26 U.S.C. § 7426 — Civil actions by persons other than tax-

Page 3883 TITLE 26—INTERNAL REVENUE CODE § 7426 § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 99–514, title XV, § 1572(a), Oct. 22, 1986, 100 Stat. 2765.) Editorial Notes PRIOR PROVISIONS A prior section 7425 was renumbered 7434 of this title. AMENDMENTS 1986—Subsec. (c)(4). Pub. L. 99–514 added par. (4). 1976—Pub. L. 94–455 struck out ‘‘or his delegate’’ after ‘‘Secretary’’ wherever appearing. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1986 AMENDMENT Pub. L. 99–514, title XV, § 1572(b), Oct. 22, 1986, 100 Stat. 2765, provided that: ‘‘The amendment made by subsection (a) [amending this section] shall apply to forfeitures after the 30th day after the date of the en- actment of this Act [Oct. 22, 1986].’’ EFFECTIVE DATE Section applicable after Nov. 2, 1966, regardless of when title or lien of United States arose or when lien or interest of another person was acquired, with certain exceptions, see section 114(a)–(c) of Pub. L. 89–719, set out as an Effective Date of 1966 Amendment note under section 6323 of this title. § 7426. Civil actions by persons other than tax- payers (a) Actions permitted (1) Wrongful levy If a levy has been made on property or prop- erty has been sold pursuant to a levy, any per- son (other than the person against whom is as- sessed the tax out of which such levy arose) who claims an interest in or lien on such prop- erty and that such property was wrongfully levied upon may bring a civil action against the United States in a district court of the United States. Such action may be brought without regard to whether such property has been surrendered to or sold by the Secretary. (2) Surplus proceeds If property has been sold pursuant to a levy, any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in or lien on such property junior to that of the United States and to be legally entitled to the surplus proceeds of such sale may bring a civil action against the United States in a district court of the United States. (3) Substituted sale proceeds If property has been sold pursuant to an agreement described in section 6325(b)(3) (re- lating to substitution of proceeds of sale), any person who claims to be legally entitled to all or any part of the amount held as a fund pur- suant to such agreement may bring a civil ac- tion against the United States in a district court of the United States. (4) Substitution of value If a certificate of discharge is issued to any person under section 6325(b)(4) with respect to any property, such person may, within 120 days after the day on which such certificate is issued, bring a civil action against the United States in a district court of the United States for a determination of whether the value of the interest of the United States (if any) in such property is less than the value deter- mined by the Secretary. No other action may be brought by such person for such a deter- mination. (b) Adjudication The district court shall have jurisdiction to grant only such of the following forms of relief as may be appropriate in the circumstances: (1) Injunction If a levy or sale would irreparably injure rights in property which the court determines to be superior to rights of the United States in such property, the court may grant an injunc- tion to prohibit the enforcement of such levy or to prohibit such sale. (2) Recovery of property If the court determines that such property has been wrongfully levied upon, the court may— (A) order the return of specific property if the United States is in possession of such property; (B) grant a judgment for the amount of money levied upon; or (C) if such property was sold, grant a judg- ment for an amount not exceeding the great- er of— (i) the amount received by the United States from the sale of such property, or (ii) the fair market value of such prop- erty immediately before the levy. For the purposes of subparagraph (C), if the property was declared purchased by the United States at a sale pursuant to section 6335(e) (re- lating to manner and conditions of sale), the United States shall be treated as having re- ceived an amount equal to the minimum price determined pursuant to such section or (if larger) the amount received by the United States from the resale of such property. (3) Surplus proceeds If the court determines that the interest or lien of any party to an action under this sec- tion was transferred to the proceeds of a sale of such property, the court may grant a judg- ment in an amount equal to all or any part of the amount of the surplus proceeds of such sale. (4) Substituted sale proceeds If the court determines that a party has an interest in or lien on the amount held as a fund pursuant to an agreement described in section 6325(b)(3) (relating to substitution of proceeds of sale), the court may grant a judg- ment in an amount equal to all or any part of the amount of such fund. (5) Substitution of value If the court determines that the Secretary’s determination of the value of the interest of the United States in the property for purposes of section 6325(b)(4) exceeds the actual value of such interest, the court shall grant a judg- ment ordering a refund of the amount depos- Page 3884 TITLE 26—INTERNAL REVENUE CODE § 7426 ited, and a release of the bond, to the extent that the aggregate of the amounts thereof ex- ceeds such value determined by the court. (c) Validity of assessment For purposes of an adjudication under this