Suing the IRS for Failure to
Release a Lien
and
Getting the IRS to Release a Lien
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information of use to consultants
and individuals doing research. For information on tax assistance,
click here.
The IRS can be sued for certain unauthorized collection
actions. If you feel you are a victim, please contact
us for an assessment of your case.
[4830-01-p]
DEPARTMENT OF THE TREASURY
26 CFR Part 301
[Reg-107366-00]
RIN 1545-AY08
Civil Cause of Action for Damages Caused by Unlawful Tax Collection
Actions, Including Actions Taken in Violation of Section 362 or
Section 524 of the Bankruptcy Code
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains proposed regulations relating
to civil causes of action for damages caused by unlawful collection
actions of officers and employees of the IRS and the awarding
of costs and certain fees. The proposed regulations reflect amendments
made by the Taxpayer Bill of Rights 2 and the Internal Revenue
Service Restructuring and Reform Act of 1998. The proposed regulations
affect all persons who suffer damages caused by unlawful collection
actions of officers or employees of the IRS.
DATES: Written comments and requests for a public hearing must
be received by May 6, 2002.
ADDRESSES: Send submissions to: CC:ITA:RU (Reg-107366-00), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. In the alternative, submissions may be hand
delivered to: CC:ITA:RU (Reg-107366-00), room 5226, Internal Revenue
Service, 1111 Constitution Avenue NW., Washington DC. Alternatively,
taxpayers may submit comments electronically via the Internet
by 2 selecting the "Tax Regs" option on the IRS Home
Page, or by submitting comments directly to the IRS Internet site
at www.irs.gov/regs. FOR FURTHER INFORMATION CONTACT: Concerning
the regulations, Kevin B. Connelly, (202) 622-3630 (not a toll-free
number). SUPPLEMENTAL INFORMATION: Background This document contains
proposed amendments to the Procedure and Administration Regulations
(26 CFR part 301) relating to civil actions for damages caused
by unlawful collection actions of officers or employees of the
IRS. The Taxpayer Bill of Rights 2 (TBOR2), Public Law 104-168
(110 Stat. 1465), amended section 7433 of the Internal Revenue
Code of 1986 (Code) by increasing the maximum amount of damages
a taxpayer may be awarded for unlawful collection actions from
$100,000 to $1,000,000. TBOR2 also eliminated the jurisdictional
requirement that administrative remedies be exhausted before a
court may award damages; TBOR2 authorized the court, however,
to reduce damages if it determined that the plaintiff did not
exhaust administrative remedies. These TBOR2 provisions were effective
for actions of IRS officers or employees after July 30, 1996.
The Internal Revenue Service Restructuring and Reform Act of 1998
(RRA 1998), Public Law 105-206 (112 Stat. 685), although retaining
the pre-existing authorization for an award of damages in the
case of reckless or intentional disregard of the Code or regulations,
amended section 7433 by providing that taxpayers may file actions
for damages caused by the negligent disregard of the Code or regulations.
In addition, this amendment provided that an 3 action for damages
could be brought for the IRS’s willful violation of section
362 (relating to the automatic stay) or section 524 (relating
to the effect of discharge) of the Bankruptcy Code. The maximum
amount of damages that may be awarded for negligent disregard
is $100,000. The maximum amount of damages that may be awarded
for reckless or intentional disregard or for willful violations
of section 362 or 524 of the Bankruptcy Code is $1,000,000. RRA
1998 also reinstated the requirement under section 7433 that the
plaintiff must exhaust administrative remedies before a court
may award damages. These RRA 1998 provisions are effective for
actions of IRS officers or employees after July 22, 1998. RRA
1998 also added new subsection (h) to section 7426, which authorizes
persons who bring wrongful levy actions under section 7426 to
sue for damages caused by the reckless or intentional, or negligent,
disregard of any provision of the Code, plus costs of the action.
