Section 7431 and section 7433 damages – IRS disclosure
An individual was not entitled to damages under Code Sec. 7431 for allegedly unlawful disclosures by the IRS of his confidential tax return information through the filing of notices of federal tax liens. Code Sec. 7433 provides the exclusive remedy for such alleged disclosures made in connection with tax-collection activity. Since the damages sought were for alleged disclosures made in an IRS notice of federal tax lien, the disclosures were made in connection with tax-collection activity. Moreover, the individual could not bring an action against the state (Hawaii) and its Department of Taxation because Code Sec. 7431 did not authorize a right of action against a state, its agencies or state employees sued in their official capacities.
Michael Robert Marsoun, Plaintiff v. United States of America, et al., Defendants.
U.S. District Court, D.C.; Civil Action No. 07-0355 (JDB), December 14, 2007.
[ Code Sec. 7431]
Tax return information: Damages: Disclosure by IRS: Filing of liens. --
MEMORANDUM OPINION
BATES, United States District Judge: Plaintiff seeks damages against the United States pursuant to 26 U.S.C. §7431(a)(1) based on alleged unlawful disclosures of confidential tax return information by the Internal Revenue Service ("IRS") when it caused notices of federal tax liens against plaintiff to be recorded in the public record and disclosed information to the State of Hawaii and its agents. See Compl. ¶ ¶4-5. 1 Plaintiff also seeks damages against the State of Hawaii, the Hawaii Department of Taxation, and two of its employees (collectively, "State defendants") for allegedly inspecting and disclosing his confidential tax return information. Id. ¶ ¶4-6. The United States and the State defendants have each moved to dismiss for lack of subject matter jurisdiction or, in the alternative, for failure to state a claim upon which relief can be granted. The two state employees, Roy Hamakawa and Marian Shioji, also have moved to dismiss for lack of personal jurisdiction. 2
BACKGROUND
Plaintiff alleges that, without evidence of lawful tax assessments, the IRS recorded notices of federal tax liens against plaintiff with the County Recorder in Orange County, California, on May 15, 1994, and February 11, 1998, and with the Department of Land and Natural Resources Bureau of Conveyances in Honolulu, Hawaii on various dates in 2005 and 2006. See Compl. ¶5. Each notice asserts that "taxes...have been assessed against" plaintiff and that the tax "remains unpaid," and declares a lien in favor of the United States against the property. See Compl., Exhibits A, B, C-2, D-2, and E-2. 3 Plaintiff further alleges that six IRS employees disclosed unidentified confidential information to the State of Hawaii Department of Taxation and the Acting District Tax Manager Roy Hamakawa in the absence of a written agreement required by the Internal Revenue Code, and that Hamakawa, in turn, unlawfully inspected and disclosed that information to another employee, M. Shioji. Compl. ¶6. As a result of the alleged unlawful inspections and disclosures, plaintiff alleges that he has suffered substantial mental and emotional distress and has been exposed to the risk of identity theft. Id. ¶ ¶7-9.
Pursuant to 26 U.S.C. §7431, plaintiff seeks damages in the amount of $1,000 for each disclosure and punitive damages in an amount yet to be determined. Id. ¶ ¶19-20. This provision of the Internal Revenue Code creates a damages action for unlawful disclosures of confidential tax return information, and states, in relevant part:
(1) Inspection or disclosure by employee of United States. --If any officer or employee of the United States knowingly, or by reason of negligence, inspects or discloses any return or return information with respect to a taxpayer in violation of any provision of section 6103, such taxpayer may bring a civil action for damages against the United States in a district court of the United States.
(2) Inspection or disclosure by a person who is not an employee of United States. --If any person who is not an officer or employee of the United States knowingly, or by reason of negligence, inspects or discloses any return or return information with respect to a taxpayer in violation of any provision of section 6103, such taxpayer may bring a civil action for damages against such person in a district court of the United States.
Section 6103, in turn, provides that tax returns and return information shall be kept confidential subject to several enumerated exceptions. 26 U.S.C. §6103.
A separate provision of the Internal Revenue Code, 26 U.S.C. §7433, authorizes a damages action for unlawful collection actions by the IRS. That provision states:
If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence disregards any provision of this title, or any regulation promulgated under this title, such taxpayer may bring a civil action for damages against the United States in a district court of the United States. Except as provided in section 7432, such civil action shall be the exclusive remedy for recovering damages resulting from such actions.
26 U.S.C. §7433(a). Thus, a violation of section 6103 (unauthorized disclosure of confidential information) "in connection with any collection of Federal tax" is actionable under section 7433. It bears noting that plaintiff has filed a separate complaint against the United States seeking damages under section 7433 for allegedly disregarding the Internal Revenue Code "while engaged in collection activity" against plaintiff. See Marsoun v. United States, No. 07-2078 (D.D.C. filed Nov. 13, 2007).
STANDARD OF REVIEW
"[I]n passing on a motion to dismiss, whether on the ground of lack of jurisdiction over the subject matter or for failure to state a cause of action, the allegations of the complaint should be construed favorably to the pleader." Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); see Leatherman v. Tarrant Cty. Narcotics and Coordination Unit, 507 U.S. 163, 164 (1993); Phillips v. Bureau of Prisons, 591 F.2d 966, 968 (D.C. Cir. 1979). Therefore, the factual allegations must be presumed true, and plaintiffs must be given every favorable inference that may be drawn from the allegations of fact. Scheuer, 416 U.S. at 236; Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C. Cir. 2000). However, the Court need not accept as true "a legal conclusion couched as a factual allegation," nor inferences that are unsupported by the facts set out in the complaint. Trudeau v. Federal Trade Comm'n, 456 F.3d 178, 193 (D.C. Cir. 2006) (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)).
Here, defendants' contention that plaintiff is precluded from bringing the right of action created by 26 U.S.C. §7431 does not present a jurisdictional issue because it concerns the boundaries of the right of action under section 7431 in light of section 7433, in contrast to a statutory provision speaking to the jurisdiction of the district courts. See Arbaugh v. Y&H Corp., 126 S. Ct. 1235, 1245 (2006) ("when Congress does not rank a statutory limitation as...jurisdictional, courts should treat the restriction as non-jurisdictional in nature"); see also Trudeau, 456 F.3d at 188, 191 (observing that whether a statute authorizes a cause of action presents a question of whether plaintiff states a claim upon which relief can be granted, rather than jurisdiction). Hence, this aspect of defendants' motions is best characterized as seeking dismissal for failure to state a claim upon which relief can be granted.
In considering a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), the Court is mindful that all that the Federal Rules of Civil Procedure require of a complaint is that it contain "a short and plain statement of the claim showing that the pleader is entitled to relief,' in order to `give the defendant fair notice of what the...claim is and the grounds upon which it rests.' " Bell Atl. Corp. v. Twombly, 550 U.S. ___, 127 S. Ct. 1955, 1964 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)); accord Erickson v. Pardus, 551 U.S. ___, 127 S. Ct. 2197, 2200 (2007) (per curiam). Although "detailed factual allegations" are not necessary to withstand a Rule 12(b)(6) motion to dismiss, to provide the "grounds" of "entitle[ment] to relief," a plaintiff must furnish "more than labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Bell Atl. Corp., 127 S. Ct. at 1964-65; see also Papasan, 478 U.S. at 286. Instead, the complaint's "[f]actual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Bell Atl. Corp., 127 S. Ct. at 1965 (citations omitted).
On the matter of personal jurisdiction over the two State employees, however, plaintiff's burden is greater. Plaintiff bears the burden of establishing personal jurisdiction, and must allege specific facts on which personal jurisdiction can be based; he cannot rely on conclusory allegations. See Mwani v. Bin Laden, 417 F.3d 1, 7 (D.C. Cir. 2005); Crane v. New York Zoological Soc'y, 894 F.2d 454, 456 (D.C. Cir. 1990). When considering personal jurisdiction, the Court need not treat all of the plaintiff's allegations as true. Instead, the court "may receive and weigh affidavits and other relevant matter to assist in determining the jurisdictional facts." United States v. Philip Morris Inc., 116 F. Supp. 2d 116, 120 n. 4 (D.D.C. 2000); see also Capital Bank Int'l, Ltd. v. Citigroup, Inc., 276 F. Supp. 2d 72, 74 (D.D.C. 2003). When receiving such materials in the absence of an evidentiary hearing, the Court is to resolve factual discrepancies in favor of the plaintiff. Mwani, 417 F.3d at 7; Crane, 894 F.2d at 456.
ANALYSIS
I. United States' Motion to Dismiss
The United States contends that plaintiff's complaint must be dismissed because 26 U.S.C. §7433 provides the exclusive remedy for allegedly unauthorized or improper collection actions by the IRS, including those collection actions involving unlawful disclosures of confidential tax return information. See United States' Mem. at 6-10. Plaintiff responds that the United States has, in effect, asked the Court to take on the legislative task of modifying the right of action set forth in section 7431. Pl.'s Opp. at 1-2. The Court refers the parties to its analysis of this issue in Evans v. United States, 478 F. Supp. 2d 68 (D.D.C. 2007), and Martin v. United States, No. 06-1624, 2007 WL 891666, at *2-4 (D.D.C. Mar. 21, 2007), which concluded that similarly situated plaintiffs alleging unlawful disclosures of confidential tax return information in connection with tax collection activity did not state a legally cognizable claim under 26 U.S.C. §7431. The Court adopts that reasoning in finding that plaintiff in this case also is precluded from bringing an action under section 7431.
