INTERNAL REVENUE SERVICE v. MURPHY

Filing 17

PROCEDURAL ORDER REGARDING ISSUES TO ADDRESS AT ORAL ARGUMENT - By JUDGE D. BROCK HORNBY. (mnw)

UNITED STATES DISTRICT COURT
DISTRICT OF MAINE
INTERNAL REVENUE SERVICE,
APPELLANT
V.

WILLIAM CHARLES MURPHY,
APPELLEE

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CIVIL NO. 2:16-CV-8-DBH
(BANKRUPTCY NO. 05-22363)
(BANKRUPTCY ADV. NO. 11-2020)

PROCEDURAL ORDER REGARDING ISSUES
TO ADDRESS AT ORAL ARGUMENT
The parties to this bankruptcy appeal are scheduled for oral argument on
August 22, 2016.

In light of previous appeals, I am very familiar with the

procedural background and the disputed and undisputed facts of this case. It
will not be worthwhile for the lawyers to spend their oral argument time on the
facts or on what happened in the bankruptcy court. Instead, I suggest counsel
focus on the following legal issues, listed here in no particular order:
1. Section 7433(e) of the Internal Revenue Code allows a taxpayer to
recover damages if an IRS officer or employee “willfully violates” the automatic
stay and discharge provisions of the Bankruptcy Code. “Willfully” and “willful”
are words employed in both the Internal Revenue Code and the Bankruptcy
Code, but apparently with different meanings. Compare, e.g., Cheek v. United
States, 498 U.S. 192 (1991), with Fleet Mortg. Group, Inc. v. Kaneb, 196 F.3d
265 (1st Cir. 1999). Moreover, the section of the Public Law that created section

7433(e) also provided damages relief if an IRS officer or employee disregards an
Internal Revenue Code provision “recklessly or intentionally, or by reason of
negligence,” terms different from “willfully.” Pub. L. No. 105-206, PL 105-206,
§ 3102(b), 112 Stat. 685, 730 (1998) (amending section 7426 of the Internal
Revenue Code).

Given these various contexts, what is the proper statutory

interpretation of “willfully violates” in this discharge case? What is the effect of
Internal Revenue Manual § 1.4.51.2.7.1(4) that states:
The Service can only be held liable for damages and
attorney’s fees if it commits a “willful violation” of the
stay or discharge injunction. “Willful” in this context
means an act that was committed intentionally or
knowingly. A willful violation occurs when the Service
has received notice of a voluntary bankruptcy filing or of
the court’s granting of a discharge, and the Service does
not respond timely to stop its collection activities.”
(Emphasis added.)
2. What insight, if any, does the Restatement (Second) of Judgments § 28
furnish on the use of offensive collateral estoppel in this case? Does sovereign
immunity affect the analysis?

What standard of review should I employ in

reviewing the bankruptcy court’s decision to apply offensive collateral estoppel?
SO ORDERED.
DATED THIS 27TH DAY OF JULY, 2016
/S/D. BROCK HORNBY
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D. BROCK HORNBY
UNITED STATES DISTRICT JUDGE

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