Ronald M. Goldberg v. United States of America

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 16‐3032
R ONALD M. G OLDBERG , et al.,
Plaintiffs‐Appellants,
v.
U NITED STATES OF A MERICA ,
Defendant‐Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 15 CV 8879 — Charles R. Norgle, Judge.
____________________
A RGUED SEPTEMBER 14, 2017 — D ECIDED J ANUARY 31, 2018
____________________
Before WOOD, Chief Judge, and R IPPLE and H AMILTON, Cir‐
cuit Judges.
HAMILTON , Circuit Judge. Plaintiffs Ronald M. Goldberg,
Sherwin Geitner, and Phillip C. Leavitt failed to pay federal
income taxes they owed for a business partnership for the
year 1994. After a criminal investigation touched that partner‐
ship, these plaintiffs reached a civil settlement with the Inter‐
nal Revenue Service in 2003 by agreeing to pay back taxes.
Nearly ten years later, however, they filed this suit seeking to

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2 No. 16‐3032
invalidate the settlement and to collect other damages by
claiming the IRS violated the tax code in assessing their tax
liability. Plaintiffs seek relief in the form of both claims for re‐
fund under 26 U.S.C. § 7422 and claims for damages under 26
U.S.C. § 7433. The district court granted the government’s mo‐
tion to dismiss. The court dismissed the refund claims on the
pleadings for lack of jurisdiction for failure to exhaust admin‐
istrative remedies with the IRS. The court dismissed the
claims for damages, also on the pleadings, because they al‐
leged IRS errors only in assessing taxes, not in collecting them,
so that the claims fall outside the scope of § 7433, which is
limited to errors in collecting taxes. We affirm.
I. Factual and Procedural Background
Since the district court decided the jurisdictional issue on
the pleadings and dismissed the § 7433 claims on the plead‐
ings for failure to state a claim, we accept as true the plaintiffs’
well‐pleaded factual allegations and review de novo the dis‐
trict court’s legal conclusions. Meade v. Moraine Valley Commu‐
nity College, 770 F.3d 680, 684 (7th Cir. 2014); Kikalos v. United
States, 479 F.3d 522, 525 (7th Cir. 2007). We thus do not vouch
for the objective truth of the plaintiffs’ allegations summa‐
rized here.
Decades ago the plaintiffs formed a company called the
Fredericksburg partnership to search for oil. The plaintiffs
were the sole owners of the Fredericksburg partnership, but
they did not manage the company’s operations. Instead, they
contracted with Kraft Oil Management for management ser‐
vices.
The activities of the Fredericksburg partnership and Kraft
Oil Management eventually drew the attention of the IRS,

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No. 16‐3032 3
which began a criminal investigation of the Fredericksburg
partnership, Kraft, and Kraft principals Carl Valeri and Bent‐
ley Blum. In 2003, the plaintiffs and the IRS settled allegations
against the Fredericksburg partnership in exchange for the
payment of taxes for the tax year 1994. By that time, the statute
of limitations for 1994 tax liability had expired, but the IRS
had obtained a waiver of the statute of limitations from Valeri
for the plaintiffs’ tax liability.
In this lawsuit, the plaintiffs allege that the IRS’s tactic vi‐
olated the tax code because the IRS did not sign the agreement
and Valeri could not waive the statute of limitations on plain‐
tiffs’ behalf. See 26 U.S.C. § 6229(a)–(b). The plaintiffs allege
that the IRS violated another tax code provision because it
never sent required notices to the plaintiffs informing them
that the IRS had begun an administrative proceeding focused
on the partnership’s tax liability. See 26 U.S.C. § 6223(a). Plain‐
tiffs claim further that they did not discover these alleged vi‐
olations until 2009, six years after they signed the civil settle‐
ment.
The plaintiffs never sent formal refund claims to the IRS
as required by the tax code and agency regulations. See
§ 7422(a). Instead, they and others sued the IRS in 2012. (The
case was delayed by extended debates over venue but even‐
tually wound up in the Northern District of Illinois.) On ap‐
peal plaintiffs seek relief by two separate paths. The first is a
claim for a refund of taxes paid under § 7422. The second is a
claim for damages for harm supposedly caused by IRS agents
failing to follow all the tax code’s requirements in assessing
the tax liability while negotiating the settlement.
The district court granted the government’s motion to dis‐
miss. The court determined it lacked jurisdiction to hear the