Consistent with section 7433, damages awarded under section 7426(h)
are limited to $1,000,000 for reckless or intentional disregard
and $100,000 for negligent disregard. In addition, a plaintiff
must exhaust administrative remedies before a court may award
damages under section 7426(h). The provisions of section 7433
relating to mitigation and the period for bringing an action also
apply to actions brought under section 7426(h). Explanation of
Provisions §301.7426-2 RRA 1998 added a new subsection (h)
to section 7426. Subsection (h) authorizes persons to sue the
United States in federal district court for damages due to 4 a
wrongful levy caused by the reckless or intentional, or negligent,
disregard of a provision of the Code. Plaintiffs are entitled
to recover the lesser of actual direct economic damages and costs
of the action or $1,000,000 ($100,000 in the case of negligence).
The amendment also provided that the rules of section 7433(d)
relating to exhaustion of administrative remedies, mitigation
of damages and the period for bringing an action shall apply.
The proposed regulations thus adopt rules like those promulgated
under section 7433 that plaintiffs must mitigate damages and no
damages may be awarded unless the court determines that the plaintiff
has exhausted administrative remedies available within the IRS,
e.g., by filing an administrative claim for damages. The proposed
regulations also provide that any action for damages under this
section must be brought within 2 years after the date the action
accrues. This two-year limitations period is independent of the
nine-month period after the wrongful levy during which the IRS
may return, or the third party may make a claim for, wrongfully
levied property. §301.7430-8 Section 7430 provides that reasonable
administrative costs may be awarded to the prevailing party in
an administrative proceeding brought by or against the United
States in connection with the determination, collection, or refund
of any tax, interest, or penalty under Title 26. Because, prior
to the amendments in RRA 1998, taxpayers generally were not entitled
to recover costs for administrative proceedings in connection
with collection matters, the current regulations exclude such
collection matters, including proceedings under sections 7432
and 7433, from the definition of 5 administrative proceedings.
To reflect the RRA 1998 amendments, the proposed regulations expand
the definition of an administrative proceeding to include any
administrative action for damages under section 7433(e) and any
procedure or action brought before the IRS seeking relief with
respect to a violation by the IRS of section 362 or 524 of the
Bankruptcy Code. The proposed regulations provide that the prevailing
party is a party who establishes that, in connection with the
collection of his or her federal tax, the IRS has willfully violated
a provision of section 362 or 524 of the Bankruptcy Code. The
only administrative costs that may be awarded are those incurred
after the date of the bankruptcy petition that gave rise to the
section 362 stay or section 524 discharge injunction. A claim
with the IRS for administrative costs must be filed within 90
days after the date the IRS mails its decision on the taxpayer’s
administrative claim for damages under §301.7433-2(e) or
claim for relief from a violation of section 362 or 524 of the
Bankruptcy Code. §301.7433-1 Section 3102 of RRA 1998 amended
section 7433(a) of the Code by providing that a taxpayer may sue
the United States in a district court of the United States for
damages caused by the negligent disregard of the Code or regulations
in connection with the collection of the taxpayer’s tax liability.
Section 801 of TBOR2 amended section 7433(b) by increasing the
maximum amount of damages that a taxpayer may recover for damages
caused by the reckless or intentional disregard of the Code or
6 regulations from $100,000 to $1,000,000. Section 3102 of RRA
1998 caps the amount of damages that a taxpayer may recover for
negligent disregard at $100,000. The proposed regulations under
§301.7433-1 reflect these changes. §301.7433-2 RRA 1998
also amended section 7433 by adding a new subsection (e). Subsection
(e) gives taxpayers the right to petition the bankruptcy court
to recover damages if, in connection with the collection of a
federal tax, any officer or employee of the IRS willfully violates
section 362 or 524 of the Bankruptcy Code or any regulation promulgated
thereunder. Damages in connection with a claim under section 7433(e)
are recoverable under section 7433(b) and are subject to the limitations
imposed by section 7433(d). Section 362 relates to the automatic
stay, which arises by operation of law when a debtor files a bankruptcy
petition. The stay prohibits certain collection actions against
the debtor, the debtor’s property, and the property of the
bankruptcy estate. Prior to enactment of section 7433(e), individuals
injured by the IRS’s willful violation of the automatic stay
could only sue to recover actual damages, including costs and
attorneys’ fees, under Bankruptcy Code section 362(h). Section
7433(e) provides an alternative cause of action to recover damages,
but still permits an individual to recover damages under section
362(h) of the Bankruptcy Code, in lieu of an action under section
7433(e). However, section 7433(e) explicitly provides that administrative
and litigation costs incurred in pressing a claim under section
362(h) of the Bankruptcy Code may only be paid pursuant to, and
subject to the conditions described in, section 7 7430 of the
Code. Section 7430 authorizes the payment of administrative and
litigation costs only if a taxpayer exhausts administrative remedies.
