- 25.3.3 Suits Against the United States and Claims for Damages under IRC 7433
- 184.108.40.206 Program Scope and Objectives
- 220.127.116.11.1 Background
- 18.104.22.168.2 Authority
- 22.214.171.124.3 Roles and Responsibilities
- 126.96.36.199.4 Program Management and Review
- 188.8.131.52.5 Program Controls
- 184.108.40.206.6 Terms and Acronyms
- 220.127.116.11.7 Related Resources
- 18.104.22.168 Receipt of Service of Summons and Complaint
- 22.214.171.124 Removal of Action from State Court
- 126.96.36.199 Initial Review and Routing/Processing (Field and Advisory)
- 188.8.131.52 Information for Defense of Suits
- 184.108.40.206 Subpoenas and Requests for IRS Personnel to Testify or Produce Records
- 220.127.116.11 Types of Suits Against the United States
- 18.104.22.168.1 Trust Fund Recovery Penalty (TFRP) Refund Litigation - Advisory Actions
- 22.214.171.124.2 Section 2410 Suits
- 126.96.36.199.3 Actions Involving Disclosure Issues
- 188.8.131.52.4 Other Suits Against the United States
- 184.108.40.206.5 IRC 7345 Right to Determine Whether Certification as a Seriously Delinquent Taxpayer is Erroneous
- 220.127.116.11 Pre-Litigation Claim Requirements
- 18.104.22.168 Damages - Civil Cause of Action for Unauthorized Collection Action
- 22.214.171.124.1 Administrative Claim Procedures
- 126.96.36.199.2 Evaluation of a Claim for Damages Under IRC 7433
- 188.8.131.52.3 Frivolous Damage Claims
- 184.108.40.206.4 Reimbursement of Damages and Costs
- 220.127.116.11.5 Notifying the Employees Manager of a Claim of Unauthorized Collection Action
- 18.104.22.168 Claims for Damages by Third Parties
Part 25. Special Topics
Chapter 3. Litigation and Judgments
Section 3. Suits Against the United States and Claims for Damages under IRC 7433
January 13, 2017
(1) This transmits revised IRM 25.3.3, Litigation and Judgments, Suits Against the United States and Claims for Damages under IRC § 7433.
This section provides procedural guidelines on responding to suits and claims for damages brought against the United States. This revision includes changes arising from Internal Revenue Code Section (IRC) § 7345 regarding denial, revocation, or limitation of a passport pursuant to section 32101 of the FAST Act (Fixing America's Surface Transportation Act), where Section( e) of IRC 7345 allows a taxpayer to bring a civil action against the United States in a district court of the United States or against the IRS in the Tax Court relating to being certified as a seriously delinquent taxpayer.
(1) Editorial changes, references updated, and IRM title references provided throughout.
(2) IRM 22.214.171.124: Revised title and added content to comply with the new Internal Management Documents System, Internal Revenue Manual (IRM) internal control requirements.
(3) IRM 126.96.36.199: Updated Campus Refund Litigation contact information.
(4) IRM 188.8.131.52: Added reference to the difference in receipt of service in of an IRC § 7345(e) action if it is filed in Tax Court.
(5) IRM 184.108.40.206 Revised text in (1) for clarity.
(6) IRM 220.127.116.11.2 Revised text in (2) for clarity.
(7) IRM 18.104.22.168: Revised (1) for clarity, Revised (3) text "hand-delivered" to "secure emailed" , and added note to (7)(b) and referenced that note in (7)(d) relating tax returns filed to replace returns after Department of Justice (DOJ) has control of the case are basically a nullity and should be sent to DOJ and Area Counsel for association with the administrative file.
(8) IRM 22.214.171.124.4: Changed bullet list to alpha list and add to the list, determine whether certification is erroneous or that IRS failed to reverse certification (IRC § 7345).
(9) IRM 126.96.36.199.5: New section identifying IRC § 7345(e) as a right for taxpayers to bring a civil action against the United States in a district court of the United States, or against the IRS in the Tax Court to determine whether the certification as a taxpayer with a seriously delinquent tax debt to the Department of State was erroneous or whether the Commissioner has failed to reverse the certification. If the court determines that such certification was erroneous or should have been reversed, then the court may order the Secretary of State be notified that such certification is reversed.
(10) IRM 188.8.131.52: Added sentence in (2) that IRC § 7429(h) administrative claims are sent to the Advisory Group manager for the area where the taxpayer resides.