Stated succinctly, the plain language of 26 U.S.C. §7433 precludes a plaintiff from bringing an action for unlawful disclosure of confidential information under section 7431 where the alleged disclosure occurs "in connection with any collection of Federal tax." Evans, 478 F. Supp. 2d at 71-72; Martin, 2007 WL 891666, at *2-4. This follows from the language in section 7433 broadly authorizing a damages action where the IRS "in connection with any collection of Federal tax ...recklessly or intentionally, or by reason of negligence disregards any provision of this title, or any regulation promulgated under this title," and in the same subsection providing that, with an exception not relevant here, 4 "such civil action shall be the exclusive remedy for recovering damages resulting from such actions. " 26 U.S.C. §7433(a) (emphasis added); see Evans, 478 F. Supp. 2d at 71-72. Indeed, every judge of this Court who has considered the issue has concluded that disclosures of tax return information made in connection with the collection of a federal tax are not actionable under section 7431. See Wesselman v. United States, 498 F. Supp. 2d 326, 327 (D.D.C. 2007) (Huvelle, J.); Miller v. United States, 496 F. Supp. 2d 129, 132 (D.D.C. 2007) (Urbina, J.); Powell v. United States, 478 F. Supp. 2d 66, 67-68 (D.D.C. 2007) (Leon, J.); Rhodes v. United States, No. 06-1840, 2007 WL 3196483, at *2-3 (D.D.C. 2007) (Sullivan, J.); see also Shwarz v. United States, 234 F.3d 428, 432-33 (9th Cir. 2000). Furthermore, disclosure of tax return information in an IRS notice of federal tax lien --the type of disclosure alleged by plaintiff --is necessarily "in connection with...collection of Federal tax." See Evans, 478 F. Supp. 2d at 72 ("IRS notices of tax liens [are] a tax collection activity"); Martin, 2007 WL 891666, at *4 (same); Koerner v. United States, 471 F. Supp. 2d 125, 127 (D.D.C. 2007) (same). In light of the exclusivity provision of section 7433, even assuming all of plaintiff's factual allegations to be true, the complaint therefore fails to state a claim upon which relief can be granted under section 7431 with respect to the allegations concerning the notices of federal tax liens.
All that is left of plaintiff's claims against the United States, then, is that six IRS employees "disclosed confidential information to [the] State of Hawaii, Department of Revenue, and/or Roy Hamakawa, Acting District Tax Manager, and/or to John Doe, aka `M. Shioji,' Preparer, in the absence of a written agreement...." See Compl. ¶5(F). But this conclusory allegation is wholly devoid of the minimum factual allegations necessary to meet the notice pleading requirements of Fed. R. Civ. P. 8(a). A plaintiff must furnish "more than labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Bell Atl. Corp., 127 S. Ct. at 1964-65; see also Papasan, 478 U.S. at 286. Plaintiff's allegation that the IRS employees "disclosed confidential information" to the State "in the absence of a written agreement" is nothing more than a recitation of language from statutory provision governing IRS disclosures to States, 26 U.S.C. §6103(d), in contrast to "factual allegations [that] raise a right to relief above the speculative level." See Bell Atl. Corp., 127 S. Ct. at 1965. Therefore, this part of the complaint also fails to state a claim upon which relief can be granted. 5
Defendant United States makes much of whether plaintiff's claim should be construed as a claim for damages under 26 U.S.C. §7433, and then dismissed for failure to exhaust administrative remedies. See United States' Mem. at 8-10; see also Pl.'s Opp. at 3-12. Nothing in the complaint indicates that it is brought pursuant to section 7433, and plaintiff has pending a separate lawsuit raising a section 7433 claim. See Marsoun v. United States, No. 07-2078 (D.D.C. filed Nov. 13, 2007). Thus, the Court finds no basis for further consideration of whether this case should be treated, in the alternative, as one brought pursuant to section 7433.
II. State of Hawaii's Motion to Dismiss
Defendant State of Hawaii, including its Department of Taxation, contends that the complaint must be dismissed because section 7431(a)(2) does not provide a cause of action against a state or its agencies. See State Defs.' Mem. at 6-7. The Court agrees. Section 7431(a)(2) creates a damages action for unauthorized disclosures by "any person," and permits a taxpayer "to bring a civil action against such person." Id. (emphasis added). "Person" is defined elsewhere in the Internal Revenue Code as presumptively meaning "an individual, a trust, estate, partnership, association, company, or corporation." 26 U.S.C. §7701(a)(1). Based on this definition, the Court concludes that section 7431(a)(2) does not authorize a right of action against a State, its agencies, or state employees sued in their official capacities (the latter, of course, being no different than a suit against the state). 6 Indeed, the Tenth Circuit has reached the same6 conclusion based on the plain language of sections 7431(a)(2) and 7701(a)(1). See Long, 972 F.3d at 1177 & n.4 ("§7431(a)(2) fails to confer any right of action against a state agency"). This result is consistent with the long-established precedent recognizing that "`in common usage, the term `person' does not include the sovereign, [and] statutes employing the [word] are ordinarily construed to exclude it.' " See Will v. Michigan Dep't of State Police, 491 U.S. 44, 64 (1989) (quoting Wilson v. Omaha Tribe, 442 U.S. 653, 657 (1979) (alterations in original)); see also United States v. SCS Business & Tech. Inst., Inc., 173 F.3d 870, 874 (D.C. Cir. 1999) (observing that Will and Wilson "create at minimum a default rule: states are excluded from the term person absent an affirmative contrary showing"). Accordingly, plaintiff's claims against the State of Hawaii, its Department of Taxation, and the State employees in their official capacities are dismissed for failure to state a claim upon which relief can be granted.
III. Hamakawa's and Shioji's Motion to Dismiss
To the extent plaintiff intends to bring his section 7431 claim against Hamakawa and Shioji in their individual capacities, plaintiff's complaint must be dismissed for lack of personal jurisdiction. Under the Due Process Clause, a defendant can be subject to personal jurisdiction in the forum court only if a plaintiff shows "minimum contacts between the defendant and the forum establishing that `the maintenance of the suit does not offend traditional notions of fair play and substantial justice.' " See GTE News Media Servs., Inc. v. BellSouth Corp., 199 F.3d 1343, 1347 (D.C. Cir. 2000) (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). "[T]he defendant's conduct and connection with the forum State [must be] such that he should reasonably anticipate being haled into court there." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980). "[T]his `fair warning' requirement is satisfied if the defendant has `purposefully directed' his activities at residents of the forum...and the litigation results from the alleged injuries that `arise out of or relate to' those activities." Burger King v. Rudzewicz, 471 U.S. 462, 472 (1985) (citations omitted). Although the defendant must intentionally establish contacts in the forum state, Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 108-09 (1987) (plurality opinion), it is not necessary that he physically enter the forum state as long as he "`purposefully avails [him]self of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.' " Burger King, 471 U.S. at 475 (quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958)).
Plaintiff does not allege that Hamakawa or Shioji have such minimum contacts with the District of Columbia, nor can the Court discern any. The complaint states that plaintiff has at all times been a resident of California and Hawaii, and alleges that Hamakawa and Shioji received, inspected, and disclosed information as employees of the Hawaii Department of Taxation, apparently in Hawaii. See Compl. ¶ ¶3, 5, 6. Furthermore, Hamakawa and Shioji have each submitted unrebutted affidavits stating that they are residents of the State of Hawaii and have never lived in the District of Columbia, and, furthermore, that they have never owned any property nor conducted any business in the District of Columbia. See State Defs.' Mem., Exhibits A and B. Based on these affidavits, and the absence of any allegations that Hamakawa and Shioji have somehow purposefully availed themselves of the privilege of conducting activities in the District of Columbia, the Court concludes that it lacks personal jurisdiction over Hamakawa and Shioji.
Plaintiff contends that the action against them may nonetheless be sustained because they are subject to the limitations on disclosure of tax return information set forth by section 6103(d). Pl.'s Opp. at 3. That contention wholly fails to address the matter of personal jurisdiction --an issue separate from whether a person has complied with substantive provisions of the Internal Revenue Code. Plaintiff further suggests that the declarations cannot be considered because they are outside of the pleadings. Id. Again, plaintiff misunderstands the law. In considering a motion to dismiss for lack of personal jurisdiction pursuant to Fed. R. Civ. P. 12(b)(2), the Court may consider affidavits and any other relevant matter to determine whether it has personal jurisdiction. Philip Morris, Inc., 116 F. Supp. 2d at 120 n. 4.
CONCLUSION
For the foregoing reasons, the Court will grant defendants' motions to dismiss plaintiff's complaint. A separate order has been issued on this date.
1 The Court notes that plaintiff refiled his complaint on March 5, 2007 --a complaint identical to his original complaint, with the addition of his address and phone number in the caption. The record is unclear as to which complaint was served on defendants, but because they are in all other respects identical, the Court will treat the motions as addressing both.
2 For ease of reference, the Court will refer to the memorandum in support of the United States motion to dismiss as "United States' Mem." and the memorandum in support of the motion of the State defendants as "State Defs.' Mem."
3 The IRS notices attached to plaintiff's complaint are considered incorporated by reference therein. See Stewart v. Nat'l Educ. Ass'n, 471 F.3d 169, 173 (D.C. Cir. 2006).
4 The exclusivity provision in section 7433 makes an exception for an action under section 7432 --one seeking civil damages in certain circumstances based on IRS failure to release a lien.
5 Indeed, section 6103(d) indicates that many types of disclosures to State officials are lawful, making plaintiff's conclusory allegation of unlawful disclosure even more problematic for notice pleading purposes. Furthermore, the Seventh and Tenth Circuits have found that the IRS has entered into standard written Agreements on Coordination of Tax Administration with each of the 50 states and the District of Columbia, and held that such an agreement authorizes IRS disclosures to a state under section 6103(d). See Smith v. United States, 964 F.2d 630, 633 (7th Cir. 1992); Long v. United States, 927 F.2d 1174, 1177 (10th Cir. 1992).
6 "A lawsuit against a government official in his official capacity is an action against the 6 governmental entity of which the official is an agent." See Wilburn v. Robinson, 480 F.3d 1140, 1148 (D.C. Cir. 2007).
SEC. 7431. CIVIL DAMAGES FOR UNAUTHORIZED INSPECTION OR DISCLOSURE OF RETURNS AND RETURN INFORMATION.
