Taxpayer’s Depression From IRS Improper Collection Action and A Claim for $34 Million in Damages

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What happens when a taxpayer goes into a tailspin following mistakes that the IRS makes in connection with trying to collect taxes? Wrhel v. United States is a district court opinion out of Wisconsin where a taxpayer sought over $34 million in damages for the IRS’s wrongful collection actions. The case caught my attention because it requires the courts to consider the limits of responsibility when someone’s life goes off kilter as a result of what the court framed as relatively minor IRS mistakes.


I will summarize the facts to get to the heart of the case. Mr. Wrhel timely filed his 2010 tax return and received a refund. Unfortunately for Mr. Wrhel he neglected to include on the return about $1,100 in gambling winnings from a casino run by the Ho-Chunk Nation.

IRS issued an automated underreporting (AUR) notice and eventually a stat notice. The problem with those notices was that they were sent to a prior address of Wrhel’s in Iowa, and not to the Wisconsin address that was on his 2010 tax return. IRS wound up assessing $287 tax on the unreported gambling winnings. IRS then sent multiple collection letters to his old Iowa address; eventually IRS updated its records and sent collection letters to Wrhel at his Wisconsin address. Wrhel sent in a payment for the bill and also had about $100 of his state refund taken as a result of the assessment.

Because Wisconsin was his last known address for tax purposes, when Mr. Wrhel  petitioned the US Tax Court, the Tax Court eventually concluded that the stat notice (and thus the assessment) was invalid, leading the IRS to abate the assessment and issue a refund. Wrhel refused to cash the refund check because he believed that the IRS had miscalculated the amount he was owed. Part of the current dispute included Wrhel’s claim that he was entitled to a greater refund, and the consequences of his failing to cash the check that the IRS had sent him. I will skip that part but basically the court said he was not entitled to a greater refund and provided some information as to how Wrhel could get a replacement refund check.

The 2010 tax dispute led to problems in future years. Following the 2010 tax situation, Mr. Wrhel did not timely file his next three years’ tax returns. That inspired a visit to Mr. Wrhel’s home from a friendly revenue officer who left “literature” and information about the IRS collection process.  While Mr. Wrhel eventually filed the returns, Mr. Wrhel did not take kindly to the visit, and he believed that it violated Section 6304, which provides that IRS employees should not engage “in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of any unpaid tax.”

This takes us to Section 7433, which provides that taxpayers may recover the “costs of the action” and “actual, direct economic damages sustained by the plaintiff as a proximate result of the reckless or intentional or negligent actions of the [IRS] officer or employee.”

What were the actions that Wrhel claimed were improper? The first related to the home visit from the revenue officer which he believed amounted to harassment. The second stemmed from the collection notices that were erroneously issued to his wrong address that also generated the improper seizure of his small state tax refund. All of this business with the IRS seemed to really upset Mr. Wrhel. His distress is apparent from his filings:

I have suffered unnecessary anxiety, unnecessary unrest, unnecessary depression which caused me an inability to effectively operate my pepperidge farm business. This was unnecessary and not fair to pepperidge farm. . . . It further has wrecked all trust, faith, and belief in the United States Internal Revenue Service.

I have no desire to continue living in this country as a direct reckless disregard by the IRS and the subsequent seizure that took place.

Part of Wrhel’s unhappiness stemmed from being contacted directly and personally by a revenue officer, which Wrhel alleged was improper. The government fought hard on this point. Its first argument was that the revenue officer visit was not collection action as it was in connection with securing the filing of tax returns and only improper collection actions are within Section 7433. While the case law narrowly defines collection action, the opinion noted that the revenue officer left information about the collection process so it concluded that the revenue officer visit was collection activity. But the visit was not improper. An improper action would occur if, for example, the agent cursed or verbally abused the taxpayer or if the IRS bypassed a representative to visit the taxpayer. The opinion notes that there was no harassment, and without a Form 2848 on file there was no need for IRS to contact a representative about its house call. So the court found that there was no 7433 violation stemming from the visit. (BTW IRS has a brief info page on its website detailing when an IRS may make a visit—an important issue in today’s world of scammers).