The proposed regulations provide that in order to qualify for
an award of administrative and litigation costs in an action under
section 362(h) of the Bankruptcy Code, a taxpayer must (as in
the case of damages actions under section 7433(e)) file an administrative
claim with the IRS relating to the violation of the automatic
stay. Section 524 sets forth the effect of a discharge under the
Bankruptcy Code. A discharge operates as an injunction against
the commencement or continuation of any action to collect a discharged
debt as a personal liability of the debtor. Prior to enactment
of section 7433(e), a debtor who believed the IRS had willfully
violated the discharge injunction could request the Bankruptcy
Court under Bankruptcy Code section 105 to hold the IRS in contempt
and seek to recover damages under that Bankruptcy Code provision.
Section 7433(e) now provides the exclusive remedy for the IRS’s
willful violation of the discharge injunction. The proposed regulations
set forth procedures relating to these claim and damage allowance
provisions. Damages recoverable under section 7433(e) for a violation
of the automatic stay or the discharge injunction are limited
to (1) the actual, direct economic damages sustained by the taxpayer
(and the taxpayer has a duty to mitigate those damages), plus
(2) costs of the action. The maximum damage award is $1,000,000.
No petition for damages under section 7433(e) may be filed in
a bankruptcy court unless the taxpayer first exhausts administrative
remedies within the IRS. 8 Similar to rules previously adopted
with respect to other wrongful collection actions, the proposed
regulations define direct, economic damages as actual, pecuniary
damages sustained by the taxpayer as a result of the willful violation
of section 362 or 524 of the Bankruptcy Code. Injuries such as
inconvenience, loss of reputation, and emotional distress, are
not compensable except to the extent they result in actual pecuniary
loss. The proposed regulations define costs of the action that
are recoverable as damages under section 7433(e) as: (1) fees
of the clerk and marshal; (2) fees of the court reporter for all
or any part of the stenographic transcript necessarily obtained
for use in the case; (3) fees and disbursements for printing and
witnesses; (4) fees for exemplification and copies of paper necessarily
obtained for use in the case; (5) docket fees; and (6) compensation
of court appointed experts and interpreters. Costs of the action
do not include any costs other than those enumerated in this paragraph.
Reasonable administrative and litigation costs, including attorneys
fees, are not recoverable as direct economic damages. These costs
are recoverable, if at all, under section 7430. The taxpayer generally
will be entitled to reasonable litigation costs under section
7430 if the taxpayer (1) files an administrative claim with the
IRS, (2) establishes that the IRS willfully violated either the
automatic stay under Bankruptcy Code Section 362 or the discharge
injunction under section 524, (3) substantially prevails with
respect to the amount of damages in controversy, and (4) meets
the requirements of sections 7430(c)(4)(A)(ii) regarding net worth.
A petition for damages under section 7433 may not be filed in
a bankruptcy court 9 unless the taxpayer first files an administrative
claim for damages with the IRS. The claim must be made in writing
to the Chief, Local Insolvency Unit for the judicial district
in which the bankruptcy was filed. The claim must include: (1)
the claimant taxpayer’s name, taxpayer identification number,
current address, current home and work telephone numbers and any
convenient times to be contacted; (2) the court and case number
of the bankruptcy case in which the violation occurred; (3) a
description, in reasonable detail, of the violation (with copies
of any available substantiating documentation or correspondence
with the IRS); (4) a description of the injuries incurred by the
taxpayer filing the claim (with copies of any available substantiating
documentation or evidence); (5) the dollar amount of the claim,
including any damages that have not yet been incurred but which
are reasonably foreseeable (along with any available substantiating
documentation or evidence); and (6) the signature of the taxpayer
or any duly authorized representative. The proposed regulations
provide that, after an administrative claim for damages has been
filed, a petition for damages under section 7433 may not be filed
in a bankruptcy court until the earlier of (1) the time a decision
is rendered on the claim or
(2) six months from the date the administrative claim is filed.
