IOWA 80 GROUP, INC. & SUBSIDIARIES (Formerly Iowa 80 Truckstop, Inc. and Subsidiaries), Plaintiff, v. UNITED STATES of America, Defendant., United States District Court, S.D. Iowa, Davenport Division., 203 F.Supp.2d 1058, No. 3:00-CV-90217., May 23, 2002

IOWA 80 GROUP, INC. & SUBSIDIARIES (Formerly Iowa 80 Truckstop, Inc. and Subsidiaries), Plaintiff, v. UNITED STATES of America, Defendant.

United States District Court, S.D. Iowa, Davenport Division.

203 F.Supp.2d 1058

No. 3:00-CV-90217.

May 23, 2002.

Gene H. Snapp, Jr., John S. Gosma, Davenport, IA, for Plaintiff.

Joan Stentiford Ulmer, Tax Division, U.S. Department of Justice, Washington, DC, for Defendant.

MEMORANDUM OPINION AND ORDER

PRATT, District Judge.

The Plaintiff, Iowa 80 Group, Inc. ("Iowa 80") brought this action against the United States for a taxpayer refund pursuant to 26 U.S.C. ╖ 7422. The United States now moves for summary judgment and for the foregoing reasons, the motion is granted in part and denied in part.

I. Factual Background

Through its subsidiaries, Iowa 80 owns truck stops in Walcott, Iowa and Joplin, Missouri. The Walcott, Iowa facility con╜sists of a Main Building, a building re╜ferred to as the Old Headquarters Build╜ing, a Fuel Center, a Truckomat, and a Service Center. On the first floor of the Main Building, there is a sit-down restau╜rant, a Wendy's restaurant, Dairy Queen restaurant, a retail store known as the Chrome Shop, public telephones, video games, and public restrooms. The Chrome Shop sells truck replacement parts such as lights, light bulbs, brake lights, straps to use as load controls, fuses, switches, wiper blades, and other minor replacement parts. The first floor also contains what William Moon, Iowa 80's President and CEO, describes in his deposition as a small convenience store, which sells products that range from packaged food and convenience items to automotive-related products such as seatbelt straps, vanity mirrors, air fresheners, motor oil, or windshield wiper blades. ¹ Next to this store are cashiers where customers pay for store purchases or gasoline.

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^1. In its response to the Statement of :Material Facts Not in Dispute filed by the United States, Iowa 80 objects to the use of the term "convenience store" and "convenience," "as that phrase was used as a term of art in the 1995 Paper issued by the Internal Revenue Service ... The precise meaning of these words and phrases in the context of this case must be determined by the Court." For rea╜sons the Court will discuss, the Court does not find it necessary to determine such a precise construction of the term "conve╜nience" or avoid its usage in the context of the sale of convenience items. Mr. Moon referred to the retail operation in the Walcott Main Building as a "convenience store," and Iowa 80 admits that the store contained "pa╜per products, pens, pencils, erasers .. . soda pop, juice, milk, cold cuts, sandwiches, bagged candy, snack candy, an assortment of health and beauty aids, aspirin, Tylenol, Chapstick, shampoo, shaving cream, razor blades, assorted snack items: beef jerky, and bottled water." The Court does not believe that the collective referral to this assortment of goods as "convenience items" sold in a "convenience store" ultimately affects the outcome in this case. ══════

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On the second floor of the Main Build╜ing, there is a TV lounge, a one screen movie theater that seats approximately 40, 22 or 23 individual shower rooms, more public telephones, a coin operated laundry facility, a dentist's office, a barber shop, an area used as a chapel, and office space for Iowa 80 employees. There are gasoline pumps adjacent to the Main Building. In addition, there are 16 diesel pumps behind the Old Headquarters Building, which is itself behind the Main Building. There is no designated walkway from the diesel pumps to the Main Building. The diesel pumps are primarily served by the Fuel Center, which contains a Blimpie's restau╜rant, public telephones, and restrooms and sells small truck parts as well as snacks and other convenience items. Iowa 80 ad╜mits that in 1996 the amount of gross revenue in the Main Building in Walcott from the sale of petroleum and petroleum-related products was $2,574,609 and the amount of gross revenues from tenants was $4,111,542. ² Of the tenants, only the CAT Scale Company and Trucker's Voice in Court provided automobile or trucking-related services. Revenues in the Main Building in Walcott attributable to tenants other than those services totaled $3,832,104.

