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Highland Supply Corporation & Subsidiaries v. United States

United States District Court, S.D. Illinois

October 22, 2019

HIGHLAND SUPPLY CORPORATION & SUBSIDIARIES, Plaintiff,
v.
UNITED STATES OF AMERICA, Defendant. SEVEN W. ENTERPRISES, INC. & SUBSIDIARIES, Plaintiff,
v.
UNITED STATES OF AMERICA, Defendant.

          MEMORANDUM AND ORDER

          NANCY J. ROSENSTENGEL, CHIEF U.S. DISTRICT JUDGE.

         This matter is before the Court on a Motion to Dismiss filed by the United States of America (Doc. 9) in Highland Supply Corporation & Subsidiaries v. United States of America, No. 18-cv-1417-NJR-RJD, and a Motion to Dismiss filed by the United States of America (Doc. 10) in Seven W. Enterprises, Inc. & Subsidiaries v. United States of America, No. 18-cv-1418-NJR-RJD. For the reasons set forth below, the Court denies the motions in both cases.

         Factual and Procedural Background[1]

         Highland Supply Corporation & Subsidiaries v. United States of America, No. 18-cv-1417-NJR-RJD, involves claims by Plaintiff Highland Supply Corporation & Subsidiaries against the United States of America for the recovery of federal income tax and interest erroneously or illegally assessed and collected (Doc. 1 in No. 18-cv-1417). Specifically, recovery is sought for refunds of federal income tax overpayments for Tax Years 2002 and 2003 (Doc. 1, p. 1-2 in No. 18-cv-1417).

         In the related case of Seven W. Enterprises, Inc. & Subsidiaries v. United States of America, No. 18-cv-1418-NJR-RJD, also assigned to the undersigned, Plaintiff Seven W. Enterprises, Inc. & Subsidiaries similarly brings claims against the United States of America for the recovery of federal income tax and interest erroneously or illegally assessed and collected (Doc. 1 in No. 18-cv-1418). Recovery in that case is sought for refunds of federal income tax overpayments for Tax Years 2001, 2002, and 2003 (Doc. 1, p. 1 in No. 18-cv-1418). Although the two cases have not been consolidated together (and no motion to consolidate has been filed), the United States filed the same motion to dismiss in both cases and referred to Plaintiffs jointly throughout the filings, including raising the same arguments as to each Plaintiff (Compare Doc. 9 in No. 18-cv-1417 with Doc. 10 in No. 18-cv-1418).

         On March 7, 2008, the Internal Revenue Service mailed a notice of deficiency to Highland Supply Corporation & Subsidiaries (“HSC”) asserting accuracy-related penalties for the Claim Years (Doc. 1, ¶ 7 in No. 18-cv-1417). That same date, the Internal Revenue Service mailed a notice of deficiency to Seven W. Enterprises, Inc. & Subsidiaries (“Seven”) for taxable years ending December 31, 2000, 2001, 2002, and 2003 (Doc. 1, ¶ 6-7 in No. 18-cv-1418). On June 4, 2008, HSC timely filed a petition in the Tax Court seeking a redetermination of the penalties asserted against it (Doc. 1, ¶ 8 in No. 18-cv-1417). Contemporaneous with that filing, Seven filed a petition for redetermination of similar penalties for taxable years ending December 31, 2000, 2001, 2002, and 2003 (Id. at ¶ 9 in No. 18-cv-1417; Doc. 1, ¶ 8 in No. 18-cv-1418). The Tax Court consolidated the two cases together and a trial was held on April 28, 2009 (Id. at ¶ 10 in No. 18-cv-1417). On June 7, 2011, the Tax Court issued an opinion for both cases, finding HSC and Seven liable for the penalties with the exception of Seven for the year 2000 (Id. at ¶ 11 in No. 18-cv-1417; Doc. 1, ¶11 in No. 18-cv-1418; Doc. 9-2 in No. 18-cv-1417).