Because a taxpayer must petition the bankruptcy court for damages
within two years after the cause of action accrues, the proposed
regulations contain an exception for claims filed in the last
six months before the two-year limitation period expires. In those
circumstances, taxpayers may file petitions for damages at any
time after they file their administrative claims and before the
period of limitations expires. A cause of action accrues under
10 this section when the taxpayer has had a reasonable opportunity
to discover all essential elements of a possible cause of action.
Special Analyses It has been determined that this notice of proposed
rulemaking is not a significant regulatory action as defined in
Executive Order 12866. Therefore, a regulatory assessment is not
required. It also has been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply
to these regulations, and because the regulation does not impose
a collection of information on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant
to section 7805(f) of the Code, this notice of proposed rulemaking
will be submitted to the Chief Counsel for Advocacy of the Small
Business Administration for comment on its impact on small business.
Comments and Requests for a Public Hearing Before these proposed
regulations are adopted as final regulations, consideration will
be given to any written comments that are submitted timely (preferably
a signed original and eight (8) copies) to the IRS. Alternatively,
taxpayers may submit comments electronically to the IRS Internet
at . All comments will be available for public inspection and
copying. The IRS and Treasury request comments on the clarity
of the proposed rules and how they may be made easier to understand
or to implement. A public hearing may be scheduled if requested
in writing by a person that timely submits written comments. If
a public hearing is scheduled, notice of the date, time, and place
for the hearing will be published in the 11 Federal Register.
Drafting Information The principal author of these regulations
is Kevin B. Connelly, Office of Associate Chief Counsel (Procedure
and Administration), Collection, Bankruptcy & Summons Division,
CC:PA:CBS, IRS. However, other personnel from the IRS and the
Treasury Department participated in their development. List of
Subjects in 26 CFR Part 301 Employment taxes, Estate taxes, Excise
taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping
requirements. Proposed Amendments to the Regulations Accordingly,
26 CFR part 301 is proposed to be amended as follows: PART 301--PROCEDURE
AND ADMINISTRATION Paragraph 1. The authority citation for part
301 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.7426-2 is added to read as follows: §301.7426-2
Recovery of damages in certain cases.
(a) In general. In addition to remedies related to wrongful levy
set forth in §301.7426-1(b), if a district court of the United
States finds in any action brought under section 7426 that any
officer or employee of the Internal Revenue Service recklessly
or intentionally, or by reason of negligence, disregarded any
provision of this title, the United States shall be liable to
the plaintiff for damages. The plaintiff has a duty to 12 mitigate
damages. The total amount of damages recoverable under this section
is the lesser of $1,000,000 ($100,000 in the case of negligence),
or the sum of--
(1) Actual, direct economic damages as defined in §301.7433-1(b)
sustained as a proximate result of the reckless, intentional,
or negligent actions of the officer or employee, reduced by the
amount of any damages awarded under §301.7426-1(b); and
(2) Costs of the action as defined in §301.7433-1(c).
(b) Administrative remedies must be exhausted. The court may not
award a judgment for damages under paragraph (a) of this section
unless the court determines that the plaintiff has filed an administrative
claim pursuant to paragraph (d) of this section, and has satisfied
the requirements of paragraph (c) of this section.
(c) No request for damages in a district court of the United States
prior to filing an administrative claim. (1) Except as provided
in paragraph (c)(2) of this section, no request for damages under
paragraph (a) of this section shall be maintained in any district
court of the United States before the earlier of the following
dates--
(i) The date the decision is rendered on a claim filed in accordance
with paragraph (d) of this section; or
(ii) The date that is six months after the date an administrative
claim is filed in accordance with paragraph (d) of this section.