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^2. Iowa 80 denies the overall revenue figure offered by the United States in its Statement of Material Facts Not in Dispute, arguing that certain revenues from other structures at the Walcott location were not separated from those attributed to the Main Building in Wal╜cott. Upon reviewing the Appendix submit╜ted by the United States and Iowa 80's discovery responses, it appears to the Court that this is true with respect to non-petroleum retail sales. On the other hand, upon reviewing the same materials, it appears clear that the reve╜nues attributable to tenants and gasoline sold in the Main Building in Walcott are accurate.

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The Joplin, Missouri installation consists of a Main Building, a Fuel Center, a Truck Wash, a Service Center, and an above╜ground diesel fuel tank. There are five gasoline pumps adjacent to the Main Building in Joplin that can serve ten auto╜mobiles at once. Customers purchase the gasoline at a cashier station inside the Main Building. The Main Building in Jop╜lin also includes a small movie theater, a retail area selling convenience items, a vid╜eo game room, a restaurant, public show╜ers, public telephones, a laundromat, a TV room, and office space for Iowa 80 employ╜ees. Located across the parking lot from the Main Building in Joplin, the Fuel Cen╜ter has 12 diesel fuel pumps as well as a retail space selling snacks, sandwiches, and various driver supplies. The Fuel Center in Joplin also contains public tele╜phones and restrooms. ³

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^3. The United States has asserted petroleum-related and non-petroleum related gross revenues attributable to the Main Building in Jop╜lin for 1996; however, the Court is unable to verify the revenue figures offered by the Unit╜ed States for non-petroleum related gross rev╜enues. Furthermore, Iowa 80 claims the pe╜troleum-related revenue figured offered by the United States do not include diesel fuel, which customers were able to purchase in the Main Building in Joplin.

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In July 1997, Iowa 80 filed an adminis╜trative claim for refund with the Internal Revenue Service (the "IRS") by submit╜ting an Amended Corporate Income Tax Return (Form 1140X). The claim for re╜fund was based on Iowa 80's claim that it was entitled to depreciate the Main Build╜ings at its facilities in Walcott, Iowa and Joplin, Missouri on a 15 year schedule due to their alleged status as "retail motor fuel outlets." Iowa 80 is currently allowed to depreciate the Main Buildings on a schedule that is over 30 years. In the denial of that claim, the IRS agent assigned to the claim, Steve Kueter, noted that "the tax╜payer cannot meet the floor space test based on the amount of the buildings de╜voted to activities unrelated to petroleum marketing such as restaurants, fast food outlets and other activities mentioned above. It is believed that the taxpayer will not attempt to show that this test could be met." Iowa 80 has not in this litigation identified any document that it submitted pursuant to its administrative claim or its appeal where it asserts that the buildings in question devote more than 50% of their floor space to the marketing of petroleum or petroleum-related prod╜ucts or that provides any evidence to that effect.

II. Applicable Standard

The purpose of summary judgment is to "pierce the boilerplate of the pleadings and assay the parties' proof in order to deter╜mine whether trial is actually required." Wynne v. Tufts Univ. Sch. of Med., 976 F.2d 791, 794 (1st Cir.1992), cert. denied, 507 U.S. 1030, 113 S.Ct. 1845, 123 L.Ed.2d 470 (1993). Summary judgment "allows courts and litigants to avoid full-blown tri╜als in unwinnable cases, thus conserving the parties' time and money and permit╜ting courts to [conserve] scarce judicial resources." Id .

The precise standard for granting sum╜mary judgment is well-established and oft-repeated: summary judgment is properly granted when the record, viewed in the light most favorable to the nonmoving par╜ty and giving that party the benefit of all reasonable inferences, shows that there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Harl╜ston v. McDonnell Douglas Corp., 37 F.3d 379, 382 (8th Cir.1994). The Court does not weigh the evidence nor make credibili╜ty determinations, rather the court only determines whether there are any disput╜ed issues and, if so, whether those issues are both genuine and material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

