Diversified Group Inc. v. United States

United States Court of Appeals
for the Federal Circuit
______________________

DIVERSIFIED GROUP INCORPORATED, JAMES
HABER,
Plaintiffs-Appellants

v.

UNITED STATES,
Defendant-Appellee
______________________

2016-1014
______________________

Appeal from the United States Court of Federal
Claims in No. 1:14-cv-00627-MMS, Judge Margaret M.
Sweeney.
______________________

Decided: November 10, 2016
______________________

JASPER G. TAYLOR, III, Norton Rose Fulbright US
LLP, Houston, TX, argued for plaintiffs-appellants. Also
represented by RICHARD LEE HUNN.

FRANCESCA UGOLINI, Tax Division, United States De-
partment of Justice, Washington, DC, argued for defend-
ant-appellee. Also represented by IVAN CLAY DALE,
GILBERT STEVEN ROTHENBERG, CAROLINE D. CIRAOLO,
DIANA L. ERBSEN.
______________________
2 DIVERSIFIED GROUP INC v. US

Before PROST, Chief Judge, NEWMAN and TARANTO, Cir-
cuit Judges.
PROST, Chief Judge.
Diversified Group Incorporated (“Diversified”) and its
president, James Haber, (collectively, “Appellants”)
brought this action against the United States, seeking a
refund of payments made toward a federal tax penalty
which the Internal Revenue Service (“IRS”) assessed
under 26 U.S.C. § 6707 for failure to comply with tax
shelter registration requirements under 26 U.S.C. § 6111.
The United States Court of Federal Claims (“Claims
Court”) held that it lacked jurisdiction over the case
because Appellants did not comply with the full payment
rule. For the reasons stated below, we affirm.
BACKGROUND
The circumstances giving rise to this appeal are
summarized in the Claims Court’s decision, Diversified
Group, Inc. v. United States, 123 Fed. Cl. 442 (2015). We
provide information relevant to the issues on appeal here.
Between 1999 and 2001, Appellants sold two tax
avoidance strategies to 192 of their clients: the Option
Partnership Strategy (“OPS”) and the Financial Deriva-
tives Investment Strategy (“FDIS”). Each strategy in-
volved a set series of transactions, which, when exercised
by an individual client, would yield an artificial tax loss or
deduction. Each client would contribute the initial
amount to be invested in these transactions, as well as
pay a fee of 3–4.5%. Diversified did not register any of
these services as tax shelters.
The then-applicable version of 26 U.S.C. § 6111 1 re-
quired that “[a]ny tax shelter organizer shall register the

1This version of 26 U.S.C. § 6111 and the corre-
sponding version of 26 U.S.C. § 6707, referenced below,
DIVERSIFIED GROUP INC v. US 3

tax shelter with the Secretary (in such form and in such
manner as the Secretary may prescribe) not later than
the day on which the first offering for sale of interests in
such tax shelter occurs.” 26 U.S.C. § 6111(a)(1). Under
§ 6111(c)(1), a “tax shelter” was defined as:
any investment— (A) with respect to which any
person could reasonably infer from the represen-
tations made, or to be made, in connection with
the offering for sale of interests in the investment
that the tax shelter ratio for any investor as of the
close of any of the first 5 years ending after the
date on which such investment is offered for sale
may be greater than 2 to 1, and
(B) which is—
(i) required to be registered under a Federal or
State law regulating securities,
(ii) sold pursuant to an exemption from registra-
tion requiring the filing of a notice with a Federal
or State agency regulating the offering or sale of
securities, or
(iii) a substantial investment.
Section 6111(c)(4) defined a “substantial investment” as
an investment where “(A) the aggregate amount which
may be offered for sale exceeds $250,000, and (B) there
are expected to be 5 or more investors.”

were enacted on August 5, 1997 as part of the Taxpayer
Relief Act of 1997, Pub.L. 105–34. They were repealed on
October 22, 2004, when they were replaced with the
American Jobs Creation Act of 2004, Pub.L. 108–357.
Because the actions in question occurred before 2004, we
will refer to the pre-2004 versions of § 6111 and § 6707.
4 DIVERSIFIED GROUP INC v. US

