Tuesday, August 21, 2007

Tax Help: Suing the IRS for unlawful disclosure

To get damages from the IRS for unlawful disclosure, one must file an Administrative Claim against the IRS and then pursue all IRS administrative remedies

Rebekah H. Miller, Plaintiff v. United States, Defendant. U.S. District Court, D.C.; Civ. 06-1525, July 30, 2007.Related case DC D.C. Code Sec. 7431]

Jurisdiction: Tax return information: Disclosure by IRS: Damages: Exclusive remedy. --

A federal district court lacked subject matter jurisdiction over an individual's Code Sec. 7433 provides the exclusive remedy for unlawful disclosures made in connection with tax-collection activity. Moreover, the taxpayer had previously filed a damages claim under Code Sec. 7431.


I. INTRODUCTIONURBINA, United States District Judge: This matter comes before the court on the plaintiff's motion for leave to amend her complaint and the defendant's motion to dismiss. The plaintiff brings suit against the federal government alleging violations of
§7431. Compl. at ¶1. The §7431 actions proceeded in parallel until the former was dismissed for failure to state a claim on July 19, 2007.In her remaining


A. Standard of Review for Dismissal Under Rule 12(b)(1)Federal courts are courts of limited jurisdiction and the law presumes that "a cause lies outside this limited jurisdiction." Kokkonen v. Guardian Life Ins. Co of Am., 511 U.S. 375, 377 (1994); St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89 (1938); see also Gen. Motors Corp. v. Envtl. Prot. Agency, 363 F.3d 442, 448 (D.C. Cir. 2004) (noting that "[a]s a court of limited jurisdiction, we begin, and end, with an examination of our jurisdiction").Because "subject-matter jurisdiction is an `Art. III as well as a statutory requirement[,] no action of the parties can confer subject-matter jurisdiction upon a federal court.' " Akinseye v. Dist. of Columbia, 339 F.3d 970, 971 (D.C. Cir. 2003) (quoting Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982)). On a motion to dismiss for lack of subject-matter jurisdiction pursuant to Rule 12(b)(1), the plaintiff bears the burden of establishing that the court has subject-matter jurisdiction. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992). The court may dismiss a complaint for lack of subject-matter jurisdiction only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Empagran S.A. v. F. Hoffman-LaRoche, Ltd., 315 F.3d 338, 343 (D.C. Cir. 2003) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).Because subject-matter jurisdiction focuses on the court's power to hear the claim, however, the court must give the plaintiff's factual allegations closer scrutiny when resolving a Rule 12(b)(1) motion than would be required for a Rule 12(b)(6) motion for failure to state a claim. Macharia v. United States, 334 F.3d 61, 64, 69 (D.C. Cir. 2003); Grand Lodge of Fraternal Order of Police v. Ashcroft, 185 F. Supp. 2d 9, 13 (D.D.C. 2001). Moreover, the court is not limited to the allegations contained in the complaint. Hohri v. United State s, 782 F.2d 227, 241 (D.C. Cir. 1986), vacated on other grounds, 482 U.S. 64 (1987). Instead, to determine whether it has jurisdiction over the claim, the court may consider materials outside the pleadings. Herbert v. Nat'l Acad. of Scis., 974 F.2d 192, 197 (D.C. Cir. 1992).
§7431. She seeks damages resulting from "substantial mental and emotional distress," allegedly caused by wrongful disclosures made in bad faith by IRS agents attempting to collect back taxes from the 1999-2000 tax years. Am. Compl. at ¶ ¶3-13.The defendant argues that as the plaintiff has already brought a suit under §7431 because the former is the exclusive remedy for wrongful tax disclosures. Def.'s Mot. at 6. Although the D.C. Circuit has yet to address this question, district courts in this jurisdiction, following the Ninth Circuit, have ruled that "the exclusivity provision [of §7431 claims]." Koerner v. United States, 471 F. Supp. 2d at 127 (Huvelle, J.) ( citing Shwarz v. United States, 234 F.3d 428, 432 (9th Cir. 2000)).The court concurs in this judgment and need not reiterate here the full legal analysis undertaken by the other courts. Briefly, the dispositive factor underlying various courts' parallel conclusions is that section 7432, [ §7433(a) (emphasis added). Because §7433 - and Congress must necessarily have been aware of §7433 - the court presumes that Congress intended to preclude 1