Kristen E. Bailey
Director, Collection Policy
The federal government in certain circumstances waives its sovereign immunity from lawsuits. This IRM discusses those circumstances. See also IRM 184.108.40.206, Doctrine of Sovereign Immunity.
Purpose: This section provides the procedural instructions for collection staff working suits against the United States and claims for damages under IRC § 7433.
Audience: This IRM is used by Collection employees responding to suits against the government. Primarily Collection Advisory staff or Field Collection Revenue Officers use this IRM when assisting Counsel and the Department of Justice with defense actions related to these types of suits.
Policy Owner: Director, Collection Policy.
Program Owner: The program owner is Collection, an organization within the Small Business Self-Employed (SBSE) division.
Primary Stakeholders: The primary stakeholders are Chief Counsel and Department of Justice attorneys.
Program Goals: The goal of the program aligns with IRS Strategic Goal II to, Effectively enforce the law to ensure compliance with tax responsibilities and combat fraud and Objective 1 to: Enforce Domestic and International Compliance by Strengthening expertise, adopting innovative Approaches and Streamlining Procedures.
There are a number of judicial actions that may be brought by taxpayers against the United States. See IRM 5.17.5, Suits Against the United States, for a review of the principal types of actions that may be brought against the United States.
Generally, when the United States is named as a defendant in a suit arising from the collection of tax liability, Area Counsel sends a defense letter to the Department of Justice, Tax Division. In some situations, however, the case will be directly referred to the local U.S. Attorney's Office.
Because meeting time limits in judicial actions is critical, promptly respond to all requests from Area Counsel; the Department of Justice, Tax Division; or the U.S. Attorney's Office. Strictly observe time frames identified in the requests.
Advisory is responsible for internal control of and actions pertaining to most litigation against the United States. Exceptions include:
Bankruptcy actions, which are controlled by Insolvency.
Tax Court litigation, which is controlled by Appeals or in some cases Area Counsel.
Refund litigation not involving trust fund recovery penalties, which is controlled by campus refund litigation units. See IRM 220.127.116.11.2, Refund Litigation Campus Contacts, for the appropriate campuses and contacts.
This IRM provides instructional procedures relating to suits against the government. See also IRM 18.104.22.168, Authorization for Filing Suits, Counterclaims or Third Party Complaints for a discussion of the authority under IRC §7401
Specific policies related to collection work are located in IRM 1.2.14, Policy Statements for Collecting Process Activities.
Specific delegations of authority related to collection work are located in IRM 1.2.44, Delegations of Authority for the Collecting Process, IRM 1.2.52, Delegations of Authority for Special Topics Activities, and in Collection Functional Delegation Authorities .
IRM 5.17.1, Legal Reference Guide for Revenue Officers, General Information provides a list of the parties with an explanation of their role with suits.
Program Reports: Suits are individual to the case and are of a wide variety and scope. When it is appropriate the Collection employee will provide a case Narrative Report for Area Counsel and the Department of Justice identifying all pertinent facts so that appropriate legal action may be taken. Narrative Reports are discussed in IRM 5.17.12, Legal Reference Guide for Revenue Officers, Investigation and Reports.
Program Effectiveness: Whenever litigation involving collection matters is pending or the institution of affirmative legal action to effect collection is being considered, revenue officers will, in the main, be investigators of facts. They will be required to prepare reports concerning any facts ascertained. The lawyers charged with the responsibility of handling the cases must rely on those facts and reports when making case decisions.
Collection Advisory maintains a copy of any suit documentation until the suit is closed. After case closure see Document 12990 Records and Information Management Records Control Schedules, under section Internal Revenue Service Records Control Schedule (RCS) 28, Tax Administration Collection, in:
PART III - Administrative Records - All Collection Functions, item number 38, Litigation Files, and in
PART IV - Delinquent Accounts, Delinquent Returns, And Office Services Records, item 45, Suits to Foreclose Federal Tax Liens, item 53, Civil Suit Recommendation, Form 4477, and in item 54 (a), Special Procedures Function Case Files.
Preserving electronically stored information is covered in:
IRM 22.214.171.124, Preserving Electronically Stored Information In Litigation Cases,
IRM 126.96.36.199.21, References, and
Chief Counsel Notice CC-2012-017.
