Information Resources, Inc. v. U.S.

• Decision Date: 16 January 1992
• Docket Number: No. 91-1188,91-1188
• Citation: 950 F.2d 1122
• Parties: -530, 92-1 USTC P 50,053 INFORMATION RESOURCES, INC., a Corporation, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1122

950 F.2d 1122

69 A.F.T.R.2d 92-530, 92-1 USTC P 50,053

INFORMATION RESOURCES, INC., a Corporation, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 91-1188.

United States Court of Appeals Fifth Circuit.

Jan. 16, 1992.

W.D. Masterson, Kilgore & Kilgore, Dallas, Tex., for plaintiff-appellant.

Marvin Collins, U.S. Atty., Louise P. Hytken, Asst. U.S. Atty., Tax Div., Dept. of Justice, Dallas, Tex., Gary R. Allen, Chief, Mary F. Clark, Robert S. Pomerance, Appellate Sec., Tax Div., Dept. of Justice, Washington, D.C., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before WILLIAMS, DUHE, and EMILIO M. GARZA, Circuit Judges.

JERRE S. WILLIAMS, Circuit Judge:

The Internal Revenue Service ("I.R.S.") erroneously filed tax liens against Information Resources, Inc. Information Resources brought suit for damages for both the erroneous filing of the liens and the failure to issue a timely release of the liens pursuant to 26 U.S.C. §§ 7432 and 7433. The district court granted the government's motion for summary judgment because Information Resources failed to exhaust its administrative remedies. Information Resources admits that it did not exhaust its administrative remedies but urges that an exception to the doctrine of exhaustion of administrative remedies should apply. Because the administrative remedy is inadequate under Section 7432, and because there were no applicable administrative remedies to exhaust under Section 7433, we reverse the summary judgment.

I. FACTS

Information Resources, Inc. is a Texas corporation engaged in the business of selling computer software. The company failed to pay on time its federal withholding taxes for the fourth quarter of 1988. As of March 20, 1989, Information Resources had paid less than $23,000 of its tax liability of $44,837.82. On or before April 10, 1989, Information Resources made a further payment of $10,000 in satisfaction of its tax liability. This left an unpaid balance of $16,403.87. On April 10, 1989, it received a Letter 1058-Notice of Intent to Levy from the I.R.S. The letter granted Information Resources ten days to pay the amount owed or a lien would be filed against the company's property.

On April 20, 1989, David Salinas, a representative of Information Resources, met with I.R.S. Officer Kriss Brooks to discuss payment of the obligation. Information Resources claims the parties entered into the following agreement: Information Resources offered to pay the full amount of taxes owed on April 21, 1991, but Brooks stated he would not be in his office that day because it was his scheduled day off. Therefore, the parties agreed that Information Resources would pay the full amount on April 24, 1991. Pursuant to this alleged agreement, Brooks agreed not to institute any enforced collection action against the company. The government denies the existence of any such agreement. Whether there was an agreement is, of course, an issue of fact which ultimately must be determined by a trial court if it is relevant.

On April 24, 1989, Information Resources delivered to Brooks a check in the amount of $16,785.44, representing full satisfaction of its tax liability plus accrued interest. Brooks accepted the check and duly noted his initials either upon the check or upon a copy of the check.

Despite the alleged agreement between the parties, Brooks instituted an enforced collection action on April 21 by filing a request for a Notice of Federal Tax Lien. The liens were filed on April 25 and 26, the first two days immediately following full payment of the debt. On April 25, the federal tax liens were filed in the Dallas County Clerk's Office and on April 26, in the Office of the Secretary of State of Texas in Austin. Even upon receipt of payment in full for the taxes on April 24, Brooks did not attempt to prevent the filing of the liens on April 25 and 26. Information Resources became aware of the existence of the liens when notice of the liens was published on April 27, 1989, in the Daily Commercial Record, a Dallas legal newspaper.

At this time in early 1989, Information Resources was competitively bidding against several other companies to sell a software package to Ward Petroleum, Inc. Due to the filing of the liens, Ward Petroleum became concerned with the continuing operation of Information Resources, and Ward Petroleum, therefore, decided to reject the company as a bidder. In a deposition, Richard Tozzi, Chief Financial Officer for Ward Petroleum, testified that Ward Petroleum's evaluation of Information Resources was significantly influenced by the filing of the Federal tax lien. Upon learning of the tax lien, Ward Petroleum then solicited an additional bid for the software application from Artesia and ultimately awarded the project to Artesia.

