[Federal Register Volume 62, Number 250 (Wednesday, December 31, 1997)]
[Proposed Rules]
[Pages 68242-68244]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33791]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[Reg-251502-96]
RIN 1545-AU68


Civil Cause of Action for Certain Unauthorized Collection Actions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations relating to civil 
causes of action for damages caused by unlawful collection actions of 
officers and employees of the Internal Revenue Service (IRS). The 
proposed regulations reflect amendments made by the Taxpayer Bill of 
Rights 2. The proposed regulations affect all taxpayers who file civil 
actions for damages caused by unlawful collection actions of officers 
or employees of the IRS.

DATES: Written comments and requests for a public hearing must be 
received by March 2, 1998.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (Reg-251502-96), Room 
5226, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered between the 
hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (Reg-251502-96), Courier's 
Desk, Internal Revenue Service, 1111 Constitution Avenue NW., 
Washington DC. Alternatively, taxpayers may submit comments 
electronically via the Internet by selecting the ``Tax Regs'' option on 
the IRS Home Page, or by submitting comments directly to the IRS 
Internet site at <a href="http://www.irs.ustreas.gov/prod/tax____regs/
comments.html">http://www.irs.ustreas.gov/prod/tax____regs/
comments.html</a>.

FOR FURTHER INFORMATION CONTACT: Kevin B. Connelly, (202) 622-3640 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed 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 (1996), amended section 7433 of the Internal 
Revenue Code of 1986 (Code) by raising the cap on the amount a taxpayer 
may be awarded for damages caused by unlawful collection actions from 
$100,000 to $1,000,000. Under

[[Page 68243]]

prior law, a suit for damages could not be brought unless the taxpayer 
first exhausted administrative remedies available within the IRS. TBOR2 
eliminated this jurisdictional prerequisite but authorized federal 
district courts to reduce damage awards if the taxpayer fails to 
exhaust administrative remedies. The proposed regulations reflect these 
changes.

Explanation of Provision

    Section 801 of TBOR2 amended section 7433(a) of the Code by 
increasing from $100,000 to $1,000,000 the cap on the amount of damages 
that a taxpayer may recover in Federal district court from the United 
States for damages caused by any unauthorized collection actions of an 
officer or employee of the IRS occurring after July 30, 1996. Section 
802 of TBOR2 amended section 7433(d)(1) of the Code by providing that a 
taxpayer's failure to exhaust administrative remedies available within 
the IRS shall only be a factor that the court may consider in 
determining whether to reduce the amount of an award. In actions filed 
prior to the enactment of TBOR2, the failure to exhaust administrative 
remedies was a jurisdictional bar to an action. The proposed 
regulations reflect the changes made by TBOR 2.
    The regulations that are being amended by these proposed 
regulations currently provide that administrative remedies shall be 
considered exhausted on the earlier of: (1) the date the decision is 
rendered by the IRS on an administrative claim for damages filed in 
accordance with the manner and form set forth in the regulations; or 
(2) the date six months after the date an administrative claim is filed 
in accordance with the manner and form set forth in the regulations. 26 
CFR Sec. 301.7433-1(d). An exception to this rule is provided with 
respect to civil actions filed in federal district court prior to July 
31, 1996. Under this exception, if an administrative claim is filed 
during the last six months of the period of limitations for filing a 
civil action for damages under section 7433 of the Code, administrative 
remedies shall be considered exhausted on the date the administrative 
claim is filed. The exception was included in the current regulations 
because, prior to the enactment of TBOR2, the failure to exhaust 
administrative remedies was a jurisdictional bar to an action. Without 
the exception, if a taxpayer filed an administrative claim during the 
last six months of the period of limitations and the IRS did not 
consider the claim before the limitations period expired, the taxpayer 
automatically would have been barred from filing suit. These provisions 
still apply to actions that were filed on or before July 30, 1996, the 
enactment date of TBOR2.
    With respect to actions filed after July 30, 1996, the proposed 
regulations do not contain the exception for administrative claims 
filed during the last six months of the period of limitation because 
the failure to exhaust administrative remedies is no longer a bar to an 
action. Since the enactment of TBOR2, the failure to exhaust 
administrative remedies is just one factor the court may consider in 
determining whether to reduce an award of damages. Pursuant to the 
notice of proposed rulemaking, if a taxpayer waits until the last six 
months of the period of limitations to file an administrative claim, 
the IRS does not reach a determination before the limitations period 
expires, and the taxpayer files a timely action under section 7433, the 
court may consider the facts and circumstances of the case and decide 
what effect the late filing of the claim should have on the amount of 
damages awarded.
    The proposed manner and form for filing an administrative claim for 
damages remain the same as those set forth in the current regulations 
at 26 CFR 301.7433-1(e)(1) and (2). The claim must be sent in writing 
to the district director (marked for the attention of the Chief, 
Special Procedures Function) of the district in which the taxpayer 
resides. The claim must include: (1) The name, current address, current 
home and work telephone numbers and any convenient times to be 
contacted, and taxpayer identification number of the taxpayer making 
the claim; (2) the grounds, in reasonable detail, for the claim 
(include copies of any available substantiating documentation or 
correspondence with the Internal Revenue Service); (3) a description of 
the injuries incurred by the taxpayer filing the claim (include copies 
of any available substantiating documentation or evidence); (4) 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 (5) the 
signature of the taxpayer or duly authorized representative.
    The notice of proposed rulemaking does not have a new effective 
date paragraph because amended paragraphs (a), (d), and (e) set forth 
the effective dates of the new statutory provisions as well as the 
statutory provisions they are replacing.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in EO 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 
regulation does 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 Internal Revenue Code, this 
notice of proposed rulemaking will be submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact on small business.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments that are submitted 
timely (a signed original and eight (8) copies) to the IRS. All 
comments will be available for public inspection and copying. A public 
hearing may be scheduled if requested in writing by a person that 
timely submits written comments. If a public hearing is scheduled, 
notice of the date, time, and place for the hearing will be published 
in the Federal Register.

