CCA 200011049: Counsel found a corporate tax refund claim untimely and a collection damages suit too late

Plain-English summary

A taxpayer advocate asked Chief Counsel about employment taxes paid with a corporate check signed by a woman who said she had been threatened with seizure of her personal property. Counsel said she likely lacked standing to claim a refund because the corporation paid the taxes, and any refund claim was also too late. If the alleged threat occurred, it could have violated the collection rules, but a damages suit under section 7433 was outside the two year filing period. Counsel left open whether she would have standing for such a damages suit, since the taxes were assessed against the corporation.

Ruling snapshot

• Question: Could the woman recover the corporate tax payment or sue over the alleged collection threat?
• Outcome: Advice: the refund claim was untimely and a section 7433 damages suit was time barred; standing issues were also identified.
• Key authorities: IRC §§ 6511, 7422, 7433, 6321, 6331, and 6334.

Full text (IRS public release)

Office of Chief Counsel
Internal Revenue Service memorandum
Number: 200011049
Release Date: 3/17/2000
UIL: 20.02.03-00
9999.98-00
CC:EL:GL:B3/GL-707908-99

date: December 23, 1999
to: Taxpayer Advocate Stop 1006-OKC
Arkansas-Oklahoma District
Attn: , Taxpayer Advocate Specialist

from: District Counsel,
Arkansas-Oklahoma District

subject: Taxpayer:
EIN:

DISCLOSURE STATEMENT
This advice constitutes return information subject to I.R.C.
§ 6103. This advice contains confidential information subject to the attorney-client and deliberative process privileges and, if prepared in contemplation of litigation, is subject to the attorney work product privilege. Accordingly, the Taxpayer Advocate recipient of this document may provide it only to those persons whose official tax administration duties with respect to this case require such disclosure. In no event may this document be disclosed to Taxpayer Advocate personnel or other persons beyond those specifically indicated in this statement. This advice may not be disclosed to taxpayers or their representatives.

This advice is not binding on the Taxpayer Advocate and is not a final case determination. Such advice is advisory and does not resolve Service position on an issue or provide the basis for closing a case. The determination in this case is to be made through the exercise of the independent judgment of the Taxpayer Advocate.

ADVISORY OPINION

This responds to your request for a written opinion regarding
the request by
for the refund of the payment of
in Form 941 employment taxes relating to
for
(hereafter the taxes).

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ISSUES

1. Whether is entitled to the refund of $
   for the taxes that she paid on on behalf of

2. Whether has a cause of action against the United
   States under I.R.C. § 7433 for the reckless, intentional or negligent disregard of certain provisions of the Internal Revenue Code in collecting the taxes.

                         CONCLUSIONS
   

   It is doubtful that has standing to bring a suit
   for refund of the taxes because the corporation paid the taxes. The check was written on the corporate account and was signed by
   who was president of the corporation. had
   no personal liability for the taxes when the payment was made.
   Furthermore, even if had personally paid the taxes, she
   cannot get a refund because she did not file a timely claim for refund of the taxes.

           is also barred from filing a damage suit against
   

   the United States because the cause of action had accrued at least
   by when the taxes were paid. Section 7433(d)(3)
   requires that a damage suit under section 7433 must be brought within two years from the date the cause of action accrues.

                             FACTS
   
          , the husband of                  , owned a corporation
   

   known as (hereafter the corporation).
   The corporation provides

   In was diagnosed as having stomach
   cancer. He died in . alleges that she operated her own business and had nothing to do with her husband's business until just before he died. She states that when her husband became very ill, she and a bookkeeper were put on the bank signature card for the corporate account because her husband could no longer sign checks. She says that she signed checks when her husband asked her to do so, but claims that the office manager took care of the filing of federal tax returns and the payment of federal taxes.
   states that in a revenue officer
   appeared at the corporate office and demanded payment of
   approximately $ for the taxes. states that she
   was called at home and was asked to come to the office. After
   arriving, asserts that the revenue officer told her that
   she was responsible for the taxes since she had allowed the

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business to stay open and that if the taxes were not paid in seven days, the revenue officer would seize all of
property.

In a letter dated
, to the revenue officer,
C.P.A. wrote that was shocked to learn that the corporation had not paid the taxes and that she was willing to cooperate and to pay whatever the corporation owes. The C.P.A. asked the revenue officer to eliminate several penalties for reasonable cause. 1
admits that she has been the sole owner of the corporation and the president of the corporation since the tax period . The file contains a copy of a Form 940 return for the
corporation for that was signed by as president on
, and an 1120S corporate tax return for that
was signed by as president on In a
letter to the Service dated , , as president
of the corporation, advised the Service that the corporation in contracted with a leasing company to provide the corporation with its employees and to take care of the payroll and payroll taxes.
On
, the corporation paid the Service
as final payment of the taxes.
claims that
she mortgaged her personal residence to make this payment. The payment was made by a check on the corporate bank account and was signed by . The corporation’s current C.P.A. says that the payment of the taxes was not treated as a loan from to the corporation.
asserts that she was not responsible for the taxes and that she should not have been coerced into paying them. She claims that the revenue officer’s threat to seize all of her property scared her into paying the taxes. She contends that the corporation is not making any money and that she may be forced into bankruptcy.

DISCUSSION

Issue 1

It appears that
does not have standing to claim a
refund of the taxes. The United States has waived sovereign immunity to be sued for the recovery of a tax that has been erroneously or illegally assessed or collected. 28 U.S.C.

