff seeks summary judgment as to an element for which it bears the burden of proof, “it must come forward with evidence which would entitle it to a directed verdict if the evidence went uncontroverted at trial.” C.A.R. Transp. Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000) (quoting Houghton v. South, 965 F.2d 1532, 1536 (9th Cir. 1992)).

         Once the moving party satisfies this initial burden, the nonmoving party must identify specific facts showing that there is a genuine dispute for trial. Celotex, 477 U.S. at 324. This requires “more than simply show[ing] that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Rather, to survive summary judgment, the nonmoving party must “by her own affidavits, or by the ‘depositions, answers to interrogatories, and admissions on file,' designate ‘specific facts'” that would allow a reasonable fact finder to return a verdict for the non-moving party. Celotex, 477 U.S. at 324. The non-moving party cannot oppose a properly supported summary judgment motion by “rest[ing] on mere allegations or denials of his pleadings.” Anderson, 477 U.S. at 256.


         Defendant contends that Plaintiff intentionally disregarded the section 6050I reporting requirements when it knowingly omitted TINS from its Forms 8300. MSJ at 23-29. According to Defendant, the uncontested material facts show that Plaintiff had actual knowledge of its compliance deficiencies, yet willfully failed to take corrective measures to fully comply with the law, proving Plaintiff intentionally disregarded its filing obligations under 26 U.S.C. § 6721 as a matter of law. MSJ at 23-25. Further, Defendant argues that Plaintiff is not entitled to “reasonable cause” relief under 26 U.S.C. § 6724 because Plaintiff failed to seek that relief in its administrative refund claim or in the Complaint and, therefore, Plaintiff cannot raise that claim in this refund suit. Reply at 4.

         I. ...

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