In re Barcelos, ___BR___, 2017 WL 464927(Bankr. E.D. Cal. 10/12/2017)
In re Barcelos, ___BR___, 2017 WL 464927(Bankr. E.D. Cal. 10/12/2017): IRS violated bankruptcy automatic stay by taking debtor’s tax refund, during debtor’s Chapter 12 bankruptcy case; but Bky Court did not order IRS to reimburse debtor’s attorneys fees expended to get the seized tax refund back from the IRS, because debtor did not “exhaust” administrative remedies at IRS:
Chapter 12 debtor filed an adversary proceeding against the IRS, pursuant to Section 362(k), for wrongfully seizing income tax refunds in the amount of $21,000. The IRS admitted the stay violation, and promptly returned the refunds. Debtor pursued the adversary to recover attorney’s fees. The IRS objected that debtor had failed to exhaust administrative remedies prior to commencing the adversary proceeding. On cross motions for summary the bankruptcy court ruled in favor of the IRS.
IRS has unconditionally consented to 362(k) lawsuits for compensatory damages, other than attorney’s fees and costs. However, prior to commencing a lawsuit against the IRS for attorney’s fees and costs, debtor must first exhaust administrative remedies: the debtor must file an administrative claim with the chief, local insolvency unit, for the judicial district in which the case was filed, and then wait the earlier of six months or until an IRS decision has been made on the claim. Here, the debtor filed the adversary prior to making the administrative claim, and he failed to serve the claim on the proper IRS officer.