Holifield & Associates, P.C., lawyers in Knoxville, TN, Tennessee

Civil Damages for Collection Actions

What if you feel that an Internal Revenue Service employee intentionally disregarded the law in collection procedures against you? Do you have any recourse against the government? Surprisingly, depending on the facts of your case, the answer just might be yes.

The IRS is required to comply with certain provisions of the Fair Debt Collection Practices Act. Therefore, the treatment of tax debtors by the IRS must be at least equal to that required of private debt collectors.

As a taxpayer, you are entitled to file an action in federal district court for damages sustained in connection with the collection of a federal tax due to the negligent, reckless, or intentional disregard of any provision of the tax laws by an IRS employee. This civil action is your exclusive remedy except for damages resulting from the failure of the IRS employee to release a tax lien, and it must be filed within two years after the right of action accrues.

In addition, you may bring an action for willful IRS violations of certain bankruptcy provisions relating to automatic stays and discharges in bankruptcy. Actions for violation of the automatic stay provisions must prove that the employee's actions were "willful" instead of negligent or reckless.

You are not entitled to damages resulting from unauthorized collection actions unless the district court determines that you have exhausted all administrative remedies available within the IRS, including the filing of an administrative claim.

In a successful action, you will be entitled to certain damages as specified in the Internal Revenue Code. The amount of damages is equal to the lesser of $1,000,000 or the sum of the costs of the action and the actual, direct economic damages you have sustained. In the case of the negligent disregard of tax laws by an IRS employee, the maximum amount of damages is limited to $100,000.

It is the IRS, not the individual employee, that is liable for any damages. These damages will be paid out of a special Judgment Fund.

If the district court determines that your action against the IRS for unauthorized collection activities is a frivolous or groundless proceeding, it may award a penalty against you and to the government that does not exceed $10,000.