Shaw v. United States ( 1994 )

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
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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.
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III
For the foregoing reasons, the judgment of the district court
is
AFFIRMED.
7