(2) If an administrative claim is filed in accordance with paragraph
(d) of this section during the last six months of the period of
limitations described in paragraph (f) of this section, the claimant
may file an action in a district court of the United States any
time after the administrative claim is filed and before the expiration
of the period of 13 limitations.
(d) Procedures for an administrative claim--(1) Manner. An administrative
claim for the lesser of $1,000,000 ($100,000 in the case of negligence)
or actual, direct economic damages as defined in §301.7433-1(b)
shall be sent in writing to the Chief, Local Insolvency Unit for
the area in which the levy was made.
(2) Form. The administrative claim shall include--
(i) The name, taxpayer identification number, current address
and current home and work telephone numbers (indicating any convenient
times to be contacted) of the person making the claim;
(ii) The grounds, in reasonable detail, for the claim (include
copies of any available substantiating documentation or correspondence
with the Internal Revenue Service);
(iii) A description of the damages incurred by the claimant filing
the claim (include copies of any available substantiating documentation
or evidence);
(iv) The dollar amount of the claim, including any damages that
have not yet been incurred but which are reasonably foreseeable
(include copies of any available substantiating documentation
or evidence); and
(v) The signature of the claimant or duly authorized representative.
(3) Duly authorized representative. For purposes of this paragraph
(d), a duly authorized representative is any attorney, certified
public accountant, enrolled actuary, or any other person permitted
to represent the claimant before the Internal Revenue Service
who is not disbarred or suspended from practice before the Internal
Revenue 14 Service and who has a written power of attorney executed
to the claimant.
(e) No liability for damages for any sum in excess of the dollar
amount sought in the administrative claim. See §301.7433-1(f).
(f) Period of limitations--(1) Time for filing. A civil action
under paragraph (a) of this section must be brought in a district
court of the United States within 2 years after the date the cause
of action accrues.
(2) Right of action accrues. A cause of action under paragraph
(a) of this section accrues when the plaintiff has had a reasonable
opportunity to discover all essential elements of a possible cause
of action.
(g) Recovery of costs under section 7430. See §301.7433-1(h).
(h) Effective date. This section is applicable on the date final
regulations are published in the Federal Register. Par. 3. Section
301.7430-1 is amended by redesignating paragraphs (e), (f) and
(g) as paragraphs (f), (g) and (h), respectively, and adding a
new paragraph (e) to read as follows: §301.7430-1 Exhaustion
of administrative remedies.
* * * * *
(e) Actions involving willful violations of the automatic stay
under section 362 of the Bankruptcy Code--(1) Section 7433 claims.
A party has not exhausted administrative remedies within the Internal
Revenue Service with respect to asserted violations of the automatic
stay under section 362 of the Bankruptcy Code or the discharge
provisions under section 524 of the Bankruptcy Code unless it
files an 15 administrative claim for damages or for relief from
a violation of section 362 or 524 of the Bankruptcy Code with
the Chief, Local Insolvency Unit, for the area in which the bankruptcy
petition that is the basis for the asserted automatic stay was
filed pursuant to §301.7433-2(e) and satisfies the other
conditions set forth in §301.7433-2(d) prior to filing a
petition under section 7433.
(2) Section 362(h) claims. A party has not exhausted administrative
remedies within the Internal Revenue Service with respect to asserted
violations of the automatic stay under section 362 of the Bankruptcy
Code unless it files an administrative claim for relief from a
violation of section 362 of the Bankruptcy Code with the Chief,
Local Insolvency Unit, for the area in which the bankruptcy petition
that is the basis for the asserted automatic stay was filed pursuant
to §301.7433-2(e) and satisfies the other conditions set
forth in §301.7433-2(d) prior to filing a petition under
section 362(h) of the Bankruptcy Code.
* * * * *
§301.7430-2 [Amended]
Par. 4. In §301.7430-2, paragraph (c)(2) is amended by:
1. Adding the language “except that requests with respect
to administrative proceedings defined by §301.7430-8(c) should
be made to the Chief, Local Insolvency Unit” at the end of
the first sentence. 2. Removing the language “District Director
for the district” and adding “Internal Revenue Service
office” in its place in the second sentence. Par. 5. Section
301.7430-3 is amended by: 16 1. Revising paragraph (a)(4), 2.
