[Federal Register: March 25, 2003 (Volume 68, Number 57)]
[Rules and Regulations]
[Page 14316-14322]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25mr03-10]
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DEPARTMENT OF THE TREASURY
26 CFR Part 301
[TD 9050]
RIN 1545-AY08
Civil Cause of Action for Damages Caused by Unlawful Tax
Collection Actions, Including Actions Taken in Violation of Section 362
or 524 of the Bankruptcy Code
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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[[Page 14317]]
SUMMARY: This document contains final 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 regulations reflect amendments made by the Taxpayer Bill of
Rights 2 and the Internal Revenue Service Restructuring and Reform Act
of 1998. The regulations affect all persons who suffer damages caused
by unlawful collection actions of officers or employees of the IRS.
EFFECTIVE DATE: These regulations are effective March 25, 2003.
FOR FURTHER INFORMATION CONTACT: Kevin B. Connelly, (202) 622-3630 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final 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(a) by providing that
taxpayers may file actions for damages caused by the negligent
disregard of the Code or regulations. RRA 1998 also added subsection
(e) to section 7433. This amendment provides that an 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. Actions for damages caused by the
violation of section 362 or 524 of the Bankruptcy Code are limited to
willful violations. The maximum amount of damages that may be awarded
for negligent disregard under section 7433(a) is $100,000. The maximum
amount of damages that may be awarded for reckless or intentional
disregard under subsection (a) or for willful violations of section 362
or 524 of the Bankruptcy Code under subsection (e) 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 apply to actions of IRS officers or
employees after July 22, 1998.
RRA 1998 also added section 7426(h), 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). IRS published a notice of proposed rulemaking
reflecting these changes in the Federal Register on March 5, 2002. (67
FR 9929). No written comments on the proposed regulations were
received. No public hearing was held.
Explanation of Provisions
Section 301.7426-2
RRA 1998 added subsection (h) to section 7426. Subsection (h)
authorizes persons to sue the United States in Federal district court
for damages due to a wrongful levy caused by the reckless or
intentional, or negligent, disregard of a provision of the Code.
Plaintiffs may 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 regulations thus
adopt rules like those promulgated under section 7433. 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 regulations provide that any action for damages under this
section must be brought within two years after the date the action
accrues. This two-year limitations period is independent of the nine-
month period following the wrongful levy during which the third party
may make a claim for wrongfully levied property.
Section 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
of the United States Code. Prior to the amendments in RRA 1998,
taxpayers generally were not entitled to recover costs for
administrative proceedings in connection with collection matters.
Accordingly, the current regulations exclude such collection matters,
including proceedings under sections 7432 and 7433, from the definition
of administrative proceedings. To reflect the RRA 1998 amendments, the
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 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 Sec. 301.7433-2(e) or claim for
relief from a violation of section 362 or 524 of the Bankruptcy Code.
Section 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 regulations from $100,000 to
[[Page 14318]]
$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
regulations under Sec. 301.7433-1 reflect these changes.
Section 301.7433-2
RRA 1998 also amended section 7433 by adding 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)
for willful violations of section 362 or 524 are recoverable under
section 7433(b) and are subject to the limitations imposed by section
7433(d). Under section 7433(b), if the IRS is found liable, the
plaintiff may recover an amount equal to the lesser of $1,000,000 or
the actual, direct economic damages sustained by the plaintiff as a
proximate result of the IRS's willful action plus costs of the action.
A plaintiff may not recover damages for the mere negligent violation of
section 362 or 524 of the Bankruptcy Code.
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 7430 of the Code.
Section 7430 authorizes the payment of administrative and litigation
costs only if a taxpayer exhausts administrative remedies. The
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 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.
Similar to rules previously adopted with respect to other wrongful
collection actions, the 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 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 administrative and 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 or the most significant issue 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 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 taxpayer filed the underlying bankruptcy case giving rise to the
alleged violation. 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 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 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 this section when
the taxpayer has had a reasonable opportunity to discover all essential
elements of a possible cause of action.
