§7435 — Title 26 Internal Revenue Code | U.S. Code

Summary

A taxpayer can sue the United States in a federal district court if a U.S. officer or employee intentionally undermines the tax determination or collection for the taxpayer’s attorney, CPA, or enrolled agent because the taxpayer gave that advisor information to get tax advice. If the government is found liable, it must pay the lesser of $500,000 or the total of the taxpayer’s actual, direct economic losses caused by the disclosure plus the case costs. This lawsuit is the only way to recover those damages. Payments come from funds appropriated under section 1304 of title 31. The suit can be filed regardless of the amount at issue, but must start within 2 years after the conduct would have been discovered with reasonable care. A court must pause the case if the Commissioner certifies an ongoing investigation or prosecution of the taxpayer. The rule does not apply if the taxpayer gave the advisor information to commit fraud or a crime.

Title 26, §7435

Internal Revenue Code — Source: USLM XML via OLRC

(a)If any officer or employee of the United States intentionally compromises the determination or collection of any tax due from an attorney, certified public accountant, or enrolled agent representing a taxpayer in exchange for information conveyed by the taxpayer to the attorney, certified public accountant, or enrolled agent for purposes of obtaining advice concerning the taxpayer’s tax liability, such taxpayer may bring a civil action for damages against the United States in a district court of the United States. Such civil action shall be the exclusive remedy for recovering damages resulting from such actions.

(b)In any action brought under subsection (a), upon a finding of liability on the part of the defendant, the defendant shall be liable to the plaintiff in an amount equal to the lesser of $500,000 or the sum of—

(1)actual, direct economic damages sustained by the plaintiff as a proximate result of the information disclosure, and

(2)the costs of the action.

(c)Claims pursuant to this section shall be payable out of funds appropriated under section 1304 of title 31, United States Code.

(d)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 the actions creating such liability would have been discovered by exercise of reasonable care.

(e)Upon a certification by the Commissioner or the Commissioner’s delegate that there is an ongoing investigation or prosecution of the taxpayer, the district court before which an action under this section is pending shall stay all proceedings with respect to such action pending the conclusion of the investigation or prosecution.

(f)Subsection (a) shall not apply to information conveyed to an attorney, certified public accountant, or enrolled agent for the purpose of perpetrating a fraud or crime.

Notes & Related Subsidiaries

Editorial Notes

Prior Provisions

A prior section 7435 was renumbered 7437 of this title.

Statutory Notes and Related Subsidiaries

Effective Date

Pub. L. 104–168, title XII, § 1203(c), July 30, 1996, 110 Stat. 1471, provided that: “The

Amendments

made by this section [enacting this section and renumbering former section 7435 as 7436 of this title] shall apply to actions after the date of the enactment of this Act [July 30, 1996].”

§7435 Civil damages for unauthorized enticement of information disclosure