For purposes of its motion for summary judgment, the government conceded that the IRS’s sending of the collection notices to the old Iowa address was a negligent improper collection action. This takes us back to Section 7433, which provides for a capped recovery for “actual, direct economic damages”, as well as reimbursement for costs of the action. The cap is $100,000 for negligent violations and $1M for reckless or intentional violations. The regulations also forbid recovery for emotional distress unless the distress leads to pecuniary damages. In the lawsuit, Wrhel tried to connect his emotional distress to actual economic damages. He alleged that the improper IRS actions led to his depression, substantial medical bills, repossession of his car and his ultimate sale of his business. For good measure, there was an affidavit from a psychiatrist who corroborated Wrhel’s distress being tied to his dealings with the IRS:

“[Wrhel] does perseverate somewhat on the belief that the Federal Government has stolen money from him. . . . I am somewhat uncertain about the nature of this perseveration on the government having taken money from him. It does certainly have a certain delusional quality to it, but at the same time, Mr. Wrhel denies any other psychotic symptoms, and notably as well his concerns are somewhat rooted in truth.”).

The court though pushed back on the damages issue, essentially saying that Wrhel’s desire for substantial damages was not reasonable in light of the IRS’s minor misconduct:

So what the § 7433 claim boils down to is Wrhel’s reaction to the notices sent to the wrong address, the levy of $94 from his state income tax refund, and the IRS’s bill for about $400, all for taxes on gambling winnings that Wrhel knew that he had avoided and that he would have had to pay if not for the IRS’s mistake. No one would be happy to learn that the IRS had been trying to recover taxes and had violated its own mailing rules in doing so, but again, this was not a completely fabricated bill: Wrhel indeed failed to disclose his gambling winnings. Put another way, I take Wrhel to be contending that he should be able to recover at the very least thousands of dollars in damages because the IRS sent mail to the wrong address and then recovered about $500 from him before reimbursing him.

To consider the issue of the appropriate amount of damages , the opinion circles back to tort law, and cites the Restatement (Third) of Torts, which provides that for allegations of negligent conduct inflicting emotional harm

“the actor’s conduct must be such that would cause a reasonable person to suffer serious emotional harm. . . . Objectively, an unusually susceptible person may not recover if an ordinary person would not have suffered serious emotional harm.” (emphasis added)

The court accepted that Wrehl in fact was suffering deeply, and that the evidence suggested that the IRS conduct contributed to his suffering. Yet that did not justify substantial damages as it was unreasonable to connect the alleged harm with the relatively minor misconduct:

Wrhel’s medical records provide some support for his position that he has suffered substantial mental distress from the interactions with the IRS [citing to the psychiatrist affidavit]…. And his many filings in this court underscore his anger at the IRS. He has repeatedly said that he has lost faith in the government and that he intends to move to another country. But the substantial harm that he says he suffered is simply not the type of harm that could reasonably be expected to be caused by the IRS’s violations in this case. So I conclude as a matter of law that Wrhel is not entitled to any damages flowing from emotional distress.

At the end of the day, the court awarded Mr. Wrhel $400, which was the filing fee for his district court action. The opinion concluded by recognizing Mr. Wrhel’s anger and his sense that the IRS conduct was tied in part to some sort of conspiracy relating to his father. But, as the opinion notes, IRS collection notices stem from an automated process, and it was not clear why the system failed in his case:

[T]here is no evidence to support this [conspiracy] theory, and the government maintains that its system is automated and it does not know why the system failed in this case. Hopefully in addition to his admittedly meager $400 judgment, Wrhel can take away from this case the knowledge that the IRS is as capable of making mistakes as taxpayers are.

I doubt that Mr. Wrhel will take solace in the closing words of the opinion.


Avatar photo About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.


