- 25.3.3.1 General
- 25.3.3.2 Refund Suits
- 25.3.3.3 Actions Involving Disclosure Issues
- 25.3.3.4 Section 2410 Suits
- 25.3.3.5 Damages - Civil Cause of Action for Unauthorized Collection Action
- 25.3.3.6 Claims for Damages by Third Parties
- 25.3.3.7 Miscellaneous Suits
- 25.3.3.8 Information for Defense of Suits
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Promptly respond to all requests from either the United States Attorney or counsel. Meeting time limits is critical.
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If you receive service of a Summons and Complaint, date-stamp it and forward a copy to the U.S. Attorney.
Caution:
Do not return the acknowledgment.
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If you receive a Summons and Complaint in the mail, sign but do not date the acknowledgment form. Forward a complete set of documents to Area Counsel.
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This subsection covers Refund Suits.
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Responsibility for different types of suits is as follows:
If Then the suit is by a third party Area Advisory Trust Fund Recovery Penalty is involved Area Advisory all other refund suits Campus Refund Litigation Unit
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Fill Area Counsel requests for documents and transcripts.
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In Area Advisory, open a case on ICS. At the Campus, control the case on IDRS.
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If a tax module is in BAL DUE status, contact the responsibility unit to determine whether collection should be withheld.
Note:
Under IRC § 6331(i), the CSED is suspended and levy action to collect a TFRP assessment or other divisible tax is not permitted after refund litigation has been filed, if the tax liability is attributable to tax periods beginning after December 31, 1998. However, levy action may be taken if the taxpayer files a written waiver allowing levy, if collection is in jeopardy, or if the levy was made prior to the taxpayer filing suit. Recording of a NFTL is not prohibited, and refund offsets under IRC § 6402 are allowable.
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Input TC 520 with the appropriate closing code.
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Advise counsel of any change in the balance due.
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Advisory monitored cases should be followed up as necessary, but no less then semi-annually, until the litigation is concluded. You may use the quarterly listings produced by LAMS.
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ICS histories should reflect the current status of the litigation, including forthcoming proceedings and court dates, and any settlement options being considered by counsel.
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If there is a balance due and the CSED is within one year, determine whether the United States has counterclaimed for judgment.
If Then judgment has been requested input TC 520, cc 80 otherwise seek advice from Area Counsel. -
If applicable, ensure that all notices of federal tax lien are timely refiled.
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The following actions must be taken to close refund suits:
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Return all administrative files.
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If applicable, prepare abatement and refund documents as instructed by counsel.
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If a counterclaim resulted in balance(s) due being reduced to judgment, input TC 550 extending the CSED.
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Reverse TC 520.
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Close the ICS or IDRS control.
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The following actions are the responsibility of the Disclosure Office:
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suits under the Freedom of Information Act
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suits under the Privacy Act
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subpoenas for testimony or documents
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Disclosure is responsible for providing any necessary information to counsel and for securing testimony authorizations and providing guidance to subpoenaed employees.
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Subpoenas and requests for Service personnel to testify or to produce records in all cases not involving the administration of Internal Revenue laws, should be routed as quickly as possible to the disclosure officer to whom the employee is assigned, or in matters involving Headquarters employees, to the Office of Governmental Liaison and Disclosure, SE:S:CLD:GLD:D. It is important that this information be provided without delay so that necessary authorization can be obtained within the time allowed by the court. If time is crucial, the matter should also be reported by telephone to the disclosure officer or Disclosure and Security Division, as appropriate. For further guidelines, see IRM 1.3, Disclosure of Official Information Handbook.
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Requests by a government attorney for Service personnel to testify or produce records on behalf of the government in referred tax cases may be complied with and do not require prior approval.
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Subpoenas and requests not served on behalf of the government for Service personnel to testify or produce records in referred tax cases (with the exception of Tax Court subpoenas) require authorization and should be routed as quickly as possible to Area Counsel or the Office of Collection, Bankruptcy and Summons of the Office of Assistant Chief Counsel, depending on the nature of the case, so that necessary authorization can be obtained.
