J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

48.12 Suing the IRS for Unauthorized Collection

If an IRS employee or officer recklessly, intentionally, or negligently disregards the law or IRS regulations when taking a collection action, you may sue the IRS in federal district court for actual economic damages resulting from the IRS employee’s misconduct, plus certain costs of bringing the action. The lawsuit must be filed within two years of the date your right to sue accrued.

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Caution

Penalty for Frivolous Action

If you bring an action in federal district court for unauthorized collection activities that the court considers to be frivolous, it may impose a penalty of up to $10,000.

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For negligent IRS collection activities, you may sue for damages of up to $100,000, and for reckless or intentional misconduct, the maximum damage award is $1 million. Administrative remedies must be exhausted to obtain an award.

According to IRS regulations, actual economic damages that may be recovered are monetary losses you suffer as a direct result of the IRS’s action. For example, a business may lose loyal customers and suffer an actual cash loss if the IRS’s action damages the business’s reputation. Other actual expenses could include the cost of renting a house or a car if the IRS puts a lien on or seizes your property, or loss of income due to the garnishment of your paycheck. Damages from the ...