An IRS Mistake (Violating §§ 362 & 524) Gets Out Of Hand In A Pro Se Lawsuit (Gray v. U.S.)

By: Donald L Swanson

Sometimes, things get out of hand—starting with a small error that expands into something more.

A recent example is the case of Gray v. United States, Case No. 24-CV-2621 in the U.S. District Court for Southern New York (Decided May 28, 2025).

Background

The Internal Revenue Service mistakenly applies Plaintiff’s 2021 tax refund of $755 to Plaintiff’s civil penalty for the 2000 tax year.  Here’s the problem: that tax penalty had been discharged in Plaintiff’s prior bankruptcy. 

So, Plaintiff (proceeding pro se) sues the U.S. government in District Court for a return of the $755 amount, plus:

• $23,000 for “negligence”;
• $749,000 for “years of financial damages”; and
• etc.

The United States moves to dismiss Plaintiff’s lawsuit, and the Court grants the requested dismissal.

Here’s a summary of what happened and the Court’s dismissal rationale.

The Complaint

On April 4, 2024, Plaintiff files a pro se Complaint in the SDNY containing these allegations:

• “[Plaintiff] Filed a chapter 13 in the federal district court in the Southern District on August 16, 2016, incorporated in the chapter 13 was Tax years 2000, 2002, 2003, 2004, and 2005”;
• “For those years the internal revenue Service was very contentious very disingenuous and Intensionally cause [Plaintiff] harm as they did not believe [Plaintiff] when he explained to IRS that he was a relief worker during September 11, 2001 and also a Relief worker in louisiana from November 2005 until June 2006 where as congress pass numeruse laws extending filing filling deadline for relief workers tax papers up to 2008”;
• “The Internal Revenue had so much contentiouse towards [Plaintiff] that they where saying to [Plaintiff’s] legal representative that [Plaintiff] was a tax protester and Dodger”;
• “The IRS continued this sort of dimoralization for over 10 years even when there false and missleading algation they produced to New york State Tax was Reversed in New york State Tax court”;
• “Now to date the IRS took [Plaintiff’s] 2022 [tax] returned and Applied it to [Plaintiff’s] year 2000 tax that was Discharged”; and
• “This has cause [Plaintiff] Great emotional pain and suffering, anxiety, fear, emotional depression, alarm and emotional distress.”

The Complaint contains this itemization of injuries:

• “Stress, Stress Pain, anxiety, Anguish, Depression, not at liberty to express any further [Plaintiff’s] medical information”;
• “This honorable court can see [Plaintiff’s] medical diagnosis information upon request”; and
• “Veteran administration for treatment Also outside VA personal doctor medical treatment.”

Later, Plaintiff files an Amended Complaint with these requests for relief:

• “Returned the applied $755.00 of [Plaintiff’s] 2021 overpayment to any unpaid balance of year 2000”;
• “$23,000 for negligence and the erroneous assessment of [Plaintiff’s] year 2002 tax Return”; and
• “$749,000 for years of financial damages, negligence, derelict of duties, recklessness”;
• an unspecified amount for “Traumatic Stress, Pain, anxiety, Anguish and Medical Depression”; and
• “any PERMANENT INJUNCTION AND OTHER EQUITABLE RELIEF this honorable court will grant [to Plaintiff].”

The Motion to Dismiss

Defendant, the United States Government, refunds the $755 to Plaintiff and, then, moves to dismiss Plaintiff’s complaint on grounds that:

• the complaint is moot; and
• the District Court lacks jurisdiction.

The matter is referred to a Magistrate Judge.

The Court’s Ruling

Here’s how the Magistrate Judge rules on the Motion to dismiss.

—Pro Se Plaintiff

Because Plaintiff is proceeding pro se, the Court must construe the complaint “broadly” and “interpret it to raise the strongest arguments it suggests.”  However:

• a pro se plaintiff must still comply with the relevant rules of procedural and substantive law, including establishing that the court has subject matter jurisdiction over the action; and
• a court need not argue a pro se litigant’s case nor create a case for the pro se which does not exist.