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If necessary, it is the Disclosure Officer’s responsibility to arrange for Area Counsel to assist, or an attorney of the Department of Justice (including U. S. Attorneys) to represent subpoenaed/requested employees, briefing the employee and appearing with them at the proceeding.
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See Delegation Order No. 11-3, for the managerial levels with the authority to determine whether an employee will be permitted to testify or produce Service documents subpoenaed or requested in connection with judicial and administrative proceedings. If the designated official determines that the employee may not testify or produce the records subpoenaed or requested (in whole or in part), Area Counsel or the representative of the U. S. Attorney’s office will, as necessary, appear before the court with the employee and inform the court that the information may not be disclosed and explain the reason for the information being protected.
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If the delegated official’s instructions are not received by the time set for appearance, the employee will appear before the court, with the disclosure officer, Area Counsel, or the representative of the U. S. Attorney’s office, as necessary. The court should be advised that, pursuant to 26 CFR 301.9000-1, the employee may not testify or produce Service documents until the delegated official has considered the contents of the subpoena or request and has authorized a Service employee to comply. The employee or the disclosure officer, Area Counsel, or the representative of the U. S. Attorney’s office should request additional time in which to receive instructions. If the court does not grant the delay, the employee will decline to disclose the records or information sought. However, an attempt will be made to contact the party seeking the information prior to the appearance time so that continuance might be obtained, if appropriate.
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The following types of actions may be brought in state or Federal court under 28 U.S.C. § 2410:
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quiet title
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foreclosure
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partition
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condemnation
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interpleader
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Area Advisory is responsible for all § 2410 actions.
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Open a case on ICS.
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Immediately forward one copy of the summons and complaint to the U.S. Attorney and two copies to Area Counsel.
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Prepare a narrative detailing the facts of the case and the government's lien interest, securing information from the BAL DUE responsibility unit if necessary. Use Form 4481, Transmittal - Legal Action, to transmit to Area Counsel the narrative, transcripts, administrative files, reports and other documents required. Area Counsel will recommend a course of action.
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Upon receipt of the summons and complaint from the U.S. Attorney, research ALS. If there is no Notice of Federal Tax Lien on file, so advise the U.S. Attorney.
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In all other cases,
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Open a case on ICS.
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Provide the requested information to the U.S. Attorney.
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After providing the information to the U.S. Attorney, take the following action:
If Then the case meets redemption criteria monitor for a sale date, ensuring that at least 90 days will be available for a redemption investigation. the case does not meet redemption criteria close the case on ICS. Note:
See IRM 5.12.5 for redemption criteria and instructions
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IRC § 7433 authorizes the filing of a damages action against the government in federal district court when, in connection with the collection of a tax, any officer or employee of the Internal Revenue Service recklessly, intentionally, or negligently disregards any provision of the Internal Revenue Code or the related Treasury Regulations. The waiver of sovereign immunity applies to actions taken after November 10, 1988, the date of this law.
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Subsection (e) was added by the Restructuring and Reform Act of 1998 to allow taxpayers to petition the bankruptcy court for actual, direct economic damages and costs of the action if the IRS willfully violated the automatic stay or discharge injunction.
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Employees, acting in the performance of their duties, whose actions are challenged under this Code section, will not be held personally liable in such an action.
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A judgment for damages under § 7433 will not be awarded unless the court determines that the plaintiff has exhausted all administrative remedies within the Internal Revenue Service.
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In order to exhaust administrative remedies, the taxpayer must submit an administrative claim for damages in accordance with the regulations under § 7433.
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If a taxpayer is successful in a court action, he or she may recover the lesser of $1,000,000 ($100,000 for negligence) or the sum of the actual, direct economic damages suffered by the taxpayer as the proximate result of the reckless, intentional or negligent action, plus the cost of the action. Injuries such as inconvenience, emotional distress and loss of reputation are recompensable only to the extent they result in direct monetary losses.
