Hadsell v. United States of America, the Department of Treasury

Background

Christopher Hadsell reported a $9,547 overpayment on his 2016 income-tax return and directed the Internal Revenue Service (IRS) to apply it to his 2017 tax liability. Hadsell alleged that the IRS instead treated the amount as a refund subject to offset. He also alleged that he paid $2,448 after the IRS determined that he owed additional taxes under the Affordable Care Act, although the IRS later determined that he had overpaid that amount.

Hadsell’s remaining claim sought damages under 26 U.S.C. § 7433. He alleged that the IRS’s failure to honor his payment instructions violated that statute and sought $13,253.13, plus interest, fees, and costs. The United States argued that the challenged conduct was not connected to the collection of federal taxes and therefore fell outside § 7433’s limited waiver of the United States’ immunity from suit.

Summary-judgment standard

The court explained that summary judgment is appropriate when there is no genuine dispute about a fact that could affect the outcome and the moving party is entitled to judgment under the law. The court considered the parties’ written submissions and their arguments at the hearing.

Analysis

Section 7433 permits a taxpayer to seek damages when an IRS officer or employee recklessly, intentionally, or negligently disregards federal tax laws or regulations in connection with the collection of federal tax. The court emphasized that the statute does not permit damages claims based on an improper assessment or determination of tax liability.

The court first addressed the overpayment offsets. At least part of Hadsell’s 2016 overpayment was sent to the California Department of Child Support Services to satisfy past-due child-support obligations. The United States presented evidence that the offsets were made through the Treasury Offset Program based on notice from California.

The court held that 26 U.S.C. § 6402(g) barred review of reductions made under § 6402(c), which covers offsets for past-due child support. The court stated that Hadsell’s challenge to the validity of any child-support debt had to be brought against the state or other responsible agency rather than the IRS. The court also concluded that applying a tax overpayment to a non-tax debt was not conduct connected to the collection of federal tax for purposes of § 7433. It therefore granted summary judgment on the claim concerning the child-support offsets.

The court separately considered the timing of the offsets and stated that treating the claim as based on untimely offsets would not change its conclusion that the conduct was outside § 7433.

As to the Affordable Care Act tax payment, the court concluded that Hadsell was challenging the IRS’s determination that he owed additional taxes and his resulting voluntary payment. Because § 7433 does not cover improper determinations of tax liability, and because Hadsell paid before any forced collection activity began, that claim also fell outside the statute.

Disposition

Judge Virginia K. Demarchi concluded that the court lacked subject-matter jurisdiction over Hadsell’s § 7433 claim and granted the United States’ motion for summary judgment. The clerk was directed to enter judgment and close the file.