Keohane v. United States

• Decision Date: 21 February 2012
• Docket Number: No. 11-5127,11-5127
• Parties: Paul Keohane, Appellant v. United States of America, Appellee
• Court: U.S. Court of Appeals — District of Columbia Circuit

Paul Keohane, Appellant
v.
United States of America, Appellee

No. 11-5127

United States Court of Appeals

Argued November 16, 2011
Decided February 21, 2012

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Appeal from the United States District Court for the District of Columbia (No. 1:08-cv-02081)

David W. Foster argued the cause for appellant. With him on the briefs were Armando Gomez and Alan J.J. Swirski.

Janet A. Bradley, Attorney, U.S. Department of Justice, argued the cause for appellee. With her on the brief were Tamara W. Ashford, Deputy Assistant Attorney General, Ronald C. Machen, U.S. Attorney, and Michael J. Haungs, Attorney.

Before: BROWN, GRIFFITH, and KAVANAUGH, Circuit Judges.

Opinion for the Court filed by Circuit Judge KAVANAUGH.

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KAVANAUGH, Circuit Judge: For the 1994 tax year, Paul Keohane owed about $10,000 in federal income taxes for income he earned while working in Indonesia. He did not pay those taxes. To recover the unpaid taxes, the IRS eventually issued what is known as a single paper levy on Keohane's Social Security benefits. That paper levy automatically took nearly 40% of Keohane's monthly Social Security checks for about two years. Keohane now claims that the amount levied each month exceeded a statutory cap on monthly levies.

Of course, now that the full amount owed by Keohane to the IRS has been paid - and would have been paid in full by now even under Keohane's view of the maximum monthly levy amount - Keohane is suffering no further harm from the IRS's alleged error. But Keohane has sued to recover the expenses he incurred along the way from the allegedly unlawful levy schedule. Those expenses total $373.

To recover the $373 in expenses, Keohane sued under 26 U.S.C. § 7433. That statute allows taxpayers to sue the United States to recover damages caused by illegal IRS actions. The threshold question before us is whether Keohane's suit was timely. The District Court concluded that it was not timely because Keohane did not bring suit within two years of when he had a "reasonable opportunity to discover all essential elements of a possible cause of action." 26 C.F.R. § 301.7433-1(g)(2). We agree and affirm.

I

Paul Keohane, a U.S. citizen, worked in Indonesia in 1994. He did not file a timely federal income tax return for that tax year. The IRS assessed a net deficiency of approximately $10,000 for that year. In 2000, the IRS sent Keohane two notices of intent to levy. In 2002, it sent two

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more notices. Because he was moving from place to place, Keohane received none of those notices.

In May 2005, the Social Security Administration sent Keohane a notice of an IRS levy on his Social Security benefits. Keohane received the notice in May or June. The levying began in June 2005, with the IRS taking $451.90 out of Keohane's $1135 monthly Social Security payment (which, by 2007, rose to $1220). The amount taken out each month constituted between 35% and 40% of each Social Security check. To execute its levy on Keohane's Social Security benefits, the IRS issued what is known as a single paper levy to the Social Security Administration. After issuance of the single paper levy, the monthly removal of $451.90 from Keohane's Social Security check occurred automatically without any additional action by the IRS. In other words, the IRS did not have to execute any additional paper levies. That monthly removal continued for about two years.

In 2007, Keohane filed a late tax return for 1994 and squared up his debt with the IRS. The IRS then released the levy on Keohane's Social Security benefits.

Although Keohane could have ended his dealings with the IRS at that point, he became upset when he learned that the IRS, as it recouped the debt, had allegedly violated a statute setting limits on how much the IRS could take from his Social Security check each month. Although that issue was of no continuing concern to Keohane with respect to his tax liability (which had been paid in full by then), Keohane brought a claim to recover expenses he had incurred as a result of the allegedly unlawful schedule by which he paid the taxes due. After an unsuccessful administrative claim, Keohane sued the United States in December 2008 under 26 U.S.C. § 7433. That statute permits recovery of "actual,

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direct economic damages sustained by the plaintiff plus "the costs of the action" if, in connection with IRS tax collection, "any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence, disregards any provision of this title, or any regulation promulgated under this title." 26 U.S.C. § 7433(a)-(b).

Keohane argued that 26 U.S.C. § 6331(h)(1) forbids the IRS from employing a single paper levy to continuously take more than 15% of each monthly Social Security benefit payment. In Keohane's case, a 15% monthly cap would have meant a maximum of between $170 and $180 per month. The IRS took $451.90 per month, between 35% and 40% of Keohane's monthly Social Security benefits. Under Keohane's theory, the IRS should have recovered the back taxes by taking less each month for a longer period of time. Or the IRS, according to Keohane, should have employed the separate legal mechanism by which it could re-issue a new paper levy each month and take more than 15% per month.

The parties stipulate that Keohane incurred $373 in costs as a result of the IRS's levying more than 15% of Keohane's monthly Social Security benefits.

Without reaching the merits of Keohane's statutory argument, the District Court concluded that Keohane's suit was barred by the two-year statute of limitations in Section 7433(d)(3), and it granted summary judgment to the Government. See Keohane v. United States, 775 F. Supp. 2d 87, 91 (D.D.C. 2011).

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II
A

Section 7433 of Title 26 provides a cause of action if "in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or...