Treasury Department regulations provided that
“[r]egistration is accomplished by filing a properly com-
pleted Form 8264 with the Internal Revenue Service. The
Internal Revenue Service will assign a registration num-
ber to each tax shelter that is registered.” Temp. Treas.
Reg. § 301.611-1T, A-1, A-47. When an investment quali-
fied as a tax shelter because it was a “substantial invest-
ment” under § 6111(c)(1)(B)(iii), a separate Form 8264
needed to be filed for each “investment” that made up the
“substantial investment” if the investment
differ[ed] from the other investments in a sub-
stantial investment with respect to any of the fol-
lowing: (1) Principal asset, (2) Accounting
methods, (3) Federal or state agencies with which
the investment is registered or with which an ex-
emption notice is filed, (4) Methods of financing
the purchase of an interest in the investment,
(5) Tax shelter ratio.
Id. at A-48. The regulations made clear that “[s]uch
aggregated investments, however, are part of a single tax
shelter.” Id.
If a person failed to register a tax shelter under
§ 6111, they were subject to a penalty under 26 U.S.C.
§ 6707. Section 6707(a) provided in relevant part:
(1) Imposition of penalty.—If a person who is re-
quired to register a tax shelter under section
6111(a)—
(A) fails to register such tax shelter on or before
the date described in section 6111(a)(1), or
(B) files false or incomplete information with the
Secretary with respect to such registration,
such person shall pay a penalty with respect to
such registration in the amount determined under
paragraph (2) or (3), as the case may be. No penal-
DIVERSIFIED GROUP INC v. US 5

ty shall be imposed under the preceding sentence
with respect to any failure which is due to reason-
able cause.
(2) Amount of penalty.—Except as provided in
paragraph (3), the penalty imposed under para-
graph (1) with respect to any tax shelter shall be
an amount equal to the greater of—
(A) 1 percent of the aggregate amount invested in
such tax shelter, or
(B) $500.
In 2002, the IRS began conducting a penalty audit,
pursuant to § 6707, of Diversified for potential failures to
register a tax shelter under § 6111. Eventually, on De-
cember 16, 2013, the IRS issued two “Notices of Proposed
Adjustment” (“NOPAs”) assessing penalties of
$24,868,451 for failure to register OPS and $17,241,032
for failure to register FDIS, respectively. The penalties
totaled $42,109,483. According to the IRS, OPS and FDIS
each qualified as a “tax shelter” under § 6111 because the
computed tax shelter ratio was greater than 2:1 and each
was a “substantial investment” under § 6111(c)(4). The
IRS calculated each penalty by, pursuant to
§ 6707(a)(2)(A), computing the “aggregate amount invest-
ed” 2 by each client, multiplying this number by 1%, and
summing this result across clients. On January 16, 2014,
the IRS reduced the amount due to $24,920,904 because
the other $17,188,579 had been “[p]aid by [o]thers.”

2 The “aggregate amount invested” was calculated,
generally speaking, by summing the amount that the
client contributed to initiate the OPS or FDIS transac-
tions and the fee it paid to Diversified. This methodology
is not in dispute.
6 DIVERSIFIED GROUP INC v. US

On February 28, 2014, Diversified made a payment of
$15,500, which was the portion of the OPS penalty that it
incurred from its dealings with a single client, Stanley
Dziedzic, ($15,450) plus interest ($50). Haber made a
payment of $18,370, which was the portion of the FDIS
penalty that he incurred from his dealings with another
client, Albert Kotite, ($18,310) plus interest ($60). They
filed refund claims for each. The IRS denied these claims
on April 10, 2014.
Appellants filed the instant action in the Claims
Court on July 18, 2014, seeking refunds of the $15,500
and $18,370 payments. On August 26, 2015, the Claims
Court dismissed the case under Rule 12(b)(1) of the Rules
of the U.S. Court of Federal Claims, finding that it lacked
jurisdiction because Appellants had failed to satisfy the
“full payment rule,” which, under Supreme Court prece-
dent, requires that a person seeking a refund for a tax or
penalty pay in full before filing suit. Flora v. United
States, 362 U.S. 145, 177 (1960). The Claims Court
reissued its opinion on September 29 to correct certain
citations to statutory language.
Appellants timely appealed. We have jurisdiction
pursuant to 28 U.S.C. § 1295(a)(3).
DISCUSSION
I
An initial question that we must address is how this
appeal comes to us procedurally. The Claims Court
issued its opinion on August 26 and entered judgment
pursuant to this opinion on September 25. However, this
opinion cited to the post-2004 versions of § 6111 and
§ 6707, instead of the pre-2004 versions which are appli-
cable here. Accordingly, the Claims Court reissued its
opinion with corrected citations (but no other changes) on
September 29 and entered judgment the following day.
However, just before it did this, on September 28, plain-
DIVERSIFIED GROUP INC v. US 7

