Publication 4639 Catalog Number 50891P (Rev. 10-2012) Department of the Treasury Internal Revenue Service www.irs.gov

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Publication 4639 Catalog Number 50891P (Rev. 10-2012) Department of the Treasury Internal Revenue Service www.irs.gov

TABLE OF CONTENTS

To the Reader:................................................................................................................ iii

CHAPTER 1 ................................................................................................................ 1-1

PART I: HISTORY AND OVERVIEW – I.R.C. § 6103 ........................................... 1-1

PART II: CIVIL DAMAGES FOR UNAUTHORIZED INSPECTION AND

DISCLOSURE I.R.C. § 7431 ................................................................ 1-19

PART III: CRIMINAL LIABILITY FOR WILLFUL UNAUTHORIZED

INSPECTION AND DISCLOSURE....................................................... 1-48

CHAPTER 2 ................................................................................................................ 2-1

PART I: DEFINITIONS .......................................................................................... 2-1

PART II: DISCLOSURES TO PERSONS WITH A MATERIAL

INTEREST I.R.C. § 6103(e) ................................................................... 2-9

PART III: DISCLOSURES PURSUANT TO TAXPAYER'S CONSENT

I.R.C. § 6103(c) .................................................................................... 2-19

PART IV: DISCLOSURE OF INFORMATION AVAILABLE IN THE

PUBLIC RECORD................................................................................ 2-28

PART V: DISCLOSURES TO COMMITTEES OF CONGRESS

I.R.C. § 6103(f)..................................................................................... 2-33

PART VI: DISCLOSURES TO PRESIDENT AND CERTAIN

OTHER PERSONS I.R.C. § 6103(g) .................................................... 2-35

CHAPTER 3 TAX ADMINISTRATION DISCLOSURES I.R.C. § 6103(h) .................... 3-1

CHAPTER 4 TAX ADMINISTRATION INVESTIGATIVE DISCLOSURES AND

DISCLOSURES TO CONTRACTORS I.R.C. § 6103(k)(6) AND (n) ................. 4-1

CHAPTER 5 DISCLOSURES FOR NONTAX CRIMINAL PURPOSES

I.R.C. § 6103(i).................................................................................................. 5-1

CHAPTER 6 DISCLOSURE OF RETURNS AND RETURN INFORMATION IN

BANKRUPTCY CASES .................................................................................... 6-1

CHAPTER 7 BANK SECRECY ACT, MONEY LAUNDERING, FORFEITURE

AND RETURN INFORMATION......................................................................... 7-1

CHAPTER 8 FEDERAL/STATE EXCHANGE PROGRAM I.R.C. ' 6103(d)

AND (p)(8)......................................................................................................... 8-1

CHAPTER 9 FREEDOM OF INFORMATION ACT ..................................................... 9-1

CHAPTER 10 LITIGATION PRIVILEGES ................................................................. 10-1

CHAPTER 11 ............................................................................................................ 11-1

PART I: PERSONNEL AND CLAIMANT REPRESENTATIVE MATTERS

I.R.C. § 6103(l)(4)................................................................................. 11-1

PART II: PRIVACY ACT ...................................................................................... 11-5

CHAPTER 12 TESTIMONY AUTHORIZATION ........................................................ 12-1

CHAPTER 13 ............................................................................................................ 13-1

PART I: PUBLIC INSPECTION OF WRITTEN DETERMINATIONS

I.R.C. § 6110 ........................................................................................ 13-1

PART II: CONFIDENTIALITY OF INFORMATION ARISING UNDER

TREATY OBLIGATIONS – I.R.C. § 6105 ........................................... 13-13

PART III: PUBLICITY OF INFORMATION REQUIRED FROM

CERTAIN EXEMPT ORGANIZATIONS – I.R.C. § 6104 .................... 13-16

CHAPTER 14 DISCLOSURE GUIDE FOR TAX-EXEMPT

BOND EXAMINATIONS.................................................................................. 14-1

CHAPTER 15 APPENDICES .................................................................................... 15-1

APPENDIX-1 CONSENT TO DISCLOSURE OF TAX INFORMATION .............. 15-2

APPENDIX-2 CONSENT TO DISCLOSURE OF RETURN INFORMATION....... 15-4

APPENDIX-3 TESTIMONY REPORT AND AUTHORIZATION........................... 15-6

APPENDIX-4 POWER OF ATTORNEY AND DECLARATION OF

REPRESENTATIVE ............................................................................. 15-8

APPENDIX-5 TAX INFORMATION AUTHORIZATION..................................... 15-10

APPENDIX-6 TAX DISCLOSURES .................................................................. 15-14

APPENDIX-7 CURRENT IRS EMPLOYEE TESTIMONY AUTHORIZATION ... 15-16

APPENDIX-8 FORMER IRS EMPLOYEE TESTIMONY AUTHORIZATION ..... 15-18

APPENDIX-9 BOND EXAMINATION - CONSENTS ......................................... 15-20

APPENDIX-10 LINKS........................................................................................ 15-22

To the Reader:

This reference guide updates and replaces the Disclosure Litigation and Reference

Book last revised in 2011. It covers the primary disclosure laws that affect the Internal

Revenue Service (I.R.C. §§ 6103 and 6110, the Freedom of Information Act (FOIA), and

the Privacy Act of 1974), related statutes, and testimony authorization procedures.

Together, these laws represent efforts by the Congress to strike a balance between a

citizen’s expectation of privacy and an open and effective government. Guidance on

legal matters concerning these disclosure laws is provided by the Office of the

Associate Chief Counsel (Procedure & Administration). This office is also responsible

for defending litigation filed pursuant to I.R.C. §§ 6103 and 6110, FOIA, and the Privacy

Act.

Electronic distribution of judicial opinions has provided wide access to decisions that the

issuing courts did not view as important or precedential. Although this guide cites to

"unpublished" cases by reference to the federal reporter’s table citation followed by an

applicable electronic or specialized reporter citation number, court rules often instruct

that decisions a court has affirmatively designated not to be published should not be

cited at all or only under severely limited circumstances. They are included in this guide

to elucidate the courts’ reasoning on the various legal issues outlined herein for which

there is a relatively sparse body of case law. Before you cite a decision that the

deciding court has labeled "unpublished" or "non-precedential" you should consult that

court's rules on this point. We have not cited to multiple reporters when there is more

than one source for an opinion, but the default preference for electronically available

opinions is Westlaw.

Obviously, correct legal advice concerning the matters addressed in this guide depends

upon the facts of each question. This guide was prepared for reference purposes only;

it may not be used or cited as authority for setting or sustaining a legal position.

iii

CHAPTER 1

PART I: HISTORY AND OVERVIEW – I.R.C. § 6103

I. HISTORY OF TAX CONFIDENTIALITY LAWS1

A. Introduction

Except for a few periods in our history, taxpayers’ tax information generally has

not been available to the public – disclosure has been restricted. Congress has

used two basic approaches in determining whether, and under what

circumstances, tax information could be disclosed. Under the first approach,

taken prior to 1977, tax information was considered a "public record," but was

only open to inspection under Treasury regulations approved by the President or

under presidential order. Under this scheme, the Executive Branch essentially

created all the rules regarding disclosure.

By the mid 1970s, there was increased congressional and public concern about

the widespread use of tax information by government agencies for purposes

unrelated to tax administration. This concern culminated with the enactment of

section 6103, passed as part of the Tax Reform Act of 1976. Pub. L. No. 94-455,

90 Stat. 1520 (1976) (Tax Reform Act codified at scattered sections of 7, 26, and

46 U.S.C.). There, Congress eliminated much of the executive discretion

concerning the disclosure of returns or return information. With this second

approach, Congress established a new statutory scheme under which returns

and return information are confidential and not subject to disclosure except to the

extent explicitly provided by the Internal Revenue Code. Although there have

been many amendments to the law since that time, the basic statutory scheme

established in 1976 remains in place today.

B. Publicity of Tax Returns

The history of tax information confidentiality may be traced to the Civil War

Income Tax Act of 1862,2 when tax information was posted on courthouse doors

Much of the information in this chapter was taken from Report on Administrative Procedures of the

Internal Revenue Service, S. Doc. No. 94-266, at 821-1028 (1975); HOWARD M. ZARITSKY, CONG.

RESEARCH SERV., 74- 211A, LEGISLATIVE HISTORY OF TAX RETURN CONFIDENTIALITY: SECTION 6103 OF

THE INTERNAL REVENUE CODE OF 1954 AND ITS PREDECESSORS (1974); Richard F. Janssen, Income

Tax Snooping Through History, W ALL ST. J., May 6, 1970, at 18; and Mitchell Rogovin, Privacy and

Income Tax Returns, W ASH. POST, Oct. 13, 1974, at C4.

Act of July 1, 1862, ch. 109, 12 Stat. 432, 437. Ambiguities in that provision regarding public

inspection led Congress, in 1864, to explicitly permit public inspection of the assessment list:

It shall be the duty of the assessor . . . to submit the proceedings of the assessors . . . and the

annual lists taken and returned as aforesaid, to the inspection of any and all persons who may

apply for that purpose. (continued on next page)

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and sometimes published in newspapers to promote taxpayer surveillance of

neighbors. For the next 70 years, there was debate in Congress as to the effect

of public disclosure on the tax system and to societal interests in general.

