Can I Sue the IRS?
Yes, you can sue the Internal Revenue Service (IRS) in federal tax court for limited issues relating to your tax refund claim, an audit from the IRS, or a countersuit in response to the IRS suing you in the United States Tax Court for unpaid taxes. Keep in mind these are all technical matters for which you can sue. Because the United States government has sovereign immunity, you can't sue the IRS for other things like emotional distress.
If you don't already know, the IRS is the tax collection arm of the federal government. IRS agents have power under the Internal Revenue Code (IRC) to verify your tax liability and to make sure that you have paid the correct amount of income tax that you owe.
Sometimes, it's not enough to have a certified professional accountant (CPA) or tax preparer on your side when you're going through an IRS audit. A tax lawyer is a specific kind of taxpayer advocate that can ensure you are afforded the full protection of your rights in any tax case where you are up against unforgiving IRS employees.
Tax Refund Claim Denied? You Can Sue.
The most common reason to sue the IRS would be to recover your tax refund.
For example, if you timely filed your tax return and fully paid your taxes last year, and the IRS outright disregards or denies your rightful claim to a tax refund, you can sue them in a United States District Court or the United States Court of Federal Claims. You should be aware that there is a statute of limitations to file a refund lawsuit a certain amount of time from the date you receive an IRS denial notice, so act quickly.
Before you sue, you usually need to exhaust all your administrative remedies. This means that you have to make a reasonable and good-faith attempt at contacting the IRS and explaining to them why you believe you are owed a tax refund. For example, if the IRS denies your tax refund because of your own filing errors, a direct appeal to the IRS would give you an opportunity to correct the mistake. If you sue prematurely only to find out that your money was withheld because of your own failure to properly add up your income and expenses, you might lose your case.
Suppose that a certified professional accountant files your taxes, crossing their Ts and dotting all their Is along the way to ensure that there are no mistakes whatsoever on the filing. According to the CPA, the IRS should mail you a check for $2,000. Months go by, and the IRS sends you a denial letter stating that your CPA's calculations are incorrect and that you are not owed any refund. You and your CPA then call up the IRS and appeal to them directly to try and refute the IRS' incorrect position. The IRS stands its ground and refuses to budge.
At this point, because you have tried to resolve the problem administratively and still haven't had any success, you may be able to sue the IRS.
Did the IRS Send You a Notice of Deficiency? You Can Sue.
A Notice of Deficiency is a proposal from the IRS that the amount of taxes you owe needs to be adjusted upwards. This is also known as a 90-day letter because you get 3 months (or a more generous 150 days if you're abroad) from the notice date to file a petition against the IRS in Tax Court or in appropriate federal district courts, challenging the additional tax assessment that the IRS has made against you.
Between the time that you receive the letter and file your petition in tax court, you can and should of course contact the IRS to make sure that you actually owe more in tax. If you have a good reason for disputing the notice and the IRS is unwilling to listen to you, getting your case in front of a judge might be your best option.
If you ignore a notice of deficiency, the IRS may begin collection actions against you. You should avoid this at all costs, as it could result in the payment of penalties and interest, not to mention that your property may be seized by the government to satisfy any alleged tax deficiency.
Property Wrongfully Seized? You Can Sue.
The law states that if any officer or employee of the Internal Revenue Service recklessly, intentionally, or negligently disregards the law in initiating a wrongful collection of tax against you, you can bring a civil action for damages against the United States in federal district court.
For instance, suppose that you've correctly filed your taxes normally every year without any problems, and you've always duly paid all sums that you owed to the government. Still, you wake up one day finding out that your wages have been garnished by the IRS and money is missing from your bank account.
After investigating the problem, you discover that the IRS mistook you for someone with a similar name and seized your money in error. In court, you argue that the IRS was negligent in wrongfully collecting tax that you did not owe because they took your property without any prior warning or legal justification. The key here is that you can sue because the IRS' collection action was wrongful, that is, they didn't exercise due diligence in ensuring that you're actually the blameworthy citizen and not just someone with a similar-sounding name.
What Can Be Recovered
In cases where you can sue and win against the IRS, your remedies may be:
- Case costs and attorney's fees
- Actual economic damages
- In some cases, a flat penalty per each IRS violation
There are usually caps (limits) placed by law on each of the items above. For instance, penalties for unauthorized disclosures by the IRS are limited to $1,000 per occurrence, negligently wrongful collection actions are penalized at a cap of $100,000, and fines for reckless collection actions by the IRS are capped at $1,000,000.
For example, let's say an IRS employee wrongfully taps into your bank account and draws your entire balance of $10,000.00 even after you correctly explained to them that you don't owe the IRS any money. Your account goes into overdraft and the bank charges you a $50 fee. It turns out that in the course of emptying out your bank account, the IRS employee also negligently made an unauthorized disclosure of your bank information to a non-bank employee. You end up spending $1000 on court filing fees and $4000 on attorney fees.
Here, your potential recovery may be:
- $5,000 for your court and attorney's fees
- $10,050 for your actual economic damages
- $1,000 penalty for the IRS employee's unauthorized disclosure of your bank information
- Additional penalties if the employee was reckless or negligent in wrongfully collecting
Ultimately, the court will have the discretion to reduce these amounts to what is reasonable under the eyes of the law. For example, to obtain recovery for court costs and attorney's fees, you must show:
- Your costs were reasonably incurred.
- You tried to resolve the problem through administrative means, e.g. by appealing to the IRS directly before you filed in court.
- In court, you actually prevailed against the IRS.
Depending on the facts of your case and your individual circumstances, there may be additional restrictions.
A Tax Attorney Can Help
Tax law is an incredibly frustrating area of the legal system, and if you're up against the IRS, you should be aware of your due process rights before you get caught up in tax litigation or end up having your bank account frozen or seized by the IRS. An experienced tax attorney can directly negotiate on your behalf with the IRS or represent you in the U.S. tax court system if you're in a position to have to sue or defend against the IRS.
Even if you've already lost against the IRS in the U.S. Court of Federal Claims or U.S. District Court, a tax lawyer may be able to get your case in front of the U.S. Court of Appeals so that another judge can look at it and ensure that you weren't deprived of your rights. When all else fails, a good legal advocate can also help you get the best payment plan with the IRS even in more difficult circumstances where you can't get out of a tax assessment.
Was this helpful?