Tax News

CCH (cch.taxgroup.com) reports:

  The IRS violated a discharge injunction with respect to a debtor whose tax liability was not discharged in bankruptcy. The liability was not discharged because a period of three years, not including periods of equitable tolling, had not run between the date of filing of the debtor's income tax return and the date of filing of the bankruptcy petition.

  Although the IRS believed its collection activity was done in good faith, it nevertheless knowingly and willfully violated the discharge injunction and, therefore, was subject to damages arising from the violation. While the IRS acted within its discretion to establish a policy of adding an additional six months to the three-year look-back period, the law changed, and any action subsequently taken by the IRS to collect the discharged debt, although in good faith and in conformance with the IRS policy, was contrary to the law. Consequently, the IRS was liable for damages arising from the violation.

  Because the IRS affirmatively pleaded sovereign immunity and because the government had not waived sovereign immunity, the debtor could not be awarded punitive damages. The debtor was, however, entitled to monetary damages for any losses proximately caused by the violation of the discharge injunction. Finally, because the debtor only alleged a violation that had occurred in the past, and not a continuing violation, coercive sanctions against the IRS were not required.

In re S.L. Distad, BC-DC Utah, 2008-2 USTC ¶50,500

Other References:

 
Code Sec. 6503

  CCH Reference - 2008FED ¶39,032.15

 
Code Sec. 6871

  CCH Reference - 2008FED ¶40,630.15

  CCH Reference - 2008FED ¶40,630.175

  CCH Reference - 2008FED ¶40,630.38

  Tax Research Consultant

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