tiffs filed a notice of appeal on the Claims Court’s original
judgment. Appellants argue that this September 28
notice of appeal divested the Claims Court of its jurisdic-
tion such that it did not have jurisdiction to vacate its
original judgment and reissue its opinion.
We disagree with Appellants. “Ordinarily, the act of
filing a notice of appeal confers jurisdiction on an appel-
late court and divests the trial court of jurisdiction over
matters related to the appeal.” Gilda Indus., Inc. v.
United States, 511 F.3d 1348, 1350 (Fed. Cir. 2008).
Nevertheless, under Rule 60(a) of the Rules of the U.S.
Court of Federal Claims, a court “may correct a clerical
mistake or a mistake arising from oversight or omission
whenever one is found in a judgment, order, or other part
of the record.” A court can make these corrections “on its
own” and “without notice,” even after a party has ap-
pealed. See id. The only constraint is that, “after an
appeal has been docketed in the appellate court and while
it is pending, such a mistake may be corrected only with
the appellate court’s leave.” Id.
Here, Appellants are technically correct that their
September 28 notice of appeal divested the Claims Court
of its jurisdiction. Nevertheless, the Claims Court still
remained able to issue clerical corrections to its opinion,
and it did not need to seek our permission to do so until
this appeal was docketed, which did not happen until
October 6. The only correction the reissued opinion made
was substituting the current versions of § 6111 and
§ 6707 with their pre-2004 versions, and this substitution
did not impact the Claims Court’s legal analysis. As such,
the corrections were sufficiently separated from the
Claims Court’s substantive analysis to be considered
clerical error. Cf. Pfizer Inc. v. Uprichard, 422 F.3d 124,
130 (3d Cir. 2005) (“[T]he relevant test for the applicabil-
ity of Rule 60(a) is whether the change affects substantive
rights of the parties and is therefore beyond the scope of
Rule 60(a) or is instead a clerical error, a copying or
8 DIVERSIFIED GROUP INC v. US

computational mistake, which is correctable under the
Rule.” (quoting In re W. Tex. Mktg., 12 F.3d 497, 504 (5th
Cir. 1994))); Vaughter v. E. Air Lines, Inc., 817 F.2d 685,
689 (11th Cir. 1987) (“As a general proposition, the dis-
trict court may act under Rule 60(a) only to correct ‘mis-
takes or oversights that cause the judgment to fail to
reflect what was intended at the time of the trial.’ Cor-
rections or alterations that ‘affect the substantial rights of
the parties, however, are beyond the scope of rule 60(a).’”
(citations omitted)). As such, we have jurisdiction over
this case, triggered by Appellants’ September 28 notice of
appeal, and we will consider the Claims Court’s reissued
opinion, which it properly corrected pursuant to Fed. R.
Civ. P. 60(a).
II
We now turn to the Claims Court’s dismissal of Appel-
lants’ refund suit under Rule 12(b)(1) of the Rules of the
U.S. Court of Federal Claims. We review a decision by
the Claims Court to dismiss a case for lack of subject
matter jurisdiction de novo. Bianchi v. United States, 475
F.3d 1268, 1273 (Fed. Cir. 2007). Appellants bear the
burden of establishing that the court has jurisdiction by a
preponderance of evidence. Trusted Integration, Inc. v.
United States, 659 F.3d 1159, 1163 (Fed. Cir. 2011). “In
determining jurisdiction, a court must accept as true all
undisputed facts asserted in the plaintiff's complaint and
draw all reasonable inferences in favor of the plaintiff.”
Id.
The sole basis for Appellants’ appeal is that the
Claims Court should have found that their § 6707 penal-
ties were divisible, such that Appellants’ payments of the
Dziedzic and Kotite portions would have satisfied the full
payment rule and allowed the Claims Court to exercise
jurisdiction (assuming no other jurisdictional barriers).
Based on our review of the full payment rule and its
DIVERSIFIED GROUP INC v. US 9

divisibility exception, we disagree that the § 6707 penal-
ties assessed against Appellants are divisible.
A
In general, a person can challenge a penalty assessed
by the IRS in two ways: First, they can appeal to the IRS
Appeals Office without paying the penalty. 3 26 C.F.R.
§§ 601.106(b), 601.105(b), (c), (e). Second, they can pay
the penalty, request a refund from the IRS, and, if unsuc-
cessful, sue to recover a refund. 26 U.S.C. § 7422(a); 28
U.S.C. § 1346(a); Smith v. United States, 495 F. App’x 44,
48 (Fed. Cir. 2012). Although the United States, as a
sovereign, is generally immune from suit, 28 U.S.C.
§ 1346(a) provides the limited waiver of sovereign immun-
ity for refund suits:

