Can You Sue the IRS? Yes But Only in Certain Situations
You can bring a lawsuit against the Internal Revenue Service (IRS), but only in certain situations. For instance, you can sue the agency if it has erroneously seized your property, but you cannot sue the IRS because you think taxes on unconstitutional. Additionally, in most cases, you can only bring a lawsuit forward if you have exhausted the administrative claims process.
Thinking about taking the IRS to court? Wondering about your rights? Or curious about the legal process? Then, use TaxCure to find a tax lawyer today or keep reading to learn about the basics.
What Does Suing the IRS Mean?
Suing the IRS is when you bring a lawsuit against the agency to force it to take action or give you something in response to treating you unfairly or harming you. For instance, if the IRS denies your tax refund, you can bring forward a lawsuit to demand the refund. Or if the agency hurts you economically by wrongfully taking money out of your bank account, you can sue to recover your losses.
Can You Sue the IRS for Pain and Suffering?
You cannot sue the IRS for pain and suffering because the agency has sovereign immunity. This concept means that governments cannot be sued without their consent, and in fact, the only reason that you can sue the IRS is because there are exceptions to the doctrine of sovereign immunity.
To be fair to the people, the IRS has waived its sovereign immunity for cases related to property on which the United States has a lien and with respect to procedural violations related to tax assessments, levies, seizures, or sales of assets.
What Can You Recover If You Sue the IRS?
Lawsuits are designed to allow injured parties to recover damages. If you sue the IRS, you may be able to recover economic damages, case costs, and attorney fees.
To give you an example, imagine that the IRS incorrectly seized $10,000 out of your bank account. Due to your account being depleted, you incurred $390 worth of overdraft fees. You also incurred late fees from the vendors whose checks bounced in the amount of $250. Then, you spent $700 on court fees and $5,000 on attorney fees.
If you win your lawsuit, you should be able to reclaim $10,640 for direct economic damages. You should also be able to recover $5,700 for court costs and attorney fees. You will need to be able to illustrate your losses and expenses to complete your claim.
The amount of damages is capped at the lesser of the following:
- The sum of actual, direct economic damages plus legal costs.
- $1 million if the damages were caused by reckless or intentional disregard of the law or $100,000 if negligence was involved.
However, there are limits on the attorney costs that you may be able to recover. Under IRC 7430, you can only recover legal costs and court fees if your net worth is $2 million or under for an individual or $7 million and under for a corporation. Additionally, in 1998, Congress capped hourly fees at $125/hour and indexed the cap to inflation. To ensure you will be able to recover your court costs and fees, talk with a tax attorney about your unique situation.
Reasons You Can Sue the IRS
You can bring lawsuits against the IRS for a few different issues, including the following:
- Denial of a tax refund.
- Notice of Deficiency.
- Incorrect tax assessments.
- Procedural mistakes or negligence in the tax collection process.
- Illegal collection practices.
- Refusal or failure to release liens or levies as directed by the law.
- Erroneous jeopardy levies or assessments.
- Illegal collection practices.
- Wrongful seizure of property.
- Failure to provide due process.
- Violation of your taxpayer rights.
- Tort charges for money damages
- Disallowance of interest of abatement claim.
- If the IRS failed to make a decision about an interest abatement request within 180 days.
- Employee/freelance classification issues.
- To appeal rejected requests for innocent spouse relief.
- If the IRS fails to respond to your innocent spouse relief claim within six months.
- Determination about whistleblower actions.
Note there is some overlap in the issues noted above, but these items have been listed in this way to ensure that readers see their issue regardless of the exact verbiage they are using.
You cannot bring forward a lawsuit to restrain the assessment or collection of taxes. That simply means that you cannot sue the IRS to delay collection activities or to try to avoid a tax bill. However, there are a few exceptions outlined below.
When Can You Use a Lawsuit to Stop Collection Actions?
