Previous articles examined the case of Franchise Tax Board of California v. Hyatt, 136 S.Ct. 1277 (2016), wherein the Franchise Tax Board of California was held liable for an abusive tax audit, although the monetary damages were capped by statute at $50,000. I have also examined the ability of a Montana taxpayer to sue the Montana Department of Revenue for an abusive tax audit.
Other western states also have laws limiting the ability of the taxpayer to sue the state over abusive tax audits. In general, many other western states statutorily bar suit against state tax authorities for the assessment and collection of tax. A brief review of the tax law of western states is as follows:
North Dakota
- Law
The state and its employees cannot be held liable for any claims resulting from the assessment and collection of taxes. N.D.C.C § 32-12.2-02(3)(h). If the taxpayer can find a way around this limitation, the state waives immunity for tort claims. N.D.C.C. § 32-12.2-02(1). Damages are capped at $250,000 per person and $1 million for all claims arising from a single occurrence, and the state may not be held liable for punitive or exemplary damages. Id. at § 32-12.2-02(2).
- Cases
There are no reported cases where a taxpayer sued the North Dakota Office of State Tax Commissioner for injuries related to abusive tax audits.
Wyoming
- Law
Wyoming agencies and employees are granted immunity from any tort liability, but this immunity is waived for a few statutory exceptions. Wyo. Stat. Ann. § 1-39-104(a). However, the statutory exceptions do not include a waiver of immunity for claims related to the collection or assessment of taxes. See id. at §§ 1-39-105 through 1-39-112. If the taxpayer can find a way around this limitation, damages are capped at $250,000 per person and $500,000 per occurrence. Id. at § 1-39-118(a)(i)-(ii). If the State purchased liability insurance, then the damages caps would be extended to match the limits of the policy. Id. at § 1-39-118(b)(i). Additionally, the state may not be held liable for punitive or exemplary damages. Id. at (d).
- Cases
There are no reported cases where a taxpayer sued the Wyoming Department of Revenue for injuries related to abusive tax audits.
Utah
- Law
Utah agencies and its employees retain and do not waive immunity for injuries resulting from the collection or assessment of taxes. Utah Code §§ 63G-7-101(3); 63G-7-201(4)(h). If the taxpayer can find a way around this limitation, damages are capped at $583,900 per person in any one occurrence for personal injury claims, and “there is a $3,000,000 limit to the aggregate amount of individual awards that may be awarded in relation to a single occurrence.” Id. at § 63G-7-604(1)(a), (d). A state agency may not be held liable for punitive or exemplary damages when the judgment is entered against the agency, but the state agency may be held liable to pay punitive or exemplary damages if the judgment is entered against an agency employee. Id. at § 63G-7-603(1)(a)-(b).
- Cases
There are no reported cases where a taxpayer sued the Utah State Tax Commission for injuries related to abusive tax audits.
Idaho
- Law
Idaho agencies may be held liable for tort damages, except those arising out of the collection of any tax or fee. Idaho Code Ann. §§ 6-903(1); 6-904A(1). However, this immunity is waived if the agency acted with reckless, willful, and wanton conduct. See id. at 6-904A(1). Damages are capped at $500,000 for a single occurrence regardless of the number of people injured. Id. at § 6-926(1). However, this limit does not apply if the State purchased liability insurance in excess. Id. Additionally, Idaho agencies may not be held liable for punitive damages. Id. at § 6-918.
- Cases
There are no reported cases where a taxpayer sued the Idaho State Tax Commission for injuries related to abusive tax audits.
I encourage taxpayers involved with difficult and troublesome tax audits to contact me to discuss their rights and options.
Jared M. Le Fevre is a tax attorney and partner in the Tax, Trusts and Estates Practice Group of Crowley Fleck PLLP. Mr. Le Fevre represents taxpayers before the IRS, IRS Independent Office of Appeals, Tax Court, Federal District Court and state tax agencies throughout Montana, Wyoming, North Dakota, Idaho, and Utah. Mr. Le Fevre is involved in federal and state and local tax audits, appeals, and tax resolution throughout these western states. Mr. Le Fevre also advises clients on the tax effects of business and real estate transactions.