The moving party bears the initial bur╜den of demonstrating the absence of a genuine issue of material fact based on the pleadings, depositions, answers to inter╜rogatories, admissions on file, and affida╜vits, if any. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986), cited in Handeen v. Lemaire, 112 F.3d 1339, 1345 (8th Cir.1997); Anderson, 477 U.S. at 248, 106 S.Ct. 2505. Once the moving party has carried its burden, the nonmoving party must go be╜yond the pleadings and, by affidavits or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is genuine issue for trial. Fed.R.Civ.P. 56(c), (e); Celotex, 477 U.S. at 322-23, 106 S.Ct. 2548; Anderson, 477 U.S. at 257, 106 S.Ct. 2505. "[T]he mere existence of some alleged fac╜tual dispute between the parties will not defeat a motion for summary judgment; the requirement is that there be no genu╜ine issue of material fact." Anderson, 477 U.S. at 247-48, 106 S.Ct. 2505 (emphasis added). An issue is "genuine" if the evi╜dence is sufficient to persuade a reason╜able jury to return a verdict for the non╜moving party. Id. at 248, 106 S.Ct. 2505. "As to materiality, the substantive law will identify which facts are material .... Fac╜tual disputes that are irrelevant or unnec╜essary will not be counted." Id .

In a federal tax refund suit such as this one "it is incumbent upon the claim╜ant to show that the United States has money which belongs to him." Lewis v. Reynolds, 284 U.S. 281, 283, 52 S.Ct. 145, 76 L.Ed. 293 (1932); see also United States v. Pfister, 205 F.2d 538, 542 (8th Cir.1953). The taxpayer must sustain its burden and show that the initial determi╜nation of the IRS was wrong and must show "the essential facts from which a correct determination of his liability can be made." Roybark v. United States, 104 F.Supp. 759, 762 (S.D.Ca1.1952); see also Pfister at 542. As part of this burden, the taxpayer must produce evidence to sub╜stantiate all aspects of a claim for refund. Owen v. United States, 34 F.Supp.2d 1071, 1073 (W.D.Tenn.1998).

III. Discussion

Professor Marvin Chirelstein opens the section on depreciation in his treatise by stating that "[t]hough not the sort of topic that lawyers love, the depreciation allow╜ance has grown so important over the past couple of decades that a somewhat lengthy discussion of it appears unavoidable." MARVIN A. CHIRELSTEIN, FEDERAL INCOME TAXATION 148 (8th ed.1997). Since this dis╜pute revolves around the depreciation treatment of two particular buildings owned by Iowa 80, a general discussion of the concept seems unavoidable here as well.

When a business purchases a capital asset that remains useful over a period of years, the business may not deduct the entire cost in the year of purchase and thus reap all of the benefit of showing lower taxable income in that initial year. Instead, the business must spread the cost of the asset over the course of the asset's useful life, as determined by the Internal Revenue Code, and thus spread the tax benefits of showing less income over several years. This process is known as depre╜ciation. Financial benefits in the present year are almost always more valuable than financial benefits in the future, conse╜quently, if a business can depreciate an asset over a shorter period, and thus de╜duct more costs sooner, the business will derive more value from the tax benefits that arise from deducting the cost of the asset. Hence, Iowa 80 is vigorously con╜testing whether it may deduct the cost of its Main Buildings in Walcott and Joplin over the course of 15 years instead of over 30.

"[T]he Code in 1981 pretty well aban╜doned the notion that depreciation should be spread out over an asset's true useful life and instead permits business taxpayers to depreciate their property over periods that are (and are expected to be) much shorter than the periods of actual service." CHIRELSTEIN at 150. Under the United States Internal Revenue Code, as amend╜ed by the Small Business Job Protection Act of 1996, a "retail motor fuels outlet" is classified as a "15 year property," thus a taxpayer may depreciate the cost of that property over 15 years. 26 U.S.C. ╖ 168(e)(3)(E)(iii).

In March 1995, the IRS promulgated a policy statement, also referred to as a "Coordinated Issues Paper" or the "March 1, 1995 ISP Paper" (the "1995 IRS Paper") in which it clarified what structures relat╜ed to the marketing of petroleum, particu╜larly gas station convenience stores, would receive classification as a property depreci╜able over the course of 15 years, instead of over 30. The 1995 IRS Paper set forth a two-prong test (the "Two-Prong test") in order to determine whether a building is primarily used in petroleum marketing.

1. Is 50 percent or more of the gross revenues generated by the [convenience store] derived from gasoline sales, and

2. Is 50 percent or more of the floor space in the building (including restrooms, counters, and other areas allo╜cable to traditional service station "services") devoted to the petroleum marketing activity?

