Court Dismisses Bivens Claim Against IRS Agents for Asserting Accuracy-Related Penalties (4/21/25)

In Ray v. Priver, et al., 2025 U.S. Dist. LEXIS 71600, 2025 WL 1113406 (D. D.C. 4/15/25), CL here and GS here, The Court dismissed Ray’s Bivens actions against IRS agents that, he claimed, violated his constitutional rights in the IRS’s assertion of the accuracy-related penalty under § 6662(b)(1) and (2) and then in improperly influencing the Tax Court’s sustaining of the penalties in Ames v. Commissioner, T.C. Memo. 2019-36, GS here, aff’d in part and reversed in part with respect to a portion of the penalties, Ray v. Commissioner. 13 F.4th 467 (5th Cir. 2021), after remand motion to Reopen the Record denied in Tax Court (10/28/22), aff’d on appeal Ray v. Commissioner, 2023 U.S. App. LEXIS 21799, 2023 WL 5346067 (5th Cir. 8/18/23), GS here*, and petition for rehearing denied Ray v. Commissioner, 2023 U.S. App. LEXIS 27464 (5th Cir. 10/16/23). At the end of all that commotion from the main Tax Court case in 2019, Ray was liable for some of the accuracy-related penalty but not for a portion for which the Court of Appeals reversed the Tax Court on its denial of the “reasonable cause” defense.

I asked Gemini, Google’s AI Tool, to summarize the case. The following is the result which I have massaged somewhat (reminder these AI Tools, while good, need to be carefully reviewed and revised as appropriate).

Background:

• In 2014, the IRS audited Ray and issued a notice of deficiency, including a penalty under 26 U.S.C. § 6662(a) & (b)(1) (negligence or disregard) (b)(2) (substantial understatement).
• Ray claims this penalty was unwarranted, alleging that two other IRS agents found insufficient evidence for it. He asserts that Lawson and Priver knew this but still pursued the penalty and falsified evidence in his administrative file.
• Ray initially challenged the penalty in Tax Court, where he alleges Priver and Lawson repeatedly lied and falsified evidence. The Tax Court upheld the penalty, but the Fifth Circuit reversed finding Ray not liable for some of the penalty based on reasonable cause. On remand, the Tax Court entered decision sustaining the deficiency and the portion of the penalty approved by the Fifth Circuit.
• Ray later obtained files through a FOIA request, which he claims revealed that Priver and Lawson maliciously prosecuted the penalty claim and concealed exculpatory evidence.

Claims:

• Ray sued Priver and Lawson in their individual and official capacities, alleging what he called a Bivens action:
• Count I: Malicious prosecution in violation of the Fourth Amendment.
• Count II: Denial of a fair trial under the Fifth Amendment's Due Process Clause.

Defendants' Motion to Dismiss:

• Defendants moved to dismiss, arguing:
• Improper service (later moot due to government acceptance of service).
• Sovereign immunity bars official-capacity claims (conceded by Ray).
• Failure to state a claim against individual defendants under Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics.

Court's Ruling:

• The Court GRANTED the Defendants' motion to dismiss.
• The Court agreed that Ray's claims against Priver and Lawson in their official capacities are barred by sovereign immunity.
• Regarding the individual-capacity claims, the Court applied the two-step Bivens analysis:
• New Context: The Court found that Ray's claims arise in a "new context" because they involve IRS employees, a different statutory mandate (Internal Revenue Code), and do not align with the specific constitutional violations in the three previously recognized Bivens cases (Fourth Amendment unreasonable search and seizure, Fifth Amendment sex discrimination, and Eighth Amendment cruel and unusual punishment).
• Special Factors: The Court found "special factors" counseling against a new Bivens remedy, primarily the existence of a comprehensive alternative remedial scheme within the Internal Revenue Code. This scheme includes administrative review, the ability to sue for a refund, challenging assessments in Tax Court, and the Treasury Inspector General for Tax Administration (TIGTA) for investigating employee misconduct. The Court emphasized that even if these remedies don't provide complete relief (like monetary damages), their existence is sufficient to preclude a new Bivens action. 

• JAT Addition: The Court relied significantly on the Supreme Court’s admonition that expansions from past Bivens applications is “now a ‘disfavored’ judicial activity.” Hernandez v. Mesa, 589 U.S. 93, 102 (2020); and Ziglar v. Abbasi, 582 U.S. 120, 135 (2017) (citing Ashcroft v. Iqbal, 556 U. S. 662, 675 (2009)). 

