The Internal Revenue Service (IRS) is the official government agency responsible for collecting taxes and enforcing tax laws in the United States. Despite its critical role in our society, the IRS is not immune to making mistakes or causing frustration among taxpayers. Can you sue the IRS for damages if they make an unfavorable decision against you? In this blog post, we’ll explore the possibility of suing the IRS and what factors you should consider before taking legal action. Learn about your legal options for taking the IRS to court. Find out if it’s the right choice for you as an individual taxpayer or business owner.
1. Yes, You Can Sue the IRS
Yes, you can sue the IRS. The rules for suing the IRS in tax vs. Federal court differ, and typically to sue the IRS in Tax Court, the petitioner simply has to meet the timelines for filing. Conversely, to sue the IRS in Federal Court, the complainant will typically have to pay the outstanding amount and sue for a refund and/or wait to be sued by the IRS and file a counter-lawsuit. Filing in tax court allows a person to fight back against penalties or taxes that were assessed without first having to pay them and then sue for a refund. Tax court does not require a person to be represented by an attorney; they can represent themselves or use an Enrolled Agent or CPA who has not obtained licensure as an attorney. However, it's important to note that a non-attorney representative may be forced to disclose confidential information that the taxpayer may view as privileged under the attorney-client privilege. Appeals can be made to court by taxpayers who disagree with IRS decisions, and the Taxpayer Bill of Rights 5 ensures taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions. Taxpayers also have the right to take their cases to court, ensuring an independent forum to dispute proposed adjustments in tax court, file a refund suit, and sue the IRS in either Federal Court or the District Court. [1][2]
2. Technical Issues You Can Sue Over
Moving on to the technical issues that can lead to suing the IRS, it's important to note that taxpayers have the right to hold the IRS accountable for its actions. When the IRS violates the law through intentional or negligent conduct, taxpayers have the option to file a lawsuit against the agency and recover damages. Section 7433 of the IRS Code provides taxpayers with this ability - it allows them to sue the IRS and seek relief for specific unlawful conduct that caused them damages. Such conduct may include wrongful levies, wrongful disclosures of private information, unauthorized collection actions, and other such acts that caused damage to taxpayers. However, before filing a lawsuit, taxpayers must exhaust their administrative remedies by submitting a claim for damages with the IRS. If the IRS denies the claim or doesn't respond within six months, then taxpayers may file a lawsuit under Section 7433. While it may seem daunting to file a lawsuit against a federal agency, taxpayers have the right to seek justice and hold the IRS accountable for its actions. [3][4]
3. What is the IRS?
The Internal Revenue Service (IRS) is a United States government agency responsible for administering and enforcing the country's tax laws. It is a division of the Department of the Treasury and its main goal is to ensure that taxpayers pay their fair share of taxes and comply with their tax obligations. The IRS is responsible for processing tax returns, conducting audits, and collecting taxes owed by taxpayers. It also enforces tax laws by investigating tax crimes and pursuing legal action against tax evaders. Understanding the role and functions of the IRS is important for taxpayers who want to ensure compliance with the law and avoid penalties and legal action. In some cases, taxpayers may need to take legal action against the IRS, and seeking legal representation can be essential for success in such scenarios. [5][6]
4. When to Sue for Tax Refund Denial
If timely filed your tax return and paid all your taxes in full, but the IRS disregards or denies your rightful claim to a tax refund, you can sue them in a United States District Court or in the United States Court of Federal Claims. This is the most common reason to sue the IRS, and you should be aware that there is a time limit to file a refund lawsuit, so act quickly. However, before you sue, you usually need to exhaust all your administrative remedies. This means 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. If the IRS denies your claim due to your own filing errors, a direct appeal may give you an opportunity to correct the mistake. Only after exhausting all these options and facing an unsuccessful outcome should you consider suing. [7][8]
5. How to Exhaust Administrative Remedies
When with the IRS, taxpayers often face situations where administrative remedies have been exhausted, and they need to pursue legal action to recover damages caused by the IRS's conduct. One such legal remedy is under Section 7433, which provides for taxpayer lawsuits against the IRS for intentional or negligent violations of tax laws. In cases such as Chowns Fabrication & Rigging Inc. v. United States, taxpayers can recover damages in addition to those provided by Congress. To pursue this litigation route, the taxpayer must first exhaust administrative remedies, which are outlined in the regulations. It should be noted that damages are subject to caps of $1 million for intentional acts and $100,000 for negligent acts. While the process may seem daunting, seeking legal representation can help ensure success in these types of cases. [9][10]
