IRS employees make mistakes like everybody else. But the IRS employees have special protections that average citizens do not enjoy. So, what can a taxpayer do if the IRS wrongfully attempts to collect income taxes discharged in bankruptcy by levying assets or filing notices of federal tax liens?
That issue was discussed in In re Broos, 534 B.R. 358 (8th Cir. BAP 2015). In Broos, the taxpayer filed bankruptcy and received a chapter 7 bankruptcy discharge long before the IRS attempted to levy the taxpayer’s assets and before the IRS filed a Notice of Federal Tax Lien. The IRS was provided notice of the bankruptcy and presumably notice of the chapter 7 bankruptcy discharge. Nonetheless, the IRS levied and liened.
The taxpayer filed an adversary lawsuit in the bankruptcy court and sought damages for violating the automatic stay and/or the bankruptcy discharge injunction. The lawsuit named as party-defendants the individual IRS employees involved in the levies and liens. The IRS opposed arguing that the employees should not be the named defendants and the IRS should be substituted as the proper party defendant.
The Broos court agreed with the IRS. The court noted the general rule that a taxpayer may not sue the United States or any of its officers and employees without a waiver of sovereign immunity. Congress provided such a wavier in 26 U.S.C. §7433(a) but only as to the United States and not as to its individual employees. Individual federal employees may not be sued for actions taken in the performance of their official duties. Any claims filed against the individual employees would be barred by sovereign immunity. Thus, the court granted the United States leave to be substituted as the property party defendants because Congress had waived sovereign immunity as to it.
Practice Pointer: Name the United States, and not the “Internal Revenue Service,” as the proper party defendant. Also, do sue the individual IRS employees who performed the objectionable acts because the employees are protected by sovereign immunity.
For follow-up questions, contact attorney Robert V. Schaller by clicking here.