Opinion ID: 4241112
Heading Depth: 3
Heading Rank: 1

Heading: Assessment v. Collection

Text: Federal tax statutes distinguish time and again between the assessment process and the collection process. The tax code does not use the terms interchangeably. When Congress intends for a particular section to apply to both the assess‐ ment and collection process, the relevant statute speaks of both assessment and collection, especially in provisions gov‐ erning the rights of taxpayers to sue the government. See, e.g., 28 U.S.C. § 1346(a)(1) (granting district courts jurisdiction over suits alleging taxes wrongfully “assessed or collected”); 26 U.S.C. § 7421(a) (generally prohibiting suits “restraining the assessment or collection of any tax”); § 7422(a) (requiring exhaustion of administrative remedies for suits to recover taxes wrongfully “assessed or collected”). This common prac‐ tice indicates that when Congress wrote § 7433 to apply only No. 16‐3032 9 to violations “in connection with any collection,” the lan‐ guage indicated a deliberate choice to exclude violations in the assessment process. Reading § 7433 to exclude claims based on tax code viola‐ tions in tax assessment also preserves the requirement in § 7422(a) that taxpayers exhaust the administrative refund process before filing suit in federal court to contest tax liability “alleged to have been erroneously or illegally assessed or col‐ lected.” If § 7433 applied to tax code violations committed in the assessment process, the remedy would at best duplicate the refund process and at worst create an unnecessary loop‐ hole that might allow taxpayers to skirt the administrative re‐ fund process entirely by claiming the IRS negligently violated the tax code. Because the tax code’s assessment requirements create explicit duties and prohibitions for IRS employees, it would take little effort for plaintiffs to plead negligence per se‐ type claims for any violation of tax assessment laws and to claim that they are entitled to damages in the amount of ille‐ gally assessed tax liability. That appears to be exactly what plaintiffs are trying to do in this case. At its heart, plaintiffs’ complaint seeks to undo their tax liability because they claim the IRS illegally imposed those taxes (despite the 2003 settlement, but we put that aside for this case). To avoid this liability, the plaintiffs seek relief under both § 7422 and § 7433 based on the same alleged mis‐ conduct and the same resulting harm. The § 7422 refund claims allege that the IRS failed to notify the plaintiffs and failed to obtain a valid waiver of the statute of limitations. The § 7433 damages claims allege the same violations. Both the § 7422 and § 7433 claims further allege that the IRS committed these acts intentionally and recklessly, and the § 7433 claim 10 No. 16‐3032 also alleges negligence. Both statutory claims seek invalida‐ tion of the plaintiffs’ tax liability under the 2003 settlement (though the § 7433 claim also seeks consequential damages). Plaintiffs’ broad interpretation of “in connection with any collection” would treat § 7433 as having created implicitly a new route for tax refunds that would avoid entirely the estab‐ lished administrative remedial scheme. That would give the phrase “in connection with” a dramatic but improbable effect. Congress “does not alter the fundamental details of a regula‐ tory scheme in vague terms.” King v. Burwell, 135 S. Ct. 2480, 2495 (2015), quoting Whitman v. American Trucking Ass’ns, 531 U.S. 457, 468 (2001). If Congress wanted to duplicate or un‐ dermine the refund process, we believe it would have done so more clearly.