3 For taxes assessed by the IRS, a person also has
the option of filing a petition with the United States Tax
Court (“Tax Court”) without first paying the tax. See
Flora, 362 U.S. at 163. The Tax Court, however, is a
court of limited jurisdiction, see 26 U.S.C. § 7442, and
Congress has generally declined to authorize jurisdiction
over assessed penalties, such as the § 6707 penalties at
issue here. See IRM 35.1.1.2 (listing statutory provisions
under which the Tax Court has been granted jurisdiction,
including 26 U.S.C. §§ 6015(e), 6110(f)(3), 6211–16, 6226,
6228, 6247, 6252, 6320, 6330, 7481(c), 6404(i), 7430(f)(2),
6512(b)(2), 6166, 6863(b)(3)(C), 7429(b)(2)(B)); see also
Smith v. Comm’r, 133 T.C. 424, 430 (2009) (noting that
“this Court has never exercised jurisdiction over an as-
sessable penalty that was not related to a deficiency, even
absent Congress’ explicitly circumscribing our jurisdic-
tion” and finding that the Tax Court did not have jurisdic-
tion over penalties assessed under 26 U.S.C. § 6707A).
10 DIVERSIFIED GROUP INC v. US

(a) The district courts shall have original jurisdic-
tion, concurrent with the United States Court of
Federal Claims, of:
(1) Any civil action against the United States for
the recovery of any internal-revenue tax alleged to
have been erroneously or illegally assessed or col-
lected, or any penalty claimed to have been col-
lected without authority or any sum alleged to
have been excessive or in any manner wrongfully
collected under the internal-revenue laws . . . .
The Tucker Act, which gives the Claims Court jurisdiction
over suits for which the United States has waived its
sovereign immunity, provides the Claims Court with
jurisdiction for refund suits. 28 U.S.C. § 1491; Shore v.
United States, 9 F.3d 1524, 1525 (Fed. Cir. 1993); Roco-
vich v. United States, 933 F.2d 991, 993 (Fed. Cir. 1991).
In Flora, the Supreme Court determined that
§ 1346(a)’s jurisdictional grant includes a “full payment
requirement,” which demands—as a jurisdictional pre-
requisite—full payment of the tax or penalty before a
party could sue for a refund. 362 U.S. at 177 (“[Section]
1346(a)(1), correctly construed, requires full payment of
the assessment before an income tax refund suit can be
maintained in a Federal District Court.”). It did, howev-
er, recognize that in cases such as those involving excise
taxes where the tax “may be divisible into a tax on each
transaction or event,” satisfaction of “the full-payment
rule would probably require no more than payment of a
small amount.” Id. at 171 n.37, 176 n.38. This is because
each excise tax is, legally, its own assessment (e.g., if a
person is taxed $100 per widget for 5000 widgets, they
receive 5000 different assessments), so paying the “small
amount” that is the excise tax for one good would satisfy
the full payment rule for that good. See id.
This observation forms the basis for what courts have
recognized as the “divisibility exception” to Flora’s full
DIVERSIFIED GROUP INC v. US 11

payment rule. If an assessment or penalty is merely “the
sum of several independent assessments triggered by
separate transactions,” 4 Korobkin v. United States, 988
F.2d 975, 976 (9th Cir. 1993), it is considered “divisible”
such that “the taxpayer may pay the full amount on one
transaction, sue for a refund for that transaction, and
have the outcome of this suit determine his liability for all
the other, similar transactions.” Cencast Servs., L.P. v.
United States, 729 F.3d 1352, 1366 (Fed. Cir. 2013) (quot-
ing Univ. of Chi. v. United States, 547 F.3d 773, 785 (7th
Cir. 2008)). In practice, the government will generally
counterclaim for the remainder of the tax due and both
the paid assessment and the unpaid assessments will be
litigated in one action. Univ. of Chi. 547 F.3d at 785;
Ruth v. United States, 823 F.2d 1091, 1093 (7th Cir.
1987); Oral Argument at 12:22–47, available at
http://oralarguments.cafc.uscourts.gov/default.aspx?fl=20
16-1014.mp3. If the government does not counterclaim,
the challenger remains free to litigate the paid assess-
ment as a test case. 5
Nevertheless, divisibility remains a “narrow excep-
tion,” Korobkin, 988 F.2d at 976, applied when an as-