On or about April 27, 1989, David Salinas spoke to Sherene Johnson, an advisor at the Special Procedures Section-Lien Section of the I.R.S., and requested a description of the administrative remedies to obtain a release of an erroneously filed tax lien. Johnson informed Salinas that Information Resources should send a letter to the Internal Revenue Service requesting a release of the lien. Johnson was incorrect as to the precise procedures to follow.

On May 1, 1989, Information Resources sent a letter to Brooks at the Internal Revenue Service in Farmers Branch, Texas, respectfully requesting that Certificates of Release be issued for the tax liens. Both the company and the federal government now recognize that this was not the correct method for obtaining a Certificate of Release. The letter should have been sent to the District Director of the I.R.S., and it should have been accompanied by proof of payment of the tax. The liens were not removed until September 22 1989, nearly five months after Information Resources requested their removal.

On or about October 25, 1989, Information Resources received a letter written on behalf of the District Director of the I.R.S. apologizing for the concern and inconvenience caused by the "erroneous" filing of the liens on April 25, 1989. Information Resources claims that by the time the release was granted and the apology letter was sent, substantial damages had already occurred.

Information Resources filed a complaint in the district court against the I.R.S. for recovery under 26 U.S.C. §§ 7432 and 7433. Section 7432 provides for the recovery of damages for the I.R.S.'s failure to give a timely release of a federal tax lien and Section 7433 provides for the recovery of damages for the I.R.S.'s intentional or reckless disregard for the provisions of the Internal Revenue Code or regulations promulgated thereunder.

The government filed a motion for summary judgment claiming the district court lacked jurisdiction over the suit because Information Resources had failed to exhaust its administrative remedies. On January 28, 1991, the district court granted the government's motion for summary judgment. It is this dismissal from which Information Resources now appeals.

II. 26 U.S.C. § 7432

Information Resources filed suit pursuant to 26 U.S.C. § 7432 for the I.R.S.'s failure to release a federal tax lien within the requirements of timeliness:

"(a) If any officer or employee of the Internal Revenue Service knowingly, or by reason of negligence, fails to release a lien under section 6325 on property of the taxpayer, such taxpayer may bring a civil action for damages against the United States in a district court of the United States.

(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 sum of--

(1) actual, direct economic damages sustained by the plaintiff which, but for the actions of the defendant, would not have been sustained, plus

(2) the costs of the action."

26 U.S.C. § 7432 (1988). Section 7432, however, requires exhaustion of all administrative remedies prior to the filing of a lawsuit. ¹ The administrative remedies for release of a tax lien are detailed in 26 C.F.R. § 401.6325-1 (1983). A request must be submitted to the district director of the district in which the notice of lien was filed, and it must be marked for the attention of the Chief, Special Procedures Function. 26 C.F.R. § 401.6325-1(f). The request must contain (1) the name and address of the taxpayer; (2) a copy of the notice of federal tax lien; and (3) the grounds upon which the issuance of a release is sought. Id. ²

Information Resources does not claim that it followed the requisite procedures precisely. David Salinas sent a letter to the I.R.S. requesting the release of the erroneously filed lien, but the letter was not sent to the appropriate person. It also was unaccompanied by the necessary supporting materials. The company does allege, however, that it has constructively exhausted the administrative remedies, and to exhaust the remedies now would be futile. Exhausting the administrative remedies would entail obtaining the release of a lien which has already been released.

Information Resources cites numerous cases establishing exceptions to the exhaustion doctrine. Hessbrook v. Lennon, 777 F.2d 999, 1003 (5th Cir.1985) ("Exceptions to the exhaustion requirement are appropriate where the available administrative remedies either are unavoidable or are wholly inappropriate to the relief sought, or where the attempt to exhaust such remedies would itself be a patently futile course of action"); Coit Independence Joint Venture v. Federal Savings and Loan Insurance Corporation, 489 U.S. 561, 109 S.Ct. 1361, 1375, 103 L.Ed.2d 602 (1989) ("Administrative remedies that are inadequate need not be exhausted"); Spannaus v. U.S. Dept. of Justice, 824 F.2d 52, 58 (D.C.Cir.1987) ("Once constructive exhaustion [of administrative remedies] occurs, any available administrative appeal--i.e. actual...