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4 No. 16‐3032
plaintiffs’ claim for a refund under § 7422 because the plain‐
tiffs had failed to exhaust administrative processes for claim‐
ing refunds before filing the suit. It ruled that the plaintiffs
failed to assert a viable claim under § 7433 because that pro‐
vision offers a remedy for wrongful actions only in collecting
taxes, while the plaintiffs had alleged that “the IRS and its
agents wrongfully assessed their tax burden.”
II. Analysis
The federal income tax laws are complicated. Taxpayers
make mistakes when filing returns and paying taxes, and the
IRS makes mistakes when assessing and collecting them. An
essential element of the revenue system is the power Congress
has given the IRS to resolve these problems internally through
reasonable procedures of the agency’s design. See 26 U.S.C.
§§ 7422(a), 7433(d)(1) (requiring exhaustion of administrative
remedies before filing suit). Congress also imposed a statute
of limitations that requires refund claims to be filed within
three years from the time the return was filed or two years
from the time the tax was paid, whichever is later. 26 U.S.C.
§ 6511(a). Only taxpayers who have filed timely refund claims
and then exhausted these administrative procedures may sue
the government for tax refunds in federal court under 28
U.S.C. § 1346 and 26 U.S.C. § 7433.
Regulations specify how taxpayers must file refund
claims. See 26 C.F.R. § 301.6402‐2(b)(1). Under these regula‐
tions, a taxpayer must affirm that the substance of the refund
claim is true, “set forth in detail each ground upon which a
credit or refund is claimed and facts sufficient to apprise the
Commissioner of the exact basis thereof,” and file the claim
before the statute of limitations expires. Id. The plaintiffs’

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No. 16‐3032 5
complaint concedes that they failed to meet these require‐
ments. Nevertheless, the plaintiffs claim that two excep‐
tions—the “informal claim doctrine” for tax refunds and
damages claims under § 7433—provide them routes to relief
in federal court. We disagree on both points.
A. The Informal Claim Doctrine
We consider first the plaintiffs’ claims for refunds under
§ 7422. Taxpayers fearing that the IRS will reject their other‐
wise timely refund claims for failure to dot an i need not
worry that the statutory time limit will expire before they can
cure any defects. The informal claim doctrine allows a tax‐
payer’s claim for a refund to survive so long as the taxpayer
files some “notice fairly advising the Commissioner of the na‐
ture of the taxpayer’s claim” within the limitations period and
later makes sure that all “formal defects and lack of specificity
have been remedied” by a fully compliant refund claim.
United States v. Kales, 314 U.S. 186, 194 (1941); accord, Kikalos
v. United States, 479 F.3d 522, 526 (7th Cir. 2007). In this case,
however, even taking at face value plaintiffs’ allegation that
the IRS had sufficient informal notice to apprise the agency of
their claim, plaintiffs have failed to perfect their claim.
In applying the informal claim doctrine, we have empha‐
sized the importance of the requirement that a taxpayer per‐
fect an informal administrative claim by remedying the for‐
mal defects. In Greene‐Thapedi v. United States, 549 F.3d 530,
533 (7th Cir. 2008), we wrote that the “informal claim doctrine
is predicated on the expectation that any formal deficiency
will at some point be corrected.” The plaintiffs have conceded
here their failure to perfect. In their complaint, they offered
for the first time to file formal refund claims if the court de‐
termined they were necessary: “If the Court requires service

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6 No. 16‐3032
to the IRS of formal, written notices pursuant to 26 U.S.C.
§ 7422(a) in addition to th[e] earlier notice, [plaintiffs] will
serve the requisite notices. [Plaintiffs] understand that the law
does not require this service once the earlier notice to the IRS
is established.” Cmplt. ¶ 39. Plaintiffs have provided no legal
authority to support this understanding. Nor have they of‐
fered any independent reason to abandon the perfection re‐
quirement.
We see no such reason. The perfection requirement en‐
sures that the pragmatic judicial doctrine of informal notice
does not disrupt unduly the regulatory regime created by
Congress and the IRS for resolving tax disputes. If unhappy
taxpayers could get around the administrative exhaustion re‐
quirement of § 7422 by sending deficient claims to the IRS and
never following up, then § 7422 and the regulations govern‐
ing the refund process at the IRS would be more difficult to
administer. The district court properly dismissed plaintiffs’
refund claims under § 7422 because they failed to exhaust ad‐
ministrative remedies.
B. Section 7433
The plaintiffs also cannot recover damages under § 7433.
The statute allows taxpayers to sue the government for dam‐
ages if “in connection with any collection of Federal tax with
respect to a taxpayer, any officer or employee of the Internal
Revenue Service recklessly or intentionally, or by reason of
negligence, disregards any provision” of the Internal Revenue
Code or IRS regulation promulgated under the Code. 26
U.S.C. § 7433(a). Like § 7422, § 7433 requires a plaintiff to ex‐
haust administrative remedies through IRS procedures before
a court can award relief. See § 7433(d)(1). We have held that
the exhaustion requirement in § 7433 is not jurisdictional, so