4 We have also stated that “[a] divisible tax . . . is
one that represents the aggregate of taxes due on multiple
transactions (e.g., sales of items subject to excise taxes).”
Rocovich, 933 F.2d at 995.
5 At oral argument, Appellants posited that, in this
scenario, issue preclusion may be available as a way to
expediently dispose of the remaining assessments. Oral
Argument at 12:51–13:58. Of course, in this scenario, the
full payment rule would still require that the challenger
pay before they could challenge these assessments in
subsequent refund suit(s). We provide no opinion on this
approach generally, or whether issue preclusion would be
available to Appellants in this case.
12 DIVERSIFIED GROUP INC v. US

sessed tax or penalty is the aggregate of independent tax
liabilities arising from different transactions. See, e.g.,
Cook v. United States, 32 Fed. Cl. 170, 172 (1994) (recog-
nizing that excise tax on sales of diesel fuel and environ-
mental tax on importation of petroleum products are
divisible by sale), aff’d, 86 F.3d 1095 (Fed. Cir. 1996);
Cencast Servs., 729 F.3d at 1357 (acknowledging that
payroll taxes are divisible by employee). Where the
liability is singular—even if the penalty base involves
summing multiple figures—the assessment is not divisi-
ble. See, e.g., Rocovich, 933 F.2d at 995 (estate tax not
divisible because “it arises from a single event”); Korob-
kin, 988 F.2d at 977 (pre-1990 § 6700 penalty for failure
to register abusive tax shelter not divisible because it was
“based on the aggregate of a person’s abusive tax shelter
sales during the year” and not “assessed on each individ-
ual transaction”); Ardalan v. United States, 748 F.2d
1411, 1414 (10th Cir. 1984) (personal income tax not
divisible).
B
In this case, Appellants contend that their § 6707
penalties are divisible because they were assessed against
each of the 192 instances 6 in which they implemented
OPS or FDIS for an individual client. In effect, Appel-
lants argue that this case involves 192 different tax
shelters which § 6111 required them to register. In
support of their position, Appellants emphasize that a
separate Form 8264 (the form by which a tax shelter is
registered, Temp. Treas. Reg. § 301.611-1T, A-1, A-47)
would need to be filled out for each of the 192, as it is

6 The attachments to the NOPAs list 193 total cli-
ent entries. However, one client is unnumbered and two
entries that are numbered do not list corresponding
clients, so the correct total is 192. Neither party appears
to dispute this point.
DIVERSIFIED GROUP INC v. US 13

impossible to know all of the information that this form
requires until OPS or FDIS is implemented for a particu-
lar client. Appellants also point out that the IRS comput-
ed the penalty amount—under the applicable portion of
§ 6707(a)(2), “1 percent of the aggregate amount invested
in such tax shelter”—by computing the “aggregate
amount invested” for each client implementation and
summing. Accordingly, Appellants argue, § 6707 penal-
ties should be divisible on this basis.
The government takes a different view. In its view,
this case involves not 192 tax shelters, but two: OPS and
FDIS. The government argues that, with respect to each
of these offerings, the § 6707 penalty is not divisible
because liability is triggered by a single event: failure to
register the tax shelter. The government emphasizes
that, under the plain language of § 6111(a)(1) and Treas-
ury Department regulations, tax shelters must be regis-
tered by the first day that interests in the shelter are
offered for sale (e.g., in this case, OPS and FDIS had to be
registered by the first day Appellants offered them to its
clients), and failure to do so—regardless of how many
sales are made with respect to that tax shelter—triggers
the § 6707 penalty. The government also counters that
neither aggregating transactions to calculate the penalty
nor filing separate Forms 8264 makes the § 6707 penalty
divisible, because the first is only a method of quantifying
liability (but does not trigger liability itself) and the
second elevates form over substance.
We agree with the government. Section 6707(a) pro-
vides that “if a person . . . fails to register such tax shelter
. . . such person shall pay a penalty with respect to such
registration.” This language makes clear that liability for
a § 6707 penalty arises from the single act of failing to
register the tax shelter (which, under Temp. Treas. Reg.
§ 301.611-1T, A-1, A-47, is failing to file the necessary
Form(s) 8264). This omission creates a single source of
liability, regardless of how many individuals or transac-
14 DIVERSIFIED GROUP INC v. US

