Damages for Emotion Distress from the IRS

Anyone who’s dealt with the IRS knows it can be a hassle. For some, however, it can be downright problematic. One couple claimed that the IRS’s continued collection activities following their filing for bankruptcy caused them serious emotional distress and they sued to recover damages. The question before an appellate court was whether the IRS, a federal agency, has sovereign immunity against such claims.

The Ninth Circuit decided that the concept of sovereign immunity did not bar the couple’s case against the IRS for emotional distress (Hunsaker, CA-9, 8/30/18). The IRS’s actions were a willful violation of the bankruptcy stay order and the relevant bankruptcy statute waives sovereign immunity for monetary damages. The court remanded the case to the district court so it could consider the merits of the claim.

Note: In a similar case, the First Circuit came to the opposition conclusion (Torres, CA-1, 432 F.3d 20 (2005). The current decision distinguished itself from the prior one because it involved different federal statutes under which the claims for emotional distress were brought. Because of the split in the circuits, it is possible that at some time in the future, the U.S. Supreme Court may be called upon to settle the issue.