[[Page 14319]]
Special Analyses
It has been determined that this final regulation 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
regulations do 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, the notice of proposed
rulemaking was submitted to the Chief Counsel for Advocacy of the Small
Business Administration for comment on its impact on small business.
Drafting Information
The principal author of these regulations is Kevin B. Connelly,
Office of Associate Chief Counsel (Procedure and Administration),
Collection, Bankruptcy & Summonses 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.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 301 is 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:
Sec. 301.7426-2 Recovery of damages in certain cases.
(a) In general. In addition to remedies related to wrongful levy
set forth in Sec. 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 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 Sec. 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 Sec. 301.7426-1(b); and
(2) Costs of the action as defined in Sec. 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 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 Sec.
301.7433-1(b) shall be sent in writing to the Area Director, Attn:
Compliance Technical Support Manager of the area in which the taxpayer
currently resides.
(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
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 Sec. 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 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 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 Sec. 301.7433-1(h).
(h) Effective date. This section is applicable March 25, 2003.
Par. 3. Section 301.7430-1 is amended by redesignating paragraphs
(e), (f) and (g) as paragraphs (f), (g) and (h), respectively, revising
the phrase ``paragraph (e)(1), (e)(2), (e)(3), or (e)(4) of this
section'' to read ``paragraph (f)(1), (f)(2), (f)(3), or (f)(4) of this
section'', and adding a new paragraph (e) to read as follows:
Sec. 301.7430-1 Exhaustion of administrative remedies.
* * * * *
(e) Actions involving willful violations of the automatic stay
under section 362 or the discharge provisions under section 524 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
[[Page 14320]]
provisions under section 524 of the Bankruptcy Code unless it files an
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 judicial district in which the bankruptcy
petition that is the basis for the asserted automatic stay or discharge
violation was filed pursuant to Sec. 301.7433-2(e) and satisfies the
other conditions set forth in Sec. 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 judicial district in which the bankruptcy
petition that is the basis for the asserted automatic stay violation
was filed pursuant to Sec. 301.7433-2(e) and satisfies the other
conditions set forth in Sec. 301.7433-2(d) prior to filing a petition
under section 362(h) of the Bankruptcy Code.
* * * * *
Sec. 301.7430-2 [Amended]
Par. 4. In Sec. 301.7430-2, paragraph (c)(2) is amended by:
1. Adding the language ``, except that requests with respect to
administrative proceedings defined by Sec. 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:
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
penultimate sentence.
The revision reads as follows:
Sec. 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
Sec. 301.7433-2 or proceedings otherwise described in Sec. 301.7430-
8(c). See Sec. 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:
Sec. 301.7430-6 Effective dates.
* * * Sections 301.7430-1(e), 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:
Sec. 301.7430-8 Administrative costs incurred in damage actions for
violations of section 362 or 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 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 Sec. 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 Sec. 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 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.
(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 six 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 90th day falls 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, 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.
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), in the first sentence, 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 ``Area Director,
Attn: Compliance Technical Support Manager of 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:
[[Page 14321]]
Sec. 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.
Par. 9. Section 301.7433-2 is added to read as follows:
Sec. 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 such provision, 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). However, any administrative or
litigation costs in connection with an action under section 362(h) may
be awarded, if at all, only under section 7430 of the Internal Revenue
Code.
(b) Actual, direct economic damages--(1) Definition. See Sec.
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 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 Sec.
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 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 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 Sec.
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 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
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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 Sec. 301.7433-1(b)(2)(ii), including attorneys' fees, not
recoverable under this section may be recoverable under section 7430.
See Sec. 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.
David A. Mader,
Assistant Deputy Commissioner of Internal Revenue.
Approved: March 5, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury.
[FR Doc. 03-6597 Filed 3-24-03; 8:45 am]
BILLING CODE 4830-01-P