Willis v Boyd, an opinion from the 8th Circuit Court of Appeals, is not a typical tax collection case. The opinion involves an IRS agent who seized 364,000 one dollar coins that were issued to commemorate US presidents. After seizing the coins, which were in special boxes in original packaging consisting of 1,000 coins, another IRS employee removed the coins from their packaging, put the coins through a coin counter, and deposited $364,000 to be credited against the taxpayer’s sizeable liability. The taxpayer claimed that the coins had significantly greater value and sued the government under the Federal Tort Claims Act for conversion. After winning on the merits at the district court, the government appealed, claiming that the FTCA did not act to waive sovereign immunity. On appeal, the circuit court agreed with the government.
Sovereign immunity allows the government to escape suits unless there is a clear waiver. The FTCA waives sovereign immunity in suits seeking money damages against the federal government “for injury or loss of property . . . caused by the negligent or wrongful act or omission of any employee of the Government while acting within the scope of his office or employment, under circumstances where the United States, if a private person, would be liable to the claimant.”
The waiver does not apply to all negligent actions, or wrongful acts or omissions. Under the statute the FTCA waiver does not apply when the government action is “based upon the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a federal agency or an employee of the Government, whether or not the discretion involved be abused.”
The Supreme Court, however, has held that not all discretionary actions trigger the exception to the waiver. Wanting to avoid courts second guessing policy choices, the Court has held the decision must be “of the kind that the discretionary function exception was designed to shield.” What does that mean? Even though for example there is discretion associated with driving, the government cannot escape litigation in all instances when an employee exercises some discretion; a government employee negligently operating a vehicle is different from an employee unreasonably exercising discretion in a way closely connected to policy choices related to the employee’s job.
To help determine which discretionary acts trigger an exception to the waiver, , the Supreme Court requires courts to employ a two-part analysis:
- Whether the challenged conduct or omission is ‘truly discretionary'” in that “it involves an element of judgment or choice instead of being controlled by mandatory statutes or regulations.”
- If the answer to the first question is yes, then courts consider whether the employee’s judgment or choice could be “based on considerations of social, economic, and political policy.”
If the government employee’s discretionary choice or action is based on social, economic or political policy, then the exception applies, and the government will not be deemed to have waived its immunity.
Bringing that back to the coins led the 8th Circuit to explore IRM policy. As the opinion discusses, the IRM does contain guidance on the seizure of property that may be a collectible, but it fails to instruct IRS employees on how to determine whether the coins are in fact collectible. Here is what the IRM says:
“[D]omestic and foreign currency seized for forfeiture, except where it is . . . held as a ‘collectible asset,’ must be expeditiously counted, processed, and deposited . . . within 5 days of seizure.” See Internal Revenue Manual § 126.96.36.199.1(2).
It does not provide guidance or instructions on how to determine whether the coins are considered collectible:
[The IRM] never spells out when additional investigatory duties are triggered, or what an additional investigation might look like; rather, it apparently gives an agent discretion to determine whether seized currencies’ face value is a realistic estimate of its worth or whether an investigation into its value as a collectible asset is needed and what it might entail.
The IRM does provide additional guidance on what to do after an IRS employee determines that coins are collectible. But the absence of guidance on collectability is key, even if the facts suggested that the IRS employee should have done more –and it is easy to make the case that the coins placement in the collectors’ boxes should have led to some additional inquiry:
[W]e do not think, as just explained, that the manual required the agent to do more than he did when he categorized the coins. Even if the decision was carelessly made or was uninformed, the agent’s negligence in making it is irrelevant.
As to the second factor that needs to apply for the discretionary exception to apply the appeals court noted that the district court erred in applying a subjective test to the inquiry. In other words, it did not matter that the IRS employee failed to consider the policy choices; the key is “whether the decision in question is by its nature as an objective matter susceptible to policy analysis.” To that point, the opinion stated that “agents who seize currency must balance the competing interests of expeditious deposit on the one hand and preserving property on the other—a calculation that plainly involves questions of social, economic, and political policies.”
I find it hard to be too disappointed in the outcome. I did not dig into the details of the case history but I suspect the taxpayer had ample opportunity to pay the assessed liability. The failure of the taxpayer to sell the coins on her own dime was in her control. In addition, the seizure and application to the tax liability allows the taxpayer to escape the income tax liability associated with the coins’ inherent gain. I also suspect that a cooperative taxpayer may have been more engaged with a revenue officer and may have had opportunity to let the RO know about the value and allow for the government to treat the coins as collectibles rather than just cash.
Update: The factual summary and original conclusion to the post, as some of the comments have noted, are off the mark. My failure to read the district court opinion contributed to some misstatements.
As commenter Michelle Wynn notes:
The District Court Decision made clear that Ms. Willis did not have any tax liability, the coins were seized while other law enforcement agencies were executing a search warrant for “papers and documents” related to non-tax crimes (though embezzlement can often lead to tax crimes relations), there appeared to be no justification for the seizure of the coins which were not covered by the warrant (though the District Court seemed to conclude that possible forfeiture was the only reasonable explanation), and the warrant was related to the Plaintiff’s ex-husband who did not reside at the residence. The “value of the coins” was later returned to the Plaintiff, but only for their face-value rather that what she believed to be their much higher collector’s value. However, because the Appeals Court found that sovereign immunity applied based upon the discretionary exception, it did not discuss any of the reasons that the initial seizure may have been inappropriate or any of the other arguments against sovereign immunity discussed in the District Court Decision.