[Code of Federal Regulations]

[Title 26, Volume 18]

[Revised as of April 1, 2006]

From the U.S. Government Printing Office via GPO Access

[CITE: 26CFR301]

[Page 545-547]

TITLE 26--INTERNAL REVENUE

CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY

(CONTINUED)

PART 301_PROCEDURE AND ADMINISTRATION--Table of Contents

Judicial Proceedings

Sec.301.7432-1 Civil cause of action for failure to release a lien.

(a) In general. If any officer or employee of the Internal Revenue

Service knowingly, or by reason of negligence, fails to release a lien

on property of the taxpayer in accordance with section 6325 of the

Internal Revenue Code, such taxpayer may bring a civil action for

damages against the United States in federal district court. The total

amount of damages recoverable is the sum of:

(1) The actual, direct economic damages sustained by the taxpayer

which, but for the officer's or the employee's knowing or negligent

failure to release the lien under section 6325, would not have been

sustained; and

(2) Costs of the action.

The amount of actual, direct economic damages that are recoverable is

reduced to the extent such damages reasonably could have been mitigated

by the plaintiff. An action for damages filed in federal district court

may not be maintained unless the taxpayer has filed an administrative

claim pursuant to paragraph (f) of this section and has waited the

period required under paragraph (e) of this section.

(b) Finding of satisfaction or unenforceability. For purposes of

this section, a finding under section 6325(a)(1) that the liability for

the amount assessed, together with all interest in respect thereof, has

been fully satisfied or has become legally unenforceable is treated as

made on the earlier of:

(1) The date on which the district director of the district in which

the taxpayer currently resides or the district in which the lien was

filed finds full satisfaction or legal unenforceability; or

(2) The date on which such district director receives a request for

a certificate of release of lien in accordance with Sec. 401.6325-1(f),

together with any

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information which is reasonably necessary for the district director to

conclude that the lien has been fully satisfied or is legally

unenforceable.

economic damages are actual pecuniary damages sustained by the taxpayer

that would not have been sustained but for an officer's or an employee's

failure to release a lien in accordance with section 6325 of the

Internal Revenue Code. Injuries such as inconvenience, emotional

distress and loss of reputation are compensable only to the extent that

they result in actual pecuniary damages.

(2) Litigation costs and administrative costs not recoverable.

Litigation costs and administrative costs described in this paragraph

are not recoverable as actual, direct economic damages. Litigation costs

may be recoverable under section 7430 (see paragraph (j) of this

section) or, solely to the extent described in paragraph (d) of this

section, as costs of the action.

(i) Litigation costs. For purposes of this paragraph, litigation

costs are any costs incurred pursuing litigation for relief from the

failure to release a lien, including costs incurred pursuing a civil

action in federal district court under paragraph (a) of this section.

Litigation costs include the following:

(A) Court costs;

(B) Expenses of expert witnesses in connection with a court

proceeding;

project prepared for a court proceeding; and

(D) Fees paid or incurred for the services of attorneys, or other

individuals authorized to practice before the court, in connection with

a court proceeding.

(ii) Administrative costs. For purposes of this section,

administrative costs are any costs incurred pursuing administrative

relief from the failure to release a lien, including costs incurred

pursuing an administrative claim for damages under paragraph (f) of this

section. The term administrative costs includes:

(A) Any administrative fees or similar charges imposed by the

Internal Revenue Service; and

(B) Expenses, costs, and fees described in paragraph (c)(2)(i) of

this section incurred in pursuing administrative relief.

(d) Costs of the action. Costs of the action recoverable as damages

under this section are limited to the following costs:

(1) Fees of the clerk and marshall;

(2) Fees of the court reporter for all or any part of the

stenographic transcript necessarily obtained for use in the case;

(3) Fees and disbursements for printing and witnesses;

(4) Fees for exemplification and copies of paper necessarily

obtained for use in the case;

(5) Docket fees; and

(6) Compensation of court appointed experts and interpreters.

(e) No civil action in federal district court prior to filing an

administrative claim--(1) Except as provided in paragraph (e)(2) of this

section, no action under paragraph (a) of this section shall be

maintained in any federal district court before the earlier of the

following dates:

(i) The date a decision is rendered on a claim filed in accordance

with paragraph (f) of this section; or

(ii) The date 30 days after the date an administrative claim is

filed in accordance with paragraph (f) of this section.