1. 1866 - 1913

In 1866, Congress debated prohibiting publication of assessment lists in

the newspapers, but the proposal failed principally because many

congressmen believed that publication of the assessed tax would assist in

preventing tax fraud.

In 1870, the Commissioner prohibited newspaper publication of the annual

list of assessments, but the list itself remained available for public

inspection.3 The Revenue Act of 1870 confirmed this directive.4 Two

years later, in part because of problems stemming from publicity of tax

returns, the income tax law was allowed to expire. When the income tax

was reinstated by the Revenue Act of 1894, Congress affirmatively

prohibited both the printing and the publishing in any manner of any

income tax return unless otherwise provided by law, and provided criminal

sanctions for unlawful disclosure.5 In 1895, the Supreme Court declared

the income tax unconstitutional in Pollock v. Farmers’ Loan and Trust Co.,

157 U.S. 429 (1895). After this decision, according to one commentator,

the cause of confidentiality received its ultimate victory, the burning of all

tax returns.

It was not until the enactment of the Payne-Aldrich Tariff Act of 1909,6

which imposed a special excise tax on corporations, that the question of

tax return publicity was raised anew. Paragraph six of section 38 of that

Act seemed to provide that corporate returns were fully public, but

paragraph seven imposed a penalty for the disclosure of any information

obtained by a U.S. employee in the discharge of his duties.7 The

Act of June 30, 1864, ch. 173, 13 Stat. 218, 228.

Circular Letter to Assessors-Publication of the Annual list of Assessment on Income Returns to be

Discontinued, Internal Revenue Record and Customs Journal, Vol. XI, Number 15 (Apr. 5, 1870).

Act of July 14, 1870, ch. 255, 16 Stat. 256, 259.

Income Tax Act of August 15, 1894, ch. 349, 28 Stat. 509.

Act of August 5, 1909, 36 Stat. 11,116.

Section 38 of the legislation read, in part, as follows:

Sixth. When the assessment shall be made, as provided in this section, the returns,

together with any corrections thereof which may have been made by the Commissioner,

shall be filed in the office of the Commissioner of Internal Revenue and shall constitute

public records and be open to inspection as such.

Seventh. It shall be unlawful for any collector, deputy collector, agent, clerk, or other officer or

employee of the United States to divulge or make known in any manner (continued on next page)

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legislative history does little to illuminate these apparently conflicting

provisions. Since, however, the Payne-Aldrich legislation did not provide

any funds for the examination of returns filed pursuant to the Act, it

became necessary, in 1910, to appropriate them. During the debate on

the Appropriations Act of 1910, considerable light was shed upon the

congressional intention behind the 1909 legislation.

The prevailing opinion was that paragraph six of the 1909 legislation was

intended to make corporate tax returns "public records," that were open to

public inspection.8 Many believed that public inspection of corporate tax

returns would be of great assistance in the supervision and control of

corporate entities. There was considerable fear of the power of

corporations at that time.

The contrary minority view acknowledged that the 1909 legislation made

tax returns public documents. However, paragraph seven of the law made

it a criminal offense for any government officer or employee to release

material contained in these public documents without special instruction

from the President. If, the argument proceeded, the public access granted

by paragraph six had been entirely unfettered, paragraph seven would not

have imposed criminal sanctions for divulging information without the

President's consent. This illogical result was taken to mean that tax

returns had not been opened to indiscriminate public inspection but only to

persons having a proper interest in the returns.9

Although there was disagreement over what was intended by the 1909

legislation, it was universally conceded that it altogether failed to open

corporate returns to the public. Some blame this result on poor

draftsmanship. Others thought the failure lay in the lack of an

appropriation to provide clerks to do the publicizing. At any rate, a

majority did conclude that another approach was necessary. An

amendment to the provision in the 1910 Appropriations Act resulted.

whatever not provided by law to any person any information obtained by him in the discharge of

his official duty, or to divulge or make known in any manner not provided by law any document

received, evidence taken, or report made under this section except upon the special direction of

the President; and any offense against the foregoing provision shall be a misdemeanor and be

punished by a fine not exceeding one thousand dollars, or by imprisonment not exceeding one

year, or both, at the discretion of the court. (Emphasis added).

“The truth is, however, that the intention was to provide complete publicity of the returns made by

these corporations.” 45 CONG. REC. 4137 (1910) (Comments of Rep. Fitzgerald).

“It will be noted that the law does not provide the returns shall be subject to public inspection, but

that the returns shall become public records and open to inspection as such . . . the mere branding of

these instruments as public records did not carry with it the right of indiscriminate public inspection.”

45 CONG. REC. 4136 (1910) (Comments of Rep. Smith).

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The 1910 legislation, which appropriated funds for the necessary

classifying, indexing, and processing of corporate returns, also stated:

[A]ny and all such returns shall be open to inspection only upon the

order of the President under rules and regulations to be prescribed

by the Secretary of the Treasury and approved by the President.10

The debate surrounding the 1910 Act plainly indicates that Congress

intended by the quoted provision to back away from the fully "public"

treatment of corporate returns. Some Congressmen argued for full

publicity, as opposed to publicity only at the whim of the Administration, as

provided by the bill. The majority, however, chose the approach that

returns would be made public only on the order of the President.

Left standing from the 1909 Act was the notion that returns constitute

"public records" open to public inspection. The 1910 effort to revise

congressional intent merely added on the seemingly contradictory and

confusing concept that these "public" records would be available only

upon order of the President.

2. Income Tax Law of 1913

Even though the 1910 Act had two rather inconsistent threads, Congress

wove both of them into the Income Tax Law of 1913. In pertinent part, it

provided:

(G)(d) When the assessment shall be made, as provided in this

section, the returns, together with any corrections thereof which

may have been made by the Commissioner, shall be filed in the

office of the Commissioner of Internal Revenue and shall constitute

public records and be open to inspection as such: Provided, that

any and all such returns shall be open to inspection only upon the

order of the President, under rules and regulations to be prescribed

by the Secretary of the Treasury and approved by the President.11

The 1913 Congress thereby merged the mismatching philosophies from

the 1909 Act and the 1910 amendment. Although there was, through the

years, some change in language, the basic pattern adopted in 1913

remained part of the law until 1976.

Act of June 17, 1910, ch. 197, 36 Stat. 468, 494.

Income Tax Law of 1913, Pub. L. No. 63-13, II(G)(d), 28 Stat. 114, 72.

1-4

3. 1913 - 1976

The enactment of each revenue act subsequent to 1913 was, at least

through 1934, accompanied by debate on the question of whether

individual and corporate returns should be made fully public. Two main

arguments were made in favor of making tax returns public:

1. publicity in the affairs of businesses generally is appropriate and

would serve to end improper trade policies, business methods,

and conduct; and

2. publicity would assure fuller and more accurate reporting by

taxpayers.

The proponents of full disclosure obtained their fundamental philosophy

from a speech by former President Benjamin Harrison who, before the

Union League Club of Chicago in 1898, stated:

Each citizen has a personal interest, a pecuniary interest in the tax

return of his neighbor. We are members of a great partnership, and

it is the right of each to know what every other member is

contributing to the partnership and what he is taking from it.12

The other point of view, consistently taken over the years by the

Department of the Treasury, opposed the publicity of tax information.

Secretary of the Treasury Andrew Mellon articulated this position when he

stated that:

While the government does not know every source of income of a

taxpayer and must rely upon the good faith of those reporting

income, still in the great majority of cases this reliance is entirely

justifiable, principally because the taxpayer knows that in making a

truthful disclosure of the sources of his income, information stops

with the government. It is like confiding in one's lawyer.13

Secretary Mellon later suggested:

There is no excuse for the publicity provisions except the

gratification of idle curiosity and filling of newspaper space at the

time the information is released.14

Mitchell Rogovin, Privacy and Income Tax Returns, W ASH. POST (Oct. 13, 1974), at C4.

Hearings on Revenue Revision Before the House Ways and Means Comm., 69th Cong. 8-9 (1925).

S. REP. NO. 94-266, at 1039 n.51 (citing Hearings on Revenue Revision Before the House Ways

and Means Comm., 69th Cong. 8-9 (1925)).

1-5

The proponents of full disclosure had a limited victory in 1924. The

Revenue Act of 1924 provided that the Commissioner would:

as soon as practicable in each year cause to be prepared and

made available to public inspection . . . lists containing the name

and . . . address of each person making an income tax return . . .

together with the amount of income tax paid by such person.15

As a result of the 1924 Act, newspapers devoted pages to publishing the

taxes paid by taxpayers, and the right of newspapers to publish these lists

was upheld by the Supreme Court.16 The Revenue Act of 1926, however,

removed the provision requiring that the amount of tax be made public

while leaving the requirement that a list be published containing the name

and address of each person making an income tax return.17

In 1934, after a widely publicized income tax evasion scandal, Congress

enacted another form of limited disclosure. The Revenue Act of 1934

contained a provision for the mandatory filing of a so-called "pink slip" with

the taxpayer's return.18 The pink slip was to set forth the taxpayer's gross

income, total deductions, net income and tax payable. The pink slip was

to be open to public inspection. Fueled by images of kidnappers sifting

through pink slips looking for worthwhile victims, the provision was

repealed even before it took effect.19

From 1934 until 1976 there was no substantial change in the statute

respecting the disclosure of tax returns. The pre-1976 statute was thus

very much the product of the 1909 and 1910 legislation, continuing with

the oddity of "public" records only open to inspection under regulations or

orders of the President.

