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.
read more...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 § 9.7.4.6.1(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.”
Conclusion
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.
About Leslie Book
Just wow!
On the other hand, uncirculated Presidential coins appear to be worth $2-$3 each, on average. These were separately packaged to probably uncirculated.
Even if the government could have unloaded them for $1.50 each, it lost $170,000. Does anyone think the IRS is going to collect in full from this taxpayer? How many hours did the revenue officer spend opening those little packages instead of collecting from another taxpayer?
I don’t feel bad for the taxpayer, but we should still acknowledge that the revenue officer wasted an enormous number of hours to throw away an enormous amount of our tax dollars.
“The agent admits that he did not make an effort to determine whether the coins had any numismatic value.”
The decision does not indicate whether or how the TP informed (or even tried to inform) the police officers at the time of the seizure that the items being seized were “collectables.” Had there been a reasonable attempt on the part of the TP to do so, then the issue of whether the IRS was put on notice by dint of what was said to the police officer would be raised, sort of a “knowledge of the agent is knowledge of the principal” dynamic.
Like Les, my heartbleed for the TP is limited, but, having twice been the victim of a coin collection theft (each time by a burglarizing relative who snorted up his nose or injected into his veins the proceeds from the fence), I am concerned about the precedent being set by the Circuit. Some clarification of procedure by the IRS would go far to ease my agita.
I have not seen the District Court opinion (is there one?), but I cannot accept that anyone who is supposed to have the relevant training and knowledge who would have been involved in this sequence of facts would not have been on notice that these were collectible coins. One rarely encounters $1 coins at all or this many coins in one place, and the fact that they were in 1,000-coin boxes certainly should have been a tip-off. I know children who would have realized that these are not just loose change. And did anyone at the district court level ask the agent and every other IRS person involved whether they knew or whether they and their families have collectible coins at home?
Finally, I hope that the case would have come out differently had the coins been old coins or precious metal coins whose numismatic or bullion value value is orders of magnitude more than face, but the 8th Cir. opinion is written as if it would give a clueless agent a pass on that too.
I decided to dig into this case a little further because something about it seemed interesting. 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.
I am not sure if this site will allow me to link the decision, but it is located here: https://cases.justia.com/federal/district-courts/missouri/mowdce/6:2016cv03251/128644/260/0.pdf?ts=1585039932
Thanks for finding and posting. So the back story is not at all like the tenor of this post, and government agents are abusive and disobey the law. Who knew?
Thanks Michelle for linking the lower court opinion. My original post is off the mark, in part due to my not having read the lower court opinion. I have updated the post to reflect your excellent comment
The IRS defendants weren’t revenue officers, they were special agents. And the opinion offers this tantalizing tidbit:
“A few years later, after Willis requested the coins’ return, the IRS informed her they had been “converted to cash and deposited into the government’s account.” When the government then paid Willis the face value of the coins, she asserted they were worth a great deal more than that as collectors’ items.”
The promoters of Bitcoin have to love this story.
I find this commentary inappropriate and irrelevant to any professional legal analysis of the case; as noted it isn’t based on any digging into the entirety of the facts:
“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.”
There is not a chance in Hell someone in (neighboring) Collection did not know or suspect the coins had collector value above face even at bulk sale. Even prior criminal conduct by the taxpayer doesn’t excuse that.
Well, now that I read the district court opinion, it seems this post is completely misinformed and misdirected.
I am not a lawyer, simply an Enrolled Agent who is continually working to gain knowledge. I believe in this case the presenter and the court ignored the incredible negligence of the IRS worker who took the time to strip these dollars out of their packaging and count them on face value. Regardless of how uncooperative the taxpayer was, the very fact that they were in protective casing should indicate a need to actually value the coins. If the dollar coins were only worth $2.00 each in their condition, the government seized $728,000 of property. I have to agree with Mr. Harris.
I can’t help but think of the movie Brewster’s Millions with Richard Pryor. The short version is that the main character found out he was a distant relative of a billionaire and could inherit $300 million but only if he spends $30 mil in 30 days. And he can’t use the money to acquire any assets that he will retain.
At one point in the movie, he goes into a stamp collectors store and buys a rare stamp for a large sum of money. When the people trying to cheat him think they’ve done it because he just bought a valuable asset, they see a post card from him. With the rare stamp used as postage to send the card…
My initial assumption was correct. No Revenue Officer would have EVER acted in this manner and it shows precisely why IRS Special Agents are held in such poor regard by virtually ALL other state and Federal law enforcement agencies.
As a Revenue Officer, I learned to do everything possible to avoid working with CID. In fact, I went out wearing body armor FOUR TIMES, but always with the Inspection Division. In addition, I worked several times with Santa Clara County Deputy Sheriffs and various police departments when I had encounters with taxpayers known to be potentially dangerous.
In 5 years, I had exactly zero contact with IRS CID and it’s clear nothing has changed.
“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.”
If we pretend the guy owed $364k and they seized coins with a face of $364k, but worth, say, $400k, that’s no net benefit to the taxpayer. But technically, you’re right: It would allow him to escape tax on the $36k of appreciation. But that’s just the headline. He’s still a loser to the tune of $36k minus the tax. That’s the real story.