7431(a) IN GENERAL. --
7431(a)(1) INSPECTION OR DISCLOSURE BY EMPLOYEE OF UNITED STATES. --If any officer or employee of the United States knowingly, or by reason of negligence, inspects or discloses any return or return information with respect to a taxpayer in violation of any provision of section 6103, such taxpayer may bring a civil action for damages against the United States in a district court of the United States.
7431(a)(2) INSPECTION OR DISCLOSURE BY A PERSON WHO IS NOT AN EMPLOYEE OF UNITED STATES. --If any person who is not an officer or employee of the United States knowingly, or by reason of negligence, inspects or discloses any return or return information with respect to a taxpayer in violation of any provision of section 6103 or in violation of section 6104(c), such taxpayer may bring a civil action for damages against such person in a district court of the United States.
7431(b) EXCEPTIONS. --No liability shall arise under this section with respect to any inspection or disclosure --
7431(b)(1) which results from a good faith, but erroneous, interpretation of section 6103, or
7431(b)(2) which is requested by the taxpayer.
7431(c) DAMAGES. --In any action brought under subsection (a), upon a finding of liability on the part of the defendant, the defendant shall be liable to the plaintiff in an amount equal to the sum of --
7431(c)(1) the greater of --
7431(c)(1)(A) $1,000 for each act of unauthorized inspection or disclosure of a return or return information with respect to which such defendant is found liable, or
7431(c)(1)(B) the sum of --
7431(c)(1)(B)(i) the actual damages sustained by the plaintiff as a result of such unauthorized inspection or disclosure, plus
7431(c)(1)(B)(ii) in the case of a willful inspection or disclosure or an inspection or disclosure which is the result of gross negligence, punitive damages, plus
7431(c)(2) the costs of the action, plus
7431(c)(3) in the case of a plaintiff which is described in section 7430(c)(4)(A)(ii), reasonable attorneys fees, except that if the defendant is the United States, reasonable attorneys fees may be awarded only if the plaintiff is the prevailing party (as determined under section 7430(c)(4)).
7431(d) PERIOD FOR BRINGING ACTION. --Notwithstanding any other provision of law, an action to enforce any liability created under this section may be brought, without regard to the amount in controversy, at any time within 2 years after the date of discovery by the plaintiff of the unauthorized inspection or disclosure.
7431(e) NOTIFICATION OF UNLAWFUL INSPECTION AND DISCLOSURE. --If any person is criminally charged by indictment or information with inspection or disclosure of a taxpayer's return or return information in violation of --
7431(e)(1) paragraph (1) or (2) of section 7213(a),
7431(e)(2) section 7213A(a), or
7431(e)(3) subparagraph (B) of section 1030(a)(2) of title 18, United States Code,
the Secretary shall notify such taxpayer as soon as practicable of such inspection or disclosure.
7431(f) DEFINITIONS. --For purposes of this section, the terms "inspect", "inspection", "return", and "return information" have the respective meanings given such terms by section 6103(b).
7431(g) EXTENSION TO INFORMATION OBTAINED UNDER SECTION 3406. --For purposes of this section --
7431(g)(1) any information obtained under section 3406 (including information with respect to any payee certification failure under subsection (d) thereof) shall be treated as return information, and
7431(g)(2) any inspection or use of such information other than for purposes of meeting any requirement under section 3406 or (subject to the safeguards set forth in section 6103) for purposes permitted under section 6103 shall be treated as a violation of section 6103.
For purposes of subsection (b), the reference to section 6103 shall be treated as including a reference to section 3406.
7431(h) SPECIAL RULE FOR INFORMATION OBTAINED UNDER SECTION 6103(k)(9). --For purposes of this section, any reference to section 6103 shall be treated as including a reference to section 6311(e).
Unauthorized Inspection or Disclosure of Tax Information: Application of statute
The only proper defendant to a suit alleging that the IRS violated the nondisclosure provisions in Code Sec. 6103 by sending a warning letter to investors concerning a tax shelter marketed by the taxpayer was the United States and not the individual IRS officials. However, the taxpayer sufficiently alleged that "return information" was disclosed by asserting in the complaint that the letter revealed its identity as a taxpayer and the fact that it had been under IRS investigation.
Mid-South Music Corp., CA-6, 85-1 USTC ¶9262, 756 F2d 23.
Pre-filing notification letters that were sent to investors in a tax shelter did not constitute an unauthorized disclosure of the promoter's tax return information. There was no indication from the letters that the promoter's tax returns were under investigation or examination. The primary focus of the letters was to alert the investors that deductions and credits claimed based upon their investment in that particular tax shelter would be disallowed.
Mid-South Music Corp., CA-6, 87-1 USTC ¶9317, 818 F2d 536.
The court concluded that where subject pre-filing notification letters were issued in compliance with Rev. Proc. 83-78, 1983-2 CB 595, the IRS could rely upon the good faith defense pursuant to Code Sec. 7431, which protects the government from liability for disclosures made in good faith.
Balanced Financial Management, Inc., DC Utah, 87-2 USTC ¶9378.
Statements made by a U.S. attorney at a closed hearing on a temporary restraining order applied for by a corporation undergoing an IRS investigation, which was repeated to a reporter by the attorney, would not support an action for damages for disclosing "return information." Since the corporation applied for the temporary restraining order, it was not entitled to privacy concerning the "return information" contained in the complaint.
United Energy Corp., DC Calif., 85-2 USTC ¶9557, 622 FSupp 43.
After a careful reading of the record, the court ruled as a matter of law that the disclosures by a Special Agent (and certain John Doe persons who were also Special Agents) of the taxpayers' tax return information to employees of AT&T, to a hospital, and to the taxpayers' employers were not unauthorized disclosures. Therefore, the government's motion for summary judgment was granted.
J.A. Perez, DC Fla., 85-1 USTC ¶9388.
A taxpayer's action could not be construed to fall under Code Sec. 7431 because her complaint alleged that the IRS wrongfully received, rather than wrongfully disclosed, information about her.
J.M. Newberry, DC Ark., 86-2 USTC ¶9569.
A taxpayer's motion for injunctive relief from service of notice of an IRS levy upon her employer for the debts of her deceased husband's estate was dismissed since the IRS released the levy and, thus, the action for wrongful levy was moot. Since the taxpayer's cause of action originated under Code Sec. 7426 for wrongful levy, her exclusive remedy was under that statute and she was not entitled to seek additional relief under Code Sec. 7431 for wrongful disclosure.
B.G. Haywood, DC Kan., 86-2 USTC ¶9812.
The disclosure of a civilian attorney's tax returns and return information by his employer, the United States Navy, did not constitute an unauthorized disclosure by the IRS. In examining the legislative history of Code Sec. 6103, the court noted that these provisions were intended to protect taxpayers from the distribution of return information filed by or on behalf of the taxpayer to the IRS and were not designed to prevent other governmental employees from obtaining such information through other means of civil discovery. Rather, the court concluded that this statute pertained solely to the flow of tax data to, from, or through the IRS.
S.S. Stokwitz, CA-9, 87-2 USTC ¶9606, 831 F2d 893.
Return information was not improperly disclosed by the IRS when it mailed pre-filing notification letters to individuals who invested in medical equipment that was sold or leased by the taxpayer. Even if the IRS's use of the name "Datamatic" constituted a disclosure of the name of "Datamatic Services Corporation," the letters did not refer to DSC's status as a taxpayer or its obligation to file any sort of return. Also, the IRS's statement that it would disallow certain deductions and credits "based on [its] review of [the D/T] promotion" did not constitute a disclosure, because the statement did not necessarily mean that the IRS had audited the promoter of the shelter. And, even if the use of the letters resulted in disclosures, the disclosures were not illegal, because they were made during an administrative proceeding and the IRS had acted in good faith.
Datamatic Services Corp., DC Calif., 88-1 USTC ¶9163.
The IRS was liable for making unauthorized disclosures of a couple's nonpublic tax return information to third parties as the result of alleged computer system errors; however, sanctions of costs and attorney's fees were not granted to the taxpayers. Confidential return information was not transformed into nonconfidential information by virtue of the taxpayers' petition to challenge IRS notices of deficiency. The IRS was not able to raise a good faith defense because its error was allegedly caused by the computer system rather than someone's good faith misinterpretation of Code Sec. 6103.
P.W. Husby, DC Calif., 87-2 USTC ¶9623, 672 FSupp 442.
Disclosure by the IRS of taxpayer's income tax information did not give rise to an action for civil damages where information was given to attorneys representing the FSLIC, which had instituted litigation against the taxpayer.
Crismar Corp., DC La., 89-2 USTC ¶9534.
A federal district court had jurisdiction over a suit to recover damages for disclosure of return information and the government's motion for summary judgment was denied.
J.M. Hollett, DC Calif., 89-1 USTC ¶9213, 711 FSupp 1009.
A married couple was entitled to an award for the unlawful disclosure of return information. The failure by the IRS to make a reasonable effort to locate the taxpayers' account, after receipt of a penalty check sent to the IRS that did not contain the taxpayers' tax identification number (TIN), and the failure to attempt notification of the taxpayers to aid in locating the account constituted negligence when the IRS subsequently issued a notice of levy to the wife's employer.
E.E. Chandler, DC Utah, 88-2 USTC ¶9541. Aff'd, per curiam, CA-10, 89-2 USTC ¶9609.
A professional corporation was not entitled to damages for alleged illegal disclosures of its tax return information because the IRS disclosed the information in order to carry out authorized tax levies on the corporation's bank and stock brokerage accounts.
J.H. Traxler, M.D., DC Calif., 88-2 USTC ¶9627.
The issuance by the IRS of a press release containing information about a taxpayer's tax liability drawn from a Tax Court opinion did not constitute an unauthorized disclosure of tax return information. The issue of unauthorized disclosure arises only when the immediate source of the information is a return, or some internal document based on a return, and not when the immediate source is a public document lawfully prepared by an agency, such as the Tax Court, that is separate from the IRS and has lawful access to tax returns.
P.F. Thomas, CA-7, 89-2 USTC ¶9638, 890 F2d 18.