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No. 16‐3032 7
federal courts can hear a § 7433 claim even if a plaintiff has
failed to exhaust administrative remedies so long as the gov‐
ernment waives the issue. Gray v. United States, 723 F.3d 795,
798 (7th Cir. 2013). Because the government has waived this
defense on this claim, we proceed to the merits, which depend
on whether the limiting phrase “in connection with any col‐
lection” permits these plaintiffs’ claims for damages under
§ 7433.
The problem for plaintiffs here is that they do not allege
any misconduct related to the tax collection process. Instead,
they claim the IRS violated the tax code when assessing their
tax liability, by improperly obtaining statute‐of‐limitation
waivers from agents of the plaintiffs and by failing to notify
the plaintiffs at the outset of the administrative proceedings
against their company. (We offer no view on the merits of
these allegations.) To avoid the “in connection with any col‐
lection” language of § 7433, plaintiffs rely on dictionary defi‐
nitions and out‐of‐context dicta from case law interpreting the
phrase “in connection with” in unrelated statutes. In plain‐
tiffs’ view, the process of assessing taxes is itself done “in con‐
nection with” collection of taxes so that § 7433 applies to es‐
sentially anything the IRS does in assessing tax liability.
The government advocates a more limited meaning under
which § 7433 allows taxpayers to sue for damages resulting
from tax code violations only during the collection process it‐
self. A taxpayer may seek more limited remedies for viola‐
tions that precede the collection process—that is, violations of
statutes and regulations governing federal tax assessment—
through the refund process laid out in § 7422 and described
above.

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8 No. 16‐3032
We agree with the government and with our colleagues in
other circuits that § 7433 allows taxpayers to sue the govern‐
ment for violations of the tax code in the collection process
itself but not for alleged violations of law in assessing taxes.
See Gandy Nursery, Inc. v. United States, 318 F.3d 631, 636 (5th
Cir. 2003) (“assessments do not give rise to a cause of action
under Section 7433”); Miller v. United States, 66 F.3d 220, 223
(9th Cir. 1995) (“Because [plaintiff] is challenging only the de‐
termination of the tax, the claim is not actionable under § 7433
of the Internal Revenue Code.”); Shaw v. United States, 20 F.3d
182, 184 (5th Cir. 1994) (same); Gonsalves v. Internal Revenue
Service, 975 F.2d 13, 16 (1st Cir. 1992) (per curiam) (same). We
reach this conclusion based on the important and fundamen‐
tal difference in tax legislation between tax assessment and
tax collection, and on the unusually clear guidance provided
by the legislative history of § 7433.
1. Assessment v. Collection
Federal tax statutes distinguish time and again between
the assessment process and the collection process. The tax
code does not use the terms interchangeably. When Congress
intends for a particular section to apply to both the assess‐
ment and collection process, the relevant statute speaks of
both assessment and collection, especially in provisions gov‐
erning the rights of taxpayers to sue the government. See, e.g.,
28 U.S.C. § 1346(a)(1) (granting district courts jurisdiction
over suits alleging taxes wrongfully “assessed or collected”);
26 U.S.C. § 7421(a) (generally prohibiting suits “restraining
the assessment or collection of any tax”); § 7422(a) (requiring
exhaustion of administrative remedies for suits to recover
taxes wrongfully “assessed or collected”). This common prac‐
tice indicates that when Congress wrote § 7433 to apply only