6. Legal Scenario: Certified Professional Accountant
In some situations, having a certified professional accountant (CPA) or tax preparer by your side during legal proceedings with the IRS may not be enough. While a certified professional accountant is certainly qualified to assist with tax laws and returns, an enrolled agent may be better equipped to handle confrontations with tenacious IRS personnel. These special advocates can ensure that all your rights are protected if you are in any tax case with the IRS. If you get a Notice of Deficiency that says you have to pay more taxes, you can file a petition in Tax Court or challenge the extra tax assessment in court. However, to make sure that you truly owe more in tax, you might want to contact the IRS to explain your position before trying to sue them. It is important to exhaust all your administrative remedies before filing a lawsuit against the IRS, especially when it comes to recovering your rightful refund or disputing unfair penalties. [11][12]
7. How to Sue If You Receive a Notice of Deficiency
If receive a Notice of Deficiency from the IRS, you may want to dispute the proposed adjustments that the IRS made to your tax return. The Notice of Deficiency is your legal notice that the IRS is proposing a deficiency or balance due, and it provides you with information about your right to challenge the proposed adjustments in the Tax Court by filing a petition within 90 days of the date of your notice. If you want to dispute the adjustments, you should review the complete audit report enclosed with your notice and determine if you agree or disagree with the proposed changes. If you disagree, you can file a petition with the Tax Court or seek legal representation to help you navigate the legal process. The Tax Court encourages petitioners to electronically file petitions, and it has simplified procedures for taxpayers whose amount in dispute including applicable penalties is $50,000 or less per tax year. [13][14]
8. Understanding Differences in Court Options
8. Understanding Differences in Court Options: When it comes to suing the IRS, it is important to understand the different options available for taking legal action. The federal government, in certain circumstances, waives its sovereign immunity from lawsuits. The United States Tax Court, a federal trial court intended to give taxpayers a fair hearing, is one option for appealing an unfavorable IRS audit ruling. Taxpayers can also sue the IRS, but only for technical matters such as collecting a refund. If a favorable ruling is not received in the U.S. Tax Court, taxpayers may be able to petition for a hearing in another federal court, such as a U.S. District Court or a U.S. Court of Federal Claims. It is also important to note that approximately 85% of tax court cases reach a settlement before even going to trial. [15][16]
9. How to Dispute Unfair IRS Penalties
9 How to Dispute Unfair IRS Penalties
If taxpayers believe they have received an unfair penalty from the IRS, there are several steps they can take to dispute it. First, taxpayers have the right to an administrative appeal of most IRS decisions, including many penalties, as outlined in the Taxpayer Bill of Rights 5. This includes the right to receive a written response regarding the Office of Appeals’ decision, which is independent of the IRS office that initially reviewed the case. If necessary, taxpayers generally have the right to take their cases to court. For example, taxpayers can file a petition with the United States Tax Court to dispute a proposed adjustment in tax before they have to pay the tax. Additionally, taxpayers can file a refund suit if the IRS denies their tax refund claim or takes no action on the claim within six months. It’s important for taxpayers to remember they have the right to dispute any penalties they believe are unfair. [17][18]
10. Seeking Legal Representation for Success
Seek Legal Representation for Success:
If you feel that you have been wrongly accused by the IRS, you have the right to appeal their decision in an independent forum. The Taxpayer Bill of Rights 5 grants you the right to a fair and impartial administrative appeal of most IRS decisions, including many penalties. You also have the right to receive a written response regarding the Office of Appeals’ decision. If you don’t agree with the IRS’s findings, the publication tells you how to appeal your tax case. Additionally, if the IRS denies your tax refund claim or takes no action on it within six months, you may file a refund suit. However, you generally have only two years to file a refund suit from the date the IRS mails you a notice that denies your claim. Seeking the support of low-income taxpayer clinics or tax experts can also help you settle a dispute with the IRS. With the Taxpayer Bill of Rights, the IRS offers a clear, accessible explanation of taxpayers’ rights. [19][20]