C. The Court Denies the Plaintiff's Motion to AmendThe plaintiff responds to the defendant's motion to dismiss by filing a motion to amend her complaint. "Whether to grant or deny leave to amend rests in the district court's sound discretion," Nwachukwu v. Karl, 222 F.R.D. 208, 210 (D.D.C. 2004) ( citing Foman v. Davis, 371 U.S. 178, 182 (1962)). The court should "determine the propriety of amendment on a case by case basis, using a generous standard." Harris v. Sec'y, Dep't of Veterans Affairs, 126 F.3d 339, 344 (D.C. Cir.1997).In this case, the plaintiff's proposed second amended complaint, like her first amended complaint, comes to the court under 26 U.S.C.

IV. CONCLUSIONFor the foregoing reasons, the court grants the defendant's motion to dismiss and denies the plaintiff's motion to amend. An order consistent with this Memorandum Opinion is separately and contemporaneously issued this 30 th day of July 2007.1 Although the court rests its ruling on the lack of subject-matter jurisdiction, it notes that the plaintiff's failure to file a timely response is itself a sufficient basis for dismissing this action. See Fox v. Am. Airlines, Inc., 389 F.3d 1291, 1294 (D.C. Cir. 2004) (stating that, under Local Rule 7(b), the court has the discretion to treat any motion against which a response is not filed as conceded).
Alvin S. Brown, Esq.
Tax attorney
To provide IRS transparency, upload your IRS experiences to www.irsforum.org

1 comment:

Alvin Brown & Associates said...

The IRC 7433 statute expressly provides for the exhaustion of administrative remedies


7433(a) IN GENERAL. --If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence, disregards any provision of this title, or any regulation promulgated under this title, such taxpayer may bring a civil action for damages against the United States in a district court of the United States. Except as provided in section 7432, such civil action shall be the exclusive remedy for recovering damages resulting from such actions.

7433(b) DAMAGES. --In any action brought under subsection (a) or petition filed under subsection (e), upon a finding of liability on the part of the defendant, the defendant shall 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 --

7433(b)(1) actual, direct economic damages sustained by the plaintiff as a proximate result of the reckless or intentional or negligent actions of the officer or employee, and

7433(b)(2) the costs of the action.

7433(c) PAYMENT AUTHORITY. --Claims pursuant to this section shall be payable out of funds appropriated under section 1304 of title 31, United States Code.

7433(d) LIMITATIONS. --

7433(d)(1) REQUIREMENT THAT ADMINISTRATIVE REMEDIES BE EXHAUSTED. --A judgment for damages shall not be awarded under subsection (b) unless the court determines that the plaintiff has exhausted the administrative remedies available to such plaintiff within the Internal Revenue Service.

7433(d)(2) MITIGATION OF DAMAGES. --The amount of damages awarded under subsection (b)(1) shall be reduced by the amount of such damages which could have reasonably been mitigated by the plaintiff.

7433(d)(3) PERIOD FOR BRINGING ACTION. --Notwithstanding any other provision of law, an action to enforce liability created under this section may be brought without regard to the amount in controversy and may be brought only within 2 years after the date the right of action accrues.


7433(e)(1) IN GENERAL. --If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service willfully violates any provision of section 362 (relating to automatic stay) or 524 (relating to effect of discharge) of title 11, United States Code (or any successor provision), or any regulation promulgated under such provision, such taxpayer may petition the bankruptcy court to recover damages against the United States.


7433(e)(2)(A) IN GENERAL. --Except as provided in subparagraph (B), notwithstanding section 105 of such title 11, such petition shall be the exclusive remedy for recovering damages resulting from such actions.

7433(e)(2)(B) CERTAIN OTHER ACTIONS PERMITTED. --Subparagraph (A) shall not apply to an action under section 362(h) of such title 11 for a violation of a stay provided by section 362 of such title; except that --

7433(e)(2)(B)(i) administrative and litigation costs in connection with such an action may only be awarded under section 7430; and

7433(e)(2)(B)(ii) administrative costs may be awarded only if incurred on or after the date that the bankruptcy petition is filed.