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Costs of the action payable from a suit under this provision are:
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fees of the clerk and marshal
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fees of the court reporter for all or part of any stenographic transcript necessary for use in the case
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costs of printing and witnesses
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costs for securing regular as well as certified true copies of documents used in the proceeding
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docket and filing fees
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payments made to court appointed experts and interpreters.
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Litigation and administrative costs, other than the costs of the action, are not recoverable under this section. Litigation costs which may include attorney’s fees, may be recoverable under Internal Revenue Code § 7430, Awarding of Costs and Certain Fees. Administrative costs (including any costs incurred getting the Service to rectify a wrongful act and costs incurred pursuing an administrative claim for damages under § 7433(e) are not recoverable under § 7430. However, administrative costs incurred after the date a bankruptcy petition is filed may be awarded under § 7430 for violations of the automatic stay or discharge injunctions.
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Payment Authority - Claims under this provision will be paid out of funds appropriated for judgments, awards and compromise settlements under § 1304 of Title 31 of the United States Code.
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Payment Authority - Claims under this provision will be paid out of funds appropriated for judgments, awards and compromise settlements under § 1304 of Title 31 of the United States Code.
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There is no standard form used in preparing a claim. The claim must contain the following information:
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The name, current address, current home and work telephone numbers and any convenient times to be contacted, and the taxpayer identification number of the taxpayer making the claim.
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The grounds, in reasonable detail, for the claim, including a complete description of the act and copies of available substantiating documentation or correspondence with the Internal Revenue Service.
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A description of the injuriesincurred by the taxpayer filing the claim, including copies of any available substantiating documentation or evidence.
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The dollar amount of the claim, including any damages that have not yet been incurred but which are reasonably foreseeable (including copies of any available substantiating documentation or evidence).
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The signature of the taxpayer or the taxpayer’s duly authorized representative.
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Each claim will be reviewed by Advisory to insure that it includes this information. A taxpayer whose claim does not include the information requested in (1) above will be notified in writing, within 14 days of the receipt of the claim, of the deficiencies and advised that the claim is not processable. This is not considered a rejection of the claim because a claim meeting the requirements of Treasury Regulation 301.7433-1 has not been filed. Use Letter 2730, Non-processable Claim for Damages Letter, to notify the taxpayer of the deficiencies in the claim.
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Administrative review of the claim should be completed as soon as possible but must be completed within 6 months of receipt of a processable claim. The taxpayer may bring suit either when a final decision is made on the claim or 6 months after the filing of a processable claim. A taxpayer must file an action in federal district court within two years after the cause of action accrues. If the taxpayer files an administrative claim within the last 6 months of the period of limitations, the taxpayer can file suit any time after the administrative claim is filed and before the expiration of the period of limitations.
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A cause of action accrues under this provision when the taxpayer has reasonable opportunity to discover all essential elements of a possible civil action for damages in federal district court under § 7433.
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Letter 2732, Notification of Full or Partial Denial of Claim for Civil Damages, or Letter 2733, Notification of Full or Partial Allowance of Claim for Civil Damages, are to be used to notify the taxpayer of the results of the administrative review of the claim. If only a portion of the claim is being approved, both letters will be sent to the taxpayer at the same time.
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There is no further administrative appeal of a claim for damages under this section if the claim is denied. The remedy provided by the statute is the institution of a suit.
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Date stamp the claim upon receipt. Advisory should complete the initial review of the claim within 30 days of receipt.
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Open an OI on ICS under 101 - Claim Other. Review the closed files for any prior claims.
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The statutory elements contained in IRC § 7433 must be applied to each processable claim. In determining whether a claim is administratively allowable the reviewer must determine whether:
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an officer or employee of the IRS intentionally, negligently, or recklessly disregarded any legal or regulatory provision of the Internal Revenue Code in connection with the collection of any federal tax ; and
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the taxpayer sustained direct, economic damages as a result.