March 1, 1995 ISP Paper. In promulgat╜ing this test, the paper also cited "critical factors" that motivate a finding that a gas station convenience store building is not susceptible to the same tax treatment as structures devoted to the marketing of petroleum and petroleum-related products.

Critical factors in finding that the [con╜venience store] building is not a service station building are the facts that the [convenience store] does not possess any of the traditional attributes of a service station and that the [convenience store] building is not a special purpose struc╜ture. The [convenience store] building is a fully adaptable retail building that competes with other convenience stores and small grocery stores. Competitors who are not in the oil and gas business provide the same services in similar physical structures.

Id . Having discussed these factors, the paper noted that "a building can still be included [as a 15 year asset] if it is primar╜ily used in petroleum marketing." Id . Thus, the paper does not seek to assay whether a business operating on the prem╜ises of a gas station is a convenience store or a service station building, rather, it seeks to determine whether such a busi╜ness is "primarily used in petroleum mar╜keting." For this purpose, the paper sets forth the Two Prong test discussed above. At no point does the paper create a mecha╜nism by which the IRS would or would not classify a business operating on the prem╜ises on a gas station as a convenience store according to the "critical factors" discus╜sion in the paper. Indeed, the statute itself makes clear that taxpayers and the IRS could classify a property as a "retail motor fuels outlet (whether or not food or other convenience items are sold at the outlet)." 26 U.S.C. ╖ 168(e)(3)(E)(iii).

The only guidance Congress provides for the meaning of the term "retail motor fuels outlet" in 26 U.S.C. ╖ 168(e)(3)(E)(iii) is in the Senate Committee Report to the Small Business Job Protection Act of 1996 which modified the Internal Revenue Code.

The Committee wishes to clarify what types of property qualify as a retail mo╜tor fuels outlet .... [P]roperty will so qualify if it meets a 50-percent test. The 50 percent test is met if: (1) 50 percent or more of the gross revenues that are generated from the property are derived from petroleum sales or (2) 50 percent or more of the floor space in the property is devoted to petroleum marketing sales. The Committee in╜tends that the determination of whether either prong of this test is met will be made pursuant to the recent Coordinat╜ed Issue Paper. Property not meeting the test will not qualify as a retail mo╜tor fuels outlet . ... The Committee intends that, with respect to property placed in service in taxable years that ended before the date of the enactment of the provision, the determination of whether the property meets the 50-per╜cent test generally will be made in a manner consistent with the manner in which the 50-percent test of the Coordi╜nated Issues Paper is applied (but by using the disjunctive test intend by the Committee rather than the conjunctive test of the Paper.)

Senate Committee Report P.L. 104-188 (emphasis added). Thus Congress sought to alter the test promulgated by the IRS in the 1995 IRS Paper only by making the Two Prong test disjunctive instead of con╜junctive. Congress did not see fit to alter the test in any other way, such as narrow╜ing its application to properties that fall within the ambit of the 1995 IRS Paper's preliminary "critical factors" discussion.

In the wake of the 1996 tax legislation and the accompanying legislative history that commented upon the issue of when a property qualifies- for depreciation treat╜ment as a "retail motor fuels outlet," the IRS revisited the issue in a second policy paper in April 1997 (the "1997 IRS Pa╜per"). April 2, 1997 ISP Paper. The pa╜per makes the Two Prong test disjunctive instead of conjunctive. It also removes from the "critical factors" discussion with╜out comment the language to the effect that "[t]he [convenience store] building is a fully adaptable retail building that competes with other convenience stores and small grocery stores. Competitors who are not in the oil and gas business provide the same services in similar physical struc╜tures." Finally, the paper clarifies how the IRS and taxpayers should measure the gross revenues that are derived from a property. "Gross revenues should be ana╜lyzed on a building-by-building basis. Buildings with multiple businesses should include revenue of all the business activi╜ties owned or operated by the owner of the building. Of course, each other building located at the [convenience store] site should be classified according to its pri╜mary use." Id .

In the case at bar, Iowa 80 offers sever╜al different bases for its argument that the Main Buildings in Walcott, Iowa and Jop╜lin, Missouri are "retail motor fuels out╜lets" and are thus entitled to more prefera╜ble tax treatment. First, Iowa 80 claims that the assets in question derive more than 50% of their gross revenues from petroleum and petroleum-related products. In doing so, Iowa 80 argues that it is inappropriate to separate the revenues de╜rived from the Main Buildings in Walcott and Joplin from the revenues derived from the other buildings at those truckstops. Iowa 80 based its original administrative claim with the IRS on this argument.

