The IRS Is Sued For Seizing And Depositing Collectible Coins Featuring Dead Presidents

An example of when someone can sue the IRS and potentially win.

Last week, I wrote why it is a bad idea to sue the Internal Revenue Service just because their collections department is being heavy handed. Based on the responses I received, it made a lot of people mad and sad. So today, here is a story where someone sued the IRS and actually won, although the judgment was later reversed. This case may be heard by the U.S. Supreme Court.

The case is Willis v. United States. There, the state police raided Carrie Willis’s home while investigating allegations of financial crimes. During the search, the police found and seized 364 boxes of recently minted limited-edition $1 coins commemorating deceased U.S. presidents. Each box contained 1,000 coins. These coins were given to an IRS special agent who then deposited the coins into an IRS account.

Willis came to a resolution with the IRS who then issued a refund check in the amount of $364,000. But she wanted the coins back.

Willis then sued the government under the Federal Tort Claims Act (FTCA) for conversion claiming that the seized coins were collectibles whose value was more than the $364,000 face value. The government argued that the IRS special agent’s decision to cash the coins was a discretionary decision that immunizes the government from liability under the FTCA.

After a bench trial, the district court judge awarded the plaintiff $94,880. The government appealed the decision to the Eighth Circuit Court of Appeals where the judgment was reversed.

The court looked at whether the agent’s decision was discretionary using a two-part analysis. First, the judge ruled that even though the Internal Revenue Manual has special rules for handling collectibles, the agent’s decision to cash presidential coins was discretionary since there was no mandatory rule that instructed an agent how to determine whether a currency is collectible. Whether the decision was careless or uninformed, as this one may have been, is irrelevant.

Next, even if the government agent made a discretionary decision, the government is still liable under the FTCA if the decision must be of the kind that is not grounded in government policy. For example, a government employee who causes an accident while on government business can expose the government to FTCA liability because the discretion exercised while driving a car has no connection to government policy. In this case, the court found that it is sound government policy to deposit the currency as quickly as possible instead of leaving it around.

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Willis then petitioned the U.S. Supreme Court for review. In her petition, she argues that the Eighth Circuit’s holding and reasoning conflicts with other circuit decisions on two grounds. First, only the Eighth Circuit applies the discretionary-function exception even when an agent fails to fulfill a mandatory duty on the theory that the agent made a discretionary determination that the mandatory duty did not apply. Other circuits have held that the government is subject to FTCA liability where an agent fails to perform a mandatory duty. Second, there is a circuit conflict on whether the discretionary-function exception shields a federal agent’s failure to exercise discretion. In this case, the IRS agent testified he did not make an effort to determine whether the coins had any collectible value.

The government’s response argues that no circuit conflict exists because they hold that the government is liable under the FTCA if they fail to comply with specific, mandatory directives. The Eighth Circuit’s decision does not create a conflict because the IRS Internal Revenue Manual does not give specific, mandatory directives on how to determine whether seized coins are collectibles or regular currency. In addition, there is no circuit conflict on the issue of negligent exercise of discretion because the statute by its terms protects a discretionary decision regardless of whether the discretion is abused or the agent fails to perform a discretionary function.

Looking at the facts of this case, I find it questionable that the agent did not consider why someone would go through the trouble of wrapping presidential dollar coins and putting them in boxes. If these coins were fungible, it is likely they would be treated less delicately. Also, if these coins are currency as the government contends, it wouldn’t hurt to hold on to them until the investigation was complete as opposed to destroying the packaging and depositing the money into a bank. It would be different if they were foreign currencies subject to hyperinflation or similar volatility.

The Supreme Court’s current two-part test for determining whether a government agent performed a discretionary function (and thus excepted from a FTCA claim) has not provided clear, consistent guidance.

As this case (and others) points out, there can be many instances where a federal employee exercises discretion. Even if there are mandatory, specific directives that could negate discretion, how those directives are performed can be deemed discretionary.

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The second part of the test looks at whether the discretionary act was the kind that the exception was designed to protect, usually acts involving the furtherance of government policy. In some cases, there can be reasonable disagreements on whether a discretionary action has a legitimate governmental purpose.

Perhaps this is a way to filter out the frivolous or nuisance cases. On one hand, Congress passed the FTCA to allow tort victims to get compensation from the federal government where an employee was the tortfeasor. On the other hand, the federal government is the ultimate deep pocket, and excessive lawsuit judgments could put a major hole in the federal budget.

But if the court applies this line of reasoning too generously then all but the most egregious tort actions could be shielded from FTCA liability. The government would use the discretionary-function exception indiscriminately to challenge a judgment they do not like. As an institutional litigator, the government will only be inclined to settle if a hazards of litigation analysis indicates that an unfavorable court decision will result in more litigation and higher financial exposure.

If the high court grants certiorari in this case, it might be an opportunity to have a discussion on whether the current two-part test needs to be modified or replaced altogether.

So here is one situation where someone can sue the federal government when an IRS agent acts carelessly. While it is uncertain whether the plaintiff will ultimately win, she might end up changing how the courts and the federal government handle FTCA cases. In the meantime, if you get a dollar coin featuring a deceased U.S. president, you may want to call Carrie Willis.


Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at sachimalbe@excite.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.