Court Opinion

ID: 6424
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:17:03+00
Date Added: 2024-06-11T12:12:26.624713
License: Public Domain

United States Court of Appeals,

                              Fifth Circuit.

                               No. 93-8405.

                 Billie A. SHAW, Plaintiff-Appellant,

                                     v.

            UNITED STATES of America, Defendant-Appellee.

                               May 9, 1994.

Appeal from the United States District Court for the Western
District of Texas.

Before REAVLEY and JOLLY, Circuit Judges, and PARKER,* District
Judge.

     E. GRADY JOLLY, Circuit Judge:

     This taxpayer and appellant, who filed suit against the

government under 26 U.S.C. § 7433 (1989),1 argues that the district

court    erred   in    concluding   that   she   failed   to   exhaust   her

administrative remedies, thus barring her claim.          Although we find

that the taxpayer exhausted her administrative remedies, we affirm

the district court's judgment because the taxpayer has failed to

demonstrate that the IRS engaged in conduct that is actionable

     *
      Chief Judge of the Eastern District of Texas, sitting by
designation.
     1
        Section 7433 provides in pertinent part that

            [i]f, 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 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.

     26 U.S.C. § 7433 (1989).

                                      1
under 26 U.S.C. § 7433 (1989).

                                      I

     On November 10, 1988, the Internal Revenue Service wrongfully

assessed a penalty against Mrs. Billie A. Shaw for her failure to

pay taxes owed by her husband's separately owned company.                The IRS

notified Mrs. Shaw of the assessment, detailing the amount of the

assessment as well as the procedures Mrs. Shaw should follow if she

wished to contest the assessment.           Mrs. Shaw hired an attorney to

assist her in contesting the wrongful assessment. Although several

letters were sent and several inquiries were made, Mrs. Shaw and

her attorney failed to follow the formal appeal procedure outlined

in the IRS notice.        Because Mrs. Shaw failed to properly contest

the assessment,     the    IRS   prepared    a    levy   against   her   private

residence, eventually sold the property at auction, and thus

partially satisfied the tax liability assessed against her.                 Mrs.

Shaw later repurchased the property from the buyer. She then filed

a notice of claim with the IRS, seeking a refund of the amount she

had paid to repurchase her home as well as an abatement of further

tax liability.      Eventually, the IRS recognized that the original

tax assessment was improper, and Mrs. Shaw received a refund of all

money   collected    and   the   remaining       tax   liability   was   abated.

However, as a result of her problems with the IRS, Mrs. Shaw's

credit rating was adversely affected, and she was unable to obtain

extensions of credit needed to pay off loans on other parcels of

property.

     On April 16, 1991, Mrs. Shaw sued the United States for

                                      2
damages under 26 U.S.C. § 7433, alleging that the IRS wrongfully

assessed tax penalties against her for the tax liabilities of her

husband's corporation.             After a bench trial, the district court

held that although the IRS agent who initially assessed the penalty

disregarded 26 U.S.C. § 6672,2 Mrs. Shaw was not entitled to

recover damages because she failed to exhaust her administrative

remedies.       Mrs. Shaw appeals this judgment.

                                         II

                                             A

          On appeal, Mrs. Shaw contends that the district court erred

in   concluding       that   she    failed       to   exhaust    her   administrative

remedies.       Title 26 U.S.C. § 7433 was enacted to allow a taxpayer

to sue the United States if the IRS intentionally or recklessly

disregards a statute or regulation in connection with collection of

federal taxes.        Gonsalves v. IRS, 975 F.2d 13, 16 (1st Cir.1992).

However, § 7433 specifically states that "[a] judgment for damages

shall     not    be   awarded   under   [this         section]    unless   the   court

determines that the plaintiff has exhausted the administrative

remedies available to such plaintiff within the Internal Revenue

      2
        Section 6672 provided in pertinent part that

                [a]ny person required to collect, truthfully account
                for, and pay over any tax imposed by this title who
                willfully fails to collect such tax, or truthfully
                account for and pay over such tax, or willfully
                attempts in any manner to evade or defeat any such tax
                or the payment thereof, shall, in addition to other
                penalties provided by law, be liable to a penalty equal
                to the total amount of the tax evaded, or not
                collected, or not accounted for and paid over.

      26 U.S.C. § 6672(a) (Supp.1994).

                                             3
Service."   26   U.S.C.   §    7433(d)(1)    (1989).     Title   26   C.F.R.

301.7433-1(e) sets forth the specific administrative procedures a

taxpayer must follow to take advantage of a § 7433 claim.                This

regulation, however, applies only to those civil actions filed

after January 30, 1992.       Prior to the enactment of § 301.7433-1,

there were no administrative procedures to exhaust before filing

suit on a § 7433 claim in federal court.          Information Resources,

Inc. v. United States, 950 F.2d 1122, 1128 (5th Cir.1992).            In this

case, because Mrs. Shaw filed her civil action before January 30,

1992, she was not required to exhaust any administrative remedies

connected to § 7433.