Iowa 80 now raises two other reasons why the Main Buildings in Walcott and Joplin are "retail motor fuel outlets." Iowa 80 argues that the Main Buildings satisfy the alternative, 50% floor space test, which requires a building to devote more than 50% of its floor space to the marketing of petroleum or petroleum╜based products. Iowa 80 also argues that the Main Buildings meet what it calls the "five critical factors" test, which it believes is supported by the 1995 IRS Paper.

A. The 50% Gross Revenue Test

Iowa 80 argues that it is improper to restrict the measurement of gross reve╜nues to those derived from the Main Build╜ings in Walcott and Joplin. Instead Iowa 80 argues the IRS should measure the gross revenues attributable to the entire Walcott and Joplin installations respective╜ly. Iowa 80 further argues that the use of the term "retail motor fuels outlet" plainly encompasses properties with multiple buildings that are taken together. In do╜ing so, Iowa 80 proffers the Webster's definition of "outlet" as a "market for a commodity."

This Court does not agree that it can conclude that "retail motor fuels outlet" can encompass several buildings under the plain meaning of ╖ 168(e)(3)(E)(iii). The fact that "outlet" means a "market for a commodity" does not shed light on the meaning of "retail motor fuels outlet." Indeed, different buildings at a truckstop could contain different markets. More╜over, Iowa 80's interpretation of the term "retail motor fuels outlet" would result in the failure of certain commonsense appli╜cations of this statute. For instance, if a truckstop contained on its property certain non-petroleum businesses that exceeded the gross revenues of its petroleum sales, none of the truckstop's facilities related to the sales of petroleum would benefit from the treatment as a property depreciable over 15 years. Alternatively, if the truckstop was considered a "retail motor fuels outlet" but sold a part of its property with a non-petroleum related business, the tax treatment of the non-petroleum related business would as a "retail motor fuels outlet," would change even though there was no substantive change to the property. In fact, the resulting change in tax treat╜ment could easily inhibit what would other╜wise be an economically efficient transaction.

Since ╖ 168(e)(3)(E)(iii) is not suscepti╜ble to a plain meaning interpretation, the Court must rely on the Senate Committee report that accompanied the legislation. This report explicitly endorsed the ap╜proach of the 1995 IRS Policy Paper, with the exception of altering the Two Prong test from conjunctive to disjunctive. For its part, the 1995 IRS Policy Paper specifi╜cally addresses the question of truck stops or gas stations with multiple buildings on the premises. "Of course, any other build╜ing located at the [convenience store] site should be classified according to its use." March 1, 1995 ISP Paper. This statement can only have meaning if the Paper's approach is to apply the Two Prong test building-by-building. Furthermore, the 1995 IRS Paper repeatedly refers to the convenience store at issue as the "C-store building." Id . When the Senate revisited this approach in its Committee report, it only changed the Two Prong test from conjunctive to disjunctive, it did not find it necessary to address the building-by-build╜ing approach.

Iowa 80 also questions the inter╜pretation of the 1997 IRS policy paper, which explicitly states that "gross reve╜nues should be analyzed on a building-by-building basis," arguing that "the IRS may not legislate." While it is true that the IRS may not legislate, it may make its own best efforts to construe federal legislation in promulgating its own policies. More importantly, "considerable weight should be accorded to an executive department's construction of a statutory scheme it is entrusted to administer, and the principle of deference to administrative interpretations." Chevron v. Natural Resources De╜fense Council, 467 U.S. 837, 844, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984); see also United States v. Boyle, 469 U.S. 241, 247, 105 S.Ct. 687, 83 L.Ed.2d 622 (1985) (ap╜plying Chevron to an Internal Revenue regulation). While a policy statement such as the 1997 IRS paper does not take on the force of law of a regulation, and is therefore not entitled to the deference ac╜corded under Chevron, it is entitled to some deference and respect, to "to the extent that those interpretations have the ▒power to persuade.' " Christensen v. Har╜ris County, 529 U.S. 576, 587, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000). "[D]ue weight is given to the IRS's interpretation of its statute, and such decisions are not disregarded unless they conflict with the statute they purport to interpret or its legislative history, or if they are otherwise unreasonable." Bellas v. CBS, Inc., 221 F.3d 517, 530 (3d Cir.2000) (applying Christensen to IRS General Counsel Mem╜orandum statutory interpretations). In United States v. Cleveland Indians Base╜ball Co., 532 U.S. 200, 121 S.Ct. 1433, 149 L.Ed.2d 401 (2001), the Supreme Court declined to consider whether "Revenue Rulings" are entitled to deference, but held that a long and consistently-held IRS interpretation of the Code or its regula╜tions is entitled to "substantial judicial def╜erence" if it is reasonable. Id. See also Vons Companies, Inc. v. United States, 51 Fed.Cl. 1, 8 n. 5 (2001). With respect to the interpretation at issue in this case, it is one the Court would have reached without the 1997 IRS Paper, in light of the statute and other legislative history. Consequent╜ly, the Court believes that the IRS inter╜pretation is not unreasonable and is there╜fore entitled to whatever deference may exist for the type of opinion in which the interpretation is offered.