The table lists commonly used acronyms and their definitions:
CC Chief Counsel DOJ Department of Justice Fed.R.Civ.P Federal Rules of Civil Procedure FRCP Federal Rules of Civil Procedure IRC Internal Revenue Code NF OI Non Field Other Investigation NFTL Notice of Federal Tax Lien Rev. Revision Treas. Reg Treasury Regulation USA United States of America USC United States Code US or U.S. United States
For information regarding some of the general characteristics of suits and claims for damages brought against the United States, see:
IRM 5.17.5, Legal Reference Guide for Revenue Officers, Suits against the United States
IRM 25.3.1, Litigation and Judgments, General Guidelines
IRM 5.17.12, Legal Reference Guide for Revenue Officers, Investigation and Reports.
For information regarding some of the general characteristics and procedures followed in instituting and carrying out a lawsuit for effecting or assisting in the collection of taxes, and some of the most common types of lawsuits commenced by the United States, see IRM 5.17.4, Suits by the United States.
Proper service of the summons and complaint is necessary to bring an action against the United States. Therefore, information relating to the manner in which the IRS received notice of the suit is important.
Service on the United States of a summons and complaint is governed by Rule 4(i) of the Federal Rules of Civil Procedure. To make proper service on the United States, a plaintiff must:
deliver a copy of the summons and complaint to the U.S. Attorney, an Assistant U.S. Attorney, or designated clerical employee, for the district in which the action was filed; or send a copy of the summons and complaint by registered or certified mail addressed to the civil process clerk at the U.S. Attorney's Office;
send a copy the summons and complaint to the Attorney General of the United States at Washington, D.C., and
if the action challenges an order of a nonparty agency or officer of the U.S., send a copy of the summons and complaint by registered or certified mail to the IRS or the officer.
If you receive service of a summons and complaint, date-stamp it and immediately forward it to Advisory. Include information regarding the manner in which the documents were served (e.g., personal delivery, certified mail).
Advisory will immediately forward a complete set of the documents to Area Counsel and the U.S. Attorney's Office unless local procedures are established with Area Counsel and the U.S. Attorney's Office that copies of documents in certain types of suits need not be provided to that office.
Include complete information on how, when and by whom service was received.
When the United State is named as a defendant in a suit filed in state court, the United States can remove the suit to federal district court. See IRM 188.8.131.52, Removal to Federal Court.
The United States has the same right of removal if it is not named as a party defendant if it intervenes in the state court action.
Because the time period for removing an action to federal district court is short, generally within 30 days after receipt of a copy of the complaint, Area Counsel should immediately be notified whenever a complaint filed in a state court proceeding is received and there is any question as to whether the case should be removed to federal district court. Ensure Advisory is also notified so proper controls can be established.
When service of a summons and complaint is made on the IRS, prompt correct action is essential to ensure that a timely, complete response is made.
Prompt analysis and action is also important when it is discovered through other means that the United States has been made a party to litigation.
When service of a summons and complaint is received or litigation against the United States is otherwise discovered, the following actions must be taken:
Notify Advisory immediately.
Forward all original documents and other pertinent information to Advisory. Information regarding date, time and method of service should be included.
Thoroughly document the case history.
Retain copies of the documents and information in the case file.
Seek guidance from Advisory regarding what, if any, impact the litigation will have on open case actions.
Refer any questions to Advisory for resolution.
Review available case information and internal records to determine urgency (pending CSEDs, etc.) and proper course of action.
Review any summons, complaint, or subpoena received to determine response or appearance date set by the court.
Forward documents immediately to Area Counsel and/or the U.S. Attorney's Office depending upon established local practice for the type of suit. Retain copies as needed. If the response date or appearance date is imminent, call Area Counsel and/or the U.S. Attorney's Office to advise, and hand deliver the documents to them. If hand delivery is not feasible, send the documents by overnight mail.
Open a case on the Integrated Collection System (ICS) no later than 10 calendar days after receiving notice that a suit has been filed against the IRS.
Advise and provide applicable guidance to field or ACS personnel to whom affected accounts are assigned. Seek Area Counsel guidance as needed and appropriate.
Take applicable initial actions as described in IRM 25.3.6, Open Litigation Control, Monitoring and Closing Actions.
When the United States is named as a defendant in a suit, information/evidence will need to be gathered and a report prepared to assist in defending the government's position in some cases. In such cases, Advisory will ensure that any narrative report necessary to reflect the factual situation is prepared and that other data requested or required by Area Counsel is secured. Specific reporting forms are not prescribed for use in all types of defense suits.