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No. 16‐3032 9
to violations “in connection with any collection,” the lan‐
guage indicated a deliberate choice to exclude violations in
the assessment process.
Reading § 7433 to exclude claims based on tax code viola‐
tions in tax assessment also preserves the requirement in
§ 7422(a) that taxpayers exhaust the administrative refund
process before filing suit in federal court to contest tax liability
“alleged to have been erroneously or illegally assessed or col‐
lected.” If § 7433 applied to tax code violations committed in
the assessment process, the remedy would at best duplicate
the refund process and at worst create an unnecessary loop‐
hole that might allow taxpayers to skirt the administrative re‐
fund process entirely by claiming the IRS negligently violated
the tax code. Because the tax code’s assessment requirements
create explicit duties and prohibitions for IRS employees, it
would take little effort for plaintiffs to plead negligence per se‐
type claims for any violation of tax assessment laws and to
claim that they are entitled to damages in the amount of ille‐
gally assessed tax liability.
That appears to be exactly what plaintiffs are trying to do
in this case. At its heart, plaintiffs’ complaint seeks to undo
their tax liability because they claim the IRS illegally imposed
those taxes (despite the 2003 settlement, but we put that aside
for this case). To avoid this liability, the plaintiffs seek relief
under both § 7422 and § 7433 based on the same alleged mis‐
conduct and the same resulting harm. The § 7422 refund
claims allege that the IRS failed to notify the plaintiffs and
failed to obtain a valid waiver of the statute of limitations. The
§ 7433 damages claims allege the same violations. Both the
§ 7422 and § 7433 claims further allege that the IRS committed
these acts intentionally and recklessly, and the § 7433 claim

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10 No. 16‐3032
also alleges negligence. Both statutory claims seek invalida‐
tion of the plaintiffs’ tax liability under the 2003 settlement
(though the § 7433 claim also seeks consequential damages).
Plaintiffs’ broad interpretation of “in connection with any
collection” would treat § 7433 as having created implicitly a
new route for tax refunds that would avoid entirely the estab‐
lished administrative remedial scheme. That would give the
phrase “in connection with” a dramatic but improbable effect.
Congress “does not alter the fundamental details of a regula‐
tory scheme in vague terms.” King v. Burwell, 135 S. Ct. 2480,
2495 (2015), quoting Whitman v. American Trucking Ass’ns, 531
U.S. 457, 468 (2001). If Congress wanted to duplicate or un‐
dermine the refund process, we believe it would have done so
more clearly.
2. Legislative History
While the textual difference between tax assessment and
collection provides sufficient support for the district court’s
decision, the legislative history of § 7433 removes any resid‐
ual doubts that might exist about the effect of the statutory
text. The conference committee report on the legislation that
became § 7433 shows that Congress deliberately chose to nar‐
row the statutory language to limit the remedy to violations
in tax collection, as distinct from tax assessment.
The version of the legislation originally passed by the Sen‐
ate would have provided a right of action to a taxpayer if “in
connection with any determination or collection of Federal tax,
any officer or employee of the Internal Revenue Service care‐
lessly, recklessly, or intentionally disregards any provision of
Federal law.” Technical Corrections Act of 1988, S. 2238, 100th
Cong. § 779 (1988) (emphasis added); accord, 134 Cong. Rec.

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No. 16‐3032 11
23458 (daily ed. Sept. 12, 1988) (publishing an amendment to
S. 2238). The conference committee amended the bill to limit
the right of action in several ways, most notably by removing
the word “determination.” H.R. Conf. Rep. No. 100‐1104, at
228–29 (1988) (Conf. Rep.), 1988 U.S.C.C.A.N. 5048, 5288–89.
Tracing such objective changes in a bill’s language as it makes
its way through the legislative process is not a controversial
use of legislative history. Such changes are objectively ascer‐
tainable by every legislator and judge and are not comparable
to “a potentially self‐serving gloss put on language by a Mem‐
ber or a committee.” See Intec USA, LLC v. Engle, 467 F.3d 1038,
1042 (7th Cir. 2006), citing Rivers v. Roadway Express, Inc., 511
U.S. 298 (1994), and Jones v. R.R. Donnelley & Sons Co., 541 U.S.
369, 377–83 (2004).
The purpose of this change was to make clear that the gov‐
ernment could not be sued for errors in tax assessment. The
conference committee report explained: “The conference
agreement follows the Senate amendment, with several mod‐
ifications … . An action under this provision may not be based
on alleged reckless or intentional disregard in connection
with the determination of tax.” H.R. Conf. Rep. No. 100‐1104,
at 229, 1988 U.S.C.C.A.N. at 5289. Legislative history does not
come much clearer than that.
The judgment of the district court is
AFFIRMED.

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