–Mootness

The judicial power of the United States is limited to “Cases” and “Controversies” (U.S. Const. art. III § 2). But if the issues in dispute are no longer “live” or the parties “lack a legally cognizable interest in the outcome,” the case has become moot, depriving the court of jurisdiction to hear it.

Insofar as Plaintiff demands the return of his $755 overpayment, his claim became moot when the IRS sent him a check for that amount plus interest.

However, since Plaintiff also seeks $23,000 for “negligence” and $749,000 for “years of financial damages,” the return of his mis-applied overpayment does not necessarily moot the entirety of this action.

What follows is an explanation of how the Court lacks jurisdiction over the other claims Plaintiff raises.

–Federal Tort Claims Act

The United States, as sovereign, is generally immune from suits seeking money damages:

• the Federal Tort Claims Act (“FTCA”) is the “exclusive” remedy against the United States for Plaintiff’s claims;
• the FTCA contains a limited waiver of that immunity, but Congress did not waive the immunity of the United States for any claim “arising in respect of the assessment or collection of any tax”; and
• it is well-settled that the federal courts lack subject-matter jurisdiction to hear FTCA claims “arising out of the operation of the government’s mechanism for assessing and collecting taxes.”

Here, because all of Plaintiff’s claims arise out of the operation of the government’s mechanism for assessing and collecting taxes, this Court lacks jurisdiction to hear those claims under the FTCA.

Plaintiff’s FTCA claims are also subject to dismissal for Plaintiff’s failure to comply with the FTCA’s administrative exhaustion requirement, which requirement “is jurisdictional and cannot be waived”:

• Plaintiff has the burden of showing compliance with administrative exhaustion requirements;
• in attempting to do so, Plaintiff claims to have “exhaust[ed] all available administrative remedies”; but
  • Plaintiff “clearly” did not do so.

–§ 7433 of Internal Revenue Code

§ 7433(e)(1) of the Internal Revenue Code permits a taxpayer to “petition the bankruptcy court” for damages if “any officer or employee of the Internal Revenue Service willfully violates” § 362 (relating to the automatic stay) or § 524 (relating to the effect of a bankruptcy discharge):

• this is precisely the claim Plaintiff makes as to the government’s attempt to apply his $755 tax refund to his discharged 2000 civil penalty.

However, because a taxpayer’s “exclusive remedy” under § 7433(e)(1) lies in the Bankruptcy Court, the District Court lacks jurisdiction to hear the claim in the first instance.

There is an exception for lodging jurisdiction for a § 7433 claim in the District Court—i.e., when an officer or employee of the IRS “recklessly or intentionally, or by reason of negligence,” disregards any provision of Internal Revenue Code or regulation:

• this appears to be the claim Plaintiff makes as to the government’s alleged misconduct concerning tax years 1999-2004.

However, all claims for damages under § 7433 (including those brought under subsection (a) and under subsection (e)(1)) are subject to the requirement “that administrative remedies be exhausted”:

• to exhaust administrative remedies for § 7433, a taxpayer must submit a detailed claim—which Plaintiff failed to do; and
• such failure requires dismissal of Plaintiff’s § 7433 claims, because the statute of limitations for doing so has expired.

–§ 7422 of the Internal Revenue Code

§ 7422 of the Internal Revenue Code allows a taxpayer to obtain a refund for “erroneously or illegally assessed or collected” taxes.

But in order to pursue such a claim in federal court, the taxpayer must first file a claim for a refund with the Secretary of the Treasury, specifying the grounds for the refund.

Plaintiff failed to file such a refund claim, and such failure under § 7422(a) is jurisdictional.

In this case, Plaintiff does not allege any facts demonstrating his compliance with the jurisdictional prerequisites of § 7422(a).  So, this Court lacks subject matter jurisdiction over Plaintiff’s § 7422 claim.

Conclusion

Wow!  That case got out of hand—and then shut down—in a hurry.

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