Summary:
The Debtor brought a motion for sanctions for violation of the automatic stay under 11 U.S.C. § 362 against the IRS for continuing to garnish wages after repeated notice of the bankruptcy. The IRS responded and the bankruptcy court agreed that the Debtor had failed to exhaust his administrative remedies with the IRS and that 26 U.S.C. § 7433(d) (1) provides that "[a] judgment for damages shall not be awarded under subsection (b) unless the court determines that the plaintiff has exhausted the administrative remedies available to such plaintiff within the Internal Revenue Service."
Commentary:
The attached two memos from the IRS explain that the Debtor must, pursuant to Treas. Reg. § 301.7433-2(d)(1), file an administrative claim with the Service prior to filing suit. Furthermore, the Debtor must wait until the earlier of the date the IRS denies the claim or six months after the claim has been filed to commence an action in the bankruptcy court. Treas. Reg. § 301.7433-2(d)(1).
The Administrative Claim must be made in writing to the Chief, Local Insolvency Unit for the judicial district in which the bankruptcy was filed. In North Carolina, the appropriate person is Jamie Brown. Ms. Brown is currently located at 2303 W. Meadowview Rd, Kinston Building, Greensboro, NC, 27407. However, Ms. Brown will be moving to a new location sometime in the next few months: 4095 Koger Blvd., Greensboro, NC, 27407. Anyone trying to contact her the next several months call ahead to confirm her current address. Ms. Brown can be reached at (336) 378-2194.
The Administrative Claim must include:
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The claimant taxpayer’s name, taxpayer identification number, current address, current home and work telephone numbers and any convenient times to be contacted;
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The court and case number of the bankruptcy case in which the violation occurred;
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A description, in reasonable detail, of the violation (with copies of any available substantiating documentation or correspondence with the IRS);
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A description of the injuries incurred by the taxpayer filing the claim (with copies of any available substantiating documentation or evidence);
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The dollar amount of the claim, including any damages that have not yet been incurred but which are reasonably foreseeable (along with any available substantiating documentation or evidence); and
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The signature of the taxpayer or any duly authorized representative.
There is no specific form that the Debtor and/or representative should use for this claim. A letter with the requisite information is sufficient. If the bankruptcy case is open, the Debtor does not need any additional documentation to authorize his bankruptcy attorney to represent him. If, however, the bankruptcy has been closed, the Debtor will need to execute IRS Form 2848. (A copy of which is also attached.)
Damages for a discharge or stay violation under § 7433(e) are limited to:
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The actual, direct economic damages sustained by the taxpayer (and the taxpayer has a duty to mitigate those damages); and
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The costs of the action.
Attorneys fees are, pursuant to §301.7433-2 (b)(2), specifically excluded as part of the "costs of the action", unless, after bringing the administrative claim the Debtor, being denied relief or finding such resolution inadequate, persists and brings a stay or discharge action under §7430 in the bankruptcy court. Even then, in order to be awarded attorneys' fees, the Debtor would have to show a willful violation and "substantially prevail with respect to the amount of damages in controversy." (The Debtor would also have to have a net worth of less than $7,000,000, but that isn't generally going to be an issue in bankruptcy.)
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