The IRS Is Sued For Seizing And Depositing Collectible Cash That includes Useless Presidents

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Final week, I wrote why it’s a unhealthy concept to sue the Inner Income Service simply because their collections division is being heavy handed. Primarily based on the responses I acquired, it made lots of people mad and unhappy. So in the present day, here’s a story the place somebody sued the IRS and really gained, though the judgment was later reversed. This case could also be heard by the U.S. Supreme Court docket.

The case is Willis v. United States. There, the state police raided Carrie Willis’s house whereas investigating allegations of economic crimes. Through the search, the police discovered and seized 364 bins of not too long ago minted limited-edition $1 cash commemorating deceased U.S. presidents. Every field contained 1,000 cash. These cash got to an IRS particular agent who then deposited the cash into an IRS account.

Willis got here to a decision with the IRS who then issued a refund examine within the quantity of $364,000. However she wished the cash again.

Willis then sued the federal government below the Federal Tort Claims Act (FTCA) for conversion claiming that the seized cash had been collectibles whose worth was greater than the $364,000 face worth. The federal government argued that the IRS particular agent’s choice to money the cash was a discretionary choice that immunizes the federal government from legal responsibility below the FTCA.

After a bench trial, the district court docket decide awarded the plaintiff $94,880. The federal government appealed the choice to the Eighth Circuit Court docket of Appeals the place the judgment was reversed.

The court docket checked out whether or not the agent’s choice was discretionary utilizing a two-part evaluation. First, the decide dominated that despite the fact that the Inner Income Guide has particular guidelines for dealing with collectibles, the agent’s choice to money presidential cash was discretionary since there was no obligatory rule that instructed an agent the right way to decide whether or not a forex is collectible. Whether or not the choice was careless or uninformed, as this one might have been, is irrelevant.

Subsequent, even when the federal government agent made a discretionary choice, the federal government remains to be liable below the FTCA if the choice should be of the sort that isn’t grounded in authorities coverage. For instance, a authorities worker who causes an accident whereas on authorities enterprise can expose the federal government to FTCA legal responsibility as a result of the discretion exercised whereas driving a automobile has no connection to authorities coverage. On this case, the court docket discovered that it’s sound authorities coverage to deposit the forex as shortly as attainable as a substitute of leaving it round.

Willis then petitioned the U.S. Supreme Court docket for evaluation. In her petition, she argues that the Eighth Circuit’s holding and reasoning conflicts with different circuit selections on two grounds. First, solely the Eighth Circuit applies the discretionary-function exception even when an agent fails to satisfy a compulsory responsibility on the speculation that the agent made a discretionary willpower that the obligatory responsibility didn’t apply. Different circuits have held that the federal government is topic to FTCA legal responsibility the place an agent fails to carry out a compulsory responsibility. Second, there’s a circuit battle on whether or not the discretionary-function exception shields a federal agent’s failure to train discretion. On this case, the IRS agent testified he didn’t make an effort to find out whether or not the cash had any collectible worth.

The federal government’s response argues that no circuit battle exists as a result of they maintain that the federal government is liable below the FTCA in the event that they fail to adjust to particular, obligatory directives. The Eighth Circuit’s choice doesn’t create a battle as a result of the IRS Inner Income Guide doesn’t give particular, obligatory directives on the right way to decide whether or not seized cash are collectibles or common forex. As well as, there isn’t a circuit battle on the problem of negligent train of discretion as a result of the statute by its phrases protects a discretionary choice no matter whether or not the discretion is abused or the agent fails to carry out a discretionary operate.

Trying on the details of this case, I discover it questionable that the agent didn’t contemplate why somebody would undergo the difficulty of wrapping presidential greenback cash and placing them in bins. If these cash had been fungible, it’s possible they’d be handled much less delicately. Additionally, if these cash are forex as the federal government contends, it wouldn’t harm to carry on to them till the investigation was full versus destroying the packaging and depositing the cash right into a financial institution. It could be completely different in the event that they had been foreign currency topic to hyperinflation or comparable volatility.

The Supreme Court docket’s present two-part check for figuring out whether or not a authorities agent carried out a discretionary operate (and thus excepted from a FTCA declare) has not offered clear, constant steerage.

As this case (and others) factors out, there may be many situations the place a federal worker workouts discretion. Even when there are obligatory, particular directives that would negate discretion, how these directives are carried out may be deemed discretionary.

The second a part of the check seems at whether or not the discretionary act was the sort that the exception was designed to guard, often acts involving the furtherance of presidency coverage. In some circumstances, there may be cheap disagreements on whether or not a discretionary motion has a respectable governmental function.

Maybe this can be a technique to filter out the frivolous or nuisance circumstances. On one hand, Congress handed the FTCA to permit tort victims to get compensation from the federal authorities the place an worker was the tortfeasor. However, the federal authorities is the final word deep pocket, and extreme lawsuit judgments may put a serious gap within the federal finances.

But when the court docket applies this line of reasoning too generously then all however essentially the most egregious tort actions could possibly be shielded from FTCA legal responsibility. The federal government would use the discretionary-function exception indiscriminately to problem a judgment they don’t like. As an institutional litigator, the federal government will solely be inclined to settle if a hazards of litigation evaluation signifies that an unfavorable court docket choice will lead to extra litigation and better monetary publicity.

If the excessive court docket grants certiorari on this case, it could be a chance to have a dialogue on whether or not the present two-part check must be modified or changed altogether.

So right here is one state of affairs the place somebody can sue the federal authorities when an IRS agent acts carelessly. Whereas it’s unsure whether or not the plaintiff will in the end win, she would possibly find yourself altering how the courts and the federal authorities deal with FTCA circumstances. Within the meantime, should you get a greenback coin that includes a deceased U.S. president, you might wish to name Carrie Willis.

Steven Chung is a tax legal professional in Los Angeles, California. He helps individuals with fundamental tax planning and resolve tax disputes. He’s additionally sympathetic to individuals with giant pupil loans. He may be reached through electronic mail at Or you’ll be able to join with him on Twitter (@stevenchung) and join with him on LinkedIn.

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