Written by attorney A. Izaak Bozof

Sue the IRS?

Suing the IRS

The Internal Revenue Service was once virtually immune from lawsuits, even when it engaged in questionable practices. This has changed, but it is still difficult to sue the IRS. However, if you feel you've been wronged by the IRS, it is recommended you seek the help from a tax attorney to file suit.

If you feel the IRS has wronged you, there are important things to know regarding federal tax law. The United States Tax Court handles most of this litigation and allows taxpayers to litigate their tax disputes without paying the tax liability up front.

One group that can sue the IRS is those who have been caught in a computer that is issuing automated demands for a payment when, in fact, you are entitled to a refund. You might then find that you have no choice but to sue to avoid paying out money for no reason.

Another group that can sue includes suits against the IRS for those damages resulting from an IRS employee's reckless or intentional disregard of the tax collection procedures. These courts also allow a taxpayer to sue for damages resulting from the IRS's failure to release a lien on property. IRS agents are bound by law to follow the Internal Revenue Manual (IRM) and can lose their job if they do not.

You should speak with an experienced tax lawyer if you have any questions regarding the validity of your claim and for advice and representation regarding how to sue the IRS.

Potential Recovery in a lawsuit against the IRS

It has been estimated that the IRS wrongfully collected up to $7 billion in penalties it assessed in 1989 but were not owed by taxpayers -- 20 years ago.

The IRS could be collecting thousands of dollars from you that you in fact do not owe.

In 1993, Rohm & Haas, a chemical manufacturer, sent the IRS a check for $4,448,112 for payroll taxes; the IRS claimed the check was ten cents short and penalized the company more than $46,000.

The company assigned a team of accountants to the dispute, and after five months, the IRS dropped the penalty but without explaining or apologizing for its action. If this had not been taken to court, the company would have lost almost $50,000.

In 1996, a new Taxpayers Bill of Rights increased the maximum amount of actual damages, which the taxpayer can recover from $100,000 to $1 million.

Federal Tax Law

In 1996, Congress revised the Taxpayer Bill of Rights, originally passed in 1988. The new law, Taxpayer Bill of Rights 2, adds about 40 new procedural rights. Some are technical and have limited applications, while others constitute significant additions to the rights of taxpayers.

Taxpayer Advocate

The Taxpayer Advocate has been renamed and given enhanced powers. The Taxpayer Advocate is an independent representative of taxpayers' interests before the IRS. The duties of the office are to assist individual taxpayers in resolving problems with the IRS; identify areas in which taxpayers commonly have difficulties dealing with the IRS; and propose possible administrative and legislative changes that may mitigate such problems.

The Taxpayer Advocate must make annual reports to Congress containing, among other things, a summary of at least 20 of the most serious problems affecting taxpayers.

Collection Powers

Claims of abusive practices of the IRS often arise from the exercise of its broad collection powers. For example, it is sometimes next to impossible to have a tax lien removed or to have levied property returned for any reason short of full payment of the claimed tax liability.

The 1996 update gives the IRS authority to loosen this grip on taxpayer property for various reasons, including IRS noncompliance with administrative procedures, the execution of an installment payment agreement, or general findings that withdrawing the lien or returning the property would facilitate collection of the tax or would be in the best interests of the taxpayer and the government.

Taxpayer Lawsuits

When taxpayers do resort to suing the IRS for reckless and intentional disregard concerning the collection of taxes, they will carry more ammunition into battle. The 1996 update increased the maximum amount of actual damages, which the taxpayer can recover from $100,000 to $1 million.

Failure to exhaust all possible administrative remedies will now result only in a possible reduction in damages awarded, not the dismissal of the lawsuit.

With these new enhanced powers for taxpayers, if you feel the IRS has wronged you in any way regarding your taxes, contact a local tax attorney to find out your rights and options.

B & B Law Group can represent you in a matter before the IRS: Audits, Examinations, Collections, Civil Penalty disputes. If you are being contacted by the IRS for a tax liability that you have paid or you believe is wrongly assigned, you should act fast!

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