     Although    the   government    concedes     that   there    were    no

administrative remedies to exhaust with respect to § 7433, the

government argues that Mrs. Shaw's supposed failure3 to exhaust the

remedies associated with the improper assessment claim bars this §

7433 suit for improper collection practices.        After consideration,

we conclude that the two claims are separate, each having its own

administrative remedies to exhaust.         First, each claim is based on

different conduct—improper assessment deals with the decision to

impose tax liability while improper collection activities involves

conduct of an agent trying to collect the taxes owed.            Miller v.

     3
      It is questionable whether the government can reasonably
argue that Mrs. Shaw failed to exhaust her remedies for the
improper assessment claim. Although Mrs. Shaw failed to properly
take full advantage of every step of the formal appeal process,
she was ultimately successful in her effort to obtain a refund
and an abatement of the remaining liability. Thus, as far as the
improper assessment of taxes is concerned, it appears that Mrs.
Shaw did exhaust her administrative remedies.

                                    4
United   States,    763    F.Supp.   1534,   1543    (N.D.Cal.1991).        To

demonstrate a violation of each claim involves proof of distinctive

facts—to prove a claim for improper assessment, a taxpayer must

demonstrate why no taxes are owed, but to prove a claim for

improper collection practices, the taxpayer must demonstrate that

the IRS did not follow the prescribed methods of acquiring assets.

Moreover, it is possible to have an improper collection practices

claim without a corresponding improper assessment claim, and vice

versa.     It is also possible, as this case illustrates, that a

taxpayer    could   have   a   colorable   claim    for   both   an   improper

assessment of taxes as well as improper collection practices.              The

fact that these separate claims can develop with respect to the

same taxpayer does not affect the separate and distinctive nature

of each claim.

                                      B

      The government argues that if we find that Mrs. Shaw is not

barred procedurally from asserting her § 7433 claim, the district

court erred in concluding that the conduct of the IRS agent was

actionable under § 7433. Section 7433—by its specific words—allows

a taxpayer to sue the government only if, "in connection with any

collection of Federal Tax with respect to a taxpayer, any officer

or employee of the [IRS] recklessly or intentionally disregards any

provision of this title, or any regulation promulgated under this

title...."    26 U.S.C. § 7433(a) (1989).      The plain language of the

statute is well supported by the statute's legislative history.

Although in its early form the statute granted taxpayers the right

                                      5
to   sue   "for   damages   in    connection     with   the    determination       or

collection of any Federal tax," H.R.CONF.REP. NO. 100-1104, 100th

Cong., 2d Sess. 228 (1988), reprinted in 1988 U.S.C.C.A.N. 4515,

5288 (emphasis added), Congress later deleted that portion of the

statute that referred to determination of taxes. As the Conference

Agreement states, § 7433 "is limited to reckless or intentional

disregard in connection with the collection of taxes.                   An action

under this provision may not be based on alleged reckless or

intentional disregard in connection with the determination of tax."

H.R.CONF.REP. NO.     100-1104,     100th    Cong.,     2d    Sess.   229   (1988),

reprinted    in    1988   U.S.C.C.A.N.      4515,   5289      (emphasis     added).

Therefore, based upon the plain language of the statute, which is

clearly supported by the statute's legislative history, a taxpayer

cannot seek damages under § 7433 for an improper assessment of

taxes.     See also Miller v. United States, 763 F.Supp. at 1543

(noting    the    difference     between    an   assessment     activity     and   a

collection activity).       In this case, although the IRS improperly

assessed tax liability against Mrs. Shaw, it did not engage in

improper collection procedures.4            Thus, Mrs. Shaw cannot collect

damages under § 7433.

      4
      In her brief, Mrs. Shaw complained of collection activities
of an IRS agent that occurred in October 1988. Section 7433 was
enacted as part of the Technical & Miscellaneous Revenue Act of
1988 ("TAMRA"), Pub.L. No. 100-647, 102 Stat. 3342 (November 10,
1988), and it applies only "to actions by officers or employees
of the Internal Revenue Service after the date of the enactment
of this Act." See Pub.L. No. 100-647 § 6241(d) (emphasis added).
Thus, only conduct that occurred after the enactment date of
TAMRA, November 10, 1988, can serve as a basis for civil damages.
Because those collection activities occurred in October 1988,
that conduct cannot form the basis of a § 7433 claim.

                                       6
                               III

     For the foregoing reasons, the judgment of the district court

is

     AFFIRMED.

                                7