The IRS's issuance of press releases regarding an accountant's conviction and sentencing for felony tax crimes was not an improper disclosure of return information for which the accountant and his business could recover damages. The information was gathered by an IRS employee who examined the publicly filed indictment, attended the trial and sentencing, and researched possible criminal penalties solely for the purpose of preparing the press releases. It was not gathered with respect to the parties' tax returns or potential tax liability.
J.V. Rice, CA-10, 99-1 USTC ¶50,224.
A corporate executive's award for damages for the IRS's wrongful disclosure of return information in a news release was vacated and the case was remanded and reassigned for a new trial. Although information concerning his middle initial, age, address, and occupation lost its confidentiality when published in court records, the subsequent disclosure by the IRS was wrongful and violated Code Sec. 6103 because the immediate source of the information was a return. However, information in the news release of the charge and penalties was not improper disclosure of return information, and the trial court committed reversible error by instructing the jury that the disclosures were made in violation of the law.
E.E. Johnson, CA-5, 97-2 USTC ¶50,616.
The IRS did not disclose return information about an individual or a corporation during an emergency levy and seizure of a corporation's assets for its failure to pay employee income taxes. IRS agents made efforts to avoid any disclosure to a secretary, but the corporation's officer elected not to send her home during the IRS's inventory process. An IRS agent acted properly in requesting that the El Paso police department examine gold and diamond jewelry in the corporate officer's possession. The disclosure was necessary to obtain the information that the IRS sought and was not otherwise reasonably available from a source other than the police.
A. Morales, DC Tex., 90-1 USTC ¶50,275.
Taxpayers properly alleged that the disclosure of criminal convictions for violations of tax laws violated the Code Sec. 6103 prohibition against tax information since the disclosure was inaccurate and negligently made. Thus the government's motion to dismiss for failure to state a claim upon which relief can be granted was denied.
J.G. Mallas, DC N.C., 90-2 USTC ¶50,412.
An individual's suit for damages against IRS employees for unauthorized disclosure of allegedly erroneous tax information to state tax officials was dismissed for failure to state a proper claim. The IRS is specifically authorized to disclose returns and return information to state tax officials, and the requirement of 5 U.S.C. §552 that federal agencies maintain adequate records was not relevant.
B. Case, DC Calif., 96-2 USTC ¶50,680.
Where a liaison official for the federal-state tax information exchange program sued an IRS official for wrongful disclosure, the federal government certified that the official had acted within the scope of his authority, and the U.S. was substituted as a defendant. The claims against the government were identical to those pled in T.J. Smith, DC Ill., 89-2 USTC ¶9457, and thus were dismissed without prejudice.
T.J. Smith, DC Ill., 90-1 USTC ¶50,118, 723 FSupp 1300.
An individual's suit for damages for unauthorized disclosure of return information was dismissed. The IRS sought to collect assessed tax liabilities by issuing notices of levy to various third parties, filing notices of federal tax liens, and issuing summonses to various third parties. The IRS disclosed only the return information necessary to effect those summonses, liens and levies. The disclosures were authorized under Code Sec. 6103(k)(6) and, as a matter of law, the IRS was not liable for damages.
L. Elias, DC Calif., 91-1 USTC ¶50,040. Aff'd, CA-9 (unpublished opinion 9/2/92).
Married taxpayers were not entitled to damages for the government's allegedly improper disclosure of their return information in the course of levying against their property. Even if procedural deficiencies rendered the levies defective, the disclosures, which consisted of sending notices of levy to banks and business, filing a notice of lien with a county recorder, and transmission of a notice of final demand to the husband's employer, were authorized under Code Sec. 6103(k)(6).
S.D. Mann, CA-10, 2000-1 USTC ¶50,233, 204 F3d 1012.
Followed.
D.M. Benson, DC N.M., 2000-1 USTC ¶50,367.
An airline was not entitled to damages for the alleged wrongful disclosure of tax return information when the IRS sent notices of intent to levy to third parties in order to locate assets to satisfy the taxpayer's tax deficiencies. The disclosures were necessary for IRS collection activities and exempt from damage claims even though the IRS failed to timely notify the taxpayer of its intent to levy.
Las Vegas Airlines, Inc., DC Nev., 98-1 USTC ¶50,306.
A suit brought for unauthorized disclosure of returns and return information was dismissed for lack of jurisdiction. The alleged disclosures occurred more than two years before the suit was filed. Additionally, the taxpayers did not allege that they discovered the disclosures within the two-year time period. Although some disclosures made to unnamed third parties allegedly occurred within two years prior to filing suit, they were not described with enough particularity for the court to determine that they were unauthorized.
R.P. Detrick, DC Ore., 91-1 USTC ¶50,063. Aff'd, CA-9 (unpublished opinion 5/8/92).
Numerous claims brought by an IRS employee alleging the IRS's unauthorized disclosures of his return information in the course of an audit of several tax years were dismissed as untimely. Although the employee had notice of the IRS's investigations after meetings with his supervisors and was informed that the IRS had relied on the results of its inquiries in deciding to terminate his employment, he failed to file a complaint before the limitations period expired. However, other claims could not be dismissed as untimely since the pleadings and evidence did not demonstrate when the employee gained notice of the disclosures.
B.T. Hobbs, Jr., DC Tex., 97-2 USTC ¶50,965.
Reconsideration of the unlawful disclosure claim in the above case was denied to a former IRS employee who was dismissed from his job for his failure to satisfy personal student loan and child support debts since the disclosures to an administrative tribunal constituted "routine uses" of the records under the Privacy Act, 5 U.S.C. §552a(b).
B.T. Hobbs, Jr., CA-5, 2000-1 USTC ¶50,403, 209 F3d 408.
An IRS agent's disclosure of an individual's return information to a U.S. attorney in a request for a search warrant for the taxpayer's records was permissible under Code Sec. 6103. Moreover, since the taxpayer waited more than two years after his attorney became aware of the disclosure before filing suit, his unlawful disclosure claim was barred by the statute of limitations.
A.T. McQueen, DC Tex., 98-1 USTC ¶50,388, 5 FSupp2d 473. Aff'd, per curiam, CA-5 (unpublished opinion), 99-1 USTC ¶50,367.
The taxpayer's claim for damages arising from the IRS's unauthorized disclosure of confidential information was dismissed. The District Court lacked the jurisdiction necessary to consider essential elements of the unauthorized disclosure claim.
R. James, CA-10, 92-2 USTC ¶50,389, 970 F2d 750.
On remand from R. James, above, the couple's motion for summary judgment on the issue of whether the district court should comply with the appellate court's instructions regarding their claim of unauthorized disclosure was dismissed. The appellate court ordered that the claim should be addressed only if the IRS had not sent a proper notice of intent to levy on the couple's property. Since the notice was sent, the couple's claim had to fail.
R. James, DC Wyo., 95-1 USTC ¶50,146.
A taxpayers's action seeking an award of damages for the wrongful disclosure of his tax return information by IRS employees to his customers during the course of a criminal tax investigation was properly barred by the district court. Testimony by the taxpayer's receptionist regarding his telephone conversations with numerous customers who received a circular letter from the IRS supported the inference that he had discovered the wrongful disclosure shortly after the letters were mailed; however, he delayed almost six years before filing suit. Although it was clear that the letter improperly disclosed return information to third parties, jurisdiction was lacking over the damages action because the government's waiver of its immunity from suit terminated upon the expiration of the two-year limitations period.
D.C. Gandy, CA-5, 2001-1 USTC ¶50,115.
Damages and costs awarded to married taxpayers whose oil business was destroyed by publicity surrounding an IRS investigation arising from an agent's unauthorized disclosure of search warrant information to a confidential informant were upheld. The IRS failed to establish that the agent acted in good faith. There were no prescribed regulations under Code Sec. 6103(k)(6) that allowed for the disclosure of information to confidential informants under such circumstances; thus, the agent's actions were unlawful. However, the damage award erroneously included prejudgment interest.
T.L. Jones, CA-8, 2000-1 USTC ¶50,312.
Notices of levy sent to clients of an income tax return preparer who had not filed his own returns since 1981, who had failed to collect and pay over employment taxes and who was concealing assets did not constitute the wrongful disclosure of tax return information. By sending the notices of levy to his clients, the IRS hoped to reach money that might be owed to the taxpayer for his income tax return preparation services. Any disclosures were made in connection with the IRS's attempt to levy upon valid liens upon the taxpayer's assets and were outside the reach of the wrongful disclosure provisions.
D.E. Coplin, DC Mich., 91-1 USTC ¶50,035. Aff'd, CA-6 (Unpublished opinion 12/17/91). Cert. denied, 6/8/92.
An IRS agent did not unlawfully disclose return information by serving Notices of Levy upon an individual's neighbors because the IRS agent was attempting to determine whether the neighbors had assets belonging to the individual. The only way to determine this was to serve the neighbors with the notices. The notices were based upon oil and gas leases entered into between the individual as lessee and his neighbors as lessors.
T.J. Cuda, DC Mich., 91-1 USTC ¶50,193. Aff'd CA-6 (Unpublished opinion 2/3/92). Cert. denied, 6/1/92.
The District Court had jurisdiction over a claim against the United States for an unauthorized disclosure of return information. However, an individual not represented by an attorney was permitted extra time to amend his complaint to allege what information was disclosed and the specific facts describing the alleged wrongful disclosure, as well as to send a copy of the summons to the Attorney General of the United States.
M. Yizar, DC Ga., 91-2 USTC ¶50,439. Aff'd, per curiam, on another issue, CA-11 (unpublished opinion), 97-2 USTC ¶50,564.
A taxpayer's action for damages against the United States for the alleged disclosure of return information by an IRS agent was dismissed. The taxpayer provided no information to refute the finding that any disclosure occurred pursuant to the agent's official tax collection or investigation duties. Additionally, the taxpayer did not contradict evidence that any unauthorized disclosure by the agent in testimony at the taxpayer's criminal trial was in good faith.