When necessary, Advisory will issue courtesy investigations to Field Collection to gather information and prepare reports. The requested action must be taken promptly and completed within the specified time frames to ensure proper defense of the suit.
If a request from Area Counsel or the Department of Justice requires additional investigation or examination by either a revenue officer or a revenue agent, Advisory will have a copy of the request secure emailed to Collection or Examination, as applicable, and request that the investigation or examination be given preferential treatment and that the information be furnished as soon as possible.
Form 4481, Transmittal - Legal Action, will be used in all cases to transmit to Area Counsel and/or the U.S. Attorney's Office, as appropriate, the transcript, administrative files, reports and other documents required.
Upon receipt of a summons and complaint or a request for data, Advisory will determine the periods of tax liability in question and take action to secure a certified transcript, if necessary.
Form 4844, Request for Terminal Action, will be prepared and forwarded to Case Processing to secure the administrative files if needed.
Advisory, with the assistance of Area Counsel, will review the complaint and determine what documents are needed. These documents may include:
original and refiled Notices of Federal Tax Lien in cases where lien priority is an issue (e.g., 28 USC § 2410 cases).
original tax returns in cases where it may be anticipated that the tax liability will be contested.
A return that is submitted after a case has been referred to DOJ is essentially a nullity. The Service does not have the authority to make adjustments to the liability after the case has been referred. For cases in DOJ’s jurisdiction, date-stamp the return and forward it to both DOJ and Area Counsel. DOJ will then associate with the "administrative file" the original return(s) and other materials received from the Service. The administrative file is normally returned to the Service through Area Counsel when the litigation is ultimately concluded.
Form 4340, Certificate of Assessments and Payments under seal.
files and reports associated with tax adjustments or substitutes for return, such as revenue agent reports and substitute for return files. See also, the Note with list item (b).
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.
any Closing Agreements that the taxpayer may have signed.
statutory notices (90-day letter for assessment notice and demand, etc.).
copies of offers in compromise, proofs of claim, and data as to other court proceedings in cases where the collection statute may be an issue (e.g., discharge of tax liabilities under the provisions of the Bankruptcy Code). Closed BAL DUE, offer in compromise, collection due process or trust fund recovery penalty files may be needed.
other information or documents may include, but are not limited to, notices of levy, seizure and sale documents, 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, Lien and Claimant Data - Civil Suit, may be used for providing information regarding other liens and/or claims.
In most cases the required data can and should be anticipated and gathered before a request is received from the U.S. Attorney or Area Counsel since Advisory will normally have received notification of the pending suit through direct sources.
Advisory will ensure that required data is secured promptly and will follow-up on all requests for administrative files, tax returns, or other documents, and requests for investigations. The data should be sent to Area Counsel and/or the U.S. Attorney's Office as soon as it is received and no later than the 45th day after the complaint or petition was filed. Area Counsel should be advised of any delay by telephone, including situations where Advisory is not made aware of the suit, or does not receive a copy of the complaint or petition, until many days after the suit is filed.
In certain types of cases or cases involving significant issues, the defense letter prepared by Area Counsel must be pre-reviewed by the appropriate Associate Chief Counsel Office. Included in the list of issues requiring Associate Office review are collection issues involving disregarded entities, the collection of partnership tax liability from partners, or the application of United States v. Craft (i.e., collection of liability of one spouse from property held in tenancy by entireties). In cases requiring Associate Office review, the required information must be sent to Area Counsel no later than the 35th day after the complaint or petition was filed. See IRM Exhibit 31.1.1-1, Issues Requiring Associate Office Review and IRM Exhibit 35.11.1-1, Issues Requiring Associate Office Review for a list of issues requiring Associate Office review.
If required data or documents are located in a campus or other area office, the office receiving the request for such data or documents will expeditiously initiate action to secure it and will be responsible for providing it to the requester.
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 Privacy, Governmental Liaison, and Disclosure, PGLD. 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 the Office of Privacy, Governmental Liaison, and Disclosure, as appropriate. For further guidelines, see IRM 11.3.35, Disclosure of Official Information Handbook, Requests and Demands for Testimony and Production of Documents.
Requests by a government attorney (Area Counsel or the Department of Justice) for Service personnel to testify or produce records on behalf of the government in referred tax cases or Tax Court cases may be complied with and do not require prior approval.