1
The transcripts indicate that the failure-to-deposit and
failure-to-pay penalties for
were later
abated.

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§ 1346(a)(1) (1993). Since waivers of sovereign immunity are strictly construed, the courts have generally limited refund actions to persons against whom a tax has been assessed, i.e. a taxpayer. United States v. Williams, 115 S. Ct. 1611, 1619 (1995). "Taxpayer" is defined in the Internal Revenue Code as a person "subject to any internal revenue tax." Section 7701(a)(14). In Williams the Court expanded this definition to include a person who was not liable for the tax, but who paid the tax because her property had been subjected to a federal tax lien for the tax. 115 S. Ct. at 1618.

It does not appear that
has standing to bring a
refund suit. The taxes at issue were assessed against the corporation, not . The taxes were in fact paid by the
corporation as
made the payment with a corporate
check. There is no evidence in the file to show that she was paying the taxes under protest in her individual capacity. Since she was owner and president of the corporation, it is arguable that she paid the taxes because she wished to continue the business, which she has done for over three years since the payment of the taxes. The C.P.A. who was assisting
at the time apparently advised her to pay the taxes. That she may have mortgaged her own property to pay the taxes does not make the taxes her personal liabilities.

Finally, even if
has standing to bring a refund
suit, she did not timely file a claim for refund of the taxes. A claim for refund must be made within three years of the filing of the return or within two years of the payment of the tax, whichever period expires later. Section 6511(a). The Form 941 returns for were filed on ,
, respectively. The three- year period for filing claims for refunds of the taxes expired on , respectively. The two-year period for filing a claim for refund
expired on
, two years after the payment of the
taxes on . did not file a claim for refund of the taxes within the prescribed time limit. Thus, she has no right to a refund of the taxes. Sections 7422(a), 6511(a).

Issue 2

Section 7433(a) states that if in connection with the collection of a federal tax, any officer or employee recklessly, intentionally or negligently disregards any provision of the Internal Revenue Code, the taxpayer may bring a civil suit for damages against the United States in federal district court.

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If the alleged threat to seize
personal property
is true, the revenue officer appears to have disregarded certain provisions of the Internal Revenue Code. 2 The revenue officer
did not have the power to seize all of
property
because section 6334(a) exempts certain property from levy. The revenue officer did not have the right in
to seize
any of
property to collect the taxes because the
taxes had not been assessed against her. The Service may only seize property that is owned by the taxpayer or upon which there is a tax lien, i.e. the taxpayer owned the property when the tax lien attached, but has transferred the property to a third party. Section 6331(a). The tax lien arises upon the assessment of the tax against the taxpayer. Section 6321. Thus, the alleged
threat to seize
property if the taxes were not paid
disregarded sections 6334(a), 6321 and 6331(a). If the alleged threat were made recklessly, intentionally or negligently,

2
If the allegation is true, the revenue officer may have committed a tort against . However, the United States cannot be sued for torts arising in respect of the assessment or collection of taxes. 28 U.S.C. § 2680(c) (1994). See Perkins v. United States, 55 F.3d 910, 916 (4th Cir. 1995) in which the Court held that there was not an implied waiver of sovereign immunity for especially egregious and willful violations of law by a revenue officer in collecting federal taxes. Furthermore,
it appears that
cannot sue the revenue officer for
damages for the alleged intimidating conduct of the revenue officer or for any alleged violations of the Internal Revenue Code by the revenue officer in collecting taxes because I.R.C.
§ 7433(a) is the exclusive remedy for the reckless, intentional or negligent disregard of the Internal Revenue Code and for any constitutional due process violations. Fishburn v. Brown, 125 F.3d 979, 982 (6th Cir. 1997); McMillen v. U.S. Dept. of Treasury, 960 F.2d 187, 190 (1st Cir. 1991); Parham v. Lamar, 1 F. Supp. 2d 1457, 1460 (M.D. Fla. 1998); Barron v. United States, 998 F. Supp. 117, 119-21 (D.N.H. 1998); Stephenson v. United States, 961 F. Supp. 221, 223 (W.D. Ark. 1996); Brown v. Johnson, 889 F. Supp. 355, 357 (W.D. Ark. 1995). See also Wages v. IRS, 915 F.2d 1230, 1235 (9th Cir. 1990), cert. denied, 111 S. Ct. 986 (1991); National Commodity & Barter Ass'n v. Gibbs , 886 F.2d 1240, 1248 (10th Cir. 1989), in which the courts held that damage actions cannot be brought against IRS employees for their actions in collecting taxes because the taxpayers had the right to sue for refund and other statutory procedures to protect their rights.

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CC:MSR:AOK:OKL:GL-707908-99 would have the right to bring a damage suit against the United States under section 7433. 3

However, it is too late for
to bring such a suit.
Section 7433(d)(3) states that a suit must be brought within two years from the date the cause of action accrues. A cause of action accrues when a taxpayer has had a reasonable opportunity to discover all the elements of a possible cause of action. Treas. Reg. § 301.7433-1(g)(2). The alleged threat to seize all
property occurred in
and the taxes were
paid on
. A cause of action accrues
under section 7433 when the taxpayer knows or should know the critical facts regarding the claim. Dziura v. United States, 168 F.3d 581, 583 (1st Cir. 1999). The critical facts should have
been known by
at least by the time the taxes were paid
on
. Thus, a suit for damages against the
United States under section 7433 in connection with the collection of the taxes must have been filed by . Section 7433(d)(3).
We are closing our case.

_________

District Counsel

Attachment:
Taxpayer Advocate file

c: ARC(GL), MSR

3
Whether
has standing to bring such a suit is
an issue because the taxes were not assessed against her. But see Southland Forming, Inc. v. United States , 98-1 U.S.T.C.
¶ 50,155 at 83,186 (S.D. Fla. 1998) in which the Court held that a corporation that the Service had determined to be an alter ego of the taxpayer had standing to bring a suit under section 7433.