C. Disclosure to Government Agencies

Although corporate returns were, in 1910, made available to the public, as well

as to other government agencies, individual returns were kept within Treasury

until 1920. In 1920, individual returns joined corporate returns as being generally

available to federal agencies.20 The 1930s saw a new trend of more general

Act of June 2, 1924, ch. 234, 43 Stat. 253, 293. One news article reported that in 1924, within 24

hours after it was announced that tax lists were ready for inspection, Internal Revenue officers

throughout the country were besieged by applications from promoters, salespeople, and advertisers.

U.S. v. Dickey, 268 U.S. 378 (1925).

Act of Feb. 26, 1926, ch. 27, 44 Stat. 9, 51-52.

Revenue Act of 1934, ch. 277, 48 Stat. 680, 698.

Act of April 19, 1935, ch. 74, 49 Stat. 158.

T.D. 2961, 2 C.B. 249 (1920).

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access being granted to specific agencies as well as to congressional

committees. The 1940s, 1950s, and 1960s were marked by almost unrestrained

growth in the use of tax returns by government agencies. During this time, tax

returns became a generalized governmental asset. The public, however, was

denied access.

D. Summary 1866 - 1970

This history of disclosure reveals the existence of a statute that, in all significant

respects, went unchanged since 1910. Thus, the story is one of the exercise of

discretion granted by a Congress unwilling to define precisely the policy to be

followed. Having ceded discretion to the President and an agency headed by his

designee, the expanded uses of tax information was not surprising. Indeed, it

would have been unrealistic to expect the President to resist agency arguments

for access to more information on which to base important decisions even though

such information might be neither necessary nor used for their originally intended

purposes.

E. Developments in the 1970s

By the mid 1970s, Congress became increasingly concerned about the

disclosure and use of information gathered from and about citizens by federal

agencies.21 The events leading to the revision of the tax disclosure laws in 1976

can, however, be directly traced to Executive Orders 1169722 and 11709,23

issued by President Richard M. Nixon authorizing the Department of Agriculture

to inspect the tax returns of all farmers “for statistical purposes.”

In 1973, two subcommittees of the House of Representatives held hearings

regarding the Department of Agriculture's need for the tax data disclosed under

the authority of the two executive orders.24 During these hearings, sentiments

against the orders were expressed. Officers of the Department of Justice

testified that the two orders were prototypes for future orders opening other tax

returns to inspection by other agencies. Responding to the adverse sentiment

This concern led directly to the enactment of the Privacy Act of 1974, 5 U.S.C. § 552a.

Inspection by Department of Agriculture of Income Tax Returns Made Under the Internal Revenue

Code of 1954 of Persons Having Farm Operations, 38 Fed. Reg. 1723 (Jan. 18, 1973).

Inspection by Department of Agriculture of Income Tax Returns Made Under the Internal Revenue

Code of 1954 of Persons Having Farm Operations, 38 Fed. Reg. 8131 (Mar. 29, 1973) (superseding

Exec. Order No. 11,697, narrowing the scope of the return information to be made available to the

Department of Agriculture).

Hearings on Executive Orders 11697 and 11709 Permitting Inspection by the Department of

Agriculture of Farmers’ Income Tax Returns Before House Subcomm. on Foreign Operations and

Government Information of Comm. on Government Operations, 93rd Cong. (1973).

1-7

expressed in these hearings, the President revoked both with Executive Order

11773 on March 21, 1974.25

Concern over tax return confidentiality remained after revocation of the two

executive orders. The Senate Select Committee on Presidential Campaign

Activities (Watergate Committee) hearings revealed that former White House

counsel John Dean had sought from the IRS political information on so-called

"enemies." Furthermore, it was disclosed that the White House actually was

supplied with information about IRS investigations of Howard Hughes and

Charles Rebozo. The Committee noted that tax information and income tax

audits were commonly requested by White House staff and supplied by IRS

personnel.

The House Judiciary Committee investigating the possible impeachment of

President Nixon learned of the apparently unauthorized use of IRS tax data by

the President. One of the Articles of Impeachment proposed by the Judiciary

Committee alleged that President Nixon had:

endeavored to obtain from the Internal Revenue Service, in violation of the

constitutional rights of citizens, confidential information contained in

income tax returns for purposes not authorized by law.26

Congressional interest in tax return confidentiality also manifested itself in 1974

when, as part of the Privacy Act of 1974, Congress ordered the newly

established Privacy Protection Study Commission to report to the President and

Congress, and suggest restrictions on the disclosure of federal income tax

information. This report, issued on June 9, 1976, recommended major changes

in the disclosure of tax data. On June 10, 1976, the Senate Finance Committee

issued its report on H.R. 10612, the Tax Reform Act of 1976, in which it, too,

proposed substantial revisions in the rules governing tax return confidentiality.27

The Committee's proposal dealt with the same general issues as had the Privacy

Protection Study Commission, but it resolved them differently. With few technical

changes, the Conference Committee on H.R. 10612 adopted the Senate Finance

Committee's version of the tax confidentiality rules as part of the Tax Reform Act

of 1976.28

Revoking the Authority of the Department of Agriculture To Inspect Income Tax Returns, 39 Fed.

Reg. 10881 (Mar. 22, 1974).

REPORT ON THE IMPEACHMENT OF RICHARD M. NIXON, PRESIDENT OF THE UNITED STATES, H.R. REP.

NO. 93-1305, at 3 (1974).

S. REP. NO. 94-938 at 315-49, 1976-3 C.B. (Vol. 3) 353-87.

Pub. L. No. 94-455, 90 Stat. 1520 (1976).

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II. PRINCIPAL AREAS OF REVISION IN THE TAX REFORM ACT OF 1976

A. Congressional Philosophy Behind the 1976 Amendments to

I.R.C. § 6103

Congress recognized that the IRS had more information about citizens than any

other federal agency and that other agencies routinely sought access to that

information. Congress also understood that citizens reasonably expected the

IRS would protect the privacy of the tax information they were required to supply.

If the IRS abused that reasonable expectation of privacy, the resulting loss of

public confidence could seriously impair the tax system.

Although Congress felt that the flow of tax information should be more tightly

regulated, not everyone agreed where the lines should be drawn. The debates

on accessibility were most heated in the area of nontax criminal law

enforcement. One side, led by Senator Long, sought more liberal access rules in

order to fight white collar crime, organized crime, and other violations of the law.

This side felt "the Justice Department is part of this Federal Government. It is all

one Government.” The other side, led by Senator Weicker, wanted very

restrictive rules. This side recognized that it was cheaper and easier for Justice

to come directly to the IRS, but they also believed that when citizens made out

their tax returns, they made them out for the IRS and no one else.

Ultimately, Congress amended section 6103 to provide that tax returns and

return information are confidential and are not subject to disclosure, except in the

limited situations delineated by the Internal Revenue Code. In each area of

authorized disclosure, Congress attempted to balance the particular office or

agency's need for the information with the citizen's right to privacy, as well as the

impact of the disclosure upon continued compliance with the voluntary tax

assessment system.29 In short, Congress undertook direct responsibility for

determining the types and manner of permissible disclosures.

B. Structure of Tax Information Confidentiality Provisions

The Tax Reform Act of 1976 created a comprehensive statutory scheme for the

disclosure and use of tax returns and return information. The four basic parts to

this statutory scheme are:

• The general rule of section 6103(a) making tax returns and return

information confidential except as expressly authorized in the Code.

Definitions of key terms, such as return and return information, are in

section 6103(b).

General Explanation of the Tax Reform Act of 1976, H.R. 10612, Pub. L. No. 94-455 (JCS-33-76),

at 313-16 (J. Comm. Print 1976), 1976-3 C.B. (Vol. 2) 325-28.

1-9

• The exceptions to the general rule, detailing permissible disclosures.

I.R.C. § 6103(c) – (o).

• Technical, administrative, and physical safeguard provisions to prohibit

recipients of returns or return information from using or disclosing the

information in an unauthorized manner, and accounting, recordkeeping,

and reporting requirements that detail the purposes for which certain

disclosures were made to assist in congressional oversight. I.R.C.

§ 6103(p).

• Criminal penalties, including a felony for the willful unauthorized disclosure

of returns or return information and a civil cause of action for the taxpayer

whose information has been inspected or disclosed in a manner not

authorized by section 6103. I.R.C. §§ 7213 (criminal penalty for

unauthorized disclosure) and 7431 (civil damages provision).30

C. Summary of Disclosure Issues in Tax Reform Act of 1976

The remainder of this reference guide describes the various disclosures

permitted within the statutory framework of the Code. Below is a summary of

some of the major issues Congress addressed in the 1976 Act.

1. Congress

Even though Congress, particularly its tax writing committees, requires

access to returns or return information in certain instances to carry out its

legislative responsibilities, it decided it could continue to meet these

responsibilities under more restrictive disclosure rules than those provided

under pre-1976 law.