M. Yizar, DC Ga., 92-2 USTC ¶50,580. Aff'd, per curiam, on another issue, CA-11 (unpublished opinion), 97-2 USTC ¶50,564.
The taxpayer's action for damages against the IRS for unauthorized disclosure of return information was barred by the two-year statute of limitations. Even if the action had not been barred by the statute of limitations, the disclosures made by the IRS agents were authorized by the law since the disclosures were made in connection with the enforcement and collection of the assessment.
W. Simpson, DC Fla., 91-2 USTC ¶50,504. Aff'd, CA-11 (unpublished opinion 2/16/93). Cert. denied, 6/28/93.
The IRS did not wrongfully disclose tax information of a brother and sister who took part in a fraudulent conveyance scheme. The IRS's disclosures of the information during and after a trial for wrongful levy of the fraudulently conveyed property were authorized by Code Sec. 6103 because they occurred during a tax proceeding, there was a transactional relationship between the taxpayers and the plaintiff at trial, and the taxpayers' tax history was probative evidence. Although the taxpayers asserted that the inaccuracies of the disclosures rendered them unauthorized, Code Sec. 7431 does not protect taxpayers against unintentional inaccurate disclosures. Further, the taxpayers failed to produce evidence indicating that the IRS intentionally misstated the tax information or that the government prevented them from obtaining evidence.
J. Noske, DC Minn., 92-2 USTC ¶50,429. Aff'd, CA-8 (unpublished opinion 7/15/93).
Damages for unauthorized disclosure of return information were denied since the IRS was authorized to disclose certain information such as name, address and amount of unpaid taxes when imposing liens and levies.
D.L. Tomlinson, DC Wash., 91-2 USTC ¶50,445. Aff'd, CA-9 (unpublished opinion 9/30/92).
Because a suit was filed more than two years after a taxpayer received notice of three alleged unauthorized disclosures, his claims for damages were barred by the statute of limitations. Thus, the IRS's summary judgment motion was granted. The disclosures, which were attempts by the IRS to collect the alleged tax deficiency, were not improper as they were authorized by statute. In addition, the taxpayer's claim that the assessments against him were invalid due to procedural defects was rejected.
J.C. Chisum, DC Ariz., 92-1 USTC ¶50,032. Aff'd, CA-9 (unpublished opinion 9/13/93). Cert. denied, 10/17/94.
An IRS motion to quash a subpoena that requested documents regarding an investigation of an IRS officer was granted in part. The taxpayer claimed that the officer disclosed her confidential tax return information. Although the documents were generated to determine whether the officer wrongfully disclosed the taxpayer's return information, they were exempt from disclosure because they were return information of the officer. However, any portion of the documents containing the taxpayer's statements was not privileged information and had to be provided to her.
D.A. Conn, DC Calif., 92-1 USTC ¶50,123.
A taxpayer's suit for damages for violation of the law prohibiting disclosure of return information was dismissed because the taxpayer failed to produce information to support his allegation of IRS error. The IRS disclosed information in an attempt to collect taxes, which is allowed under the anti-disclosure statute. The taxpayer claimed that the IRS acted in error, but refused to document his contention, claiming that the information was none of the IRS officer's business. Under the law, the IRS has a right to the taxpayer's information and the taxpayer is obliged to provide it.
J.C. Bleavins, DC Ill., 92-2 USTC ¶50,549. Aff'd, CA-7 (unpublished opinion 7/16/93).
A wrongful disclosure action was dismissed because it was not improper for the IRS to disclose information about the tax preparer in order to locate resources to satisfy a lien, regardless of whether the lien was proper.
Coplin & Assoc., Inc., DC Mich., 93-1 USTC ¶50,017, 814 FSupp 643. Vac'd and rem'd, CA-9 (unpublished opinion 6/22/94).
A taxpayer's claim for damages for unauthorized disclosure due to erroneous levies on her pension fund and bank accounts was dismissed because the levies were the result of a computer error. A computer error was not the kind of conduct for which Congress intended to hold the IRS liable in enacting the unauthorized disclosure section of the Code.
L. Weiner, DC N.Y., 93-1 USTC ¶50,075. Aff'd, per curiam, CA-2, 93-1 USTC ¶50,124, 986 F2d 12.
An investment counselor's civil damage award for unauthorized disclosure of return information was sustained because IRS personnel continued to disseminate to tax shelter investors inaccurate and misleading information concerning the program after the counselor's conviction was reversed on appeal. The information constituted "return information" since the material contained in the pro forma revenue agent report was prepared by the IRS with respect to a tax return, even though it was not this taxpayer's return. The number of disclosures made for purposes of calculating the $1,000 per violation damage award was based on the number of persons to whom the information was addressed, not the number of reports sent. The taxpayer was allowed to show, on remand, whether punitive damages should be awarded in lieu of the statutory award received.
J.G. Mallas, CA-4, 93-1 USTC ¶50,302, 993 F2d 1111.
The IRS was not liable for unlawful disclosure when it reported a lien to the appropriate county recorder's office because a valid assessment actually did exist prior to disclosure.
M.J. Heun, DC Ariz., 93-2 USTC ¶50,367.
An IRS agent's failure to obtain prior approval before mailing letters to an individual's potential and known customers was not sufficient basis for a disclosure action against the IRS, because the agent operated in good faith, no other reasonable method existed by which the information could be obtained without great labor, time, and expense, and where the letter disclosed no more than the agent would have disclosed in interviewing the potential customers in person.
W. Simpson, DC Fla., 93-2 USTC ¶50,475.
The substitution of the administrator of a decedent's estate in place of the decedent as plaintiff in a suit for unauthorized disclosure of the decedent's tax return information was proper. The statutory right to bring such a suit was a property right that survived the taxpayer's death since all taxpayers, not just individuals, could sue for unauthorized disclosure. Further, allowing the right of survival advanced the legislative aim of discouraging governmental intimidation through disclosure.
M.L. Schachter, DC Calif., 94-1 USTC ¶50,034.
The IRS did not make any unauthorized disclosures of an individual's tax information when it filed a tax lien that would allow the individual to recover damages. The IRS was expressly authorized to disclose such information to establish its liens or levies.
A.P. Lutz, DC Ky., 93-2 USTC ¶50,574.
A taxpayer's claim that the IRS improperly disclosed certain tax information in the form of various lien and levy notices was without merit because Code Sec. 6103 expressly permits disclosure of return information to the extent necessary to effect a lien or levy.
J.L. Ball, CA-7 (unpublished opinion), 95-1 USTC ¶50,217.
IRS agents were authorized to disclose return information to banks and employees in carrying out their collection and enforcement activities. The disclosure was not unauthorized solely because the levy the IRS sought to enforce was defective. The determination of whether disclosure is unauthorized is not dependent on the validity of the underlying summons, lien or levy. The history and structure of the applicable Code sections indicated that the disclosure provision and the attendant remedy are distinct from and were not intended to interfere with collection actions.
D.P. Venen, CA-3, 94-1 USTC ¶50,177, 38 F3d 100.
A sole proprietor's claim for damages from unauthorized disclosure of return information was dismissed because the disclosure was not wrongful. The disclosure of her social security number, business interest, employee identification number, and purported tax liability in notices of levy were necessary to inform persons dealing with the taxpayer and her business of the IRS's liens. Even though the IRS's levy on the taxpayer's assets to collect the taxes of her alleged common-law husband may have been wrongful, the propriety of collection activities was distinct from information handling.
R.K. Wilkerson, CA-5, 95-2 USTC ¶50,569, 67 F3d 112.
An employee was not entitled to damages for wrongful disclosure of return information arising from the IRS's serving of a notice of levy on the employee's wages with his employer and the IRS's recording of a notice of tax lien. The disclosure of return information was authorized, and it was necessary for the collection of taxes.
W.C. Blankstyn, DC Ariz., 94-1 USTC ¶50,287.
A taxpayer was entitled to recover actual damages suffered when the IRS wrongfully disclosed her return information in the course of imposing improper levies. Code Sec. 7433 did not provide the sole appropriate remedy where the disclosures were made in the course of collection of an erroneous refund, as opposed to the collection of a tax. Further, while recognizing a split among the circuits regarding whether the lawfulness of the underlying levy was relevant to wrongful disclosure actions, the district court held that information cannot be properly disclosed under Code Sec. 6103 if the levy giving rise to the disclosure was improper.
I.S. Schipper, DC N.Y., 98-2 USTC ¶50,825.
A cosigner who received property subject to tax liens from the debtor-taxpayer after paying off a loan obligation was not entitled to damages for the unlawful disclosure of tax return information because any tax information released was not related to his return.
G.E. Caine, CA-10, 94-2 USTC ¶50,373.
An individual was allowed to file a counterclaim against the government for wrongful disclosures of her tax return information. Since the individual was proceeding pro se, she was accorded leniency and leave to amend pleadings.
R.W. Yoak, DC Ky., 94-2 USTC ¶50,414.
Where notices of deficiency and levy were properly mailed to the address indicated on an individual's most recently filed return, the IRS's collection activities were authorized. Thus, the lower court's award of damages for alleged unauthorized disclosure of tax return information was improper.
J.C.F. Gille, CA-10, 94-2 USTC ¶50,428. Cert. denied, 4/17/95.
The IRS did not wrongfully disclose a delinquent taxpayer's return information when it sent notices of levy to third parties in order to locate assets to satisfy the taxpayer's tax deficiencies. The IRS was not required to first send out a notice of lien before disclosing return information in the notices of levy.
Great Lakes Answering Service, Inc., DC Mich., 94-2 USTC ¶50,594.
An IRS employee did not improperly or unlawfully disclose return information about her husband when she represented him, pursuant to a power of attorney, in the course of an audit. The wife obtained the return information in the course of her marriage and as her husband's personal representative rather than in her official capacity as an IRS employee.
N.C. Girard, DC Calif., 94-2 USTC ¶50,625.