Conclusion:

The Court concluded that Ray's case presents a new Bivens context, and the presence of an existing remedial scheme within the Internal Revenue Code constitutes a "special factor" that makes it inappropriate for the judiciary to imply a new damages remedy against individual IRS employees. Therefore, the Court dismissed Ray's amended complaint.

JAT Comments:

1. Ray is a reminder of the limited scope of the Bivens remedy. Bivens v. Six Unknown Fed. Narcotics Agents, 403 U.S. 388 (1971), GS here. I cover the Bivens remedy in Federal Tax Procedure (Practitioner Ed. 2023, pp. 908-910 and Student Ed. 2023, pp. 614-615.) This Ray opinion adds anything new to that Bivens discussion, but it is the first time I recall having seen a Bivens action against IRS personnel based upon the IRS’s assertion of the accuracy-related penalty.

2. The commotion after the original Tax Court case (subsequent history noted above) and now this Bivens action in Ray demonstrates that Ray is persistent in litigating his grievances. Given that history, I suspect that he will appeal this case. If he does, my prediction is that he will lose the appeal. Having said that, I would not have predicted that he would prevail on any of his first appeal on the merits of the deficiency and penalty; in that appeal he avoided a portion of the penalty (although I doubt enough relief to justify the cost to him of the commotion).

3. I looked at Ray’s counsel in the original Tax Court case and the Fifth Circuit appeal. According to the respective reported opinions, in the Tax Court, Ray was represented by J. Winston Krause, whose web page appears  here.** In the Fifth Circuit, Ray was represented by Susan S. Vance of Susan Vance Law, PLLC, Canyon Lake, TX. A Google search indicates that her web page here and here touts her appellate expertise. According to their respective web pages, each appears competent to handle tax and appellate matters, respectively.  (Of course, readers should keep in mind that web pages are often self-promotion with selected presentations.)

4. On my further searches, I found Krause v. United States (5^th Cir. Summary Calendar Per Curiam Opinion 10/12/10), here, rejecting Mr. Krause’s refund claim for tax and penalty related to Mr. Kraft’s own handiwork (probably cloned from a Daugerdas related shelter) for

a Son of BOSS (Bond and Option Sale Strategy) tax shelter,[2] which made it appear as though KAAS had suffered a multi-million dollar loss.
[2] A Son of BOSS tax shelter takes advantage of the way in which a partnership treats assets and contingent liabilities for tax purposes. This treatment allows a taxpayer to generate an artificial loss that can be used to offset income from other transactions. See Kornman & Assocs. Inc. v. United States, 527 F.3d 443, 446 n.2 (5th Cir. 2008). The Internal Revenue Service ("IRS") considers these tax shelters an abusive tax practice. I.R.S. Notice 2000-44, 2000-2 C.B. 255.

The opinion says that the “penalties assessed under the FPAA were directly attributable to the fraudulent $2.79 million loss KAAS alleged it incurred” and refers to the gambit as “Krause’s tax chicanery.”

Those paying attention to Son-of-Boss know that Son-of-Boss was a classic bullshit tax shelter and some prominent tax professionals, including lawyers, were criminally prosecuted and some convicted for marketing the shelter on the theory that, as tax professionals, knew the claimed benefits were too good to be true. (Actually the criminal charges were more technical than that, but that was the point behind the charges; I am not suggesting that Mr. Krause, a tax practitioner, should have been criminally prosecuted for his personal creation and participation in Son-of-Boss; I am just noting the coincidence; I also note that Krause and Vance appeared as counsel in Curr-Spec Partners, LP v. Commissioner, 579 F.3d 391 (5th Cir. 2009), here, another tax shelter, in which, according to the reported opinion, they both participated in oral argument.)

5. I thought the Ray opinion was well written. The Judge, Jia M. Cobb, was a Biden nominee and appears to be have exceptional credentials. Wikipedia here.

* Caveat to those reading the GS version of this opinion: There is an omission in the opening paragraph under outline V. of the opinion. The third sentence of the paragraph starting “The assessment of whether” omits after “pertinent” the following: “facts and circumstances.”

** Mr. Krause appears to be a solo practitioner, but titles his firm “Krause & Associates.” When I was a solo practitioner (including now), I title my firm as John A. Townsend, Attorney, so as not to confuse anyone to thinking that anyone else would put up with me.