NJ Court Dismisses Tax Lawyer’s Damage Suit Against IRS Employees

Holding:

The U.S. District Court for the District of New Jersey has dismissed a damage suit filed by a tax lawyer against the United States government and three employees of the Internal Revenue Service (“IRS”). Plaintiff Robert Kenny filed the instant suit alleging that defendants retaliated against him after had filed previous complaints that implicated defendant IRS employees. The district court however held that the statutes (i.e. IRS Restructuring and Reform Act of 1998) that plaintiff cited to support a claim for retaliation do not provide a private right of action for retaliation. The district court stated that it can not exercise any jurisdiction over such claim to the extent that plaintiff wanted the courts to direct the Commissioner of Internal Revenue (“CIR”) to terminate defendant IRS employees. With respect to plaintiff’s claim for civil damages, the district court ruled that it could not assume jurisdiction over such claim for failure of plaintiff to exhaust administrative remedies as required by court precedent and by 26 U.S.C. Section 7433. On the basis of the foregoing, the district court granted defendants’ motion to dismiss.

Detailed Summary:

Plaintiff was an attorney who represented taxpayers before the Internal Revenue Service (“IRS”). The instant suit alleged that defendants retaliated against plaintiff after plaintiff had filed previous complaints that implicated defendant IRS employees.

Plaintiff had previously filed formal complaints with the IRS against defendant Steven Wald, (the “previous complaints”) in which plaintiff alleged that Wald “deterred taxpayers from getting representation and interfered with representatives when the taxpayer hired one anyway.” These previous complaints also implicated defendant Mark Tryba, who was Wald’s supervisor, for ignoring the previous complaints and failing to take corrective action. Plaintiff stated that he filed the previous complaints with the Treasury Inspector General for Tax Administration (“TIGTA”) and that the previous complaints were referred back “to the head of the IRS operating unit wherein the complaints arose - Ms. Andria Greenidge, Territory Manager.” Opinion, p. 2. Plaintiff further alleged that neither he nor any of the relevant taxpayers were interviewed during the investigation of the previous complaints. Ultimately, defendant Andria Greenidge dismissed plaintiff’s previous complaints and recommended that defendant “Wald file a Practitioner Misconduct Allegation against Plaintiff.” Id.

Plaintiff filed this suit, alleging that the professional responsibility charges were brought against him in retaliation.  This complaint consisted of various counts that include a claim for damages, and a claim that defendant IRS employees violated plaintiff’s constitutional rights to free speech and due process.

Plaintiff then filed a motion for preliminary injunction.  In response, defendants filed their opposition, and a motion to dismiss.

In his complaint, plaintiff asserted, among others, that the allegation against him “falsely accuse[] plaintiff of knowingly providing false information and was filed in retaliation against plaintiff for his complaints about violations of taxpayer’s right to counsel” and that such actions are in violation of Section 1203(b) of the IRS Restructuring and Reform Act of 1998, codified as a note to 26 U.S.C. § 7804, note (b)(6). Id., p. 6.

In dismissing this claim, the district court held that the statutes that plaintiff cited to support a claim for retaliation do not provide a private right of action for retaliation under this provision. Specifically, Section 1203 addresses the termination of an employee of the IRS, and the determination to terminate such an employee under subsection (b)(6) is made when the employee is found to have violated “the Internal Revenue Code of 1986, Department of Treasury regulations, or policies of the Internal Revenue Service (including the Internal Revenue Manual) for the purpose of retaliating against, or harassing, a taxpayer, taxpayer representative, or other employee of the Internal Revenue Service.” Id., pp. 9-10, citing Pub. L. No. 9 105-206, § 1203(b)(6). Section 1203(b)(6) functions in the greater context of the statute as a means to terminate an employee for the IRS for cause. The provision does not allow for a suit for retaliation before the courts.

Therefore, the district court concluded that although plaintiff did not state the relief sought, to the extent that plaintiff wanted the district court to direct the CIR to terminate defendant IRS employees, it has no jurisdiction under the stated provision.

With respect to plaintiff’s claim for civil damages, defendants argued that such claim should be dismissed because plaintiff has failed to exhaust his administrative remedies and because 26 U.S.C. § 7433 does not apply in this situation.  Defendants reasoned that the alleged actions did not occur in the course of tax collection. Plaintiff, in opposition, argued that “the OPR (Office of Professional Responsibility”) practice allegation related to complaints about Collection Division employee conduct undisputedly occurring in the collection of taxes” and that he should be excused from exhausting administrative remedies because those efforts would be futile. Id., p. 10.

In resolving these contentions of the parties, the district court held that Section 7433 of Title 26 of the United States Code expressly requires that a plaintiff first exhaust administrative remedies. “Because Plaintiff has failed to do so, and because the Third Circuit has stated that this Court does not have jurisdiction unless and until the administrative remedies have been exhausted, (citing Venen v. United States, 38 F.3d 110, 103 (3d Cir. 1994)) and because the requirement of exhaustion is expressly required by the statute as a prerequisite for jurisdiction, this Court will grant without prejudice Defendants’ Motion to Dismiss.”

On the basis of the foregoing, the district court granted defendants’ motion to dismiss.

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Treasury, IRS Issue Proposed Regulations for FATCA Implementation

IRS Issues Guidance to Encourage Small Employers to Check Out Small Business Health Care Tax Credit