Iowa 80 also argues that the additional services that it provides in its Main Build╜ings in Walcott and Joplin are necessary to sell petroleum to its customers. Iowa 80 further points out that its larger corporate competitors house all of these services in one building, along with where they sell gas. Iowa 80 further points out that this statutory and regulatory regime was craft╜ed as a result of the lobbying efforts of their large corporate competitors and it is tailored to their needs, potentially leaving Iowa 80 in the lurch.

This Court does not deny the necessity for a modern truckstop to provide the services that are provided in the Main Buildings in Walcott and Joplin. Nor does this Court deny that bundling these ser╜vices into a single building with all petrole╜um sales, as opposed to using separate buildings, as Iowa 80 does in Walcott and Joplin, provides a tax advantage under the current statutory and regulatory regime. Finally, this Court does not deny the po╜tential of the legislative and regulatory process for catering to the needs of a select group rather than the overall public interest. Nevertheless, none of these valid complaints license this Court to enact an interpretation other than that which was clearly intended. If Iowa 80 contends that the statutes and regulations governing the classification of "retail motor fuel outlets" violate the policy which motivate them, the forum for that contention is Congress, not this Court.

The accounting provided with re╜spect to the Main Buildings in both Wal╜cott and Joplin is unfortunately incomplete in both cases. In the case of Joplin, a genuine issue of fact remains as to wheth╜er or not diesel fuel was sold at the Main Building and if so how much. Further╜more, there is no clear separation between non-petroleum related gross revenues de╜rived from the Main Building in Joplin and other buildings at Joplin. Consequently, in the case of Joplin, the Court cannot grant summary judgment. In the case of Walcott, there are similar problems with respect to whether non-petroleum related revenues are derived from the Main Build╜ing in Walcott or other buildings in Wal╜cott. Nonetheless, it is clear that gross revenues attributable to non-petroleum re╜lated lessees alone exceed the amounts of petroleum sales admitted by Iowa 80. Consequently, regardless of what non-pe╜troleum related gross revenues are direct╜ly earned by Iowa 80 in the Main Building in Walcott, it is clear that the petroleum-related gross revenues in that building constitute less than 50% of all gross reve╜nues attributable to that building. Sum╜mary judgment is therefore granted with respect to Iowa 80's facility in Walcott.

B. ═ The 50% Floor Space Test and the Doctrine of Variance

Iowa 80 now also seeks, in the alternative, to classify its Main Buildings in Walcott and Joplin as "retail motor fuel outlets" by claiming that 50% or more of the floor space in those buildings are de╜voted to the marketing of petroleum. The United States argues that because Iowa 80 did not properly raise this issue in its administrative claim with the IRS, this Court does not have subject matter juris╜diction to review it. Iowa 80 argues that by raising the issue of whether the Main Buildings qualify as "retail motor fuels outlets" pursuant to 26 U.S.C. ╖ 168(e)(3)(E)(iii), it has sufficiently identi╜fied the grounds in its administrative claim on which it now litigates.

