26 CFR 301.7433-2 - Civil cause of action for violation of section 362 or 524 of the Bankruptcy Code.

§ 301.7433-2 Civil cause of action for violation of section 362 or 524 of the Bankruptcy Code.

(a)In general.

(1) If, in connection with the collection of a federal tax with respect to a taxpayer, an officer or employee of the Internal Revenue Service willfully violates any provision of section 362 (relating to the automatic stay) or section 524 (relating to discharge) of title 11, United States Code, or any regulation promulgated under such provision, the taxpayer may file a petition for damages against the United States in Federal bankruptcy court. The taxpayer has a duty to mitigate damages. The total amount of damages recoverable under this section is the lesser of $1,000,000, or the sum of -

(i) Actual, direct economic damages sustained as a proximate result of the willful actions of the officer or employee; and

(ii) Costs of the action.

(2) An action under this section constitutes the exclusive remedy under the Internal Revenue Code for violations of sections 362 and 524 of the Bankruptcy Code. In addition, taxpayers injured by violations of section 362 of the Bankruptcy Code may maintain actions under section 362(h) of the Bankruptcy Code (relating to an individual injured by a willful violation of the stay). However, any administrative or litigation costs in connection with an action under section 362(h) may be awarded, if at all, only under section 7430 of the Internal Revenue Code.

(b)Actual, direct economic damages -

(1)Definition. See § 301.7433-1(b)(1).

(2)Litigation costs and administrative costs not recoverable as actual, direct economic damages. Litigation costs and administrative costs are not recoverable as actual, direct economic damages. These costs may be recoverable under section 7430 (see paragraph (h) of this section), or, solely to the extent described in paragraph (c) of this section, as costs of the action.

(c)Costs of the action. Costs of the action recoverable as damages under this section are limited to the costs set forth in § 301.7433-1(c).

(d)No civil action in federal bankruptcy court prior to filing an administrative claim -

(1)In general. Except as provided in paragraph (d)(2) of this section, no action under paragraph (a)(1) of this section shall be maintained in any bankruptcy court before the earlier of the following dates -

(i) The date the decision is rendered on a claim filed in accordance with paragraph (e) of this section; or

(ii) The date that is six months after the date an administrative claim is filed in accordance with paragraph (e) of this section.

(2)When administrative claim filed in last six months of period of limitations. If an administrative claim is filed in accordance with paragraph (e) of this section during the last six months of the period of limitations described in paragraph (g) of this section, the taxpayer may petition the bankruptcy court any time after the administrative claim is filed and before the expiration of the period of limitations.

(e)Procedures for an administrative claim -

(1)Manner. An administrative claim for the lesser of $1,000,000 or actual, direct economic damages as defined in paragraph (b) of this section shall be sent in writing to the Chief, Local Insolvency Unit, for the judicial district in which the taxpayer filed the underlying bankruptcy case giving rise to the alleged violation.

(2)Form. The administrative claim shall include -

(i) The name, taxpayer identification number, current address, and current home and work telephone numbers (with an identification of any convenient times to be contacted) of the taxpayer making the claim;

(ii) The location of the bankruptcy court in which the underlying bankruptcy case was filed and the case number of the case in which the violation occurred;

(iii) A description, in reasonable detail, of the violation (include copies of any available substantiating documentation or correspondence with the Internal Revenue Service);

(iv) A description of the injuries incurred by the taxpayer filing the claim (include copies of any available substantiating documentation or evidence);

(v) 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 documentation or evidence); and

(vi) The signature of the taxpayer or duly authorized representative.

(3)Duly authorized representative defined. For purposes of this paragraph (e), 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.

(f)No action in bankruptcy court for any sum in excess of the dollar amount sought in the administrative claim. No action for actual, direct economic damages under paragraph (a) of this section may be instituted in federal bankruptcy court for any sum in excess of the amount (already incurred and estimated) of the administrative claim filed under paragraph (e) 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.

(g)Period of limitations -

(1)Time for filing. A petition for damages under paragraph (a) of this section must be filed in bankruptcy court within two years after the date the cause of action accrues.

(2)Right of action accrues. A cause of action under paragraph (a) of this section accrues when the taxpayer has had a reasonable opportunity to discover all essential elements of a possible cause of action.

(h)Recovery of litigation costs and administrative costs under section 7430 -

(1)In general. Litigation costs, as defined in § 301.7433-1(b)(2)(i), including attorneys fees, not recoverable under this section may be recoverable under section 7430 if a taxpayer challenges in whole or in part an Internal Revenue Service denial of an administrative claim for damages by filing a petition in the bankruptcy court. If, following the Internal Revenue Service's denial of an administrative claim for damages, a taxpayer files a petition in the bankruptcy court challenging that denial in whole or in part, substantially prevails with respect to the amount of damages in controversy, and meets the requirements of section 7430(c)(4)(A)(ii) (relating to net worth and size requirements), the taxpayer will be considered a prevailing party for purposes of section 7430, unless the Internal Revenue Service establishes that the position of the Internal Revenue Service in the proceeding was substantially justified. Such taxpayer will generally be entitled to attorneys' fees and other reasonable litigation costs not recoverable under this section. For purposes of this paragraph (h), if the Internal Revenue Service does not respond on the merits to an administrative claim for damages within six months after the claim is filed, the Internal Revenue Service's failure to respond will be considered a denial of the claim on the grounds that the Internal Revenue Service did not willfully violate Bankruptcy Code section 362 or 524.