The Ways and Means Committee, the Finance Committee, and the Joint

Committee on Taxation (JCT), can have access upon the written request

of their respective chairmen or the Chief of Staff of the JCT. The nontax

committees may be furnished returns or return information upon (1) a

committee action approving the decision to request such returns, (2) an

authorizing resolution of the House or Senate, as the case may be, and

(3) the written request by the chairman of the committee on its behalf for

disclosure of the information.

The Taxpayer Browsing Protection Act of 1997 created a misdemeanor for the unauthorized

inspection of returns or return information (section 7213A). In addition, in 1996, Public Law 104-294

provided that the unauthorized access of returns or return information in government computer files is

a felony under 18 U.S.C. § 1030(a)(2)(B). Pub. L. No. 104-294, 110 Stat. 3488 (1996). See generally

Chapter 1, Part III of this guide.

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Taxpayers sometime write to a member of Congress with a tax question or

problem they are having with the IRS. The member of Congress or other

person generally forwards such letters to the IRS and requests that the

IRS response be made directly to him or her.

Members of Congress in their individual capacity are entitled to no greater

access to returns or return information than any other person inquiring

about the tax affairs of a third party. Disclosure of returns or return

information to a taxpayer's designee, including a member of Congress

inquiring on behalf of a constituent, may be made only in accordance with

section 6103. Generally, section 6103 provides that returns and return

information are protected from disclosure unless a request or authorization

is obtained from the taxpayer. Chapter 4 of the IRM section on Disclosure

of Official Information, IRM 11.3.4, contains further instructions concerning

disclosures in response to congressional inquiries. See also Chapter 2,

Part III.

2. White House

The IRS may disclose returns or return information to the President and/or

to certain named employees of the White House upon the written request

of the President, signed by the President personally. A request must

specify, among other things, the reason disclosure is requested. The

President (or a duly authorized representative of the Executive Office) and

the head of a federal agency also may make a written request for a "tax

check" with respect to prospective appointees.

The White House is required to report quarterly to Congress regarding the

disclosures of returns or return information made to it. Similarly, federal

agencies are required to report on tax checks.

3. Nontax Civil Cases

Section 6103 generally prohibits the disclosure of returns and return

information to the Department of Justice (DOJ) or other enforcement

agencies in nontax civil cases.

4. Government Accountability Office (GAO)

Section 6103 authorizes the GAO (formerly the General Accounting

Office) to inspect returns and return information to the extent necessary in

conducting any audit of the IRS, the Bureau of Alcohol, Tobacco,

Firearms, and Explosives, DOJ, or the Tax and Trade Bureau, Department

of the Treasury which may be required by section 713 of Title 31, United

States Code, as proposed by section 117 of the Budget and Accounting

Procedures Act of 1950. Congress intended that GAO examine returns

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and return information only for the purpose of, and to the extent necessary

to serve as a reasonable basis for, evaluating the effectiveness, efficiency

and economy of IRS operations and activities. Congress did not intend

that GAO would superimpose its judgment upon that of the IRS in specific

tax cases.

Section 6103 allows GAO to have access to returns or return information

in the possession of any federal agency when it is auditing an agency

program or activity involving the use of returns and return information.

Furthermore, under certain circumstances, GAO may access returns or

return information that a federal agency could have requested for nontax

administration purposes.

GAO is to notify the JCT in writing of the subject matter of a planned audit

and any plans for inspection of tax returns. GAO can proceed with its

audit unless the JCT, by a two thirds vote of its members, vetoes the audit

plan within 30 days of receiving written notice of the proposed audit.

Section 6103 also authorizes GAO to review and evaluate federal and

state agencies’ compliance with the requirements for the use and

safeguarding of returns and return information received from the IRS.

Finally, GAO may access returns or return information when it audits IRS

operations as an agent of the tax writing committees.

5. Inspector General

In the Internal Revenue Service Restructuring and Reform Act of 1998,

Congress created the Office of Treasury Inspector General for Tax

Administration (TIGTA), and invested it with all the duties and

responsibilities of the former Office of the Chief Inspector. Pursuant to

section 6103(h)(1), TIGTA officers and employees whose official tax

administration duties require access to returns and return information may

access such information in the same manner accorded to other Treasury

employees. No written notice of intent to access is required for TIGTA to

obtain information.

6. Statistical Use

Congress recognized the importance of returns and return information for

other federal agencies’ statistical and research functions. Congress

decided that returns and return information should be available for

statistical use by certain agencies other than the IRS because there did

not appear to be any real likelihood that the use of such information by

these agencies would, under the procedures and safeguards provided for

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by section 6103, result in an abuse of the privacy or other rights of

taxpayers.

7. Disclosures for Federal Programs

Section 6103 permits limited disclosures to a number of agencies in

defined situations where returns and return information are directly related

to programs administered by the agency in question, including the Social

Security Administration, the Railroad Retirement Board, the Department of

Labor, and the Pension Benefit Guaranty Corporation. Provisions are also

made for disclosures to verify income eligibility for certain programs,

refund offsets for child support cases, certain unemployment

compensation cases, and federal debt collection purposes. Additionally,

the Internal Revenue Service Restructuring and Reform Act of 1998

amended section 6103(l) by adding section 6103(l)(17), which requires the

IRS to disclose section 6103 protected records to officers and employees

of National Archives and Records Administration (NARA), upon written

request of the Archivist of the United States, for purposes of the appraisal

of such records for destruction or retention. See Pub. L. No. 105-206, 112

Stat. 685 (1998). Such tax data may not be open to the public, however.

8. Federal Nontax Crimes and Terrorism

In 1976, Congress significantly changed the circumstances under which

tax information could be shared with, and used by, Federal law

enforcement agencies. Believing that the information taxpayers were

compelled by the tax laws to disclose to IRS was entitled to the same

degree of privacy as information maintained in the taxpayers’ homes,

Congress imposed a court order mechanism in order for Federal criminal

law enforcement agencies to access returns or return information that was

furnished to the IRS by taxpayers or their representatives. For return

information that was obtained from other sources, a written request would

suffice and provisions were also made to allow IRS to share such return

information on its own initiative to apprise Federal criminal law

enforcement agencies of possible crimes.

After enactment of the Patriot Act in September 2001, Congress

recognized the need to permit the IRS to share tax information not only

with Federal criminal law enforcement agencies, but also with intelligence

agencies, both for purposes of punishing violators and detecting and

preventing terrorist activities. The mechanisms for the disclosure of

returns and return information for anti-terrorism purposes include the

same court-order and written request processes that are used for Federal

nontax criminal law enforcement, except Congress also gave the IRS the

authority to initiate the ex parte court order process. Victims of Terrorism

Tax Relief Act of 2001, Pub. L. No. 107-134, § 201, 115 Stat. 2427 (2001);

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Tax Extenders and Alternative Minimum Tax Relief Act of 2008, Pub. L.

No. 110-343, Div. C, Title IV, § 402(a) and (b), 122 Stat. 3765.

9. Recordkeeping (Accounting)

Section 6103 requires the IRS to maintain a standardized system of

permanent records about the use and disclosure of returns and return

information. This includes copies of all requests for inspection or

disclosure of returns and return information and a record of all inspections

and disclosures of such information. The recordkeeping requirements do

not apply in certain situations, including disclosures to: the general public

(accepted offers in compromise, the amounts of outstanding tax liens,

etc.); Treasury (including IRS) employees or DOJ for tax administration

and tax litigation purposes; persons with a material interest; persons upon

the taxpayer's written consent; the media (taxpayer identity information for

unclaimed refunds); and contractors that perform tax administration

functions.

In addition to the recordkeeping requirements imposed on the IRS, section

6103 provides generally (with limited exceptions) that each federal and

state agency that receives returns or return information is required to

maintain a standardized system of permanent records about the use and

disclosure of that information. Maintaining such records is a prerequisite

to obtaining and continuing to receive returns or return information.

10. Safeguards

Section 6103 provides that the IRS may not furnish returns and return

information to another agency unless that agency establishes procedures

satisfactory to the IRS for safeguarding the returns or return information it

receives. Disclosure to other agencies is conditioned on the recipient:

maintaining a secure place for storing the information; restricting access to

the information to people to whom disclosure can be made under the law;

restricting the use of the information to the purpose for which it was

provided; providing other safeguards necessary to keeping the information

confidential; and, returning or destroying the information when the agency

is finished with it. The IRS must review, on a regular basis, safeguards

established by other agencies.

If there are any unauthorized disclosures by employees of the other

agency, the IRS may discontinue disclosures of returns or return

information to that agency until it is satisfied that the agency took

adequate protective measures to prevent a repetition of the unauthorized

disclosure. In addition, the IRS may terminate disclosure to any agency if

the IRS determines that adequate safeguards are not being maintained by

the agency in question.

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11. Reports to Congress

Because the use of returns or return information for purposes other than

tax administration resulted in serious abuses of the rights of taxpayers in

the past, and because the potential for abuse necessarily exists in any

situation in which returns or return information is disclosed for purposes

other than the administration of the federal tax laws, Congress believed

that it must closely review the use of returns and return information and

the extent to which taxpayer privacy is being protected. In order to permit

that review, Congress requires the IRS to make comprehensive annual

reports to the JCT as to the use of returns and return information.

