950 F.3d 299
5th Cir.2020Background
- William Canada, a former Heritage executive and lawyer, was assessed ~ $49M in IRS promoter penalties under 26 U.S.C. § 6707; he filed Chapter 11 on September 15, 2015.
- The IRS filed a proof of claim for about $40.3M in the bankruptcy; the bankruptcy court disallowed the penalties after trial (reasoning the Transactions were not tax shelters or, alternatively, Canada had reasonable cause).
- The district court affirmed the bankruptcy court on May 8, 2017; the IRS did not appeal and the order became final.
- Canada then sued the IRS and three IRS agents individually under Bivens (alleging Fifth Amendment procedural due process violations) and sought attorney’s fees under 26 U.S.C. § 7430 and the EAJA.
- The district court dismissed with prejudice: (1) Bivens claims because special factors barred a new Bivens context and (2) Canada’s § 7430 fee claim as untimely (and dismissed EAJA relief); the Fifth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a Bivens remedy is available for allegedly malicious IRS penalty assessments (Fifth Amendment due process) | Davis recognized a Fifth Amendment Bivens remedy so Canada’s due-process claim should be cognizable | This is a new Bivens context; separation-of-powers concerns, statutory remedial scheme, and congressional silence are special factors counselling hesitation | New context under Ziglar; special factors exist; no Bivens remedy (claim dismissed) |
| Whether Congressional inaction/alternative remedies permit a Bivens action | Congressional silence and prior statements suggest Bivens remains available to taxpayers | Congress created a complex statutory regime for tax disputes and enacted damages statutes for other IRS torts but omitted damages for assessed penalties—this counsels hesitation | Court held Congress’s statutory scheme and omission are special factors that preclude implying a Bivens remedy |
| Whether Rutherford v. United States (5th Cir.) supports a Bivens claim against IRS agents | Rutherford and its dicta show IRS-abuse claims can support Bivens relief | Rutherford is not a Supreme Court Bivens precedent, is distinguishable, and predates later statutory and procedural reforms | Rutherford is not controlling and does not overcome the Ziglar new-context/special-factors analysis |
| Whether Canada’s § 7430 attorney’s-fee claim is timely / tolled by bankruptcy statute 11 U.S.C. § 108(a) | § 108(a)’s two-year tolling applies so Canada’s September 14, 2017 filing was timely | § 7430 claim accrued post-petition; the 30-day filing rule applies after final judgment and §108(a) does not toll that deadline | § 7430 claim accrued after the petition and was untimely (filed ~70 days after final judgment); fee claim dismissed |
Key Cases Cited
- Bivens v. Six Unknown Fed. Narcotics Agents, 403 U.S. 388 (1971) (recognized an implied damages remedy for Fourth Amendment violations)
- Davis v. Passman, 442 U.S. 228 (1979) (recognized a Bivens-style remedy for certain Fifth Amendment violations)
- Carlson v. Green, 446 U.S. 14 (1980) (discussed limits on implied constitutional damages and the special-factors inquiry)
- Ziglar v. Abbasi, 137 S. Ct. 1843 (2017) (articulated the two-step test for Bivens extensions: new context and special factors counseling hesitation)
- Hernandez v. Mesa, 885 F.3d 811 (5th Cir. 2018) (en banc) (applied Ziglar’s framework within the Fifth Circuit)
- Bush v. Lucas, 462 U.S. 367 (1983) (reiterated cautious approach to implying damages remedies where Congress has provided alternative processes)
- Schweiker v. Chilicky, 487 U.S. 412 (1988) (held that a complex statutory remedial scheme can preclude a Bivens remedy)
- Rutherford v. United States, 702 F.2d 580 (5th Cir. 1983) (earlier Fifth Circuit decision discussing abusive tax-collection practices; treated as distinguishable dicta in this case)
- Flora v. United States, 362 U.S. 145 (1960) (discussed the importance of refund/jurisdictional rules in tax disputes)