(2) If an administrative claim is filed in accordance with paragraph

(f) of this section during the last 30 days of the period of limitations

described in paragraph (i) of this section, the taxpayer may file an

action in federal district court anytime after the administrative claim

is filed and before the expiration of the period of limitations, without

waiting for 30 days to expire or for a decision to be rendered on the

claim.

(f) Procedures for an administrative claim--(1) Manner. An

administrative claim for actual, direct economic damages as defined in

paragraph (c) of this section shall be sent in writing to the district

director (marked for the attention of the Chief, Special Procedures

Function) in the district in which the taxpayer currently resides or the

district in which the notice of federal tax lien was filed.

(2) Form. The administrative claim shall include:

(i) The name, current address, current home and work telephone

numbers

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and any convenient times to be contacted, and taxpayer identification

number of the taxpayer making the claim;

(ii) A copy of the notice of federal tax lien affecting the

taxpayer's property, if available;

(iii) A copy of the request for release of lien made in accordance

with Sec. 401.6325-1(f) of the Code of Federal Regulations, if

applicable;

(iv) The grounds, in reasonable detail, for the claim (include

copies of any available substantiating documentation or correspondence

with the Internal Revenue Service);

(v) A description of the injuries incurred by the taxpayer filing

the claim (include copies of any available substantiating documentation

or evidence);

(vi) The dollar amount of the claim, including any damages that have

not yet been incurred but that are reasonably foreseeable (include

copies of any available substantiating documentation or evidence); and

(vii) The signature of the taxpayer or duly authorized

representative.

For purposes of this paragraph, a duly authorized representative is any

attorney, certified public accountant, enrolled actuary, or any other

person permitted to represent the taxpayer before the Internal Revenue

Service who is not disbarred or suspended from practice before the

Internal Revenue Service and who has a written power of attorney

executed by the taxpayer.

(g) Notice of failure to release lien--An administrative claim under

paragraph (f) of this section shall be considered a notice of failure to

release a lien.

(h) No action in federal district court for any sum in excess of the

dollar amount sought in the administrative claim--No action for actual,

direct economic damages under paragraph (a) of this section shall be

instituted in federal district court for any sum in excess of the amount

(already incurred and estimated) of the administrative claim filed under

paragraph (f) of this section, except where the increased amount is

based upon newly discovered evidence not reasonably discoverable at the

time the administrative claim was filed, or upon allegation and proof of

intervening facts relating to the amount of the claim.

(i) Period of limitations--(1) Time of filing. A civil action under

paragraph (a) of this section must be brought in federal district court

within 2 years after the date the cause of action accrues.

(2) Cause of action accrues. A cause of action accrues when the

taxpayer has had a reasonable opportunity to discover all essential

elements of a possible cause of action.

(j) Recovery of costs under section 7430--Reasonable litigation

costs, including attorney's fees, not recoverable under this section may

be recoverable under section 7430. If following the Internal Revenue

Service's denial of an administrative claim on the grounds that the

Internal Revenue Service did not violate section 7432(a), a taxpayer

brings a civil action for damages in a district court of the United

States, and establishes entitlement to damages under this section,

substantially prevails with respect to the amount of damages in

controversy, and meets the requirements of section 7430(c)(4)(A)(iii)

(relating to notice and net worth requirements), the taxpayer will be

considered a ``prevailing party'' for purposes of section 7430. Such

taxpayer, therefore, will generally be entitled to attorney's fees and

other reasonable litigation costs not recoverable under this section.

For purposes of the paragraph, if the Internal Revenue Service does not

respond on the merits to an administrative claim for damages within 30

days after the claim is filed, the Internal Revenue Service's failure to

respond shall be considered a denial of the administrative claim on the

grounds that the Internal Revenue Service did not violate section

7432(a). Administrative costs, including attorney's fees incurred

pursuing an administrative claim under paragraph (f) of this section,

are not recoverable under section 7430.

(k) Effective date--This section applies with respect to civil

actions under section 7432 filed in federal district court after January

30, 1992.

[T.D. 8393, 57 FR 3539, Jan. 30, 1992; 57 FR 6061, Feb. 19, 1992]

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