Opinion
Case No. 01-27782-jes, Adversary No. 05-2462.
July 9, 2008
ORDER DISMISSING ADVERSARY PROCEEDING
On June 2, 2008, United States District Judge J.P. Stadtmueller vacated the order of this court dated September 11, 2007 awarding $25,000.00 to the plaintiff, Nancy E. Kovacs, against the defendant, United States of America ("United States") and remanded the adversary proceeding for further proceedings.
Judge Stadtmueller concluded that this court erred in determining that the 2-year statute of limitations in 26 U.S.C. § 7433(d)(3) did not apply with respect to Kovacs' cause of action against the Internal Revenue Service ("IRS") for violation of the discharge injunction under 11 U.S.C. § 524. He then directed this court to determine the date when Ms. Kovacs' cause of action accrued. He further stated that, if it is determined that Ms. Kovacs filed her action within the 2-year statute of limitations period, this court shall maintain its initial $25,000.00 damage award. On the other hand, if this court determines that Ms. Kovacs did not file her cause of action within the 2-year statute of limitations period, this adversary proceeding shall be dismissed in its entirety for want of jurisdiction.
26 U.S.C. § 7433(d)(3) states:
(d) Limitations.
(3) Period for bringing action. Notwithstanding any other provision of law, an action to enforce liability created under this section may be brought without regard to the amount in controversy and may be brought only within 2 years after the date of the right of action accrues.
The issue of whether Ms. Kovacs' cause of action is time barred was presented to this court on the United States' cross motion for summary judgment. Comprehensive briefs and supporting exhibits were presented to the court by both sides. Because the court concluded that the statute of limitations under § 7433(d)(3) did not apply, it did not reach the issue as to when Ms. Kovacs' cause of action accrued.
The record in this adversary proceeding reveals that the most recent violation by the IRS of the § 524 discharge injunction occurred on July 8, 2002, when the IRS mailed to Ms. Kovacs a series of notices of intent to levy upon her assets. Ms. Kovacs contends that the statute of limitations did not commence until August 13, 2003, when Theresa Mulcahy, IRS appeals officer, notified her that her tax liabilities had been discharged, and because this adversary proceeding was filed on August 11, 2005, it was within the 2-year statute of limitations period and not time barred. The United States, on the other hand, contends that Ms. Kovacs' cause of action accrued on July 8, 2002, when the IRS issued the notices of intent to levy upon Ms. Kovacs' assets in violation of the discharge injunction. The United States asserts that, because this was more than two years before this adversary proceeding was filed, it is time barred.
Treasury Reg. § 301.7433-1(g)(2) declares that: "a cause of action . . . accrues when the taxpayer has had a reasonable opportunity to discover all essential elements of a possible cause of action." (emphasis added) In Sylvester v. U.S., 978 F.Supp. 1186, 1190 (E.D. Wis. 1997), the court declared that "for harms arising out of a collection action, one would expect the cause of action to accrue when the illegal act occurred." See also Caparaso v. Comm'r, 907 F.Supp. 1235, 1240 (N.D. Ind. 1995). Ms. Kovacs received the IRS notices of intent to levy on her assets on or shortly after July 8, 2002. She testified, at an examination conducted by the United States on May 9, 2006, in connection with this adversary proceeding the following:
Question: So, in July of 2002, you thought that these levies might have been a violation of the discharge, is that correct?
Answer: Correct.
See Deposition Transcript of Nancy Kovacs, page 48, filed with the court on August 21, 2006 (docket entry 38).
Moreover, Ms. Kovacs' attorney, Douglas Frazer, who had been contacted by Ms. Kovacs' shortly after she received the notices of intent to levy on her assets, knew or should have known that the notices of intent to levy violated the discharge injunction. Attorney Frazer is the author of a 1995 article on bankruptcy and taxes entitled "Taxpayers May Find Relief in Chapter 7 Bankruptcy" (Trial Exhibit 38), in which he discusses the issue of dischargeability of taxes. He should have recognized the significance of the § 7433 statute of limitations and taken precautionary measures, instead of relying upon the IRS' conclusion as to dischargeability of Kovacs' income tax debts. As the United States noted in its post-trial brief to this court, "The IRS does not hold a monopoly on legal research."
There is ample authority which supports the proposition that a cause of action accrues for purposes of § 7433(d)(3) when the taxpayer has had a reasonable opportunity to discover all the essential elements of a possible claim. Bennett v. United States, 366 F. Supp.2d 877, 878-79 (D. Neb. 2005); Caparaso, 907 F.Supp. at 1240; Sylvester, 978 F. Supp. at 1190; Shipley v. IRS, 2005 WL 1334617 at *3 (D. Kan. June 6, 2005); Ranciato v. United States, 2001 WL 58827 at *3 (D. Conn. Jan. 23, 2001); Wise V.C.I.R., 168 F. Supp.2d 649, 653 (S.D. Tex. 2001).
This court finds that Ms. Kovacs' cause of action accrued upon her notification of the illegal collection activity by the IRS against Kovacs, mailed to her on July 8, 2002, more than three (3) years before she filed this adversary proceeding. The 2-year statute of limitations under § 7433(d)(3) had, by that time, expired. Accordingly,
IT IS ORDERED that this adversary proceeding is hereby DISMISSED in its entirety for want of jurisdiction.