Specifically, section 6103 requires the IRS to make a confidential report to

the JCT each year on all requests (and the reasons therefor) received for

disclosure of returns and return information. The report must include a

section for public dissemination that includes a listing of all agencies that

received returns and return information, the number of instances in which

the IRS made disclosures to them during the year, and the general

purposes for which the agencies made the requests. In addition, the IRS

is required to file a quarterly report with the tax committees regarding

procedures and safeguards followed by recipients of returns and return

information.

12. Enforcement

Congress concluded that the prior provisions of law designed to enforce

the rules against improper disclosure were inadequate, and that the

penalties should be increased.

In section 6103(a), Congress explicitly applied the prohibition against

disclosure to present and former officers and employees of the United

States, and to certain other designated individuals.

Congress amended section 7213 to make a willful violation of the

disclosure rules a felony, with a fine up to $5,000, and up to five years

imprisonment. See United States v. Richey, 924 F.2d 857 (9th Cir. 1991);

In re Seper (United Liquor Co. v. Gard), 705 F.2d 1499 (9th Cir. 1983);

Reporters Comm. for Freedom of the Press v. Am. Tele. and Tele. Co.,

593 F.2d 1030 (D.C. Cir. 1978). In 1996, Congress amended 18 U.S.C.

§ 1030(a)(2) to make the unauthorized access of government computers a

felony, amended by Pub. L. No. 104-294, 110 Stat. 3488. This provision

includes the unauthorized access of returns or return information in

government computer files. In 1998, Congress enacted section 7213A to

specifically make the unauthorized inspection of returns or return

information, whether in paper or computer files, a misdemeanor. See

Pub. L. No. 105-206, 112 Stat. 711 (1998).

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Before 1982, section 7217 provided civil remedies against individual

employees for unauthorized disclosures of returns or return information.

Because these remedies stifled some legitimate federal conduct,

Congress amended the law and enacted section 7431 establishing a civil

remedy against the United States for any taxpayer damaged by an

unlawful disclosure of returns or return information by federal employees

(codified as amended at 26 U.S.C. § 7431). Because of the difficulty in

establishing actual monetary damages sustained by aҏ taxpayer as the

result of the invasion of privacy caused by an unlawful disclosure of

returns or return information, section 7431 provides for liquidated

damages of $1,000 for each unauthorized disclosure. In the alternative,

liability extends to actual damages plus court costs. The statute also

provides for punitive damages in addition to actual damages in situations

where the unlawful disclosure is willful or is the result of gross negligence.

The law does not provide a remedy for a disclosure or inspection of

returns or return information made at the request of the taxpayer or

pursuant to a good faith, but erroneous, interpretation of the confidentiality

rules. Instead, a disclosure or inspection giving rise to civil liability is

limited to situations where the unauthorized disclosure or inspection

results from a willful or negligent failure of the person to comply with the

law.

13. Miscellaneous Disclosure Authority31

Section 6103(a) prohibits the disclosure of returns and return information

except to the extent specifically authorized by section 6103, or other

sections of the Code. Examples of other sections of the Code that

regulate the disclosure of returns or return information in certain

circumstances include:

• 274(h)(6) - Caribbean Basin exchange agreements

• 3406 - backup withholding

• 4424 - wagering tax information

• 6104 - exempt organizations and employee plans information

• 6105 - tax convention information

• 6108 - statistical studies

Many of these Code sections were added either before or after the Tax Reform Act of 1976.

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• 6110 - written determinations (letter rulings, determination letters,

technical advice memoranda, and Chief Counsel advice)

• 6323(f) - notice of federal tax lien

• 7461 - publicity of Tax Court proceedings

See also Chapter I, Part II, Section VI.

III. SECTION 3802 OF THE IRS RESTRUCTURING AND REFORM ACT

Section 3802 of the IRS Restructuring and Reform Act (RRA 98) mandated that the

Treasury Department and the JCT conduct studies on the provisions regarding taxpayer

confidentiality. The studies were to examine the present protections for taxpayer

privacy, any need for third parties to use returns or return information, whether

publicizing the names of persons who are legally required to file tax returns but who do

not do so would achieve greater levels of voluntary compliance, and the

interrelationship between the Freedom of Information Act (FOIA) and section 6103. The

JCT published its study on January 28, 2000. STAFF OF THE JOINT COMMITTEE ON

TAXATION, 106TH CONG., STUDY OF PRESENT-LAW TAXPAYER CONFIDENTIALITY AND

DISCLOSURE PROVISIONS AS REQUIRED BY SECTION 3802 OF THE INTERNAL REVENUE

SERVICE RESTRUCTURING AND REFORM ACT OF 1998, JCS-1-00 NO.1, 2 AND 3 (Comm.

Print 2000) (http://www.jct.gov/publications). Treasury published its study on

October 2, 2002, and it is available on the Department of Treasury website at

http://www.treasury.gov/resource-center/tax-policy/Documents/confide.pdf. These were

the first comprehensive reviews of the Code disclosure provisions since the 1976

amendments. Both studies generally endorsed the structure and approach of the

current statute, but differed most significantly on the role of contractors’ receipt and use

of returns and return information.

IV. CONCLUSION

A distinguishing characteristic and, indeed, one of the strengths of American tax

administration, is the self assessment feature of the system. Employees of the Office of

Chief Counsel and the IRS must be constantly aware that in fostering this system, there

must be public confidence with respect to the confidentiality of personal and financial

information given to us for tax administration purposes.

Thus, we must administer the disclosure provisions of the internal revenue laws in

accordance with the spirit and intent of the law, ever mindful of this public trust. The law

makes the confidential relationship between the taxpayer and the IRS quite apparent.

By the single act of filing a tax return, a record is created and also a trust. We are

responsible for maintaining both.

There is probably no other government agency having as much contact with as many

citizens as the IRS in the course of carrying out its responsibility of collecting the

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revenue. As a result, a vast majority of our records are confidential in the very real

sense that they represent information the American people have provided to their

government in confidence. The confidential nature of these records requires that each

request for information be evaluated in the light of a considerable body of law and

regulations that either authorize or prohibit disclosure. The diversity of our records, the

size of our organization, and the complexity of our operations, all contribute to the

issues we must consider when performing our official duties.

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PART II: CIVIL DAMAGES FOR UNAUTHORIZED INSPECTION

AND DISCLOSURE

I.R.C. § 7431

I. CAUSE OF ACTION

A. Background

As discussed in Part I, in 1982, section 7431 replaced section 7217. The

purpose of this amendment was to substitute the United States, rather than

individual employees, as the proper defendant in an unauthorized disclosure

action arising from the conduct of a federal employee. See below, Section V., A.,

“Proper Party”.

In 1997, section 7431 was amended by the Taxpayer Browsing Protection Act to

specifically make damages available for the unauthorized inspection of returns

and return information. See Pub. L. No. 105-35, 111 Stat. 1104 (1997). The Act

also added subsection 7431(b)(2), which provides for a good faith defense when

inspection or disclosure is requested by the taxpayer and subsection 7431(e),

which requires the notification of the taxpayer when any person is criminally

charged by indictment or information with the offenses of unauthorized inspection

or disclosure of that taxpayer's return or return information in violation of section

7213(a), section 7213A, or 18 U.S.C. § 1030(a)(2)(B).

B. Elements of Claim

For a taxpayer to prevail under section 7431(a)(1), he must demonstrate that an

unauthorized inspection or disclosure of his returns or return information was

made by an officer or employee of the United States, the inspection or disclosure

was made knowingly or negligently, and that the inspection or disclosure was

made in violation of section 6103. Christensen v. United States, 733 F. Supp.

844, 848 (D.N.J. 1990), aff'd, 925 F.2d 416 (3d Cir. 1991) (table cite); Flippo v.

United States, 670 F. Supp. 638, 641 (W.D.N.C. 1987), aff'd mem., 849 F.2d 604

(4th Cir. 1988) (table cite).

1. Sharer v. United States, No. Civ. S-98-0116EJG/JFM, 1999 WL

671010, at *2 (E.D. Cal. Feb. 12, 1999) (plaintiff bears burden of

proving unauthorized disclosure of return information).

2. Tobin v. Troutman, No. Civ. A 3: 98-CV-663-H, 1999 WL 501004, at *45 (W.D. Ky. June 8, 1999) (plaintiff failed to state a claim under section

7431 where the information allegedly inspected was retained copies of

the taxpayer’s returns and workpapers in the taxpayer’s home (citing

Stokwitz v. United States, 831 F.2d 893 (9th Cir. 1987), cert. denied,

485 U.S. 1033 (1988), court ruled the information was not return

information because it had not been received by the IRS)).

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3. Weiner v. IRS, 789 F. Supp. 655, 656 (S.D.N.Y. 1992) (plaintiff must

show: (1) that the disclosure was unauthorized; (2) that the disclosure

was made knowingly or by reason of negligence; and, (3) that the

disclosure was in violation of section 6103), aff'd, 986 F.2d 12 (2d Cir.

1993).