Drafting Information

    The principal author of these regulations is Kevin B. Connelly, 
Office of Assistant Chief Counsel (General Litigation) CC:EL:GL, IRS. 
However, other personnel from the IRS and 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 recordingkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 301 is proposed to be 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. In Sec. 301.7433-1, paragraphs (a), (d), (e), and (f) 
are revised to read as follows:

[[Page 68244]]

Sec. 301.7433  Civil cause of action for certain unauthorized 
collection actions.

    (a) In general. If, in connection with the collection of a federal 
tax with respect to a taxpayer, an officer or an employee of the 
Internal Revenue Service recklessly or intentionally disregards any 
provision of the Internal Revenue Code or any regulation promulgated 
under the Internal Revenue Code, such taxpayer may bring a civil action 
for damages against the United States in federal district court. The 
taxpayer has a duty to mitigate damages. The total amount of damages 
recoverable is the lesser of $1,000,000 ($100,000 if the act giving 
rise to damages occurred before July 31, 1996) or the sum of--
    (1) The actual, direct economic damages sustained as a proximate 
result of the reckless or intentional actions of the officer or 
employee; and
    (2) Costs of the action.
* * * * *
    (d) Exhaustion of administrative remedies in suits brought prior to 
July 31, 1996--(1) General. With respect to civil actions filed in 
federal district court prior to July 31, 1996, no action may be 
maintained before the exhaustion of administrative remedies. 
Administrative remedies are exhausted on the earlier of the following 
dates--
    (i) The date the decision is rendered on an administrative claim 
filed in accordance with paragraph (f) of this section; or
    (ii) The date six months after the date an administrative claim is 
filed in accordance with paragraph (f) of this section.
    (2) Exception. If an administrative claim is filed in accordance 
with paragraph (f) of this section during the last six months of the 
period of limitations described in paragraph (g) of this section, the 
taxpayer may file an action in federal district court any time after 
the administrative claim is filed and before the expiration of the 
period of limitations.
    (3) No action in federal district court for any sum in excess of 
the dollar amount sought in the administrative claim. With respect to 
civil actions filed in federal district court prior to July 31, 1996, 
no action may be instituted for any sum in excess of the amount 
(already incurred and estimated) of the administrative claim filed 
under paragraph (f) 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.
    (e) Exhaustion of administrative remedies in suits brought after 
July 30, 1996--(1) General. With respect to civil actions filed in 
federal district court after July 30, 1996, the amount of damages 
awarded under paragraph (a) of this section may be reduced if the court 
determines that the taxpayer has not exhausted the administrative 
remedies available within the Internal Revenue Service.
    (2) Administrative remedies exhausted. Administrative remedies 
shall be considered exhausted on the earlier of--
    (i) The date the decision is rendered on a claim filed in 
accordance with paragraph (f) of this section; or
    (ii) The date six months after the date an administrative claim is 
filed in accordance with paragraph (f) of this section.
    (f) Procedures for an administrative claim--(1) Manner. An 
administrative claim for damages shall be sent in writing to the 
district director (marked for the attention of the Chief, Special 
Procedures Function) of the district in which the taxpayer resides.
    (2) Form. The administrative claim shall include--
    (i) The name, current address, current home and work telephone 
numbers and any convenient times to be contacted, and taxpayer 
identification number of the taxpayer 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 injuries incurred by the taxpayer 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 taxpayer or the taxpayer's duly authorized 
representative as defined in paragraph (f)(3) of this section.
    (3) Duly authorized representative. For purposes of paragraph 
(f)(2)(v) of this section, 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.
* * * * *
Michael P. Dolan,
Deputy Commissioner of Internal Revenue.
[FR Doc. 97-33791 Filed 12-30-97; 8:45 am]
BILLING CODE 4830-01-U