Subpoenas and requests not served on behalf of the government for Service personnel to testify or produce records in referred tax cases or Tax Court cases require authorization and must be routed as quickly as possible to Area Counsel so that necessary authorization can be obtained. Area Counsel may need to coordinate with the Office of the appropriate Associate Chief Counsel depending upon the nature of the case.
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 employees and appearing with them at the proceeding.
See Delegation Order No. 11-2 (Rev. 2), IRM 184.108.40.206, Authority to Permit Disclosure of Tax Information and to Permit Testimony or the Production of Documents 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.
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, Department of Justice trial attorney, 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, Department of Justice trial attorney, 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.
The determination of whether employees should be allowed to testify and what records or information, if any, may be disclosed must take into account applicable statutes, privileges, and constitutional requirements. Any applicable privilege or protection under law may be asserted in response to a request or demand for testimony or disclosure of IRS records or information, including, but not limited to, the following:
Attorney work product doctrine
Deliberative process (executive) privilege
The testimony and production authorization should be specific as to the scope of the records or testimony that may be provided. See IRM Exhibit 11.3.35-2, Testimony Considerations, for additional information regarding demands for testimony.
The procedures to follow when a suit is filed against the United States depend upon the type of suit that is brought against the United States.
This subsection lists the principal types of suits that may be filed against the United States and the office that is responsible for handling the case.
Secure all relevant TFRP administrative files, refund claim files, and other related files and forward them to Area Counsel.
Prepare and forward a memorandum to Area Counsel containing details and status of related assessments and a recommendation to initiate a counterclaim against the taxpayer who brought the refund suit, and a third party complaint to bring all parties into the action. See IRM 220.127.116.11, Authorization for Filing Suits, Counterclaims or Third Party Complaints.
Secure and forward necessary certified transcripts and other needed documents on the plaintiff's assessments, all related assessments, and certified transcripts and original returns for all underlying BMF liabilities.
If a tax module is in BAL DUE status, determine whether or not collection should be withheld and contact the unit/person to which the module is assigned with instructions.
Under IRC § 6331(i), the running of the statutory period for collection 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 a Notice of Federal Tax Lien (NFTL) is not prohibited, and refund offsets under IRC § 6402 are allowable. Similar restrictions and suspensions apply if the requirements of IRC § 6672(c) are met.
See IRM 25.3.6, Open Litigation Control, Monitoring, and Closing Actions, for guidance regarding the input of Transaction Code 520 with corresponding closing codes to suspend the CSED.
If applicable, ensure that all NFTLs are timely filed or refiled as needed.
The following types of actions may be brought in state or federal court under 28 USC § 2410:
Advisory is responsible for all section 2410 suits. Notices of section 2410 suits received by other functions should be forwarded immediately to Advisory.
Refer to IRM 5.12.4, Judicial/Nonjudicial Foreclosures, for instructions and procedures pertaining to foreclosure actions to which the United States is made a party pursuant to 28 USC § 2410.
See IRM 18.104.22.168.1, 28 USC § 2410 Actions— Background and the provisions that follow, for a discussion of the types of actions that may be brought under 28 USC § 2410. These actions are generally brought in state court.
Coordination of these actions is generally handled directly though the appropriate U.S. Attorney's Office without Area Counsel involvement. The necessary response is generally limited to the preparation of a letter to the U.S. Attorney forwarding Automated Lien System (ALS) prints of applicable liens and information regarding unrecorded liens of relevance (statutory liens, estate tax liens, etc.)
Area Counsel needs to be involved only if non-routine issues are presented. If Area Counsel is involved, they generally require a copy of the summons, complaint, docket sheet, and other relevant documents.
Control the case on ICS. The control can generally be closed after issuance of the letter to the U.S. Attorney's Office, except in cases requiring further action or monitoring.
Open a NF OI on ICS under code 132, Suit Against USA.
Immediately forward one copy of the summons and complaint to the U.S. Attorney and two copies to Area Counsel.
Prepare a narrative memorandum detailing the facts of the case and the government's lien interest, securing information from the person or unit to whom the case is assigned. Use Form 4481, Transmittal - Legal Action, to transmit to Area Counsel the narrative memorandum, transcripts, administrative files, reports and documents required. Documents should include certified copies of Notices of Federal Tax Lien and other evidence of IRS claims.
Include in the narrative memorandum a discussion of the nature and extent of competing creditors' interests and include documents that serve as evidence of such interests, such as copies of mortgages, financing statements, judgments, or state or local tax liens. If warranted, verify the validity of such interests. For example, a mortgage against the property held by a party related to the taxpayer may be fraudulent.
