The IRS has a “Taxpayer Bill of Rights” that spells out your rights as a taxpayer. If you feel that any of these rights, along with the general rule of law, has been violated, you can sue the IRS and even get damages under federal law. You can file a lawsuit against the IRS and sue for damages in different federal courts, such as U.S. Tax Court, district courts, and even federal claims court.
It can be frustrating when you know in your heart of hearts you are right about something, but you are up against a person or organization much more powerful than you. If you are proven right, then not only do you get the satisfaction of being right, but you can sometimes even extract damages from the other party for being wrong. When dealing with the IRS, you can appeal its decisions, and if the IRS was truly in the wrong, then you can sue for damages in federal courts. We’ll walk you through the process.
Yes, you can sue the IRS. Here’s how
If you disagree with an audit, a penalty, a fine, or a lien, the IRS has dispute resolution methods and a full appeals process you can utilize under U.S. tax law. However, as humans operate the IRS, they might have made significant errors in judgment or even some questionable decisions that were not legal. If an IRS employee or officer recklessly, intentionally, or negligently disregards the law or IRS regulations, then you have a case to sue for damages. Not only can you save yourself money by eliminating taxes, penalties, and interest, but the IRS can actually compensate you for your trouble in the form of damages. If the IRS has made a mistake that cost you dearly, here is how to sue the IRS for damages.
IRS Taxpayer Bill of Rights
Yes, the IRS has its own Bill of Rights. The purpose is to outline your rights as a taxpayer.
Taxpayer Bill of Rights
The IRS’s Taxpayer Bill of Rights includes the following rights you are guaranteed as a taxpayer.
- The right to be informed
- The right to quality service
- The right to pay no more tax than the correct amount of tax
- The right to challenge the IRS’s position and to be heard
- The right to appeal an IRS decision in an independent forum
- The right to finality
- The right to privacy
- The right to retain representation
- The right to confidentiality
- The right to a fair and just tax system
The IRS treats its Taxpayer Bill of Rights just like the United States treats its citizen’s Bill of Rights in that these are the inalienable rights of the taxpayer. If the IRS violated any of these rights, it might be liable for damages, and you can take the agency to court.
IRS sections 7431, 7432, 7433, and 7345
The IRS actually has sections that clarify how you can sue the agency for a variety of infractions, including unlawful collection practices and liens. These codes enable you to enter a situation in which you can file legal action against the IRS for violations of any of its codes and formalities.
The general rule of thumb is that it’s difficult to sue the IRS, except for these provisions in the code. However, if the IRS did indeed infringe upon your taxpayer rights, then the first step to suing the IRS is to submit an administrative claim.
Submitting an administrative claim
If you want to sue the IRS for a violation of your rights and collect damages, the first order of business is to submit an administrative claim under 26 CFR § 301.7426-2. This is known as “recovery of damages in certain cases” under the IRS code. The process works as follows:
1. Submit a written claim
According to the IRS, the written administrative claim must include the following:
- (i) The name, taxpayer identification number, current address, and current home and work telephone numbers (indicating any convenient times to be contacted) of the person making a 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 damages incurred by the claimant 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 claimant or duly authorized representative.
2. IRS responds with a defense letter
The IRS will handle administrative claims according to its manual (IRM 34.5.1). IRS employees will debate internally whether they want to fight it, offer a settlement, or accept their error. If the IRS wants to fight it, then you are off to court. The IRS will send a defense letter explaining its position to the plaintiff (i.e., taxpayer with the dispute).
3: Court date filed
Once the IRS responds with a defense letter, you can apply for an actual court date in which you can sue the IRS for damages. It must be noted, however, that there is no sure process for when you will be able to set a court date. In the meantime, the IRS might employ every tactic to get you to settle, as the court costs to fight a suit are substantial.
4: Court date, granted legal proceedings occur
If you go to court and win, you can now receive IRS damages, which they define below. However, there are some issues to consider when dealing with the U.S. legal system. First, a court date could take ages to secure. Second, there are relevant court appeals processes that could require multiple court dates, which add more to the waiting time. As the court date drags on, the IRS will be more keen to settle, depending on the amount they are owed.
In which court do you sue the IRS?
Whether you’re going through the IRS appeals process or suing for damages, the IRS allows taxpayers to file legal actions in U.S. Tax Court or a district court. The tax court system is complicated, so depending on what you are suing for, your case could be moved around to a federal court or federal district court. The U.S. Tax Court judges behave the same as any other federal judges. Your case could even go all the way to the Supreme Court, as some landmark tax court cases have.
What if I want to appeal a decision rather than sue?
If you don’t intend to sue the IRS for damages and just want to appeal a decision, solve a dispute, or formulate a payment plan, you have options.
For U.S. resident taxpayers, there are a number of programs underneath the IRS umbrella that you can use to initiate a dispute. The IRS has more informal programs that you can use before you go to an official appeal.
If you have been audited and are fighting the results of an audit, there is another process that we cover here that you should be aware of. And if you are struggling to pay a tax debt, you may be able to get some help from these tax relief companies.
Is it hard to sue the IRS?
If you have solid proof that an IRS employee made a mistake or violated the law, it is not hard to sue, per se. However, it could be expensive, and time-consuming, and you are not guaranteed to win your case.
How much does it cost to sue the IRS?
If you are suing for damages, then the bills can easily run into the thousands of dollars. The cost depends on what you are suing for, whether or not the IRS fights your suit in court, and who you hire to represent you. Again, each case is different, and if the IRS screwed up, it might be willing to settle right away, which won’t cost you nearly as much. However, if the case drags out, expect to fork over a substantial amount of money for court dates, administrative costs, and legal representation such as a tax attorney.
Can I sue the IRS for emotional distress?
Yes, you can, but that doesn’t mean you will win. There is a famous case: Chowns Fabrication & Rigging, Inc. v. United States, No. 5:21-cv-03543. The company sued the IRS for emotional distress, based on harassment for money that was later determined the company did not owe. The company sued but lost the case.
Has the IRS been successfully sued?
Yes, of course. However, you do have to exhaust your administrative options before you bring a lawsuit. So if you have not followed the correct procedures, you will probably not win a case against the IRS.
- The IRS has a “Taxpayer Bill of Rights” that spells out your rights as a taxpayer. If any of these rights, along with the general rule of law, has been violated, you can sue the IRS and even get damages.
- The IRS has certain sections (7431, 7432,7433, and 7505) in its code that allow you to file legal actions for damages.
- To sue the IRS for damages, you will need to file an administrative claim. You will then need to wait for a letter of defense before you move on to the next steps.
- If you want to appeal an audit or start a dispute, the IRS has an official appeals process and more informal dispute resolution programs you can use.
View Article Sources
- Litigation in District Court, Bankruptcy Court, Court of Federal Claims, and State Court – IRS.gov
- Lawsuits, Awards, and Settlements Audit Techniques Guide – IRS.gov
- Defense Letters – IRS.gov
- Recovery of damages in certain cases – Cornell Law School
- IRS Tax Audits – SuperMoney
- How to Fight the IRS and Win – SuperMoney