4. Wilkerson v. United States, 67 F.3d 112, 115 (5th Cir. 1995) (section

7431 claim requires plaintiff to prove that the IRS disclosed confidential

tax return information either knowingly or negligently and that this

disclosure was not authorized by section 6103).

Note: The analysis for determining whether an unauthorized

disclosure has occurred is as follows:

a. Was there a disclosure of returns or return information? See

Baskin v. United States, 135 F.3d 338, 342-43 (5th Cir. 1998)

(IRS special agent's possession and transfer of data to the local

police while on temporary assignment to the grand jury did not

make the data disclosed "return information" for purposes of

section 6103); Stokwitz v. United States, 831 F.2d at 896

(disclosure of the taxpayer’s retained copies of returns did not

violate section 6103 because the returns did not pass through

the IRS).

b. Was the return or return information disclosed that of the

plaintiff/taxpayer? See Section V., I., “Standing,” below.

c. Was the disclosure authorized by some provision in Title 26?

d. Was the disclosure made knowingly or negligently? See Weiner

v. IRS, 789 F. Supp. 655, 656 (S.D. N.Y. 1992) (to hold IRS

liable for disclosure through levy resulting from computer error

would hold IRS to higher standard than Congress intended in

enacting statute); Messinger v. United States, 769 F. Supp. 935,

940 (D. Md. 1991) (mere showing of unauthorized disclosure

insufficient to demonstrate negligence) rejecting Husby v. United

States, 672 F. Supp. 442 (N.D. Cal. 1987) (which held that the

fact that an unauthorized disclosure was made is prima facie

case for section 7431); Christensen v. United States, 733 F.

Supp. 844, 854 (D. N.J. 1990) (disclosure resulting from

ministerial computer error does not rise to negligence);

Timmerman v. Swenson, Civ. No. 4-78-547, 1979 U.S. Dist.

LEXIS 10172 at *6 (D. Minn. Aug. 27, 1979) (under section

7217, court applying duty of due care negligence standard

determined that IRS was not negligent when it sent levy to bank

as result of clerical error).

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II. GOOD FAITH DEFENSE UNDER I.R.C. § 7431(b)

A. Statutory Provision

The United States is not liable for unauthorized inspections or unauthorized

disclosures of returns or return information that are the result of good faith, but

erroneous, interpretations of section 6103. Good faith is generally judged by an

objective standard, i.e., whether an IRS employee reasonably would have known

of rights provided and of the agency's applicable regulations and internal rules.

Although the circuits have split over whether good faith is an affirmative defense

or whether bad faith must be pled by the plaintiff in the complaint, the Office of

Chief Counsel and the Tax Division have officially adopted the position that good

faith is an affirmative defense that must be pled by the government (and not

negated by the taxpayer). Compare Davidson v. Brady, 732 F.2d 552, 554 (6th

Cir. 1984) (in section 7217 case, court concluded that bad faith was an element

of case that plaintiff must allege to state a claim) with McDonald v. United States,

102 F.3d 1009, 1010-11 (9th Cir. 1996) (criticizing Davidson, court held that good

faith was an affirmative defense that the government must prove).

B. Case Law

1. Agbanc v. United States, No. 87-383, slip op. at 18-19 (D. Ariz.

Dec. 21, 1988) (error by revenue agent in sending out wrong report did

not occur as a result of a good faith but erroneous interpretation of

section 6103, but as a result of negligence).

2. Balanced Financial Management, Inc. v. Fay, 662 F. Supp. 100, 106

(D. Utah 1987) (prefiling notification letters issued in compliance with

revenue procedure were sent in good faith).

3. Barrett v. United States, 51 F.3d 475, 480 (5th Cir. 1995) (court was

not persuaded by the record of testimony at trial that it was necessary

to reveal the fact of criminal investigation in circular letters sent to

plaintiff's patients; because the special agent did not review section

6103 provisions contained in the IRM prior to sending the letters and,

"of paramount importance," did not obtain prior approval of the CID

Chief, as provided by the IRM, the court concluded that a reasonable

agent would not have violated the express provisions of the manual

and, thus, did not act in good faith) remanded to 917 F. Supp. 493

(S.D. Tex. 1995), aff’d, 100 F.3d 35 (5th Cir. 1996). Cf. May v. United

States, No. 91-0650-CV-W-9, 1995 WL 761107, at *6 (W.D. Mo. Oct. 5,

1995) (because letters conformed to IRM provisions, disclosures fell

within section 7431(b) good faith provision), aff'd, 141 F.3d 1169 (table

cite), 1998 WL 71545 (8th Cir. Feb. 23, 1998).

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4. Datamatic Servs. Corp. v. United States, No. C-86-6447 EFL, 1987 WL

28603, at *4-5 (N.D. Cal. Dec. 18, 1987) (because prefiling notification

letters followed revenue procedure, good faith defense was available).

5. Diamond v. United States, 944 F.2d 431, 435 (8th Cir. 1991) (although

it was improper for special agent to identify himself as an employee of

the Criminal Investigation Division in circular letters that he sent to

doctor’s patients, no liability found because he had followed the IRM).

6. Flippo v. United States, 670 F. Supp. 638, 643 (W.D.N.C. 1987)

(plaintiff produced no evidence that revenue agent’s actions were in

bad faith, as he acted under the assumption that his attempts to

contact the petitioner and his servicing of liens and levies for the

collection of delinquent taxes were authorized under the Code) aff'd

mem., 849 F.2d 604 (4th Cir. 1988) (table cite) (text published by 1988

WL 60765, at *1 (4th Cir. 1988)).

7. Gandy v. United States, 234 F.3d 281, 286-87 (5th Cir. 2000) (court

skipped determination of whether an unauthorized disclosure had

occurred, but instead found no liability because agents acted in good

faith belief that IRM and section 6103 permitted disclosure; in dicta,

court stated that special agents are permitted to show their badges and

credentials when conducting third-party interviews).

8. Harris v. United States, 35 Fed. App’x 390, 89 A.F.T.R.2d 2002-2687

(5th Cir. 2002) (affirming lower court finding that revenue officer who

disclosed that the plaintiffs had a judgment filed against them for a

specific amount had acted in a good faith belief that the disclosure was

permitted as a disclosure of information in the public record).

9. Huckaby v. United States, 794 F.2d 1041, 1049, reh'g denied, clarified,

804 F.2d 297 (5th Cir. 1986) (revenue officer disclosed return

information based upon taxpayer's oral consent; court found that

section 6103(c) requires a written consent and because the statute and

regulations were clear, revenue officer's failure to follow them could not

be a good faith, but erroneous, interpretation of section 6103).

10. Husby v. United States, 672 F. Supp. 442, 445 (N.D. Cal. 1987) (good

faith defense applies only to good faith, but erroneous, interpretations

of section 6103, not to general defense of good faith errors in

deficiency assessments and subsequent collection activities).

11. Ingham v. United States, 167 F.3d 1240, 1245-46 (9th Cir. 1999)

(without deciding whether disclosure to a man that his former wife had

filed for a refund was authorized by section 6103(h)(4), government

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was protected by good faith defense because the IRM instructed

agents that such disclosure was permitted).

12. Johnson v. Sawyer, 640 F. Supp. 1126, 1134 (S.D. Tex. 1986)

(subsequent history omitted) (public affairs officer failed to contact

AUSA, as required by district guidelines, before issuing press release

which contained return information; under predecessor to section 7431,

failure to follow established procedures formed basis for finding of bad

faith).

13. Jones v. United States, 954 F. Supp. 191, 192 (D. Neb. 1997)

(subsequent history omitted) (special agent who did not consult either

IRM or Code before disclosing to a confidential informant that a search

warrant was to be executed the following day at taxpayers’ place of

business failed to establish a good faith, but erroneous, interpretation

of the statute).

14. LeBaron v. United States, 794 F. Supp. 947, 953-54 (C.D. Cal. 1992)

(citing Huckaby, found nothing in the statute, case law, or IRS policies

or regulations to suggest that the IRS personnel who made the

disclosure had interpreted section 6103 in an objectively unreasonable

manner).

15. McLarty v. United States, 741 F. Supp. 751, 756-58 (D. Minn. 1990),

on reconsideration, 784 F. Supp. 1401, 1404 (D. Minn. 1991) (initially

adopted a test that contained both objective and subjective

components for judging good faith defense; following Diamond, above,

issued a subsequent opinion adopting objective standard (i.e., did

wrongful disclosure of the plaintiff's return information violate a clearly

established statutory right of which a reasonable person would have

known), and found that IRS agent and AUSA were presumed to know,

as a general matter, that it is improper to disclose return information),

aff’d, 6 F.3d 545 (8th Cir. 1993).

16. Millenium Marketing Group, LLC v. United States, Civ. No. H-06-962,

2010 WL 1768235, at *13-20 (S.D. Tex. Feb. 9, 2010) adopted by 2010

WL 1485925 (S.D. Tex. Mar. 24, 2010) (disclosures made to plan

participants regarding the abusive nature of the tax plan were allowable

under section 6103(e), (k), and in the alternative, both Chief Counsel

attorneys met the good faith exception under section 7431(b)(1)).