Area Counsel will recommend a course of action based upon the nature and priority of the IRS's interest in the property.
See IRM 22.214.171.124, Judicial Foreclosures, and IRM 5.12.5, Redemptions, for detailed guidance for actions to take when the United States or the IRS is joined in a suit to foreclose a mortgage or other lien under 28 USC § 2410.
Open an NF OI on ICS under code 132, Suit Against USA, for section 2410 actions other than judicial foreclosures.
Deal directly with the U.S. Attorney's Office, providing any requested documents and information.
See also IRM 25.3.6, Open Litigation Control, Monitoring, and Closing Actions.
The following actions are the responsibility of the Disclosure Office:
releasing documents in actions involving the IRS in suits arising under the Freedom of Information Act
releasing document in actions involving the IRS in suits arising under the Privacy Act
subpoenas for testimony or documents
Disclosure is responsible for providing any necessary information to Area Counsel and for securing testimony authorizations and providing guidance to subpoenaed employees. See IRM 126.96.36.199, Subpoenas and Requests for IRS Personnel to Testify or Produce Records above.
Prior to releasing any documents in actions involving the IRS, the Disclosure Office must coordinate such disclosures with Area Counsel.
Advisory is responsible for answering Area Counsel and U.S. Attorney requests for assistance on other suits against the United States, including, but not limited to, the following types of United States district court cases:
injunctions to restrain collection;
wrongful levy suits (IRC § 7426);
suits to recover surplus proceeds (IRC § 7426);
damages from failure to release a lien (IRC § 7432);
damages from unauthorized collection action (IRC § 7433); or
determine whether certification of being a seriously delinquent taxpayer is erroneous or that IRS failed to reverse certification (IRC § 7345).
See IRM 25.3.6, Open Litigation Control, Monitoring, and Closing Actions, for additional guidance.
Taxpayers have the right to bring a civil action under IRC § 7345(e), Revocation or denial of passport in case of certain tax delinquencies, against the United States in United States district court or against the IRS in the Tax Court to determine whether the Internal Revenue Service’s certification as a seriously delinquent taxpayer made to the State Department was erroneous or whether the Commissioner has failed to reverse the certification when appropriate. If the court determines that such certification was erroneous or should have been reversed, then the court may order the Secretary of State be notified that the certification is reversed.
For more information see
IRM 188.8.131.52, IRC § 7345 Right to Determine Whether Certification as a Seriously Delinquent Taxpayer is Erroneous.; or, for the overall certification process under IRC § 7345 see IRM 184.108.40.206, Passport Revocation or Denial in Case of Certain Tax Debts.
Advisory’s Role: Advisory may receive information that a taxpayer is pursuing a civil action under IRC § 7345(e) in various ways. If the taxpayer files their action in a United States district court, then receipt of the summons and complaint may follow the format described in IRM 220.127.116.11, Receipt of Service of Summons and Complaint. If the taxpayer pursues their action in Tax Court, Advisory will not be notified and will not support the litigation.
ROLE is a support role monitoring this type of litigation when the action is in a United States district court.
OPEN an NF OI 132, Suits Against the United States on ICS.
DOCUMENT in the case history whether the action is in a United States district court as well as documenting any other actions taken on the case. Advisory will not be notified of an action in Tax Court.
REQUEST after the NF OI 132 has been opened, that the Group Manager or group secretary go into the NF OI 132 and:
1. Select Entity Detail
2. Select Maintain Program Names
3. Select from the drop down menu Passport District Court
ENTITY REPORT BUILDER: A manager, group secretary, or IQA may input as a program name in ICS as an identifier to create a sortable query. Instructions can be found in the ICS User Guide - Chapter 9 Program Names.
Advisory may be asked to provide account transcripts or other information identified in IRM 18.104.22.168, Information for Defense of Suits when the action is in a United States district court.
Certified Transcript Requests:
District Court: When requesting certified transcripts, see IRM 22.214.171.124, Certified Documents and any associated IRM Procedural Updates (IPUs). These can be accessed from either SERP IRM or IRM OnLine through the IPU tab at the top of the IRM screen.
Tax Court: Area Counsel will secure transcripts for Tax Court cases.
In addition to the monitoring required under IRM 25.3.6, Open Litigation Control, Monitoring and Closing Actions for all IRC § 7345(e) United States district court cases with an open NF OI 132, Advisory will check IDRS at least every 6 months and upon request by Area Counsel or the Assistant United States Attorney handling the case to determine if the certification as a taxpayer with a seriously delinquent tax debt has been reversed.