Federal law prohibits any law╜suit "for the recovery of any internal reve╜nue tax alleged to have been erroneously or illegally assessed or collected . . . until a claim for refund or credit has been duly filed with the Secretary or his delegate according to the provisions of law in that regard, and the regulations of the Secre╜tary or his delegate established in pursu╜ance thereof." 26 U.S.C. ╖ 7422(a); see also Bohn v. United States, 467 F.2d 1278, 1279 (8th Cir.1972). Under Internal Reve╜nue Service regulations a claim "must set forth in detail each ground upon which a credit or refund is claimed and facts suffi╜cient to apprise the Commissioner of the exact basis thereof." 26 C.F.R. ╖ 301.6402-2(b)(1). "The Code's require╜ment of detail in setting forth an adminis╜trative claim must be strictly applied, as it operates as a jurisdictional limitation on courts vested with authority to entertain tax refund cases." Nucorp, Inc. v. United States, 23 C1.Ct. 234, 238 (1991). "The filing of a claim allows the IRS to investi╜gate, make an administrative determina╜tion of the taxpayer's liability, and possibly avoid court action. The claim ▒advise(s) the appropriate officials of the demands or claims intended to be asserted, so as to insure an orderly administration of the revenue . . .' " ═ Shanker v. United States, 571 F.2d 8, 10 (8th Cir.1978).

Iowa 80 raises a legitimate and worth╜while question about how broadly a Court should construe the "grounds" raised in a taxpayer's administrative claim that would sufficiently apprise the Commissioner of the exact basis of the taxpayer's claim. Iowa 80 points to First Nat. Bank of Fay╜ettevitle, Arkansas v. United States, 727 F.2d 741 (8th Cir.1984), where a taxpayer brought a claim under 26 U.S.C. ╖ 2055(e)(3) and was ultimately awarded a refund based on the inapplicability of ╖ 2055(e)(2). The Eighth Circuit, on ap╜peal, held that the taxpayer's claim was a sufficient basis for the lawsuit because it raised the issue of the applicability of 26 U.S.C. ╖ 2055(e). See also Jones v. Unit╜ed States, 2000 WL 33340303 (D.N.D.) ("[C]ase law in the Eighth Circuit has suggested that putting the IRS on notice of the nature of the claim may be suffi╜cient.")

Nevertheless, whether the grounds cited in a taxpayer's administra╜tive claim are sufficiently expansive to pro╜vide sufficient notice arguments raised in litigation is, without a doubt, a difficult and case specific question. "Clearly, a taxpay╜er may not raise a new ground for refund at trial when the Service had no opportuni╜ty to investigate the ground administra╜tively." First Nat. Bank of Ft. Smith v. United States, 610 F.Supp. 933, 936 (W.D.Ark.1985) (citing Real Estate Title Co. v. United States, 309 U.S. 13, 60 S.Ct. 371, 84 L.Ed. 542 (1940)); see also Beck╜with Realty, Inc. v. United States, 896 F.2d 860, 862 (4th Cir.1990) ("[T]he claim for a refund must contain sufficient infor╜mation to allow the [IRS] to address the merits of the dispute."). The IRS "is not required to ferret out on its own the spe╜cific claims advanced by the taxpayer." First Nat. Bank of Ft. Smith at 937. "A civil refund suit will not stand where the administrative claim is so vague or so gen╜eral that the [IRS] ▒could only guess at the nature of the taxpayer's claim.' " Meisner v. United States, 1996 WL 442717 (D. Neb. 1996) (quoting First Nat. Bank of Ft. Smith at 937). In U.S. Bank v. United States, 74 F.Supp.2d 934, 936 (D. Neb. 1999), the district court rejected the argu╜ment that "federal courts only require no╜tice pleading and that requiring the taxpayer to use ▒magic words' creates unfair prejudice to the taxpayer." In Meisner, the district court stated that "the plaintiff's citation to the Internal Revenue Code and regulations shed no light as to the kind or extent of her claimed deduction. In addi╜tion, plaintiff offered no facts or documents to support this theory." Meisner at *5.

In this case, Iowa 80 relies to a great extent on the fact that the statutory provi╜sion cited in its administrative claim covers all of its arguments in this litigation. The case law in the Eighth Circuit does not appear to favor the position that this is sufficient notice. Nevertheless, even if Iowa 80's citation of 26 U.S.C. ╖ 168(e)(3)(E)(iii) did constitute setting forth "in detail each ground upon which a credit or refund is claimed" pursuant to 26 C.F.R. ╖ 301.6402-2(b)(1), Iowa 80 has clearly failed to set forth "facts sufficient to apprise the [IRS] of the exact basis thereof." 26 C.F.R. ╖ 301.6402-2(b)(1); see also Meisner at *5. Iowa 80 has pre╜sented no evidence that it provided any factual support to the IRS in its adminis╜trative claim that the Main Buildings in Walcott and Joplin would pass the 50% floor space test.