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The facts and circumstances of each case must be evaluated. The reviewer must determine if the alleged infraction did, in fact, take place. He or she must also determine whether or not the infraction was a reckless, intentional, or negligent disregard of the law.
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The reviewer must also ascertain when, in time, the taxpayer became aware of the violation or should have become aware of the violation. Claims filed more than two years after the violation must receive special scrutiny. The taxpayer’s two year limitation to bring suit begins at the point when the taxpayer has had a reasonable opportunity to discover all essential elements in a possible cause of action. The reviewer must determine when the taxpayer knew or should have known of the violation. Claims filed outside the two year limitation will be rejected.
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Certain criteria guide the amount of an administrative settlement, under this section. For example:
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the amount of the award is to be reduced by the damages that reasonably could have been avoided by the taxpayer;
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only actual, direct economic damages are recoverable in an administrative claim. No litigation or administrative costs are recoverable in an administrative claim. To the extent that any costs are recoverable under § 7433, such costs are recoverable only in a court proceeding; and
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the actual, direct economic damage reimbursement can not exceed $1,000,000 ($100,000 in the case of negligence).
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Acceptance or rejection of each claim will be reviewed by Area Counsel for agreement. Include the Advisory administrative file and all related information.
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After concurrence by Area Counsel, submit the file to the Advisory Territory Manager for approval.
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If an administrative claim is submitted to the approving official, Collection personnel involved with the collection action may be asked to prepare a memo explaining the facts of the case. This should include any documentation which confirms or contradicts the taxpayer’s statements.
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When a claim is approved, prepare an original and three copies of:
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FMS Form 195 - Judgment Fund Payment Request (Admin. Award)
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FMS Form 196 - Judgment Fund Award Data Sheet
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FMS Form 197 - Voucher for Payment of Judgments, Compromise Settlements and Administrative Awards
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FMS Form 198 - Judgment Fund Award Data Sheet - Additional Deductions (complete this form only if appropriate)
Note:
These FMS forms are available in fillable formats at the Electronic Publishing website: http://publish.no.irs.gov/catlg.html, under product type "other gov."
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Forward the original FMS Form 197 to the taxpayer for signature under cover of Letter 2733.
Note:
If a portion of the claim is approved, issue Letter 2732 and Letter 2733 at the same time.
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The approving official will sign FMS Form 197 when it is received from the taxpayer.
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Send the taxpayer a copy of the signed FMS Form 197.
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Use Letter 2734 to forward the original and three copies of the forms described above to the Judgment Funds Branch, Funds Management Division, Financial Management Service, Department of the Treasury, Room 6N34, US GAO Building, 441 G Street, NW, Washington, DC 20548.
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If the taxpayer requests a check instead of electronic deposit, FMS will return the check to the contact person listed on Form 196 for reimbursement to the taxpayer.
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Mail the check to the taxpayer with a cover letter (locally designed) that specifies the date and the amount of the check.
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Advisors, with the approval of the Advisory Group Manager, should inform the manager of the employee named in the damage claim that a claim of unauthorized collection action has been received. Follow up contact will be made to advise the manager of the final results of the investigation of the claim.
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Provide the employee’s manager with copies of supporting documentation obtained during the investigation of the claim.
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Discussions regarding the findings will be held by the employee’s immediate supervisor.
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The employee's manager will determine if NTEU representation is necessary.