tions are involved in the tax shelter. Liability cannot be
sub-divided beyond this.
This same principle holds for tax shelters—such as
the ones at issue—that qualify as such because they are
“substantial investments” under § 6111(c)(1)(B)(iii).
Section 6111(c)(4) defines a “substantial investment” as
an investment where “(A) the aggregate amount which
may be offered for sale exceeds $250,000, and (B) there
are expected to be 5 or more investors.” Although the
“substantial investment” is the aggregation of several
transactions that involve multiple people (individually or
collectively), the statutory language makes clear that it is
this aggregation that qualifies as a single “tax shelter.”
Section 6111(c)(1) states that “the term ‘tax shelter’
means any investment . . . which is . . . a substantial
investment,” and § 6111(c)(4) states that “[a]n investment
is a substantial investment if [it meets the criteria quoted
above].” Reading these provisions together, it is clear that
“tax shelter” refers to the aggregate “substantial invest-
ment,” not the individual transactions that comprise it.
Accordingly, it is the entire “substantial investment” that
must be registered as a “tax shelter” under § 6111, and
the point at which a tax shelter organizer fails to do this
is when § 6707 liability arises.
Corresponding regulations accord with this under-
standing. Temp. Treas. Reg. § 301.611-1T, A-48, which
governs the registration of “a tax shelter that is a sub-
stantial investment only by reason of an aggregation of
multiple investments,” states that a separate Form 8264
may need to be filed for each individual investment in
certain circumstances (specifically, when the investment
varies with respect to: “(1) Principal asset, (2) Accounting
methods, (3) Federal or state agencies with which the
investment is registered or with which an exemption
notice is filed, (4) Methods of financing the purchase of an
interest in the investment, [and/or] (5) Tax shelter ratio”).
However, it is clear that, even in that case, “[s]uch aggre-
DIVERSIFIED GROUP INC v. US 15

gated investments . . . are part of a single tax shelter.” Id.
Accordingly, the regulations contemplate that a “substan-
tial investment” comprised of multiple “investments” still
constitutes a single “tax shelter” that must be registered
as one. Even if registration required filing multiple
forms, registration is still a singular act. The only differ-
ence is the amount of paperwork necessary.
Accordingly, because, in either case, liability “arises
from a single event”—the failure to register a tax shel-
ter—§ 6707 penalties are not divisible into the individual
transactions or investors that may comprise a single tax
shelter. Rocovich, 933 F.2d at 995.
The only question that remains, then, is what quali-
fied as a “tax shelter” in this case such that, when Appel-
lants failed to register it, they incurred § 6707 liability.
On this point, the parties differ substantially: Appellants
contend that each of the 192 instances in which they
implemented OPS or FDIS for a given client is a “tax
shelter,” whereas the government contends that OPS and
FDIS are each a “tax shelter,” and the instances in which
Appellants carried these out for various customers were
simply “interests” in those shelters.
The language of the statute answers this question.
Section 6111(c)(1) simply states that a “tax shelter” is
“any investment,” with no other qualifiers as to the types
of financial instruments that count as “investments.”
Read in isolation, this language may be ambiguous:
“investment” could refer to a plan or strategy that clients
put money into (such as OPS or FDIS), an individual
instance of that plan or strategy implemented for a par-
ticular client (such as the Dziedzic and Kotite transac-
tions), or the actual money that was put into the plan
(such as the $15,450 that Dziedzic invested with OPS or
the $18,310 that Kotite invested with FDIS).
However, the context in which this term appears
makes it clear that Congress intended “tax shelter” to
16 DIVERSIFIED GROUP INC v. US