Paragraph (b) is amended by adding the language “except those
collection actions described by section 7433(e)” at the end
of the last sentence. The revision reads as follows: §301.7430-3
Administrative proceeding and administrative proceeding date.
(a) * * *
(4) Proceedings in connection with collection actions (as defined
in paragraph
(b) of this section), including proceedings under section 7432
or 7433, except proceedings brought under section 7433(e) and
§301.7433-2 or proceedings otherwise described in §301.7430-8(c).
See §301.7430-8.
* * * * *
Par. 6. Section 301.7430-6 is amended by adding a sentence at
the end of the section to read as follows: §301.7430-6 Effective
dates.
* * * Sections 301.7430-2(c)(2), 7430–3(a)(4) and (b) are
applicable with respect to actions taken by the Internal Revenue
Service after July 22, 1998. Par. 7. Section 301.7430-8 is added
to read as follows: §301.7430-8 Administrative costs incurred
in damage actions for violations of section 362 and 524 of the
Bankruptcy Code.
(a) In general. The Internal Revenue Service may grant a taxpayer’s
request for recovery of reasonable administrative costs incurred
in connection with the administrative proceeding before the Internal
Revenue Service relating to the willful 17 violation of section
362 or 524 of the Bankruptcy Code only if the taxpayer is a prevailing
party.
(b) Prevailing party. A taxpayer is a prevailing party for purposes
of this section only if--
(1) The taxpayer satisfies the net worth and size limitations
in paragraph (f) of §301.7430-5;
(2) The taxpayer establishes that in connection with the collection
of his or her federal tax an officer or employee of the Internal
Revenue Service has willfully violated a provision of section
362 or 524 of the Bankruptcy Code; and
(3) The position of the Internal Revenue Service in the proceeding
was not substantially justified.
(c) Administrative proceeding. For purposes of this section, an
administrative proceeding is a proceeding related to an administrative
claim presented to the Internal Revenue Service seeking relief
from a violation of section 362 or 524 of the Bankruptcy Code
by the Internal Revenue Service or recovery of damages from the
Internal Revenue Service under §301.7433-2(e).
(d) Costs incurred after filing of bankruptcy petition. Administrative
costs may be recovered only if incurred on or after the date of
filing of the bankruptcy petition that formed the basis for the
stay on collection under Bankruptcy Code section 362 or the discharge
injunction under Bankruptcy Code section 524, as the case might
be.
(e) Time for filing claim for administrative costs. (1) For purposes
of this section, the taxpayer must file a claim for administrative
costs before the Internal Revenue 18 Service not later than 90
days after the date the Internal Revenue Service mails to the
taxpayer, or otherwise notifies the taxpayer of, the decision
regarding the claim for relief from or damages relating to a violation
of the collection stay or the discharge injunction to the taxpayer.
(2) If the Internal Revenue Service denies the claim for administrative
costs in whole or in part, the taxpayer must file a petition with
the Bankruptcy Court for administrative costs no later than 90
days after the date on which the denial of the claim for administrative
costs is mailed, or otherwise furnished, to the taxpayer. If the
Internal Revenue Service does not respond on the merits to a request
by the taxpayer for an award of reasonable administrative costs
within 6 months after such request is filed, the Internal Revenue
Service’s failure to respond may be considered by the taxpayer
as a denial of an award of reasonable administrative costs.
(3) For purposes of paragraphs (e)(1) and (2) of this section,
if the 90 day falls th on a Saturday, Sunday, or a legal holiday,
the 90-day period shall end on the next succeeding day which is
not a Saturday, Sunday, or a legal holiday. The term legal holiday
means a legal holiday in the District of Columbia. If the request
for costs is to be filed with the Internal Revenue Service at
an office of the Internal Revenue Service located outside the
District of Columbia but within an internal revenue district,
the term legal holiday also means a statewide legal holiday in
the state where such office is located.
(f) Effective date. This section is applicable with respect to
actions taken by the Internal Revenue Service after July 22, 1998.