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Prepare a quarterly report listing all claims paid. The report will provide the following information:
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Quarter ending date
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Taxpayer name
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TIN
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Amount of check
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Date of check
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Forward reports to: Director, Technical and Insolvency, S:C:CP:PC:TI, 5000 Ellin Road, New Carrollton, MD 20706, Attn: Lien Analyst
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Under IRC § 7426, recovery of damages is permitted by a third party in a wrongful levy suit, if it is determined that any officer or employee of the Internal Revenue Service recklessly, intentionally or by reason of negligence, disregarded the provisions of the Code. The defendant will be liable to the plaintiff in an amount equal to the lesser of $1,000,000 ($100,000 in the case of negligence) or the sum of:
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actual, direct economic damages sustained by the plaintiff as a result of the reckless, intentional or negligent disregard by the officer or employee (reduced by the amount of damages awarded under subsection (b) of § 7426, and
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the costs of the action.
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Area Advisory is responsible for answering Counsel and U.S. Attorney requests for assistance on the following types of cases:
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Injunctions to restrain collection
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wrongful levy suits (IRC § 7426)
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suits to recover surplus proceeds (IRC § 7426)
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damages from failure to release a lien (IRC § 7432)
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damages from unauthorized collection action (IRC § 7433)
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Open a case on ICS.
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At the conclusion of the case,
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request any abatement or refund action as directed by counsel;
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close the case on ICS.
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The Advisory Group Manager will ensure that any narrative report that is necessary to reflect the factual situation is prepared and that other data requested or required by counsel is secured. Specific reporting forms are not prescribed for use in all types of defense suits. However, Form 4477, Civil Suit Recommendation, Form 4479, Lien and Claimant Data - Civil Suit, and Form 4480, Property Description - Civil Suit, will be used for interpleaders and suits in the nature of an interpleader and also for other defense suits when appropriate. Form 4481 will be used in all cases to transmit to Area Counsel the transcript, administrative files, reports and other documents required.
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Upon receipt of a complaint and summons or a request for data, the Advisory Manager will determine the periods of tax liability in question and take action to secure a transcript, if necessary.
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Form 4844 will be prepared and forwarded to Centralized Services function to secure the administrative files.
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The Advisory Group Manager will determine the need for special document requirements from the complaint filed. These documents may include:
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notices of lien filed and refiled - In cases where priority of lien(s) is an issue (i.e., § 2410, Title 28, U.S.C cases).
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Form 872, Consent to Extend the Time to Assess Tax, or Form 900, Tax Collection Waiver, in cases where timeliness of assessment or collection is an issue.
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copies of offers in compromise, proofs of claim, and data as to court proceedings - In cases where the collection statute may be an issue (i.e., discharge of tax liabilities under the provisions of the Bankruptcy Act).
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other information or documents may include, but are not limited to, notices of levy, seizure and sale documents, statutory notices (90-day letter for assessment notice and demand, etc.), data as to whether a jeopardy assessment is involved, data as to the existence and/or validity of competing liens and/or claims (including copies of instruments when necessary). Form 4479 may be used for this purpose.
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In most cases the required data can and should be gathered before a request is received from the U. S. Attorney or Chief Counsel since Advisory will normally have received notification of the pending suit through direct sources.
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The Advisory Group Manager will immediately ensure that required data is secured and will follow-up on all requisitions for tax returns and requests for investigations. The data should be sent to Area Counsel no later than the 45th day after the complaint or petition was filed. Counsel should be advised of any delay by telephone.
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If data or documents required are, in part, in another area office, the receiving office will expeditiously initiate action to secure the data and will be responsible for securing and furnishing the data to the requester.
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If requests for data or documents are received which require all or substantially all documents to be secured from another Campus or area office, the receiving Advisory office will promptly notify, by telephone, the Campus involved of the request and the documents required. The request for data will then be forwarded by mail. The office originating the request (U.S. Attorney or Area Counsel) should also be notified that the request has been transferred. The transferee will assume responsibility for securing and furnishing the data to the requester.
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If a request from counsel requires additional investigation or examination by either a revenue agent or revenue officer, the Advisory Group Manager, will have a copy of the request handcarried to Examination or Collection, as applicable, and request that the investigation be given preferential treatment and that the information be furnished as soon as possible.