District Court Dismisses Attorneys' Complaint That IRS Retaliated Against Them

(Parker Tax Publishing February 2025)

A district court dismissed with prejudice a complaint filed against the IRS by a husband and wife, both attorneys, who claimed the IRS had targeted them in retaliation for their representation of taxpayers in civil and criminal tax cases. The court rejected the couple's argument that they had exhausted all administrative remedies before filing their complaint after finding that meeting and speaking with an IRS employee was not the administrative remedy prescribed by Reg. Sec. 301.7433-1 that needed to be satisfied before filing suit in the court. Mirch v. U.S., 2025 PTC 43 (S.D. Cal. 2025).

Background

Kevin Mirch and his wife, Marie Mirch, are attorneys who have represented taxpayers against the IRS in civil and criminal tax cases. They served as trial counsel in two criminal tax cases tried in Nevada and alleged that they were targeted by the IRS in retaliation for these legal representations and were subjected to relentless regulatory scrutiny, including, but not limited to IRS audits, assessments, notices of federal tax liens and levies. The majority of the Mirches' allegations stem from tax years 2006, 2007, and 2008.

In July of 2006, the IRS began an audit of the Mirches' 2004 federal income tax return, which was later closed in 2011, without adjustment or assessment. In September of 2007, the IRS began an audit of the Mirches' 2006 federal income tax return, despite the couple having received an extension to file their 2006 tax return until October 15, 2007. In September of 2008, the IRS began an audit of the Mirches' 2007 income tax return. During these years, the Mirches alleged that: (1) they overpaid their taxes, (2) various IRS audits did not result in any adjustments or additional assessments, and (3) the IRS subsequently imposed unlawful penalties as a negotiating strategy to offset refunds due to the couple. The Mirches also alleged that the IRS retaliated against them from 2010 to 2020 by assessing various payroll tax liens and penalty tax liens. According to the Mirches, these actions demonstrated that the IRS intentionally assessed penalties on income and payroll tax amounts it knew were not due.

In June of 2011, the Mirches filed a Tax Court petition disputing tax deficiency assessments against them for years 2004 to 2008 and alleging that the IRS did not properly mail them the required Statutory Notice of Deficiency (SNOD). On October 27, 2021, the Mirches alleged that the IRS recorded a Revocation of Certification of Release of Federal Lien reinstating $122,349 of IRS liens for 2006 and 2008. The Tax Court dismissed the petition after concluding that (1) it lacked jurisdiction over the petition, (2) the petition was time barred, (3) the IRS did in fact deliver the SNOD that the Mirches claimed not to have received, and (4) the Mirches did not timely file a petition contesting the determinations in the SNOD. On appeal, the Ninth Circuit affirmed the Tax Court's decision.

The Mirches subsequently filed another petition with the Tax Court, alleging that the IRS's Notice of Determination upholding notices of federal tax liens filed for tax years 2004, 2006, and 2008 violated their Collection Due Process rights. On June 16, 2023, the Tax Court granted partial summary judgment for the IRS, finding that the Mirches were precluded under the doctrine of collateral estoppel from claiming that the June 29, 2010, SNOD was invalid.

In 2024, the Mirches filed a complaint against the IRS in the District Court for the Southern District of California, alleging two violations under Code Sec. 7433. Under Code Sec. 7433, taxpayers can bring a civil action for damages against the United States if the IRS recklessly or intentionally, or by reason of negligence, disregards provisions of the Internal Revenue Code. The Mirches claimed that the IRS violated Code Secs. 6201, 6212, 6301, 6303, 6320-6331, 6672, and Code Sec. 7602, as well as several provisions of the Internal Revenue Manual.

Reg. Sec. 301.7433-1(d) and Reg. Sec. 301.7433-1(e) describe the administrative remedies which a taxpayer must pursue before filing suit against the United States under Code Sec. 7433. Those provisions state that a prospective plaintiff must send an administrative claim in writing to the IRS Area Director of the area in which the taxpayer currently lives, and the claim must include the taxpayer's contact information, the grounds for the claim, a description of the injuries incurred, the dollar amount of the claim, and the taxpayer's signature.

Under Reg. Sec. 301.7433-1(d), no action under the statute can be maintained in federal district court before the earlier of (1) the date before a decision is rendered on a claim; or (2) the date six months after the date an administrative claim is filed in accordance with Reg. Sec. 301.7433-1(e). The Mirches argued that they exhausted all administrative remedies because they regularly met with an IRS agent to provide substantiation and explanations for items on their tax returns.

Code Sec. 7433(d)(3) provides that an action under Code Sec. 7433 may be brought only within two years after the date the right of action accrues. Under Reg. Sec. 301.7433-1(g)(2), a cause of action accrues when the taxpayer has had a reasonable opportunity to discover all essential elements of a possible cause of action.

At a hearing held on January 30, 2025, the Mirches conceded that they did not file the requisite administrative claim before pursuing the instant cause of action.

Analysis

The district court dismissed with prejudice the Mirches' complaint after concluding that the Mirches had not exhausted all their administrative remedies before filing their suit, as is required under Code Sec. 7433. By not exhausting all their administrative remedies, the court said, the United States had not waived its sovereign immunity as was required. The court also found that neither the Mirches' failure to exhaust their administrative remedies nor the untimeliness of their action could be cured by further amendment of the complaint.

In addressing the Mirches' argument that they exhausted all administrative remedies because they regularly met with an IRS agent to provide substantiation and explanations relating to their case, the court observed that meeting and speaking with an IRS employee is not the administrative remedy prescribed by Reg. Sec. 301.7433-1 and thus this argument was without merit. The court found that nowhere in the complaint did the Mirches allege that they filed the administrative claim required by Reg. Sec. 301.7433-1(e) or waited for the period of time required by Reg. Sec. 301.7433-1(d). Because the Mirches did not exhaust their administrative remedies before filing suit, as required by the regulations, the court concluded that it was without jurisdiction.

The court then addressed the statute of limitations issue, noting that an action under Code Sec. 7433 may be brought only within two years after the date the right of action accrues. While the court found the Mirches' allegations difficult to follow, it surmised that the latest alleged collection activity in the complaint which could give rise to a possible cause of action occurred on October 27, 2021, when the Mirches alleged that the IRS recorded a Revocation of Certification of Release of Federal Lien reinstating $122,349 of the 2006 and the 2008 liens. The court noted that the Mirches filed their initial complaint on April 22, 2024, more than two years after the IRS recorded its Revocation of Certification of Release of Federal Lien. As a result, the court concluded that the Mirches' claims were barred by Code Sec. 7433(d)(3).

For a discussion of the remedies available to taxpayers for unauthorized tax collections by the IRS, see Parker Tax ¶260,550.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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