The disclosure of an individual's return information by Amtrak employees did not violate Code Sec. 6103 because the Amtrak employees were not employees of the United States and did not have "access" to the return. The employees altered a request to obtain copies of the individual's return, obtained it without his permission, and disseminated the return information within Amtrak. Although Amtrak is part of the federal government for certain purposes, it is not an agency or establishment of the United States. In addition, the employees did not have access to the return within the meaning of Code Sec. 6103(a)(3).
R. Hrubec, CA-7, 95-1 USTC ¶50,298, 49 F3d 1269.
A corporation's action for unlawful disclosure of its tax return information was time-barred because the corporation failed to name the government as a party to the litigation until after the limitations period had ended. Although the corporation stated it failed to learn of the violation until immediately prior to its filing of the complaint, internal memoranda of the corporation indicated it knew of the core facts of the violation for some time.
Amcor Capital Corp., DC Calif., 95-2 USTC ¶50,395. Aff'd, CA-9 (unpublished opinion), 97-2 USTC ¶50,512.
A claim for damages based on disclosure of the taxpayers' information in an IRS press release was dismissed because suit was filed more than two years after the individuals became aware of the disclosure. However, the taxpayers were permitted to amend their complaint to specifically assert claims based on disclosures that were not barred by the statute of limitations.
C. Bailey, DC Tex., 94-2 USTC ¶50,534.
An individual failed to state a proper claim for unauthorized disclosure of return information. Vague and conclusory statements were insufficient to permit the court to determine whether a violation occurred.
C.M. Ferrel, CA-9 (unpublished opinion), 96-1 USTC ¶50,157.
An individual failed to allege sufficient facts to state a proper claim for the IRS's unauthorized disclosures of his return information. He did not specify what information was revealed, to whom it was revealed, or under what circumstances the revelations were made. Thus, his meritless motion for summary judgment was denied, his motion for declaratory and injunctive relief was denied as moot, and his claim was dismissed.
J.R. Leonard, Sr., DC Colo., 97-2 USTC ¶50,501.
An IRS agent did not improperly disclose information of one corporation in making adjustments to the return of another dissolved corporation. Information on the possible improper diversion of funds from one company to the other was protected return information because it was analyzed by the agent with respect to a potential tax liability of the dissolved corporation. However, the information was properly disclosed to the 50% shareholder of the dissolved corporation and the corporation's accountant because the shareholder requested and had a material interest in the information and the accountant was his designee.
J.D. McAdams III, DC La., 96-1 USTC ¶50,269.
Jurisdiction was lacking over married taxpayers' suit alleging various constitutional, civil rights, and privacy violations. Their claim under the Privacy Act that the IRS improperly disclosed tax return information to a state attorney general's special counsel was dismissed because Code Sec. 7431 provided the exclusive remedy. Also, their claim that the IRS improperly disclosed information to a legal publisher was dismissed as untimely. Finally, they could not bring a Privacy Act claim for the IRS's alleged determination of their tax deficiency based on an inaccurate record.
P.J. Berridge, DC Ohio, 98-1 USTC ¶50,122, 993 FSupp 1136.
The district court lacked jurisdiction over a tax return preparer's civil damage action for unauthorized disclosure of return information. The IRS's letter alerting the preparer's clients that their returns were under audit and that the preparer was no longer eligible to represent clients before the IRS was not considered disclosure of confidential return information. Only taxpayers, not return preparers, are entitled to make a claim. Although the district court originally granted summary judgment in favor of the government, the summary judgment was vacated and judgment for dismissal for lack of jurisdiction was rendered.
D. Hernandez, CA-5, (unpublished opinion), 99-2 USTC ¶50,887, vac'g and dism'g, per curiam, DC Tex., 99-1 USTC ¶50,320.
An accountant was not entitled to civil damages with respect to the IRS disclosures of his tax information. The disclosures of confidential information by IRS employees were authorized under Code Sec. 6103 and its implementing regulations because they occurred during the course of an IRS investigation into the individual's tax returns.
W.O. Osijo, DC Calif., 99-1 USTC ¶50,344. Aff'd, CA-9 (unpublished opinion), 2000-2 USTC ¶50,711.
Government disclosures of delinquent taxpayers' return information that were made in connection with collection activities were authorized by law.
D.L. Long, DC Pa., 99-1 USTC ¶50,399. Aff'd, per curiam, CA-3 (unpublished opinion), 2000-1 USTC ¶50,497.
A taxpayer's contention that IRS employees wrongfully inspected her records during their allegedly illegal search of her home failed to state a damage claim for wrongful disclosure of return information. Code Secs. 6103 and 7431 applied only to disclosure of information in the hands of the IRS.
M.A. Tobin, DC Ky., 99-2 USTC ¶50,628.
An individual's claim for unauthorized disclosures against IRS and other government employees were dismissed because such claims may be brought only against the U.S., not against employees in their individual capacities.
M.R. Hassell, DC Tex., 99-2 USTC ¶50,671.
Similarly.
J.B. Bolin, DC Ga., 99-2 USTC ¶50,740.
A wife's claim for an award of damages based on purportedly unauthorized disclosures of information contained in the joint returns that she filed with her husband was dismissed. The government did not violate Code Sec. 6103 when it obtained the return information for use in a criminal investigation of the taxpayer's husband that resulted in his conviction on federal mail fraud charges. By filing joint returns, the wife implicitly authorized the disclosure of information in the event that her husband encountered tax problems.
J.B. Bolin, DC Ga., 2000-1 USTC ¶50,111.
Married taxpayers' contention in a quiet title action that they were entitled to damages for the disclosure of return information was rejected. The IRS's disclosures of return information in conjunction with its levy on the wife's payroll were limited to information necessary to effect its lawful liens, levies, and seizures. Thus, the disclosures were authorized under Code Sec. 6103(k)(6).
J.S. Williamson, DC N.M., 99-2 USTC ¶50,841, 84 FSupp2d 1217. Aff'd, CA-10 (unpublished opinion), 2000-1 USTC ¶50,504.
Married taxpayers could not maintain an action against a private credit reporting agency that allegedly solicited unauthorized disclosures of their return information.
R. Soghomonian, DC Calif., 2000-1 USTC ¶50,146, 82 FSupp2d 1134.
Married debtors were not entitled to damages for IRS disclosures of tax return information in connection with a tax lien and notice of levy. The IRS is permitted to disclose return information to the extent necessary to locate a taxpayer's assets, to effect a lien or levy, or to seize or sell assets to collect taxes due. While courts are split on whether the validity of the underlying action affects disclosure under Code Sec. 6103, the appellate court followed the majority position that the validity of the underlying proceeding is immaterial to a determination of liability for unauthorized disclosure. Thus, in the event it is found that the lien and notice of levy in the present case were unauthorized, that fact would be irrelevant to a determination of liability for damages under Code Sec. 7431.
A.D. Lester, CA-10 (unpublished opinion), 2000-1 USTC ¶50,255, aff'g an unreported District Court decision.
A pro se taxpayer was awarded statutory damages after the government conceded that it unlawfully disclosed his return information on three occasions when it mailed automated collection notices to his former representative whose power of attorney had been revoked.
L.D. Abel, DC Ore., 2000-1 USTC ¶50,262.
A veterinarian who marketed a book promoting the evasion of taxes failed to state a claim for unauthorized disclosures of confidential information against various IRS agents. The exclusive remedy for unauthorized disclosures is an action against the United States, rather than individual IRS agents.
D.L. Leveto, DC Pa., 2000-1 USTC ¶50,278. Aff'd, on other issues, CA-3, 2001-2 USTC ¶50,536.
An individual who claimed that his assessments were improper could not maintain a cause of action under Code Sec. 7431 in connection with the alleged release of return information in IRS levies against his property. Code Sec. 7431 does not expressly incorporate a requirement to "pay first and litigate later"; however, the Internal Revenue Code's remedial structure required the taxpayer to comply with the refund procedures of Code Sec. 7422 prior to bringing a damage claim arising out of an allegedly invalid assessment. Further, although the taxpayer could maintain a Code Sec. 7431 claim arising out of the disclosure of information in levies issued without a prior notice of intent to levy, issues of fact regarding whether such a notice was issued precluded summary judgment.
R.O. Morell, DC P.R., 2000-1 USTC ¶50,365, 91 FSupp2d 451.
An individual's claim alleging various constitutional violations against an IRS agent was properly dismissed by the district court for failure to state a claim and for lack of jurisdiction. The pro se taxpayer was not entitled to an award of damages for the disclosures of her tax information because the disclosures were made in conjunction with satisfying tax liens on her property.
L. Krieg, CA-9 (unpublished opinion), 2000-2 USTC ¶50,700, aff'g DC Calif., 2000-1 USTC ¶50,537.
A suit brought by the sole shareholders of a steam boiler and dry cleaners repair corporation for the unauthorized disclosure of tax return information under Code Sec. 7431 was dismissed for failure to state a justiciable claim. The exclusivity provision of Code Sec. 7433 barred claims under Code Sec. 7431. Suits for improper disclosure that occurred in the course of tax collection must be brought under Code Sec. 7433.
J. Shwarz, CA-9, 2001-1 USTC ¶50,111, aff'g an unreported District Court decision.
A taxpayer was not entitled to damages for unauthorized disclosure against the IRS because he lacked standing to maintain such a suit. Code Sec. 7431 restricts standing to taxpayers whose return information has been improperly disclosed; the individual's claim did not allege that his tax return was improperly disclosed, but rather that his corporation's was. Therefore, the corporation was the proper plaintiff.
N.E. Duquette, Inc., DC D.C., 2000-2 USTC ¶50,718.
Jurisdiction was lacking over an informant's claim for civil damages in connection with the IRS's alleged wrongful disclosure of his identity to the target of an investigation in which he supplied information. Although the IRS conceded that his informant status constituted return information, the information concerning the informant's status was not obtained for purposes of administering or enforcing the tax laws with respect to him. Rather, his informant status was the return information of another taxpayer who was under investigation by the IRS.
B.W. Jarvis, DC Tex., 2000-2 USTC ¶50,805.
