In the case of In re Murphy, the Bankruptcy Court for the District of Maine, in one of Judge James B. Haines Jr.'s last decisions before retiring from the bench, held that the IRS violated the discharge injunction by taking steps to collect debts that were later determined to be discharged. The federal statutes applicable to the case were 26 USC Sections 7430 and 7433, together with 11 USC Sections 105 and 524.
In this case, Murphy filed a Chapter 7 case in 2005, and was discharged in 2006. He owed IRS taxes for the years 1993 through 2001 as well as 2003 and 2004. After the conclusion of his bankruptcy case, the IRS took steps to collect all the tax debt, asserting that it was all non-dischargeable. Murphy reopened his Chapter 7 case, and filed a complaint to determine the extent to which the tax debt was discharged. The court decided that the tax years 1993 - 2001 were discharged in the Chapter 7 case. Murphy then filed a second lawsuit against the IRS asserting that the IRS had violated the discharge injunction pursuant to 26 USC Section 7433 and that it owed damages to Murphy. The Court held that the IRS was just like any other creditor that violates the discharge injunction and that the standards for determining a violation are not more strict, simply because the creditor is the IRS. The Court further held that the IRS can be liable for actual damages and attorneys fees, although the attorneys fees award may be avoided if the position of the IRS was substantially justified under 26 USC Section 7430.
The significance of the decision is the Court's conclusion that the IRS is not different from any other creditors which violate the discharge injunction. In the words of Judge Haines, "It enjoys no special status; it is due no special favors".