Skip to Main Content
 

Tax Notes Today Quotes Christopher Rizek on Taxpayers' Rights to Damages

July 5, 2014, Tax Notes Today

Tax Notes Today quoted Christopher S. Rizek concerning unsuccessful civil actions made by taxpayers under section 7433, a provision within the Internal Revenue Code (IRC). Under the provision, taxpayers can seek damages against the IRS for unauthorized collection activities. Unfortunately strict legal hurdles have made it nearly impossible to bring a successful action. For the complete article, please visit Tax Notes Today's website (subscription required).

Excerpt taken from the article "A Taxpayer Right to Damages, Rendered a 'Toothless Tiger'" by Eric Kroh  for Tax Notes Today.

Christopher S. Rizek of Caplin & Drysdale said he was not surprised that taxpayers have met with little success bringing action under section 7433. Proving direct economic damages is a difficult bar to surpass, said Rizek, a former Treasury attorney-adviser and tax legislative counsel. The two-year statute of limitations is also strict, he said, adding that that doesn't necessarily mean that the provision is unfairly designed.

The government "can't just pass out $1,000 every time there's a foot fault" by the IRS, Rizek said. It is fair to require taxpayers to bring a timely claim and to prove that they were directly harmed by the actions of an agency employee before being awarded damages, he said.

Rizek said that according to his recollection, the provision was not controversial when lawmakers were considering it. It was "pretty much a consensus item," he said, adding, "I don't think anybody at Treasury or IRS viewed it as a huge, bad thing. If the Service engages in unauthorized collection activity, there should be a remedy for taxpayers." But that remedy should have safeguards to prevent frivolous actions, he said.

According to Rizek, there may be another reason that not many section 7433 claims are successful: The IRS may not perform many unauthorized collection activities in the first place.

"There are two potential conclusions one could draw" from the lack of successful claims, Rizek said. "One is that the provision is utterly ineffective, that it doesn't provide sufficient recompense to taxpayers who are the victims of unauthorized collection actions. The other alternative is maybe the IRS doesn't engage in an awful lot of unauthorized collection actions," he said, adding that the second reason is more likely.

The perfect penalty is never enforced because it deters the action it is meant to protect against, Rizek said. There are already many procedural requirements built into the collections process to deter unauthorized actions by IRS employees that act as safeguards, he said.

One thing that Congress could consider if it wants to make the provision more effective is to change the statute so there is a floor for damages, such as $1,000, Rizek said. "That might change the calculus a little bit," he said, adding that a taxpayer would still have to show that the IRS collection action was unauthorized.

________________________________________________

About Caplin & Drysdale
Having celebrated our 50th Anniversary in 2014, Caplin & Drysdale continues to be a leading provider of tax, tax controversy, and litigation legal services to corporations, individuals, and nonprofits throughout the United States and around the world. We are also privileged to serve as legal advisors to accounting firms, financial institutions, law firms, and other professional services organizations.

The firm's reputation over the years has earned us the trust and respect of clients, industry peers, and government agencies. Moreover, clients rely on our broad knowledge of the law and our keen insights into their business concerns and personal interests. Our lawyers' strong tactical and problem-solving skills - combined with substantial experience handling a variety of complex, high stakes, matters in a boutique environment - make us one the nation's most distinctive law firms.

With offices in New York City and Washington, D.C., Caplin & Drysdale's core practice areas include:

-Bankruptcy
-Business, Investment & Transactional Tax
-Complex Litigation
-Corporate Law
-Employee Benefits
-Exempt Organizations
-International Tax
-Political Law
-Private Client
-Tax Controversies
-Tax Litigation
-White Collar Defense

For more information, please visit us at www.caplindrysdale.com.

Washington, DC Office:
One Thomas Circle, NW
Suite 1100
Washington, DC 20005
202.862.5000
        New York, NY Office:
600 Lexington Avenue
21st Floor 
New York, NY 10022
212.379.6000

___________________________

Disclaimer
This communication does not provide legal advice, nor does it create an attorney-client relationship with you or any other reader. If you require legal guidance in any specific situation, you should engage a qualified lawyer for that purpose. Prior results do not guarantee a similar outcome.

Attorney Advertising
It is possible that under the laws, rules, or regulations of certain jurisdictions, this may be construed as an advertisement or solicitation.

© 2017 Caplin & Drysdale, Chartered
All Rights Reserved.

Related Professionals

Related Practices