19 Par. 8. Section 301.7433-1 is amended as follows: 1. In paragraph
(a) introductory text, in the first sentence, the language “,
or by reason of negligence,” is added after the language
“recklessly or intentionally”. In addition, the language
“$100,000" in the third sentence is removed and “$1,000,000
($100,000 in the case of negligence)” is added in its place.
2. In paragraph (b)(1) the language “, or negligent,”
is added after the language “reckless or intentional”.
3. In paragraph (e)(1), in the first sentence, the language “$100,000"
is removed and “$1,000,000 ($100,000 in the case of negligence)”
is added in its place. In addition, the language “district
director (marked for the attention of the Chief, Special Procedures
Function) of the district” is removed and “Chief, Local
Insolvency Unit in the area” is added in its place. 4. In
paragraph (h), in the penultimate sentence, the language “7432(a)”
is removed and “7433(a)" is added in its place. 5. Revising
paragraph (i). The revision reads as follows: §301.7433-1
Civil cause of action for certain unauthorized collection actions.
* * * * *
(i) Effective dates. The portions of this section relating to
reckless or intentional acts are applicable to actions taken by
Internal Revenue Service officials after July 30, 1996. The portions
of this section relating to negligent acts are applicable to actions
taken by the Internal Revenue Service officials after July 22,
1998. 20 Par. 9. Section 301.7433-2 is added to read as follows:
§301.7433-2 Civil cause of action for violation of section
362 or 524 of the Bankruptcy Code.
(a) In general. (1) If, in connection with the collection of a
federal tax with respect to a taxpayer, an officer or employee
of the Internal Revenue Service willfully violates any provision
of section 362 (relating to the automatic stay) or section 524
(relating to discharge) of title 11, United States Code, or any
regulation promulgated under the provisions of title 11, United
States Code, the taxpayer may file a petition for damages against
the United States in federal bankruptcy court. The taxpayer has
a duty to mitigate damages. The total amount of damages recoverable
under this section is the lesser of $1,000,000, or the sum of--
(i) Actual, direct economic damages sustained as a proximate result
of the willful actions of the officer or employee; and
(ii) Costs of the action.
(2) An action under this section constitutes the exclusive remedy
under the Internal Revenue Code for violations of sections 362
and 524 of the Bankruptcy Code. In addition, taxpayers injured
by violations of section 362 of the Bankruptcy Code may maintain
actions under section 362(h) of the Bankruptcy Code (relating
to an individual injured by a willful violation of the stay).
(b) Actual, direct economic damages--(1) Definition. See §301.7433-1(b)(1).
(2) Litigation costs and administrative costs not recoverable
as actual, direct economic damages. Litigation costs and administrative
costs are not recoverable as 21 actual, direct economic damages.
These costs may be recoverable under section 7430 (see paragraph
(h) of this section), or, solely to the extent described in paragraph
(c) of this section, as costs of the action.
(c) Costs of the action. Costs of the action recoverable as damages
under this section are limited to the costs set forth in §301.7433-1(c).
(d) No civil action in federal bankruptcy court prior to filing
an administrative
claim--(1) In general. Except as provided in paragraph (d)(2)
of this section, no action under paragraph (a)(1) of this section
shall be maintained in any bankruptcy court before the earlier
of the following dates--
(i) The date the decision is rendered on a claim filed in accordance
with paragraph (e) of this section; or
(ii) The date that is six months after the date an administrative
claim is filed in accordance with paragraph (e) of this section.
(2) When administrative claim filed in last six months of period
of limitations. If an administrative claim is filed in accordance
with paragraph (e) of this section during the last six months
of the period of limitations described in paragraph (g) of this
section, the taxpayer may petition the bankruptcy court any time
after the administrative claim is filed and before the expiration
of the period of limitations.
(e) Procedures for an administrative claim--(1) Manner. An administrative
claim for the lesser of $1,000,000 or actual, direct economic
damages as defined in paragraph (b) of this section shall be sent
in writing to the Chief, Local Insolvency Unit, for the judicial
district in which the taxpayer filed the underlying bankruptcy
case giving 22 rise to the alleged violation.