A tax return preparer's claim that the IRS inspected his tax return for the tax year at issue without appropriate authorization under Code Sec. 7213A, although not addressed by the government in its motion for summary judgment, was not considered. The provision applied to violations occurring on or after August 5, 1997, which was almost one year after the alleged offense.
D.W. Wewee, DC Ariz., 2001-1 USTC ¶50,357.
A suit brought by an individual seeking an award of damages for the unauthorized disclosure of tax return information was barred under the exclusivity provision of Code Sec. 7433. Because the alleged disclosures occurred in connection with the collection of taxes, the taxpayer's claim fell under Code Sec. 7433, which covers unauthorized disclosures during collection proceedings.
P. Valladares, DC Calif., 2001-1 USTC ¶50,436.
The government was not liable for damages to former partners of a tax shelter for the alleged improper disclosures of partnership information made by the IRS during an audit. Because the audit was an administrative proceeding, the disclosures were exempt from the nondisclosure requirements for confidential information. The partners' claim that the IRS erred in including at-risk or basis amounts and in sending Notices of Final Partnership Administrative Adjustment to all former partners was rejected. Specific notice requirements mandate that partners receive information regarding pending administrative proceedings. Further, as persons who faced tax consequences as a result of the partnership audit, the former partners were entitled to know all of the operative facts on which the IRS relied in making its calculations.
D. Abelein, CA-9, 2003-1 USTC ¶50,331.
The allegation that the IRS made unauthorized disclosure of taxpayer return information in the notice of tax liens was dismissed. The limited information concerning the taxpayer's tax deficiencies that was included in the notices of lien and levies was necessary to IRS collection activities.
L. Opdahl, DC D.C., 2001-2 USTC ¶50,647.
An individual's claim against a casino for using his confidential tax return information in deciding whether to extend him credit at the casino, was dismissed. The individual alleged that the casino obtained his return information from an IRS agent; however, he failed to name or sue the agent and, instead, sued the casino. None of the named defendants fit the description of persons prohibited from disseminating return information under Code Sec. 6103 since none of them were federal officers or agents working for any governmental agency. Thus, the casino's use of his return information did not violate Code Sec. 6103 and Code Sec. 7431 clearly limits civil actions to such persons described in Code Sec. 6103.
R.B. Dietl, DC Nev., 2002-1 USTC ¶50,201, 180 FSupp2d 1150.
The government was not entitled to summary judgment with respect to an individual's Fourth Amendment Bivens claim that a former IRS attorney unlawfully seized financial documents in a warrantless search of her home. Although the taxpayer proffered minimal evidence, if a jury believed that the IRS agent did not schedule a meeting with the taxpayer's accountant at the taxpayer's home on the day in question, the weight of circumstantial evidence could support a finding that the IRS agent illegally entered the taxpayer's home. Consequently, any qualified immunity claim by the government could be overcome.
M.A. Tobin, DC Ky., 2002-1 USTC ¶50,260.
The president of a corporation did not have standing to sue for damages incurred in connection with collection of taxes. The IRS had taken collection actions against the corporation, not against the individual; thus, only the corporation had standing to sue for disclosure of return information.
A.R. Ruiz, DC P.R., 2003-1 USTC ¶50,161.
An action for damages as a result of the disclosure of return information was delayed six months pending a criminal investigation. Although the taxpayer was able to demonstrate damage to both her business and reputation, the interest of the IRS in maintaining the privacy of its criminal investigation outweighed the interest of the taxpayer in immediately proceeding with the action.
T.J. Turley, DC Mo., 2002-2 USTC ¶50,642.
A claim for damages based on the IRS's disclosure of an individual's tax return information to the Federal Bureau of Investigation was dismissed because suit was filed more than two years after the individual became aware of the disclosure. Moreover, the taxpayer also asserted the same claim in a suit filed six years earlier. The taxpayer's request that the trial court recognize an equitable exception to the doctrine of res judicata lacked merit.
A.T. McQueen, DC Tex., 2003-1 USTC ¶50,451.
An accountant's suit for damages alleging that the IRS made unauthorized disclosures of his return information when it solicited information from third parties was dismissed. Although Code Sec. 7431 provided a remedy for taxpayers whose return information was improperly disclosed, the disclosures at issue did not involve any information in connection with the accountant's own returns. The information allegedly disclosed to the third parties by the IRS revealed the accountant's identity and appeared to be related to the nature, source, or amount of his income.
F.L. Gonser, DC Ga., 2003-1 USTC ¶50,464.
An individual was not entitled to damages under Code Sec. 7431 for the IRS's alleged unlawful disclosures of his confidential tax return information through the filing of tax liens. Code Sec. 7433 provides the exclusive remedy where the alleged disclosures were made in connection with tax-collection activity. Since the alleged disclosures were made in connection with the filing of tax liens, they were made in connection with tax-collection activity.
P.B. Evans, DC D.C., 2007-1 USTC ¶50,418, 478 FSupp2d 68.
Similarly.
L. Martin, DC D.C., 2007-1 USTC ¶50,419.
Similarly.
L. Koerner, DC D.C., 2007-1 USTC ¶50,420, 471 FSupp2d 125.
Similarly.
E.M. Glass, DC D.C., 2007-1 USTC ¶50,472, 480 FSupp2d 162.
Similarly.
C. Radcliffe, DC D.C., 2007-1 USTC ¶50,501.
A federal district court lacked subject matter jurisdiction over an individual's Code Sec. 7431 damages claim for alleged unlawful disclosures of her confidential tax return information. Code Sec. 7433 provides the exclusive remedy for unlawful disclosures made in connection with tax-collection activity.
R.H. Miller, DC-D.C., 2007-2 USTC ¶50,589.
An individual could not claim damages for the alleged unauthorized disclosure of her income tax return information by an insurance company because the disclosure of her confidential return information was not an unauthorized disclosure by the IRS. Code Sec. 7431 was not applicable because the insurance company did not obtain the individual's return information from the IRS; rather, the individual had provided it to the insurance company for the purpose of evaluating a third-party insurance claim.
S.L. Cannon v. Zurich North America, DC Ariz., 2007-2USTC ¶50,745.
[87-2 USTC ¶9623] Paul W. Husby and Gina L. Husby, Plaintiffs v. United States of America, Defendant
U.S. District Court, No. Dist. Calif., C-87-1604 SAW, 11/6/87, 672 FSupp 442
[Code Secs. 6103 , 7430 , 7431 and Fed. R. Civ. Proc. 11--Result unchanged by the Tax Reform Act of 1986]
Treasury Department: Personnel: Disclosure of returns and return information: Civil damages: Computer system error: Sanctions: Frivolous suit: Suits by taxpayers: Courts: Award of costs and attorneys' fees.--The IRS was liable for making unauthorized disclosures of a couple's nonpublic tax return information to third parties as the result of alleged computer system errors; however, sanctions of costs and attorney's fees were not granted to the taxpayers. Confidential return information was not transformed into nonconfidential information by virtue of the taxpayers' petition to challenge IRS notices of deficiency nor did the filing of that petition preclude the taxpayers from "enjoying the protections of [Code Sec.] 6103." The disclosures made in various tax liens were not necessary to official duties because the IRS had admitted that the underlying assessments were improper "long before the first disclosure to a third party was made." A previously prohibited collateral attack upon a levy or assessment did not exist because Code Sec. 6103(k)(6) did not authorize disclosures made after the government had admitted that the underlying assessment was in error. The IRS was found liable because it did not contest its own negligence; furthermore, the IRS was not able to raise a good faith defense because its error was allegedly caused by the computer system rather than someone's good faith misinterpretation of Code Sec. 6103 . Sanctions were not imposed under Fed. R. Civ. Proc. 11 because the government's actions were not frivolous. Furthermore, costs and attorney's fees were not awarded to the taxpayers because they would have the opportunity to prove damages (including costs and fees) at trial. BACK REFERENCES: 87FED ¶5209.75, 87FED ¶5785B.11 and 87FED ¶5786A.07
Montie S. Day, Jon R. Vaught, Day Law Corp., 80 Swan Way, Oakland, Calif. 94621, for plaintiffs. Joseph P. Russoniello, United States Attorney, Jay R. Weill, Assistant United States Attorney, San Francisco, Calif. 94102, for defendant.
MEMORANDUM AND ORDER
WEIGEL, Senior District Judge:
This is an action by taxpayers Paul and Gina Husby under 26 U.S.C. §7431 for unauthorized disclosure of tax return information by the Internal Revenue Service (IRS). Defendant United States moves for summary judgment, and plaintiffs file a cross motion for partial summary judgment on the issue of liability, as well as a motion for sanctions.
The material facts are not in dispute. The Internal Revenue Service admits error in its deficiency assessment against plaintiffs and in its subsequent collection activity, including levies on plaintiffs' assets. The sole question is whether plaintiffs are entitled to damages under the civil remedies provision of the Internal Revenue Code, 26 U.S.C. §7431 , providing that
If any officer or employee of the United States knowingly, or by reason of negligence, discloses any return or return information with respect to a taxpayer in violation of any provision of section 6103 , such taxpayer may bring a civil action for damages against the United States in a district court of the United States.
26 U.S.C.A. §7431(a)(1) (West Supp. 1987).
Section 6103 sets forth the general rule that returns and return information are confidential and that officers and employees of the United States shall not disclose such information "except as authorized by this title." 26 U.S.C.A. §6103(a) .
BACKGROUND
On March 11, 1986, the Commissioner of the Internal Revenue Service mailed plaintiffs a Notice of Deficiency for alleged income taxes due and owing for 1982. On June 9, 1986, plaintiffs filed a Petition with the United States Tax Court, seeking a redetermination of the deficiency. The IRS filed an answer on August 6, 1986.
On September 1, 1986, the IRS made an assessment against plaintiffs for the alleged deficiency, demanding payment of some forty-seven thousand dollars. Defendant admits that, under 26 U.S.C. §6213(a) , this assessment should not have been made, because plaintiffs had filed the said Petition with the Tax Court. On September 19, 1986, plaintiffs' counsel notified the IRS in writing that the assessment was illegal and cautioned that any liens or attempts to levy pursuant to the invalid assessment might constitute unauthorized disclosure in violation of 26 U.S.C. §6103 .
