[Code of Federal Regulations]
[Title 26, Volume 18]
[Revised as of April 1, 2011]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR301.7433-1]

[Page 588-590]
 
                       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. 301.7433-1  Civil cause of action for certain unauthorized collection actions.

    (a) In general. If, in connection with the collection of a federal 
tax with respect to a taxpayer, an officer or an employee of the 
Internal Revenue Service recklessly or intentionally , or by reason of 
negligence, disregards any provision of the Internal Revenue Code or any 
regulation promulgated under the Internal Revenue Code, such taxpayer 
may bring a civil action for damages against the United States in 
federal district court. The taxpayer has a duty to mitigate damages. The 
total amount of damages recoverable is the lesser of $1,000,000 
($100,000 in the case of negligence), or the sum of:
    (1) The actual, direct economic damages sustained as a proximate 
result of the reckless or international actions of the officer or 
employee; and
    (2) Costs of the action.

An action for damages filed in federal district court may not be 
maintained unless the taxpayer has filed an administrative claim 
pursuant to paragraph (e) of this section, and has waited for the period 
required under paragraph (d) of this section.
    (b) Actual, direct economic damages--(1) Definition. Actual, direct 
economic damages are actual pecuniary damages sustained by the taxpayer 
as the proximate result of the reckless or intentional, or negligent, 
actions of an officer or an employee of the Internal Revenue Service. 
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 are not recoverable as actual, 
direct economic damages. Litigation costs may be recoverable under 
section 7430 (see paragraph (h) of this section) or, solely to the 
extent described in paragraph (c) 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 
action taken by the officer or employee of the Internal Revenue Service, 
including costs incurred pursuing a civil action in federal district 
court under paragraph (a) of this section. The term litigation costs 
includes the following:
    (A) Court costs;
    (B) Expenses of expert witnesses in connection with a court 
proceeding;
    (C) Cost of any study, analysis, engineering report, test, or 
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 action taken by an officer or employee of the Internal 
Revenue Service, including costs incurred pursuing an administrative 
claim for damages under paragraph (e) 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 (b)(2)(i) of 
this section incurred pursuing administrative relief.
    (c) 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

[[Page 589]]

    (6) Compensation of court appointed experts and interpreters.
    (d) No civil action in federal district court prior to filing an 
administrative claim--(1) Except as provided in paragraph (d)(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 the decision is rendered on a claim filed in accordance 
with paragraph (e) of this section; or
    (ii) The date six months after the date an administrative claim is 
filed in accordance with paragraph (e) of this section.
    (2) If an administrative claim is filed in accordance with paragraph 
(e) of this section during the last six months of the period of 
limitations described in paragraph (g) of this section, the taxpayer may 
file an action in federal district court any time after the 
administrative claim is filed and before the expiration of the period of 
limitations.
    (e) Procedures for an administrative claim--(1) Manner. An 
administrative claim for the lesser of $1,000,000 ($100,000 in the case 
of negligence) or actual, direct economic damages as defined in 
paragraph (b) of this section shall be sent in writing to the Area 
Director, Attn: Compliance Technical Support Manager of the area in 
which the taxpayer currently resides.
    (2) Form. The administrative claim shall include:
    (i) The name, current address, current home and work telephone 
numbers and any convenient times to be contacted, and taxpayer 
identification number of the taxpayer making the claim;
    (ii) The grounds, in reasonable detail, for the claim (include 
copies of any available substantiating documentation or correspondence 
with the Internal Revenue Service);
    (iii) A description of the injuries incurred by the taxpayer filing 
the claim (include copies of any available substantiating documentation 
or evidence);
    (iv) The dollar amount of the claim, including any damages that have 
not yet been incurred but which are reasonably foreseeable (include 
copies of any available substantiating documentation or evidence); and
    (v) 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 taxpaper.
    (f) 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 (e) 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.
    (g) Period of limitations--(1) Time for 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) Right of action accrues. A cause of action under paragraph (a) 
of this section accrues when the taxpayer has had a reasonable 
opportunity to discover all essential elements of a possible cause of 
action.
    (h) 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 7433(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

[[Page 590]]

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 this paragraph, if the Internal Revenue Service does not 
respond on the merits to an administrative claim for damages within six 
months after the claim is filed, the Internal Revenue Service's failure 
to respond shall be considered a denial of the claim on the grounds that 
the Internal Revenue Service did not violate section 7433(a). 
Administrative costs, including attorney's fees incurred pursuing an 
administrative claim under paragraph (e) of this section, are not 
recoverable under section 7430.
    (i) Effective dates. The portions of this section relating to 
reckless or intentional acts are applicable to actions taken by Internal 
Revenue Service officials after July 30, 1996. The portions of this 
section relating to negligent acts are applicable to actions taken by 
the Internal Revenue Service officials after July 22, 1998.

[T.D. 8392, 57 FR 3536, Jan. 30, 1992; 57 FR 5931, Feb. 18, 1992, as 
amended by T.D. 9050, 68 FR 14320, Mar. 25, 2003]