17. Payne v. United States, 289 F.3d 377, 385 (5th Cir. 2002) (district court

did not have the benefit of the court’s decision in Gandy, above;

reversed plaintiff’s $1.5 million judgment and remanded for the district

court to apply the Gandy rationale).

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Note: In a well-reasoned concurrence/dissent, Judge Garza

cautioned that the district court had incorrectly applied the good

faith defense because it had failed to first determine whether any

unauthorized disclosures had occurred. 289 F.3d at 391-92.

18. Plotkin v. United States, 465 Fed. App’x. 833-34 (11th Cir. 2012)

(Where compliance with IRS-related conditions of probation in a

criminal tax case required the defendant to file and pay all taxes, the

court held that the IRS's disclosure of the defendant's return

information to his probation officers was authorized by section

6103(h)(4)(A) upon finding that the probation revocation proceedings

were an extension of the defendant's criminal proceeding for tax

crimes. Even assuming arguendo that disclosure was not authorized,

the court concluded that the good faith exception would apply because

the Internal Revenue Manual allowed for disclosure of return

information to a probation officer under similar circumstances.)

19. Rhodes v. United States, 903 F. Supp. 819, 822, 826 (M.D. Pa. 1995)

(upon reconsideration, rejected the Fifth and Eighth Circuits' reasoning

in Barrett and Diamond, above, respectively, that disclosure of the fact

of criminal investigation was not "necessary" to obtain information

sought; fashioned its own objective, rather than subjective, standard:

"Would a reasonable agent, under the circumstances of the case and

knowing that disclosure must be kept to a minimum, disclose this

amount of information in order to obtain the cooperation of a

reasonable person receiving the form letter?").

20. Rorex v. Traynor, 771 F.2d 383, 387 (8th Cir. 1985) (taxpayers entered

into installment payment plan, which was subsequently disallowed by

revenue officer's manager, and revenue officer failed to notify

taxpayers of disallowance and served a notice of levy on the taxpayers'

bank; court, using an objective standard, found that a reasonable

person would have known that he was violating the taxpayers' rights

under section 6103).

Note: This case was decided before the addition of section 7433 to

the Code. Section 7433 addresses damages arising from improper

collection practices. Under today’s statutory scheme, this case

would (should) have been brought under section 7433.

21. Ryan v. United States, No. Civ. A. AQ-97-3548,1998 WL 919881, at *34 (D. Md. July 30, 1998) (although disclosure was permitted under

section 6103(h)(4), also held that the disclosure was made with the

good faith belief that section 6103 permitted it because it was a “close

call”).

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22. Rubel v. United States, No. ST-C-87-28, 1988 WL 167270, at *6

(W.D.N.C. Aug. 26, 1988) (government officials acted in good faith in

issuing press release).

23. Schachter v. United States, 866 F. Supp. 1273, 1275 (N.D. Cal. 1994)

(circular letters were sent to present and former customers of

taxpayers' company and IRM in effect at the time recommended that

special agents state that the taxpayer was "under investigation" and

instructed special agents to identify themselves in personal interviews

by showing their badge and credentials; agent and IRS acted in good

faith because, based on these provisions, a reasonable special agent

would not have known that he should not have disclosed that taxpayer

was under investigation), aff’d, 77 F.3d 490 (9th Cir. 1996).

24. Smith v. United States, 703 F. Supp. 1344, 1348 (C.D. Ill. 1989)

(District Director's disclosures to Illinois Department of Revenue did not

follow the procedures set forth in the Implementing Agreement, and

therefore violated section 6103(d); moreover, the District Director was

"no stranger to the disclosure provisions" and under the Huckaby

objective standard, lacked good faith), aff'd in part & rev'd in part on

other grounds, 964 F.2d 630, 635 (7th Cir. 1992) (not addressing the

good faith issue, the Agreement on Coordination satisfied section

6103(d)'s written request requirement and, therefore, the disclosure

was authorized).

25. Snider v. United States, 468 F.3d 500, 506-07 (8th Cir. 2006), petition

for reh’g en banc denied, No. 05-3636 (8th Cir. Feb. 1, 2007), nonacq.,

I.R.B. 2007-30 (July 23, 2007) (In a holding to which the Service does

not acquiesce, and in conflict with other circuit court decisions, the

Eighth Circuit concluded that a special agent’s disclosure of the identity

of the taxpayer being investigated was not authorized by section

6103(k)(6) because the government had not shown that such disclosure

was necessary and because “Section 6103 clearly defines both ‘a

taxpayer’s identity’ and ‘whether the taxpayer’s return was, is being, or

will be examined or subject to other investigation’ as ‘return information.’

. . . An agent violates the statute, as well as the Internal Revenue

Manual, when he or she identifies the subject of his or her investigation.”

Id. at 507.). Action on decision (disagreeing with the Eighth Circuit’s

holdings) is available at: http://www.irs.gov/pub/irs-aod/aod200703.pdf.

26. Traxler v. United States, No. CV-F-87-725 REC, 1988 WL 149358, at

*5 (E.D. Cal. Nov. 23, 1988) (even if deficiency assessment was

unauthorized, there would be no liability because of the good faith

exception and compliance with section 6103(k)(6)).

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Note: Although we realize there is a certain judicial economy in

deciding the matter without first ruling whether an unauthorized

disclosure actually occurred, skipping that step disserves the IRS

and the public. If the court finds no liability based on the good faith

defense absent ruling on the validity of the disclosure, the IRS is

unable to determine whether the challenged conduct is unlawful

and take any necessary remedial steps.

III. DAMAGES FOR UNAUTHORIZED DISCLOSURE AND INSPECTION

The statute provides two damage computations. A prevailing plaintiff may recover the

costs of the action plus the greater of (1) statutory damages of $1,000 for each act of

unauthorized inspection or disclosure or (2) the sum of actual damages plus, in the case

of a willful inspection or disclosure, or an inspection or disclosure resulting from gross

negligence, punitive damages. I.R.C. § 7431(c).

A. Statutory Damages

Statutory damages are limited to each act of inspection or disclosure, rather than

each item of return information inspected or disclosed; the inspection or

disclosure of multiple items of return information is not multiple inspections or

disclosures. Moreover, the Service’s position is that damages are not based

upon the number of persons who eventually may read or hear the information

wrongfully disclosed. Therefore, the United States should not be held

responsible for redisclosures of return information, e.g., to a newspaper's

subscribers.

1. Barrett v. United States, 917 F. Supp. 493, 502 (S.D. Tex. 1995), after

remand from 51 F.3d 475 (5th Cir. 1995), aff’d, 100 F.3d 35 (5th Cir.

1996) (after finding of liability, plaintiff entitled to statutory damages in

the amount of $260,000, based on the number of patients it was

presumed received circular letters from the IRS in absence of proof

that they had not received the letters, but was not entitled to actual or

punitive damages).

2. Huckaby v. United States, 794 F.2d 1041, 1050 (5th Cir. 1986)

(disclosure of taxpayer's records to state agency based upon oral

consent was only one act of unauthorized disclosure, and did not

warrant punitive damages).

Note: Huckaby was decided before the amendments to section

6103(c) and the publication of Treas. Reg. § 301.6103(c)-1 that

permit the acceptance of a verbal consent in specific

circumstances. See generally Chapter 2, Part II.

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3. Johnson v. Sawyer, 640 F. Supp. 1126, 1136 (S.D. Tex. 1986), aff’d,

980 F.2d 1490 (5th Cir. 1992), rev’d and remanded on other grounds,

47 F.3d 716, 738 (5th Cir. 1995) (damages for unauthorized

disclosures of a press release determined by number of media outlets

sent the document, not number of persons who may have actually read

it - "the degree of a violator's punishment should turn upon a factor

within the violator's knowledge and control (e.g., the number of media

outlets receiving the release) rather than a factor outside her

knowledge or control (e.g., the number of employees each of those

outlets happens to allow to read the release")).

4. Mallas v. United States, 993 F.2d 1111, 1125 (4th Cir. 1993) (single

letter addressed to two named persons in a single envelope constituted

two disclosures).

5. Marré v. United States, Civ. A. No. H-88-1103, 1992 WL 240527, at *2

(S.D. Tex. June 22, 1992) (a single communication cannot be split into

pieces to create multiple disclosures, nor does disclosure of the same

information to the same person on multiple occasions constitute

multiple disclosures), aff’d in part on other grounds, modified in part on

other grounds, vacated in part on other grounds, 38 F.3d 823 (5th Cir.

1994).

6. Miller v. United States, 66 F.3d 220, 223-24 (9th Cir. 1995) (limiting

damages to $1,000 and rejecting taxpayer’s argument that statutory

damages for unauthorized disclosure to a newspaper reporter should

be calculated by reference to number of potential readers, "in the

modern era of mass communication,” strong public policy concerns

exist for not allowing this form of second-party dissemination to be

actionable, and disclosure to person(s) likely to publish the information

is relevant only in determining degree of negligence or recklessness

involved, not number of disclosures).

7. Rorex v. Traynor, 771 F.2d 383, 385 (8th Cir. 1985) (although levy

contained multiple items of return information, court awarded $1,000

because only one levy was issued).

8. Siddiqui v. United States, 359 F.3d 1200, 1203 (9th Cir. 2004) (act of

disclosure, not size of the audience that is counted for purposes of

statutory damages), aff’g 217 F. Supp.2d 985, 989-91 (D. Ariz. 2002).