On October 6, 1986, the IRS acknowledged receipt of the September 19 letter, informing plaintiffs that their inquiry was being forwarded to another IRS office.
By notice dated November 10, 1986, the IRS made further demand for payment. On November 13, plaintiffs' counsel once again wrote to the IRS, warning of possible violations of §6213 and §6103 . Soon thereafter, plaintiffs' counsel received a telephone call from Ms. Debra K. Estrem, an attorney for the IRS, acknowledging the mistake by the IRS and assuring that no further collection activity would occur. Ms. Estrem also requested that plaintiffs' counsel inform her immediately if further bills were received.
In spite of all this, the IRS on December 15 again demanded payment in satisfaction of the alleged deficiency. On January 16, 1987, plaintiff Paul Husby and his counsel met with an appeals officer of the IRS--a Mr. Whitman--in connection with the Tax Court Petition. At that meeting, plaintiffs' counsel again stated plaintiffs' position that the assessment was illegal and that plaintiffs were willing to pursue judicial action to prevent disclosure of tax information to third parties.
On January 19, plaintiffs received yet another notice and demand for payment. Plaintiffs' counsel responded on February 4, 1987, with a letter to Mr. Whitman, again warning that seizing of plaintiffs' assets pursuant to the illegal assessment would trigger action by plaintiffs under 26 U.S.C. §7431 . Included with this letter was a copy of the January 19 demand letter.
Despite this series of exchanges between plaintiffs, their counsel, and the IRS, the IRS on March 23, 1987 served a notice of levy on the San Francisco Police Credit Union and collected funds of $3,789.53 held by plaintiffs. On April 3, 1987, another notice of levy was served, this time on L.F. Rothschild Unterberg Towbin, a stockbroker.
On April 7, plaintiffs obtained an order from this Court, enjoining defendant from
(A) Disclosing or presenting to third parties tax return information as described in Title 26 United States Code, Section 6103 , whether in the form of a lien, levy, or other demand, or information relating to any proposed income tax liability for the calendar year 1982;
(B) From liening, leving [sic], taking, receiving, seizing or otherwise appropriating or collecting assets of the plaintiffs for satisfaction of any income tax liability for the calendar year 1982;
During the hearing preceding issuance of the order, the IRS admitted that the original assessment and all collection activity pursuant to it were in error.
Soon after the issuance of the order, yet another notice of levy was served on L.F. Rothschild Unterberg Towbin. Also on April 13, the IRS filed a Notice of Federal Tax Lien Under Internal Revenue Law in the County of Marin.
On April 17, the IRS refunded to plaintiffs the $3,789.53 collected from the San Francisco Police Credit Union.
On April 23, the IRS served a release of levy on the Bank of America, Gina Husby's employer, and the San Diego Gas & Electric Company. Whether any levy had originally been served on these two companies is not clear. On April 30, the Marin County lien was released.
The government in its affidavits blames the IRS computer system for the problems.
The parties' cross motions for summary judgment raise three issues for this Court: (1) whether the information disclosed by the IRS was already a matter of public record and therefore not entitled to confidential treatment under §6103 ; (2) whether the disclosures were authorized under §6103(k)(6) ; and (3) whether the good faith exception of §7431(b) applies to relieve defendant of liability.
CONFIDENTIALITY OF THE DISCLOSED INFORMATION
Defendant does not contest that the information disclosed was "return information" within the scope of §7431 . Instead defendant argues that plaintiffs' Tax Court Petition, which is a matter of public record, already disclosed the taxpayers' names, social security numbers, and the fact that plaintiffs owed the government back taxes. According to defendant, "all of the information which is the subject of this action was a matter of public record in the Tax Court," and therefore "such information no longer retains its confidential nature under Section 6103(a) . Defendant's Memorandum in Support of Motion for Summary Judgment at 13.
Defendant's contention is factually inaccurate. The Tax Court Petition does not disclose that plaintiffs owe the government back taxes. That is the very issue to be decided by the Tax Court. As plaintiffs point out, significant information disclosed by defendant was not contained in the Tax Court Petition. There was no public record of outstanding tax assessments against plaintiffs until defendant's disclosure. The existence of the liens and levies could not have been disclosed by plaintiffs in their Petition, since such liens and levies did not exist at the time of the filing. Defendant was the first to disclose this information.
This Court cannot agree with defendant that the filing of a Tax Court Petition containing only taxpayers' names and social security numbers changes all of taxpayers' return information from confidential to non-confidential, thereby extinguishing all expectations of privacy under §6103 . 1 If defendant's reading of §6103 were adopted, taxpayers could either challenge government notices of deficiency by filing Petitions with the United States Tax Court, or they could enjoy the protections of §6103 against unauthorized disclosure, but not both. Under defendant's theory, once the Petition is filed, all return information related to the dispute becomes fair game for IRS disclosure, §6103 notwithstanding. Congress could not have intended such an absurd result.
AUTHORIZATION UNDER §6103(K)(6)
Defendant argues that §6103(k)(6) authorizes the actions taken by the IRS. That subsection reads, in pertinent part:
An internal revenue officer or employee may, in connection with his official duties relating to any audit, collection activity, or civil or criminal tax investigation or any other offense under the internal revenue laws, disclose return information to the extent that such disclosure is necessary in obtaining information, which is not otherwise reasonably available, with respect to the correct determination of tax, liabilities for tax, or the amount to be collected or with respect to the enforcement of any other provision of this title.
The plain language of this subsection authorizes only disclosures which are necessary in obtaining information related to official duties. The disclosures at issue clearly were not necessary to official duties because the underlying assessment was improper.
Defendant asserts that once an assessment is made, whether proper or improper, §6103(k)(6) authorizes employees of the IRS to disclose as necessary. This argument was rejected by the Eighth Circuit in Rorex v. Traynor [85-2 USTC ¶9636 ], 771 F.2d 383 (8th Cir. 1985) (Disclosure pursuant to an unlawful levy violates §6103(a) and is not authorized under §6103(k)(6) ). The Court there reasoned that to ignore the legality of the underlying levy would allow IRS employees to "disclose information about any taxpayer simply by making the disclosure in the form of a notice of levy." Id. at 386.
Defendant argues that since taxpayers are barred by 26 U.S.C. §7426 from bringing actions for wrongful levies, they should not be allowed a collateral attack under §7431 : "If, as plaintiffs contend, wrongful disclosure damages actions can be brought by taxpayers under Section 7431 whenever a levy or lien is determined to be defective, a flood of previously prohibited litigation could result." Defendant's Memorandum at 11.
First of all, plaintiffs nowhere contend that wrongful disclosure actions should be permitted any time a levy or lien is determined to be defective. Moreover, this Court in holding that defendant's disclosures were not authorized under §6103(k)(6) because of the illegality of the underlying assessment will not cause a downpour of "previously prohibited litigation" which defendant fears. The case at hand presents no problem as to collateral attack of a levy or assessment. All parties agree that the assessment was error. Long before the first disclosure to a third party was made, defendant had already admitted that the original assessment should not have been made. Even after defendant admitted before this Court that the assessment and subsequent collection activity were improper, disclosure was made in the form of a tax lien. The provisions of §6301(k)(6) do not authorize disclosures made after the government admits that the underlying assessment was in error.
As the disclosures at issue violated §6103(a) , that requirement for bringing action under §7431 is satisfied. The other requirement is that the disclosure be made knowingly or negligently. Defendant does not contest negligence. Therefore, the Court finds Defendant United States liable under §7431(a)(1) as a matter of law.
GOOD FAITH DEFENSE UNDER §7431(B)
Subsection (b) of §7431 provides that
No liability shall arise under this section with respect to any disclosure which results from a good faith, but erroneous, interpretation of section 6103 .
Defendant contends that since the disclosures were the result of honest mistakes, the good faith defense should apply. However, §7431(b) does not create a general good faith defense; on its face it applies only to good faith misinterpretations of §6103 . Defendant fails to explain who, if anyone, made any such interpretation of that statute, or what the erroneous interpretation might have been.
Moreover, defendant's general position as illustrated in its memoranda and affidavits is that this unfortunate incident was really nobody's fault, that a computer is to blame. Likewise, it is clear from defendant's submissions that no one made any interpretation of §6103 . The IRS cannot collectively qualify as having made a good faith but erroneous interpretation of §6103 . Therefore, the good faith defense is not available.
PLAINTIFFS' MOTION FOR SANCTIONS
As defendant's motion was not frivolous under Fed.R.Civ.P. Rule 11, that cannot serve as a basis for granting plaintiff's motion for sanctions. As to plaintiffs' fees and costs in obtaining the Court order which defendant subsequently violated, the Court finds that sanctions at this time are not the appropriate vehicle for obtaining such relief. Plaintiffs will be allowed ample opportunity to prove damages, including costs and fees, at trial.
Accordingly,
IT IS HEREBY ORDERED that
(1) plaintiffs' motion for summary judgment as to defendant's liability is GRANTED;
(2) defendant's motion for summary judgment is DENIED; and
(3) plaintiffs' motion for sanctions is DENIED.
1 The Court finds persuasive the reasoning in Rodgers v. Hyatt that §6103 protection does not turn on the confidential or non-confidential status of the information disclosed, but on whether the disclosure was authorized under §6103 . Even if the information at issue had been previously disclosed in a court proceeding between taxpayers and the government, that should not remove the prohibition against government disclosure absent some express authorization.
In any event, because the information at issue in this case had not been previously disclosed, the Court need not reach the issue presented in Rodgers.
1 comment:
Has anyone, anywhere, ever won a 7433 lawsuit, even if they first exhausted their administrative remedies (and who gets to decide that?) and if they did NOT do a "frivilous claim". I cannot find one single entry on the internet where a 7433 claim was granted. Is this type lawsuit just "pie in the sky?" to fool people?
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