Finally, Iowa 80 argues that the United States waived the variance defense on this issue for two reasons. First, the agent examining Iowa 80's administrative claim, Mr. Kueter, briefly addressed the floor space issue. Second, the United States has requested information on the floor space issue in this case. With re╜spect to agent Kueter's comments, they appear to be an attempt to narrow the grounds for recovery sought by Iowa 80. After making one cursory comment on the issue, not based on evidence presented by Iowa 80, agent Kueter stated that "[i]t is believed that the taxpayer will not attempt to show that this test could be met." Nei╜ther agent Kueter's summary rejection of the floor space test as a possible ground for recovery nor agent Kueter's stated be╜lief that Iowa 80 would not pursue that ground was questioned in Iowa 80's administrative appeal of his finding.

With respect to the discovery taken by the United States in this lawsuit, the Court does not find that this constitutes a waiver of the variance defense. In Mallette Bros. Construction Co., Inc. v. United States, 695 F.2d 145, 157 (5th Cir.1983), the Fifth Circuit held that the United States did not waive its variance defense by addressing an issue at trial and submitting evidence with respect to the issue. The Fifth Cir╜cuit argued that holding that such actions constitute a waiver of the variance defense would present the United States with "a Hobson's choice."

They would have either to stand on the variance (and thus possibly lose the is╜sue on the merits at trial level) and then appeal on the variance question, possibly requiring another trial, or abandon the variance argument in the hopes of pre╜vailing on the merits, thereby obviating the necessity of an appeal and another trial.

Maltette Bros. Construction Co., Inc. at 157. The United States correctly argues in this case that, as in Matlette, the Court should not force it to choose between pur╜suing its right to prepare for the merits of all claims against it and raising a valid jurisdictional defense. More importantly, since the variance defense stems from a challenge to the Court's subject matter jurisdiction, which can never be waived, it would seem that waiver should not apply unless the United States raises it after judgment, as in First Nat. Bank of Fay╜etteville, Arkansas v. United States.

C. The "Five Critical Factor Test"

The variance doctrine dis╜cussed above would also bar the "five criti╜cal factor" test offered by Iowa 80. Even if the doctrine of variance did not bar the application of this test, the fact that this test was entirely fabricated by Iowa 80 would preclude its application. The gos╜samer on which Iowa 80 bases this argu╜ment is the statement of policy that under╜lies the promulgation of the Two-Prong test that is endorsed by Congress. Iowa 80 derives the "five critical factors" from this policy discussion. There is no place in the 1995 IRS Paper where the IRS sug╜gests that these policy considerations form a threshold for application of the Two Pronged test. The Senate Committee Re╜port, which alters the test promulgated by the 1995 IRS Paper, not only fails to men╜tion a "critical factor" threshold, it explicit╜ly says that "property not meeting the test will not qualify as a retail motor fuels outlet." The subsequently issued 1997 IRS Paper does not even contain all of the "critical factors" listed in the 1995 IRS Paper.

Thus, this Court finds that the legisla╜tive history demonstrates that the clear intent of Congress was to apply the Two-Prong test to all gas station and truck-stop properties. In arguing that the Court should more narrowly construe Congres╜sional intent as to when to apply the Two-Prong test, Iowa 80 puts forward evidence such as what services are traditionally available at truckstops, the ability of the :Main Buildings to adapt to different pur╜poses, and of certain types of groceries that are generally available that are not offered in the Main Buildings. To the Court, this evidence convincingly demon╜strates why the Two Pronged test was enacted: so that the IRS and courts are spared from investigating what types of groceries buildings at truckstops offer that are not available in the local supermarket, investigating whether these buildings are architecturally adaptable to other pur╜poses, or investigating whether these buildings offer services that were tradi╜tionally offered thirty-five years ago.

IV. Order

The United States motion for summary judgment is granted with respect to all claims involving the Walcott, Iowa facility. The United States motion for summary judgment is also granted with respect to all claims involving whether the Joplin, Missouri installation is a "retail motor fu╜els outlet" due to a devotion of 50% or more of its floor space to the marketing of petroleum or whether it meets "critical factors" discussed in IRS Policy State╜ments. The United States motion for summary judgment is denied with respect to Iowa 80's claim that it meets the 50% gross revenue test at its Joplin, Missouri installation.

IT IS SO ORDERED.

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