(2)Administrative costs -

(i)In general. Administrative costs, as defined in § 301.7433-1(b)(2)(ii), including attorneys' fees, not recoverable under this section may be recoverable under section 7430. See § 301.7430-8.

(ii)Limitation regarding recoverable administrative costs. Administrative costs may be awarded only if incurred on or after the date of filing of the bankruptcy petition that formed the basis for the stay on collection under Bankruptcy Code section 362 or the discharge injunction under Bankruptcy Code section 524, as the case might be.

(i)Effective date. This section is applicable to actions taken by the Internal Revenue Service officials after July 22, 1998.

[T.D. 9050, 68 FR 14321, Mar. 25, 2003]
The Tax Court

This is a list of United States Code sections, Statutes at Large, Public Laws, and Presidential Documents, which provide rulemaking authority for this CFR Part.

This list is taken from the Parallel Table of Authorities and Rules provided by GPO [Government Printing Office].

It is not guaranteed to be accurate or up-to-date, though we do refresh the database weekly. More limitations on accuracy are described at the GPO site.

United States Code

§ 1 - Tax imposed

§ 41 - Credit for increasing research activities

§ 42 - Low-income housing credit

§ 48 - Energy credit

§ 56 - Adjustments in computing alternative minimum taxable income

§ 82 - Reimbursement for expenses of moving

§ 108 - Income from discharge of indebtedness

§ 121 - Exclusion of gain from sale of principal residence

§ 141 - Private activity bond; qualified bond

§ 142 - Exempt facility bond

§ 143 - Mortgage revenue bonds: qualified mortgage bond and qualified veterans’ mortgage bond

§ 145 - Qualified 501(c)(3) bond

§ 147 - Other requirements applicable to certain private activity bonds

§ 165 - Losses

§ 168 - Accelerated cost recovery system

§ 216 - Deduction of taxes, interest, and business depreciation by cooperative housing corporation tenant-stockholder

§ 219 - Retirement savings

§ 245 - Dividends received from certain foreign corporations

§ 263 - Capital expenditures

§ 263A - Capitalization and inclusion in inventory costs of certain expenses

§ 448 - Limitation on use of cash method of accounting

§ 453C - Repealed. Pub. L. 100–203, title X, § 10202(a)(1), Dec. 22, 1987, 101 Stat. 1330–388]

§ 460 - Special rules for long-term contracts

§ 463 - Repealed. Pub. L. 100–203, title X, § 10201(a), Dec. 22, 1987, 101 Stat. 1330–387]

§ 468B - Special rules for designated settlement funds

§ 469 - Passive activity losses and credits limited

§ 474 - Simplified dollar-value LIFO method for certain small businesses

§ 585 - Reserves for losses on loans of banks

§ 597 - Treatment of transactions in which Federal financial assistance provided

§ 616 - Development expenditures

§ 617 - Deduction and recapture of certain mining exploration expenditures

§ 643 - Definitions applicable to subparts A, B, C, and D

§ 831 - Tax on insurance companies other than life insurance companies

§ 835 - Election by reciprocal

§ 865 - Source rules for personal property sales

§ 904 - Limitation on credit

§ 1059 - Corporate shareholder’s basis in stock reduced by nontaxed portion of extraordinary dividends

§ 1103

§ 1474 - Special rules

§ 2056 - Bequests, etc., to surviving spouse

§ 2056A - Qualified domestic trust

§ 2523 - Gift to spouse

§ 2632 - Special rules for allocation of GST exemption

§ 2652 - Other definitions

§ 3121 - Definitions

§ 3127 - Exemption for employers and their employees where both are members of religious faiths opposed to participation in Social Security Act programs

§ 4982 - Excise tax on undistributed income of regulated investment companies

§ 6011 - General requirement of return, statement, or list

§ 6033 - Returns by exempt organizations

§ 6036 - Notice of qualification as executor or receiver

§ 6037 - Return of S corporation

§ 6050M - Returns relating to persons receiving contracts from Federal executive agencies

§ 6061 - Signing of returns and other documents

§ 6081 - Extension of time for filing returns

§ 6103 - Confidentiality and disclosure of returns and return information

§ 6104 - Publicity of information required from certain exempt organizations and certain trusts

§ 6109 - Identifying numbers

§ 6111 - Disclosure of reportable transactions

§ 6112 - Material advisors of reportable transactions must keep lists of advisees, etc.

§ 6114 - Treaty-based return positions

§ 6158 - Repealed. Pub. L. 101–508, title XI, § 11801(a)(44), Nov. 5, 1990, 104 Stat. 1388–521]

§ 6223 - Partners bound by actions of partnership

§ 6230 - Additional administrative provisions

§ 6231 - Notice of proceedings and adjustment

§ 6233 - Interest and penalties

§ 6241 - Definitions and special rules

§ 6245 - Secretarial authority

§ 6311 - Payment of tax by commercially acceptable means

§ 6323 - Validity and priority against certain persons

§ 6326 - Administrative appeal of liens

§ 6343 - Authority to release levy and return property

§ 6402 - Authority to make credits or refunds

§ 6404 - Abatements

§ 6411 - Tentative carryback and refund adjustments

§ 6689 - Failure to file notice of redetermination of foreign tax

§ 7216 - Disclosure or use of information by preparers of returns

§ 7502 - Timely mailing treated as timely filing and paying

§ 7508 - Time for performing certain acts postponed by reason of service in combat zone or contingency operation

§ 7520 - Valuation tables

§ 7624 - Reimbursement to State and local law enforcement agencies

§ 7701 - Definitions

§ 7804 - Other personnel

§ 7805 - Rules and regulations

Statutes at Large