Generally, you cannot sue the IRS to stop the government from collecting or assessing taxes. However, there are several exceptions to this rule. In the following situations, the courts will stop the IRS from collecting or assessing a tax against you:
- You are requesting relief from joint and several liability on a jointly filed tax return.
- The IRS attempted to collect the tax less than 90 days after issuing the Notice of Deficiency.
- The IRS attempted to assess, collect, or adjust partnership taxes less than 90 days after issuing the Notice of Deficiency or before the completion of the partnership-level proceedings.
- The IRS is attempting a wrongful levy or sale.
- You have appealed a determination from a CDP hearing.
- You have a pending case for the refund of a divisible tax.
- You have incurred a tax preparer penalty under IRC code 6694, but you've paid 15% of the penalty and filed a refund claim within 30 days of receiving the notice and demand.
- You paid a portion of the tax, filed a claim for a refund, and put up a bond for the remaining tax liability.
- You're involved in a case about employment status.
Generally, to stop a collection action from moving forward, you must show that the government violated the law and that you experienced irreparable harm and were unable to remedy the issue through other legal channels. However, if the IRS started collection actions before the 90-day response period on a Notice of Deficiency, you don't have to show harm. You just have to show that the IRS didn't follow the law.
Which Laws Allow You to Sue?
The following sections of the Internal Revenue Code allow you to bring a lawsuit against the IRS:
- IRC 7345 (e) (erroneous certification of a seriously delinquent tax debt and passport revocation).
- IRC 7426 (wrongful levies and erroneous liens, etc.).
- IRC 7429 (review of jeopardy levy or assessment procedures).
- IRC 7433 (unlawful collection actions).
- IRC 7432 (unlawful liens).
- IRC 7426 (other actions that don't involve collecting taxes, such as IRS agents conducting audits).
- 28 USC 1503 - The U.S. Court of Federal Claims has jurisdiction over setoffs or counterclaims against the plaintiff.
- 28 USC 2409(a) (action to quiet a title where the United States claims other than lien interest).
This is not an exhaustive list. There may be other legal statutes that allow you to sue the IRS. If in doubt, consult with a tax attorney. They will be able to inform you about your rights and help you determine the legal grounds for your case. You can also review the section on the Taxpayer Bill of Rights to learn more about your right to bring legal action against the IRS.
Tax Court Vs. District and Federal Courts
When suing the IRS, you can bring forward your lawsuit in Tax Court or the federal and district courts. With a Tax Court lawsuit, you don't have to pay the tax first, but you must bring forward your claim without a tight time period. Depending on the issue, the deadline is usually between 30 and 90 days.
To bring a lawsuit to district/federal court, you must pay the tax first and then, request a refund. If the IRS denies your refund, you can go to court. The deadline to file a suit is the later of three years after the return was due or two years after the tax was paid. This is called refund litigation.
U.S. District and Federal Courts have concurrent jurisdiction over most issues. So, in most cases, you can choose which court to file your suit. However, in district court, you can only bring forward civil suits worth up to $10,000. There is no dollar limit on any actions in Federal Court.
How to Sue the IRS in Tax Court
Here is an overview of the process of suing the IRS in Tax Court. The exact steps may vary depending on the situation and your tax lawyer can let you know what to expect.
1. Make sure you have the right to petition.
You can file a petition in tax court if you have received the following:
- Notice of Deficiency — This typically relates to tax assessments after audits.
- Notice of Determination — This typically relates to determinations about collection actions or relief requests.
- Notice of Certification — This relates to delinquent tax debt and notification of passport revocation.
You can also petition the courts if you request innocent spouse relief and the IRS doesn't respond within six months. If you're not sure if you have the right to petition the courts, contact a tax attorney.
2. Note the deadline to file
The law is very strict about the deadlines for filing lawsuits. If you miss the deadline, you will lose your chance to file a lawsuit. For Notices of Deficiency, the deadline is 90 days after the notice was issued (150 days if the notice was sent to an address outside the country). For collection actions, you generally only have 30 days after the date the Notice of Determination was issued.