Reversal of a certification occurs systematically when all certified modules have been fully satisfied (e.g. Status 12), become legally unenforceable, or meet the criteria for reversal under a statutory or discretionary criteria. While the taxpayer will receive a Computer Paragraph (CP) 508R letter to notify him of the reversal, similar notification is not given to anyone at the IRS or Area Counsel. A suit, challenging a certification as a taxpayer with a seriously delinquent tax debt, can be dismissed as moot if a reversal occurs, so it is important that a reversal be identified as soon as possible.
CASE CLOSURE: Once the litigation is resolved, the NF OI 132 may be closed at the direction of Area Counsel or receipt of a judicial decision. Judicial decisions can be found in the Public Access to Court Electronic Records (PACER).
In a number of situations, taxpayers and third parties may file administrative claims for relief or restitution. Administrative claims are commonly required before judicial action can be taken against the United States.
Common administrative claims which may be made or are required include the following. Advisory is responsible for their processing and resolution.
Wrongful levy claims under IRC § 6343(b) and IRC § 7426. Guidance as to their processing and resolution is included in IRM 126.96.36.199,Release of Wrongful Seizures for Property Not Yet Sold,IRM 188.8.131.52,Wrongful Seizure - Payment of Claims After Sale, and IRM 184.108.40.206.2, Wrongful and Erroneous Levies.
Claims for damages from failure to release a lien under IRC § 7432. Guidance as to their processing and resolution is included in IRM 220.127.116.11, Civil Cause for Action Under IRC § 7432 for Failure to Release Lien.
Claims for damages from unauthorized collection action under IRC § 7433, which are addressed in IRM 18.104.22.168, Damages - Civil Cause of Action for Unauthorized Collection Action below.
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 IRS recklessly, intentionally, or negligently disregards any provision of the Internal Revenue Code or the related Treasury Regulations.
A suit under IRC § 7433 must be brought within two years from the date the right of action accrued. A section 7433 right of action accrues when the taxpayer has had reasonable opportunity to discover all essential elements of a possible cause of action for wrongful collection.
Subsection 7433(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.
Employees, acting in the performance of their duties, whose actions are challenged under IRC § 7433, will not be held personally liable in such an action.
A judgment for damages under IRC § 7433 will not be awarded unless the court determines that the plaintiff has exhausted all administrative remedies within the IRS. Under Treasury Regulation § 301.7433-1(f), the amount sought by suit generally cannot exceed the amount sought in the administrative claim.
In order to exhaust administrative remedies, the taxpayer must submit an administrative claim for damages in accordance with Treasury Regulation § 301.7433-1(e).
If successful in a court action, a taxpayer 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. An award for injuries such as inconvenience, emotional distress and loss of reputation can be paid only if the injury results in a direct monetary loss.
Costs of the action payable from a suit under this provision are:
fees of the clerk and marshal
fees of the court reporter for all or part of any stenographic transcript necessary for use in the case
costs of printing and witnesses
costs for securing regular as well as certified true copies of documents used in the proceeding
docket and filing fees
payments made to court appointed experts and interpreters.
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 IRC § 7430. Administrative costs, including any costs incurred getting the IRS to rectify a wrongful act and costs incurred pursuing an administrative claim for damages under IRC § 7433(e), are not recoverable under IRC § 7430. However, administrative costs incurred after the date a bankruptcy petition is filed may be awarded under IRC § 7430 for violations of the automatic stay or discharge injunctions.
Payment Authority - Claims under this provision will be paid out of funds appropriated for judgments, awards and compromise settlements under section 1304 of Title 31 of the United States Code. For cases referred to the Tax Division of the Department of Justice, the documents to be sent to the Judgment Fund Branch of the Financial Management Service will be prepared by these offices as follows:
by the Tax Financial Litigation Unit of the Office of Review, if the court enters a judgment or grants an award against the government; or
by the Civil Trial Section assigned to the case, if the government concedes or agrees to a settlement.
Treasury Regulation § 301.7433-1(e) contains administrative claim procedures for IRC § 7433. The administrative claim is to be sent to the Advisory Group Manager of the area where the taxpayer currently resides or, when dealing with a corporate entity, the area where the corporate headquarters is located.
There is no standard form used in preparing a claim, but the claim must contain the following information:
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.