  1. Eric T. Wrhel says

    As the Plaintiff in this matter!!!
    The Ho-Chunk Nation Casino reported a tax year 2010 1099 to the IRS. This was reported approximately sixty days prior to me filing my 2010 federal income tax forms in March 2011. The Ho-Chunk Nation erroneously listed a former address of mine in Eau Claire Wisconsin. I have nor resided at this adress since late September 2007 when I was transferred by Kraft Foods Global, Inc. The Ho-Chunk Nation 2010 1099 was not received by me at my Madison Wisconsin address. Sixty days later in March 2011 I filed my 2010 federal income tax form. I did not list Ho-Chunk information having not received a tax form for this information. On March 23, 2011, the IRS accepted, processed, issued full refund for tax year 2010. This was done despite the IRS having full knowledge that an income discrepancy existed!!!
    Nine months went by with zero communication from the IRS about this income discrepancy. On November 10, 2011, my family lost our father due to injuries sustained in a fall three days prior. Througj my fathers passing my siblings and myself discovered eight savings accounts at a federally insured financial institution. On November 22, 2011, Notarized paperwork was submitted to verify our identities and to submit to background checks. Background checks were performed to identify and capture any outstanding obligations such as fines, levies, back taxes, child support, etc…
    On November 27, 2011, my family was asked by this financial institution to transfer all funds from the eight accounts and lump these funds together before being distributed to the heirs. There was zero plausible explanation provided to explain this need to transfer. The accounts in question listed my father as the primary account holder and listed one child as the secondary account holder. Very easy transactions. Show the Death Certificate!! The bank removes my fathers name and processess the account closings as instructed by my parents in 1986 when tge accounts were established. We as a family refused to allow any transfers to be done. This request was later identified to me from the bank as comming from the IRS!!!!
    On December 2, 2011, the bank notified the IRS that no transfers were being done and that the eight transactions were commencing as established!!!
    Three days later!! On December 5, 2011, IRS employee(s) Jim Grimes under the direction of M. DeLaCruz launches a review of unreported income on me for tax year 2010. IRS employee(s) Jim Grimes/ M. DeLaCruz falsified United States government records by changing my address in IRS computers to a former address of mine in Burlington Iowa. The IRS knew explicetly that I did not live at this address. The IRS knew explicetly that I could/would not receive this notice or any notice. This allowed the IRS to strip due process rught to challenge the assessment of this. This further allowed the IRS to extort unwarranted penalties and interest.
    On January 23, 2012, IRS employee M. Atwell having received NO response from me to the notice sent out, assesses tax on Ho-Chunk 1099. IRS employee Atwell made ZERO attempt to mail a single notice to the very address that appeared on the 1099 that purportedly came under review. IRS employee Atwell made ZERO attempt to mail a single notice to the address that appeared on the 2010 1040EZ that was properly filed, processed, and issued refund for in March 2011.
    On October 17, 2014, I received my one and only notice from the IRS with regard to tax year 2010.
    Nineteen days later! In explicit violation of a 30 day rule before levying!!! The Wisconsin Department of Revenue executed the illegal seizure!!!
    The Chief Counsel to the IRS under U.S. Tax Court docket #15387-15 obstructed, suppressed evidence, and committed numerous perjuries which are headed to the U.S. Court of Federal Claims!!
    The U.S. Department of Justice under U.S. Federal Court docket #16-cv-758 obstructed, suppressed, spoliated evidence, and committed numerous ide tified perjuries. U.S. Department of Justice Attorney Mr. Christopher R. Moran was removed and terminated by the DOJ for these violation. These violations are headed to the U.S. Court of Federal Claims filed this week!!!!
    I welcome any dialogue that anyone would like to have concerning these matters. Three IRS employees have been identified as participants in these actions. These three IRS employees used a tool developed for the IRS as a weapon to deprive due process rights and to extort unwarranted money!!!
    At no time have I been at fault in these matters. The IRS acted horribly, tried to cover it up, irreparably damaged the reputation of the United States, the U.S. Department of Justice and unnecessarily wasted years of Federal Court resources!!!!! When in fact there is/was never a tax liability due the IRS!!!
    The Ho-Chunk 1099 was the result of three non-jackpot payouts in 2010. 1-$240.00, 1-$306.00, 1-$600.00 for a grand total of $1,146.00.
    The United States has done everything possible to minimize this case by continuong to talk about the amount of money in question!!! This case is not about the amount of money!!! This is about right and wrong!!!! I was never in the wrong!!!!
    Eric T. Wrhel

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