If you're not sure when you need to file, reach out to a tax attorney as soon as you can. They'll be able to help you through the process and ensure you don't miss deadlines. Make sure that you mention you're dealing with a deadline and you're not sure of the date during your initial consultation.
3. Decide if you want the small case or regular procedures.
If you're dealing with an issue related to $50,000 or less, you can opt to use the small case procedures. Small case trials are less formal and more relaxed, and they are available in about 15 more cities than regular cases. However, you cannot appeal the results of an S-case but neither can the IRS. The results are binding for both sides.
4. Petition the Courts
You can get a petition form on the Tax Court website to fill out or mail in, or you can e-file your petition on the Tax Court's e-filing system. You need the following details to complete the e-file system:
- The action you are disputing. The options are all related to notices of deficiency, determination, and certification.
- Date the IRS issued the notice.
- Years or periods related to the notice.
- If you want the small case or regular procedures.
- A written explanation of why you disagree with the IRS's actions.
- Facts to support your explanation.
- A copy of the IRS notices you received.
- Where you want the trial — There is at least one city available for trials in most states.
Note that the IRS wants you to hide your Social Security or tax ID number on every form except Form 4 (Statement of Taxpayer ID Number). Use a black marker or white-out to remove your tax ID numbers from the notices you received from the IRS. There is a $60 fee to file the petition.
5. Get ready for your trial
The U.S. Tax Court advises you to do the following to prepare for a trial:
- Think about what you want to tell the judge.
- Gather documents to support your claims — You may need three copies of documents if the IRS doesn't agree with them.
- If necessary, contact witnesses who support your claims.
- Make sure the witnesses can be available during your trial.
- Talk with IRS employees about your case.
- Give the IRS copies of the documents you plan to present at trial.
- Write down the facts that you and the IRS agree to.
Keep in mind that this is the list of recommendations from the Tax Court. You may want to talk with your attorney about how to prepare. For instance, your attorney may advise you to not talk with the IRS employees before your trial.
What to Expect During the Trial
At the beginning of a Tax Court trial, the judge may ask you questions and take care of issues such as filing the stipulation of facts and pre-trial memoranda. Then, you and the IRS may be asked to give opening statements. The opening statements are usually only admissible in court if you take an oath before making your statements.
Some plaintiffs take an oath so that they don't have to repeat the same facts later, but others prefer not to take an oath before the statements. Your attorney can let you know the best option in your situation.
Then, you will present witnesses to give information to the judge. In a lot of cases, you will be the only witness on your side, but it depends on the situation. Then, the IRS attorney will cross-examine you by asking questions. Once they are done, you will get a chance to clarify issues as desired.
At this point, the IRS can call forward witnesses to give information to the judge. Then, your attorney will cross-examine the IRS's witnesses, and the judge may ask questions as needed for clarification.
Results of the Trial
The judge may issue a bench opinion during the trial, or they may review the testimony and issue a decision later. If you don't get a decision during the trial, you will receive the decision through the mail or through electronic correspondence. If you disagree, you can appeal unless you used the small case procedures.
Suing the IRS in District/Federal Court
To sue the IRS in district or federal court, you must pay the tax and submit a refund request to the IRS. If the agency denies your request, you should submit a complaint to the U.S. district court or the Court of Federal Claims.
Once the process starts, your attorney will send another request for copies of your tax returns to the IRS, and the IRS will freeze your accounts. During a district or federal trial, the IRS cannot try to assess additional tax against you, and in exchange, you cannot request a larger refund.
The trial process is very similar to the process in Tax Court, but generally, there is a jury involved in these cases. At the end of the trial, the judge will explain the decision, and if you disagree, you may have the right to appeal.
The Taxpayer Bill of Rights
The Taxpayer Bill of Rights (TBOR) is a list of 10 rights that every U.S. taxpayer has. It includes the right to a fair and just tax system, the right to be informed, the right to quality service, and the right to pay the correct amount of tax. It also includes your right to legal representation and the following rights that allow you to bring lawsuits against the IRS.
