Damages litigation includes all suits for money damages against the United States, federal agencies, or federal employees (but not Tax Court or refund suits), including those under sections 7431, 7432, 7433, and 7435. The Department of Justice has primary responsibility for litigation of these types of cases and Field Counsel generally support it with litigation reports and defense letters, analysis and assistance.

Section 7435. Taxpayers may bring suit for damages 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 the taxpayer in exchange for information concerning the taxpayer’s tax liability.

Suits for Damages for Failure to Release a Lien under Section 7432. Taxpayers may bring suit, after exhaustion of administrative remedies, if any officer or employee of the Service, "knowingly or by reason of negligence" fails to release a lien under Section 6325 on property of the taxpayer.

Suits for Damages for Certain Unauthorized Collection Actions under Section 7433. Pursuant to section 7433(a) a taxpayer may bring a suit against the United States if in connection with any collection action, an officer or employee of the Service "recklessly or intentionally, or by reason of negligence, disregards" any law or regulation. Section 7433(e), added by the Restructuring and Reform Act of 1998, provides that the Service may be held liable for actual, economic damages if, in connection with any collection of tax, any employee willfully violates the automatic stay or discharge provisions of the Bankruptcy Code. .

Section 7431 provides a civil remedy for taxpayers damaged by unlawful disclosures or inspections of tax information by federal employees. The statute provides for no less than liquidated damages of $1,000 for each unauthorized disclosure or inspection. In the alternative, liability extends to actual damages plus court costs. The statute also provides for punitive damages in addition to actual damages in situations where the unlawful disclosure or inspection is willful or the result of gross negligence.

Suits for damages filed under the Privacy Act of 1974, 5 U.S.C. 552a.

Suits filed against Service employees on the basis of Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics, 403 U.S. 388 (1971).

Suits filed under the Federal Tort Claims Act, 28 U.S.C. 2671-2680, if they allege damages based on actions of a Service employee.

Other kinds of suits for damages naming IRS or Counsel employees (including former employees) as defendants, if the plaintiff or petitioner is not a Service employee.

Generally, the General Legal Services division has primary responsibility for suits in categories (6), (7), and (8). For the procedures to be followed in Bivens litigation see CCDM 39.3.2. For the procedures to be followed in Federal Tort Claims Act litigation, see CCDM 39.3.1.

It has been decided that most of these suits should be processed the same as the ordinary collection cases, i.e., a defense letter. CCDM 34.5.1.1.

In addition to the requirements of a regular defense letter, in those cases where an employee (or a retired or previous employee) is named individually as a defendant, the defense letter should include whether the alleged actions of the defendant employee were actually taken by the employee and, if so, whether those actions were in the due performance of his or her official duties. For obvious reasons, care must be exercised in this portion of handling the case.

Prior to discussing a case with an individual defendant employee, the employee must be advised of the limited attorney/client relationship that will be established pursuant to CCDM 30.4.6, and the employee must request representation as provided by that section.

In those cases where the United States, the Treasury Department or the Service is joined as a party defendant with an individual employee or employees, or in cases where two or more employees are named as defendants, the attorney handling the case must exercise extreme caution to avoid placing himself/herself in a conflict-of-interest situation. In these cases, the attorney should take the steps necessary to disqualify himself/herself, the Area Counsel’s office and/or the Associate office when a conflict of interest arises.

If a damages claim is based on multiple legal theories, and several Counsel functions are involved, the attorney with primary responsibility for the damages litigation must ensure coordination with the other Counsel offices.

Once a decision has been made to recommend to DJ that the employee be represented by the Department, then the U.S. Attorney for the district where the civil suit was brought will be advised of the suit and informed that representation for the Service employee or former employee has been or will be requested by the Agency from DJ.

In district court cases having a 20-day answer date in which Service employees are sued in their individual capacities some U.S. Attorneys will resist filing the motion for an extension of time on the theory the suit is against the United States and, therefore, the statute automatically grants sixty days to answer. Field Counsel should urge the U.S. Attorney to file this motion.

If an employee who is individually served a summons and complaint is not prompt in notifying Field Counsel of the pending litigation, it can complicate the case and cause unnecessary problems for Field Counsel and DJ. To avoid these delays, Field Counsel should take steps to communicate to Service employees the importance of notifying the function, through appropriate channels, as quickly as possible of receipt of service of process. Prompt notification is particularly important in those cases filed in a state court and federal district court cases in which the defendant(s) is given only twenty days to answer.

In damage actions filed in state court against Service employees acting within the scope of their employment, the General Legal Services function takes the necessary action to request the U.S. Attorney in the judicial district in which the suit was filed to remove the case to federal court pursuant to 28 U.S.C. §1442. Field Counsel will also be responsible for providing any assistance requested by the U.S. Attorney with regard to the removals.

When a damages litigation case is opened in CASE-MIS the dollar amount of damages claimed should be entered in the appropriate Counsel database.

When a Service employee is sued for actions taken in connection with official duties and desires representation by DJ, such employee should submit a written request for such representation as provided by CCDM 30.4.6. Additionally, to allow for the proper defense of such an action, the employee should furnish an affidavit, which would likewise demonstrate that, with respect to the actions challenged, they were authorized and were performed within the line of official duties.

The Counsel attorney with primary responsibility for the case must obtain a status report from the DJ attorney assigned to the case at least once each quarter, until the case is resolved. A note of the information obtained with each status report should be made in the case file.

When a damages case is settled or a final decision rendered, Counsel for the case must:

The responsible Area Counsel, Assistant Chief Counsel, or Associate Chief Counsel must ensure that the following steps are taken with regard to giving notice to affected IRS or Counsel offices:

The settlement of cases is discussed in general in CCDM 34.8.