         On June 8, 2011, the Tax Court entered two decisions (Doc. 1, ¶ 12 in No. 18-cv-1417). In these decisions, the Tax Court mistakenly switched the penalty determinations with respect to the two taxpayers, HSC and Seven (Doc. 9-3 in No. 18-cv-1417). As a result, the decision against Seven stated that Seven was liable for penalties for taxable years for which it had not petitioned, the fiscal years ending April 30, 2003, and April 30, 2004 (Id.). The decision against HSC stated that HSC was liable for penalties for taxable years for which it had not petitioned, calendar years 2001 through 2003 (the Tax Court determined that there was no penalty liability for 2000) (Doc. 9-3 in No. 18-cv-1417).[2] The decisions were not appealed (Doc. 1, ¶13 in No. 18-cv-1417; Doc. 1, ¶13 in No. 18-cv-1418).

         On February 3, 2012, the Tax Court corrected the error regarding the tax years and amounts by vacating its June 8 decisions and entering new decisions that correctly set forth the respective deficiencies of Seven and HSC (Doc. 9-4 in No. 18-cv-1417).

         The taxpayers then moved for reconsideration and to vacate the new corrected decisions, arguing that the Tax Court had no authority to vacate the decisions after the time for appeal had expired. On March 16, 2012, the Tax Court denied the taxpayers' motion (Doc. 9-1, p. 4 in No. 18-cv-1417). HSC and Seven then timely filed their joint appeal to the Seventh Circuit Court of Appeals (Id.).

         On July 24, 2013, the Seventh Circuit Court of Appeals entered its decision on the appeal. Seven W. Enterprises and Highland Supply Corp. v. Comm., 723 F.3d 857 (7th Cir. 2013) (Doc 9-1 in No. 18-cv-1417). The Seventh Circuit remanded the case back to the Tax Court with a mandate that the Tax Court vacate its corrected decisions of February 3, 2012, and instead reinstate and amend its original decisions of June 8, 2011, as the appropriate means of correcting the clerical error (Doc. 9-1, p. 7 in No. 18-cv-1417).

         On November 8, 2013, the Tax Court followed the Seventh Circuit's mandate and entered decisions vacating its decisions of February 3, 2012, reinstating its June 8, 2011 decisions, and amending those reinstated decisions to reflect the correct amount of penalties for the correct tax years of Seven and HSC (Doc. 9-5 in No. 18-cv-1417). The Tax Court further stated, “It is further ORDERED that in all other respects the Court's decision entered June 8, 2011, remains in full force and effect.” (Id.).

         Plaintiffs filed their complaints on July 19, 2018 in federal court alleging that federal income tax and interest was illegally assessed after the statute of limitations for assessment had expired (Doc. 1 in No. 18-cv-1417; Doc. 1 in No. 18-cv-1418). On September 21, 2018, the United States filed motions to dismiss under Federal Rule of Civil Procedure 12(b)(6) (Doc. 9 in No. 18-cv-1417; Doc 10 in No. 18-cv-1418). On October 19, 2018, HCS and Seven responded to the motions (Doc. 14 in No. 18-cv-1417; Doc. 15 in No. 18-cv-1418).

         On November 2, 2018, HSC and Seven filed motions for summary judgment in both cases (Doc. 19 in No. 18-cv-1417; Doc. 18 in No. 18-cv-1418). On December 6, 2018, the United States filed a response to the motions in both cases (Doc. 22 in No. 18-cv-1417; Doc. 21 in No. 18-cv-1418). On December 20, 2018, HSC and Seven filed reply briefs (Docs. 23 in No. 18-cv-1417; Doc. 22 in No. 18-cv-1418).

         Both cases were originally assigned to Judge Michael Reagan. In light of Judge Reagan's retirement in March of this year, the case Highland Supply Corporation & Subsidiaries v. United States of America, No. 18-cv-1417, was randomly reassigned to the undersigned. Seven W. Enterprises, Inc. & Subsidiaries v. United States of America, No. 18-cv-1418, was randomly reassigned to Judge Staci Yandle. Due to the similar nature of the cases, and because the undersigned inherited the earlier-filed case, Judge Yandle transferred Seven W. ...


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