Reg. § 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 (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 may be awarded, if at all, only under section of the Internal Revenue Code.
(b) Actual, direct economic damages
(1) Definition See .
(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 (see of this section), or, solely to the extent described in 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 .
(d) No civil action in federal bankruptcy court prior to filing an administrative claim
(1) In general Except as provided in of this section, no action under 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 of this section; or
(ii) The date that is six months after the date an administrative claim is filed in accordance with 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 of this section during the last six months of the period of limitations described in 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 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 , 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 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 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 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 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 , including attorneys fees, not recoverable under this section may be recoverable under section 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 (relating to net worth and size requirements), the taxpayer will be considered a prevailing party for purposes of section , 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 , 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 or 524.
(2) Administrative costs
(i) In general Administrative costs, as defined in , including attorneys' fees, not recoverable under this section may be recoverable under section . See .
(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 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.
The Tax Court
procedure
[T.D. 9050, 68 FR 14321, Mar. 25, 2003]