The grounds, in reasonable detail, for the claim, including a complete description of the unauthorized collection action and copies of available substantiating documentation or correspondence with the Internal Revenue Service.
A description of the injuries incurred by the taxpayer filing the claim, including copies of any available substantiating documentation or evidence.
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).
The signature of the taxpayer or the taxpayer’s duly authorized representative.
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 (2) 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.
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.
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 IRC § 7433.
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.
Payment Authority - see IRM 22.214.171.124.4, Reimbursement of Damages and Costs, below.
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 in federal district court.
Date stamp the claim upon receipt. Advisory should complete the initial review of the claim within 30 days of receipt.
Open an NF OI on ICS under 185 - Claim Other. The type of claim should be noted in the comments section of the NF OI. Review the closed files for any prior claims.
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:
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
the taxpayer sustained direct, economic damages as a proximate result.
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.
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.
Certain criteria guide the amount of an administrative settlement under this section, for example:
the amount of the award is to be reduced by the damages that reasonably could have been avoided by the taxpayer;
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 IRC § 7433, such costs are recoverable only in a court proceeding; and
the actual, direct economic damage reimbursement can not exceed $1,000,000 ($100,000 in the case of negligence).
Acceptance or rejection of each claim will be reviewed by Area Counsel for agreement. Include the Advisory administrative file and all related information.
After concurrence by Area Counsel, submit the file to the Advisory Territory Manager for approval.
Advisory must process and respond to all claims that appear to be brought under IRC § 7433, whether or not they appear to be frivolous. Follow the procedures set forth in IRM 126.96.36.199.1, Administrative Claim Procedures above, for any correspondence received from a taxpayer that indicates in some fashion that the taxpayer is attempting to file a claim for damages for unauthorized collection action.
If a claim for unauthorized collection action appears to contain frivolous arguments, send the following documents/information to the Ogden Frivolous Return Program (also known as the Frivolous Filer Unit) after the claim is processed and a response is sent to the taxpayer:
copies of the first two or three pages of the claim (or a sufficient number of pages to show that the claim is frivolous);
the date of receipt of the claim (this should be shown by a date stamp on the claim);
the taxpayer’s name, address, and any taxpayer identification information that may be provided in the claim; and
a copy of the response sent to the taxpayer.
Prepare and include Form 3210, Document Transmittal, when mailing the items. Use the Ogden Compliance Campus address: 1973 N Rulon White Blvd., M/S 4450, Ogden, UT 84404, Attention: Frivolous Return Program.
Direct any questions as to whether a claim is being asserted under IRC § 7433 and should be processed under these procedures to Area Counsel.
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.
When a claim is approved, prepare the following:
FMS Form 194 (Rev. 12-03) - Judgment Fund Transmittal
FMS Form 196 (Rev. 12-03) - Judgment Fund Award Data Sheet
FMS Form 197 (Rev. 12-03) - Judgment Fund Voucher for Payment
Forward the original FMS Form 197 to the taxpayer for signature under cover of Letter 2733.
The approving official will sign FMS Form 197 when it is received from the taxpayer.
Send the taxpayer a copy of the signed FMS Form 197.
Use Letter 2734 to forward the original forms described above to the Department of the Treasury, Judgment Fund Branch, Financial Management Service, 3700 East-West Hwy, Room 6E15, Hyattsville, MD 20782.
Keep a copy of the forms sent to the Judgment Fund Branch in the file. Record any information received from FMS regarding payment to the taxpayer on ICS.
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.
Provide copies of supporting documentation obtained during the investigation of the claim to the employee's manager.
Discussions regarding the findings will be held by the employee’s immediate supervisor and the employee.
The employee's manager will determine if NTEU representation is necessary.
Under IRC § 7426(h), 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 IRS 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:
actual, direct economic damages sustained by the plaintiff as a proximate result of the reckless, intentional or negligent disregard by the officer or employee (reduced by the amount of damages awarded under subsection (b) of section 7426), and
the costs of the action.
A claim for damages brought under IRC § 7426(h) should be evaluated in the same manner as other damage claims. This means that these claims are to be filed with the Advisory Group Manager for the area where the taxpayer resides. See IRM 188.8.131.52.2, Evaluation of a Claim for Damages Under IRC § 7433 above. See also IRM 184.108.40.206.1, Wrongful Levy, and Publication 4528, Making an Administrative Wrongful Levy Claim Under Internal Revenue Code (IRC) Section 6343(b).