(2) Form. The administrative claim shall include--
(i) The name, taxpayer identification number, current address,
and current home and work telephone numbers (with an identification
of any convenient times to be
contacted) of the taxpayer making the claim;
(ii) The location of the bankruptcy court in which the underlying
bankruptcy case was filed and the case number of the case in which
the violation occurred;
(iii) A description, in reasonable detail, of the violation (include
copies of any available substantiating documentation or correspondence
with the Internal Revenue Service);
(iv) A description of the injuries incurred by the taxpayer filing
the claim (include copies of any available substantiating documentation
or evidence);
(v) The dollar amount of the claim, including any damages that
have not yet been incurred but which are reasonably foreseeable
(include copies of any available documentation or evidence); and
(vi) The signature of the taxpayer or duly authorized representative.
(3) Duly authorized representative defined. For purposes of this
paragraph (e), a duly authorized representative is any attorney,
certified public accountant, enrolled actuary, or any other person
permitted to represent the taxpayer before the Internal Revenue
Service who is not disbarred or suspended from practice before
the Internal Revenue Service and who has a written power of attorney
executed by the taxpayer.
(f) No action in bankruptcy court for any sum in excess of the
dollar amount 23 sought in the administrative claim. No action
for actual, direct economic damages under paragraph (a) of this
section may be instituted in federal bankruptcy court for any
sum in excess of the amount (already incurred and estimated) of
the administrative claim filed under paragraph (e) of this section,
except where the increased amount is based upon newly discovered
evidence not reasonably discoverable at the time the administrative
claim was filed, or upon allegation and proof of intervening facts
relating to the amount of the claim.
(g) Period of limitations--(1) Time for filing. A petition for
damages under paragraph (a) of this section must be filed in bankruptcy
court within two years after the date the cause of action accrues.
(2) Right of action accrues. A cause of action under paragraph
(a) of this section accrues when the taxpayer has had a reasonable
opportunity to discover all essential elements of a possible cause
of action.
(h) Recovery of litigation costs and administrative costs under
section 7430--(1) In general. Litigation costs, as defined in
§301.7433-1(b)(2)(i), including attorneys fees, not recoverable
under this section may be recoverable under section 7430 if a
taxpayer challenges in whole or in part an Internal Revenue Service
denial of an administrative claim for damages by filing a petition
in the bankruptcy court. If, following the Internal Revenue Service’s
denial of an administrative claim for damages, a taxpayer files
a petition in the bankruptcy court challenging that denial in
whole or in part, substantially prevails with respect to the amount
of damages in controversy, and meets the requirements of section
7430(c)(4)(A)(ii) (relating to net worth and size 24 requirements),
the taxpayer will be considered a prevailing party for purposes
of section 7430, unless the Internal Revenue Service establishes
that the position of the Internal Revenue Service in the proceeding
was substantially justified. Such taxpayer will generally be entitled
to attorneys’ fees and other reasonable litigation costs
not recoverable under this section. For purposes of this paragraph
(h), if the Internal Revenue Service does not respond on the merits
to an administrative claim for damages within six months after
the claim is filed, the Internal Revenue Service’s failure
to respond will be considered a denial of the claim on the grounds
that the Internal Revenue Service did not willfully violate Bankruptcy
Code section 362 or 524.
(2) Administrative costs--(i) In general. Administrative costs,
as defined in §301.7433-1(b)(2)(ii), including attorneys’
fees, not recoverable under this section may be recoverable under
section 7430. See §301.7430-8.
(ii) Limitation regarding recoverable administrative costs. Administrative
costs may be awarded only if incurred on or after the date of
filing of the bankruptcy petition that formed the basis for the
stay on collection under Bankruptcy Code section 362 or the discharge
injunction under Bankruptcy Code section 524, as the case might
be.
(i) Effective date. This section is applicable to actions taken
by the Internal Revenue Service officials after July 22, 1998.
Robert E. Wenzel, Deputy Commissioner of Internal Revenue.
IF YOU HAVE ANY QUESTIONS ON ANY LIEN ISSUE (e.g.,
preventing a lien or getting a lien released or discharged where
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