sec- tion, the assessment of tax upon which the in- terest or lien of the United States is based shall be conclusively presumed to be valid. (d) Limitation on rights of action No action may be maintained against any offi- cer or employee of the United States (or former officer or employee) or his personal representa- tive with respect to any acts for which an action could be maintained under this section. (e) Substitution of United States as party If an action, which could be brought against the United States under this section, is improp- erly brought against any officer or employee of the United States (or former officer or em- ployee) or his personal representative, the court shall order, upon such terms as are just, that the pleadings be amended to substitute the United States as a party for such officer or em- ployee as of the time such action was com- menced upon proper service of process on the United States. (f) Provision inapplicable The provisions of section 7422(a) (relating to prohibition of suit prior to filing claim for re- fund) shall not apply to actions under this sec- tion. (g) Interest Interest shall be allowed at the overpayment rate established under section 6621— (1) in the case of a judgment pursuant to subsection (b)(2)(B), from the date the Sec- retary receives the money wrongfully levied upon to the date of payment of such judgment; (2) in the case of a judgment pursuant to subsection (b)(2)(C), from the date of the sale of the property wrongfully levied upon to the date of payment of such judgment; and (3) in the case of a judgment pursuant to subsection (b)(5) which orders a refund of any amount, from the date the Secretary received such amount to the date of payment of such judgment. (h) Recovery of damages permitted in certain cases (1) In general Notwithstanding subsection (b), if, in any action brought under this section, there is a finding that any officer or employee of the In- ternal Revenue Service recklessly or inten- tionally, or by reason of negligence, dis- regarded any provision of this title the defend- ant shall be liable to the plaintiff in an amount equal to the lesser of $1,000,000 ($100,000 in the case of negligence) or the sum of— (A) actual, direct economic damages sus- tained by the plaintiff as a proximate result of the reckless or intentional or negligent disregard of any provision of this title by the officer or employee (reduced by any amount of such damages awarded under subsection (b)); and (B) the costs of the action. (2) Requirement that administrative remedies be exhausted; mitigation; period The rules of section 7433(d) shall apply for purposes of this subsection. (3) Payment authority Claims pursuant to this section shall be pay- able out of funds appropriated under section 1304 of title 31, United States Code. (i) Cross reference For period of limitation, see section 6532(c). (Added Pub. L. 89–719, title I, § 110(a), Nov. 2, 1966, 80 Stat. 1142; amended Pub. L. 93–625, § 7(a)(2)(E), Jan. 3, 1975, 88 Stat. 2115; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 97–248, title III, § 350(a), Sept. 3, 1982, 96 Stat. 639; Pub. L. 99–514, title XV, § 1511(c)(16), Oct. 22, 1986, 100 Stat. 2745; Pub. L. 105–206, title III, §§ 3102(b), 3106(b)(1), (2), July 22, 1998, 112 Stat. 730, 733.) Editorial Notes AMENDMENTS 1998—Subsec. (a)(4). Pub. L. 105–206, § 3106(b)(1), added par. (4). Subsec. (b)(5). Pub. L. 105–206, § 3106(b)(2)(A), added par. (5). Subsec. (g)(3). Pub. L. 105–206, § 3106(b)(2)(B), added par. (3). Subsecs. (h), (i). Pub. L. 105–206, § 3102(b), added sub- sec. (h) and redesignated former subsec. (h) as (i). 1986—Subsec. (g). Pub. L. 99–514 substituted ‘‘the overpayment rate established under section 6621’’ for ‘‘an annual rate established under section 6621’’. 1982—Subsec. (b)(2)(C). Pub. L. 97–248 inserted ‘‘if such property was sold,’’ before ‘‘grant a judgment’’ and ‘‘the greater of—’’ after ‘‘not exceeding’’, redesignated remaining provisions as cl. (i), and added cl. (ii). 1976—Pub. L. 94–455 struck out ‘‘or his delegate’’ after ‘‘Secretary’’ wherever appearing. 1975—Subsec. (g). Pub. L. 93–625 substituted ‘‘an an- nual rate established under section 6621’’ for ‘‘the rate of 6 percent per annum’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1998 AMENDMENT Pub. L. 105–206, title III, § 3102(d), July 22, 1998, 112 Stat. 731, provided that: ‘‘The amendments made by this section [amending this section and section 7433 of this title] shall apply to actions of officers or employ- ees of the Internal Revenue Service after the date of the enactment of this Act [July 22, 1998].’’ Amendment by section 3106(b)(1), (2) of Pub. L. 105–206 effective July 22, 1998, see section 3106(c) of Pub. L. 105–206, set out as a note under section 6325 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–514 applicable for purposes of determining interest for periods after Dec. 31, 1986, see section 1511(d) of Pub. L. 99–514, set out as a note under section 47 of this title. EFFECTIVE DATE OF 1982 AMENDMENT Pub. L. 97–248, title III, § 350(b), Sept. 3, 1982, 96 Stat. 639, provided that: ‘‘The amendment made by sub- section (a) [amending this section] shall apply with re- spect to levies made after December 31, 1982.’’ EFFECTIVE DATE OF 1975 AMENDMENT Amendment by Pub. L. 93–625 effective July 1, 1975, and applicable to amounts outstanding on such date or Page 3885 TITLE 26—INTERNAL REVENUE CODE § 7428 arising thereafter, see section 7(e) of Pub. L. 93–625, set out as an Effective Date note under section 6621 of this title. EFFECTIVE DATE Section applicable after Nov. 2, 1966, regardless of when title or lien of United States arose or when lien or interest of another person was acquired, except in a case in which a lien or title derived from enforcement of a lien held by United States has been enforced by a civil action or suit which has become final by judg- ment, sale, or agreement before Nov. 2, 1966, or in a case in which section would impair a priority held by any person other than United States holding a lien or interest prior to Nov. 2, 1966, operate to increase liabil- ity of such person, or shorten time of bringing suit with respect to transactions occurring before Nov. 2, 1966, see section 114(a)–(c) of Pub. L. 89–719, set out as Effec- tive Date of 1966 Amendments note under section 6323 of this title. § 7427. Tax return preparers In any proceeding involving the issue of whether or not a tax return preparer has will- fully attempted in any manner to understate the liability for tax (within the meaning of section 6694(b)), the burden of proof in respect to such issue shall be upon the Secretary. (Added Pub. L. 94–455, title XII, § 1203(b)(2)(A), Oct. 4, 1976, 90 Stat. 1690; amended Pub. L. 110–28, title VIII, § 8246(a)(2)(J)(i), May 25, 2007, 121 Stat. 202.) Editorial Notes PRIOR PROVISIONS A prior section 7427 was renumbered 7437 of this title. AMENDMENTS 2007—Pub. L. 110–28 substituted ‘‘Tax return pre- parers’’ for ‘‘Income tax return preparers’’ in section catchline and ‘‘a tax return preparer’’ for ‘‘an income tax return preparer’’ in text. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2007 AMENDMENT Amendment by Pub. L. 110–28 applicable to returns prepared after May 25, 2007, see section 8246(c) of Pub. L. 110–28, set out as a note under section 6060 of this title. § 7428. Declaratory judgments relating to status and classification of organizations under sec- tion 501(c)(3), etc. (a) Creation of remedy In a case of actual controversy involving— (1) a determination by the Secretary— (A) with respect to the initial qualification or continuing qualification of an organiza- tion as an organization described in section 501(c)(3) which is exempt from tax under sec- tion 501(a) or as an organization described in section 170(c)(2), (B) with respect to the initial classifica- tion or continuing classification of an orga- nization as a private foundation (as defined in section 509(a)), (C) with respect to the initial classifica- tion or continuing classification of an orga- nization as a private operating foundation (as defined in section 4942(j)(3)), (D) with respect to the initial classifica- tion or continuing classification of a cooper- ative as an organization described in section 521(b) which is exempt from tax under sec- tion 521(a), or (E) with respect to the initial qualification or continuing qualification of an organiza- tion as an organization described in section 501(c) (other than paragraph (3)) or 501(d) and exempt from tax under section 501(a), or (2) a failure by the Secretary to make a de- termination with respect to an issue referred to in paragraph (1), upon the filing of an appropriate pleading, the United States Tax Court, the United States Court of Federal Claims, or the district court of the United States for the District of Columbia may make a declaration with respect to such initial qualification or continuing qualification or with respect to such initial classification or continuing classification. Any such declaration shall have the force and effect of a decision of the Tax Court or a final judgment or decree of the district court or the Court of Federal Claims, as the case may be, and shall be review- able as such. For purposes of this section, a de- termination with respect to a continuing quali- fication or continuing classification includes any revocation of or other change in a qualifica- tion or classification. (b) Limitations (1) Petitioner A pleading may be filed under this section only by the organization the qualification or classification of which is at issue. (2) Exhaustion of administrative remedies A declaratory judgment or decree under this section shall not be issued in any proceeding unless the Tax Court, the Court of Federal Claims, or the district court of the United States for the District of Columbia determines that the organization involved has exhausted administrative remedies available to it within the Internal Revenue Service. An organization requesting the determination of an issue re- ferred to in subsection (a)(1) shall be deemed to have exhausted its administrative remedies with respect to a failure by the Secretary to make a determination with respect to such issue at the expiration of 270 days after the date on which the request for such determina- tion was made if the organization has taken, in a timely manner, all reasonable steps to se- cure such determination. (3) Time for bringing action If the Secretary sends by certified or reg- istered mail notice of his determination with respect to an issue referred to in subsection (a)(1) to the organization referred to in para- graph (1), no proceeding may be initiated under this section by such organization unless the pleading is filed before the 91st day after the date of such mailing. (4) Nonapplication for certain revocations No action may be brought under this section with respect to any revocation of status de- scribed in section 6033(j)(1).