refer to the first. Section 6111(a)(1) requires that “[a]ny
tax shelter organizer shall register the tax shelter . . . not
later than the day on which the first offering for sale of
interests in such tax shelter occurs.” If “tax shelter” was
intended to refer to an individual implementation of a tax
avoidance strategy instead of the tax avoidance strategy
itself, it is hard to understand how one could register it
“not later than the day on which the first offering for sale
of interests.” § 6111(a)(1) (emphasis added). This is
because there would be no period of time for which the
“tax shelter” would be “offered” but not already sold—it
would have come into existence when it was implemented
for a specific client, but at that point it would have al-
ready been sold. In addition, interpreting “tax shelter” to
mean only the individual implementation of a tax avoid-
ance strategy would allow tax shelter organizers to freely
market tax avoidance services—potentially for substan-
tial periods of time—without having to disclose anything
to the IRS until a first client purchases these services.
Congress could not have intended such a result. Instead,
a better interpretation for “tax shelter” is that it refers to
the tax avoidance strategy itself, such that, when a tax
shelter organizer first offers the strategy to clients (e.g., in
this case, when Appellants first offered OPS or FDIS to
clients), the duty to register the tax shelter under § 6111
triggers. Accordingly, we agree with the government that,
in a case like this where a specific tax avoidance strategy
was marketed and uniformly implemented for multiple
customers, “tax shelter” is broad enough to cover the tax
avoidance strategy itself.
For these reasons, OPS and FDIS each qualify as a
single “tax shelter” within the meaning of § 6111 and
§ 6707. Accordingly, Appellants were required under
§ 6111 to register each of these strategies on the first day
that they offered them for sale, and their failure to do so
gave rise to their § 6707 penalties. Because each of the
DIVERSIFIED GROUP INC v. US 17

OPS and FDIS penalties “ar[ose] from a single event,”
they are not divisible. Rocovich, 933 F.2d at 995.
C
In light of this reasoning, Appellants’ arguments to
the contrary are not persuasive. Appellants contend that
it would have been impossible to fill out a Form 8264 for
all of OPS or all of FDIS on the first day they were offered
for sale because many of the details that the form re-
quires would be unknown. Instead, according to Appel-
lants, they would have needed to file a new Form 8264
each time they implemented one of these strategies for a
client, so each of these filings should be considered sepa-
rate instances of tax shelter registration under § 6111.
We disagree. The fact that Appellants may have needed
to file multiple Forms 8264 to keep the government
apprised of their tax shelter activities does not override
the clear statutory directive on the source of § 6707 liabil-
ity. Even though “[r]egistration is accomplished by filing
a properly completed Form 8264 with the Internal Reve-
nue Service,” Temp. Treas. Reg. § 301.611-1T, A-1, § 6707
is clear that what determines § 6707 liability is registra-
tion, not the completion of a form. In many cases, there
will be a 1:1 correspondence between the two such that a
failure to file Form 8264 is a failure to register. However,
in the case of “substantial investments” (such as OPS and
FDIS) where multiple forms must be filed, 7 filing multiple

7 As discussed above, under Temp. Treas. Reg.
§ 301.611-1T, A-48, a separate Form 8264 may need to be
filed for each individual investment in a tax shelter that
qualifies as a “substantial investment” “only by reason of
an aggregation of multiple investments” when the in-
vestment varies with respect to: “(1) Principal asset,
(2) Accounting methods, (3) Federal or state agencies with
which the investment is registered or with which an
exemption notice is filed, (4) Methods of financing the
18 DIVERSIFIED GROUP INC v. US

forms for multiple investments still effects a single regis-
tration for a single tax shelter. Temp. Treas. Reg.
§ 301.611-1T, A-48 (“[s]uch aggregated investments,
however, are part of a single tax shelter”). Accordingly,
simply because the regulations require multiple forms
does not mean that there are multiple sources of liability
in these instances.
Appellants also argue that the § 6707 penalty is di-
visible because the penalty base was computed by sum-
ming the “aggregate amount invested” for each client
implementation. This consideration is irrelevant. This
process of aggregation simply calculates penalty
amount—it does not create multiple liabilities under
§ 6707. Because the liability remains singular, the § 6707
penalty is not divisible.
We have carefully considered Appellants’ remaining
arguments and find them unpersuasive. In sum, because
Appellants’ § 6707 liability arises from their failure to
register OPS and FDIS as tax shelters—two singular
events—their § 6707 penalties are not divisible into the
individual transactions or investors that participated in
OPS or FDIS. Accordingly, Appellants failed to satisfy
the full payment rule, precluding the Claims Court from
exercising jurisdiction over their complaint.
CONCLUSION
For the foregoing reasons, we affirm the Claims
Court’s dismissal for lack of subject matter jurisdiction.
AFFIRMED

purchase of an interest in the investment, [and/or] (5) Tax
shelter ratio.”