1. The Right to Challenge the IRS's Position and Be Heard
If the IRS proposes or takes an action, you have the right to object and provide additional information. The IRS should consider your information promptly and respond to your protest. Generally, if the IRS doesn't agree with your position, the agency will issue a notice of deficiency. The notice will explain why the agency is increasing your tax liability, and it will also outline your rights to appeal to the US Tax Court.
For example, this can happen if the IRS adjusts your tax return. The IRS will send you a notice about the adjustment. You have 60 days to respond if you disagree. If the IRS disagrees with your response, the agency will send you a Notice of Deficiency. At this point, you have 90 days to challenge in Tax Court (150 days if you are out of the country).
Similarly, if the IRS issues a federal tax lien or levies your bank account, the agency must notify you and give you a chance to appeal. If you disagree with the decision from Appeals, you can take the issue to Tax Court.
2. The Right to Appeal IRS Decisions in an Independent Forum
You have the right to request an impartial appeal of most IRS decisions. You also have the right to get a written response from the Office of Appeals about its decisions, and you have the right to take your case to court.
You can appeal audit results, collection actions, penalties, and several other types of issues. The Office of Appeals cannot have any prior interaction with your case, and they should not talk with the IRS unless you or your attorney is present. If you cannot work out the problem with Appeals, you may be able to request a mediation or arbitration. This is when a third party helps you come to an agreement.
If you disagree with the decision from Appeals, you can challenge the decision in Tax Court without paying the tax bill first. You can also take the issue to a US District Court or the US Court of Federal Claims, but to do so, you must pay the tax and file a refund suit.
FAQs About IRS Lawsuits
Do you have to pay your tax bill before you sue the IRS?
If you file a suit with the Tax Court within 90 days of receiving a statutory notice of deficiency or within 30 days of receiving a determination about a collection action, you do not have to pay the tax bill before the lawsuit. However, you must pay the tax bill first if you want to file a suit in the US. District Court or with the U.S. Court of Federal Claims.
Can you sue the IRS for negligence?
If the IRS didn't follow the correct procedures, you may be able to sue for negligence. Claims are generally limited to the lesser of the amount of your financial damages or $100,000. If reckless disregard was involved, damages are capped at $1 million.
Can you sue the IRS for harassment?
It depends on the type of harassment. You cannot sue the IRS for emotional damages, but if you experienced financial damages as a result of the harassment, you may be able to sue. Contact an attorney if your rights have been violated.
Can I sue the IRS for delaying my refund?
You can sue if you request a refund and the IRS denies it, but you cannot sue for a delayed refund. However, the IRS must pay you interest if it does not issue your refund within a certain time frame.
How to Get Help Suing the IRS
If you want to bring forward a lawsuit, you can represent yourself, or you can hire a tax attorney. Generally, you should avoid self-representation. Tax attorneys understand the legal processes, and they can leverage their extensive knowledge of the law to help you get the best result possible.
You also have client-attorney privilege with a tax attorney. This means that you can talk with them about everything that's going on, and even if criminal activity is involved, they cannot be compelled to testify against you. In contrast, if you did something illegal and told your CPA or enrolled agent about it, they can be called to court and compelled to testify.
If you paid a CPA or an enrolled agent to help you with the tax issue that lead to your lawsuit, you may want them to continue working with you, but unfortunately, CPAs and enrolled agents cannot represent taxpayers in Tax Court unless they are a United States Tax Court Practitioner (USTCP). USTCPs are non-attorneys who have passed a test that allows them to practice in front of the Tax Court. There are only a handful of these professionals in the country.
To find a tax attorney or a USTCP today, use TaxCure. You can narrow down your search results based on the legal issue you are having to ensure you find a pro with the experience you need. Then, you can compare options and call as many as you like until you fit the right fit for your situation.