9. Smith v. United States, 730 F. Supp. 948, 954 (C.D. Ill. 1990)

(memorandum to two people at one time was only one act of

disclosure), rev’d in part and aff’d in part, 964 F.2d 630, 636 (7th Cir.

1992).

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Successful plaintiffs rarely recover actual damages due to the difficulty of

establishing losses attributable to the disclosure of returns or return information.

1. Jones v. United States, 9 F. Supp. 2d 1119, 1137 (D. Neb. 1998)

(common law elements of causation must be proven to recover actual

damages, i.e., “but for” the disclosure the harm would not have

occurred and the harm was the foreseeable result of the disclosure plaintiffs could recover for economic losses of operating business,

damages from sale of real and personal property, and emotional

distress), following determination of liability in 954 F. Supp. 191 (D.

Neb. 1997) (prior and subsequent history omitted).

2. Wilkerson v. United States, No. 3:92-cv-78 (E.D. Tex. May 16, 1994)

(plaintiff awarded $229,547.19 based primarily upon the value of her

business, "which was effectively destroyed by the unauthorized

disclosures" in levies), rev'd in part on other grounds, 67 F.3d 112 (5th

Cir. 1995).

B. Emotional Distress

One issue addressed infrequently is whether actual damages are limited to

economic loss or include recovery for non-pecuniary items such as emotional

distress.

1. Jones v. United States, 9 F. Supp. 2d 1119, 1149 (D. Neb. 1998)

(plaintiffs entitled to emotional distress damages when they

demonstrate out of pocket damages), following determination of liability

in 954 F. Supp. 191 (D. Neb. 1997) (prior and subsequent history

omitted).

2. Rorex v. Traynor, 771 F.2d 383, 387-88 (8th Cir. 1985) (taxpayers

were awarded $15,000 each for emotional suffering; however, on

appeal, the Eighth Circuit found that plaintiffs had produced no

evidence of emotional distress other than personal embarrassment and

the court did not believe that "hurt feelings alone constitute actual

damages compensable under the statute").

3. Schipper v. United States, No. CV-94-4049 (CPS), 1998 WL 786451, at

*10-11 (E.D.N.Y. Sept. 15, 1998) (unauthorized disclosures made in

the course of unlawful levies humiliated plaintiff in eyes of coworkers;

plaintiff awarded damages for physiological symptoms stemming from

humiliation).

4. Wilkerson v. United States, 67 F.3d 112, 117-18 (5th Cir. 1995)

reversing in part, No. 3:92-cv-78 (E.D. Tex. May 16, 1994) (reversing

award of $20,000 for emotional distress upon a determination that no

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unauthorized disclosure had occurred through the issuance of an

invalid levy).

Cases under the Privacy Act are analogous because the Privacy Act has a

similar damages provision. Generally, the courts have held that actual damages

for violations of the Privacy Act are limited to out-of-pocket losses. See, e.g.,

Hudson v. Reno, 130 F.3d 1193, 1207 (6th Cir. 1997); Fitzpatrick v. IRS, 665

F.2d 327, 329-31 (11th Cir. 1982); DiMura v. FBI, 823 F. Supp. 45, 48 (D. Mass.

1993); Pope v. Bond, 641 F. Supp. 489, 500-01 (D.D.C. 1986); and Houston v.

Dep't of Treasury, 494 F. Supp. 24, 30 (D.D.C. 1979). Note that in Johnson v.

IRS, 700 F.2d 971, 974-80 (5th Cir. 1983), the court held that actual damages

included pain and suffering, and in Albright v. United States, 732 F.2d 181, 18586 n.11 (D.C. Cir. 1984), the court noted, in dicta, that non-economic injuries or

damages other than out-of-pocket expenses could qualify as "actual damages"

under 5 U.S.C. § 552a(g)(4). Cf. Doe v. Chao, 540 U.S. 614, 614-15 (2004)

(unlike section 6103, which provides for award of statutory damages in absence

of actual damages, Privacy Act requires proof of actual damages, however

minimal, to qualify for minimum damage award).

The legislative history is silent as to whether Congress intended for section 7431

to include recovery for emotional distress within the ambit of “negligence.” The

Senate Report merely parrots the statutory language by noting that the United

States is liable to a person whose returns or return information was knowingly or

negligently disclosed in violation of section 6103. See S. REP. NO. 97-760, at

676 (1982). Although it could be argued that when Congress used the phrase

“negligence” in the statute it intended for the general law of negligence to apply,

including the applicable law on damages, the Supreme Court’s opinions relating

to the waiver of sovereign immunity in two cases interpreting other statutes may

be instructive.

In United States v. Nordic Vill. Inc., 503 U.S. 30, 33-34 (1992), the Supreme

Court held that in the absence of clear statutory authority waiving sovereign

immunity, a bankruptcy trustee cannot recover monetary damages from the

government for post-petition transfers. The court noted the established doctrine

that waivers of sovereign immunity must be unequivocally expressed and must

be construed strictly in favor of the government. The Court stated “Legislative

history has no bearing on the ambiguity point . . . . [T]he ‘unequivocal expression’

of elimination of sovereign immunity that we insist upon is an expression in

statutory text. If clarity does not exist there, it cannot be supplied by a committee

report.” Id. at 37. In Lane v. Pena, 518 U.S. 187, 192 (1996), the Supreme

Court held that a Merchant Marine cadet who was discharged from the academy

in violation of the Rehabilitation Act cannot recover monetary damages from the

government because the 1986 amendments to the Act did not provide for

monetary damages against federal agencies. Accordingly, a damage award

against the United States must be limited to only so much as is authorized by the

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statute waiving sovereign immunity, and if the statute does not clearly provide for

recovery for emotional distress, recovery should not be awarded.

Note: Section 7433, which was added to the Code in 1988 and provides

for civil damages for unauthorized collection activity, provides only for

"actual, direct economic damages" plus the costs of the action (enacted by

Pub. L. No. 100-647, § 6241(a), 102 Stat. 3342 (1988)).

C. Punitive Damages

1. Barrett v. United States, 917 F. Supp. 493, 503 (S.D. Tex. 1995) (no

punitive damages because (1) disclosures were not willful or grossly

negligent and (2) statutory language of section 7431(c) precludes

award of punitive damages where actual damages not proven, which is

consistent with the common law tort rule), aff'd, 100 F.3d 35 (5th Cir.

1996).

2. Mallas v. United States, 993 F.2d 1111, 1125 (4th Cir. 1993) (taxpayer

may recover punitive damages in excess and instead of statutory

damages, not in addition to statutory damages, even if the actual

damages are zero).

3. Marré v. United States, Civ. A. No. H-88-1103, 1992 WL 240527, at *4

n.3 (S.D. Tex. June 22, 1992) ("Though we take a decidedly dim view

of [the agent's] actions, we are precluded from granting punitive

damages without an award of actual damages”), aff’d on other

grounds, 38 F.3d 823, 826-27 (5th Cir. 1994) (without deciding whether

district court was correct, found special agent's conduct was not so

egregious as to warrant punitive damages).

4. Mid-South Music Corp. v. United States, 579 F. Supp. 481, 485 (M.D.

Tenn. 1985), aff’d in part, rev’d in part, 756 F.2d 23 (6th Cir. 1984)

remanded to 1985 WL 3673 (M.D. Tenn. Sept. 24, 1985), rev'd, 818

F.2d 536, 537 (6th Cir. 1987) (district court awarded $174,000 in

statutory damages, plus $1,000 in punitive damages for unauthorized

disclosure of return information; circuit court reversed and remanded to

district court for entry of judgment for defendant, as no liability exists

where the IRS disclosed taxpayer’s own information to taxpayer).

5. Rorex v. Traynor, 771 F.2d 383, 387 (8th Cir. 1985) (on appeal, court

did not find any evidence to support the conclusion that the disclosure

was either willful or the result of gross negligence).

Note: This case was decided before the addition of section 7433 to

the Code. Section 7433 addresses damages arising from improper

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collection practices. Under today’s statutory scheme, this case

would (should) have been brought under section 7433.

6. William E. Schrambling Accountancy Corp. v. United States, 689 F.

Supp 1001, 1008 (N.D. Cal. 1988) (punitive damages are not available

unless plaintiff proves actual damage), rev'd on other grounds, 937

F.2d 1485 (9th Cir. 1991).

7. Siddiqui v. United States, 395 F.3d 1200, 1201 (9th Cir. 2004) (no

punitive damages without proof of actual damages), aff’g 217 F. Supp.

2d 985, 989-91 (D. Ariz. 2002).

8. Smith v. United States, 730 F. Supp. 948, 954-55 (C.D. Ill. 1990)

(criticizing the district court in Mid-South Music, above, punitive

damages not available in the absence of actual damages), rev'd on

other grounds, 964 F.2d 630 (7th Cir. 1992).

IV. ATTORNEYS FEES IN I.R.C. § 7431 ACTIONS

Section 7431(c) provides that the plaintiff may recover

(1) the greater of (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 (B) the sum of – (i) the actual damages sustained by the plaintiff as a

result of such unauthorized inspection or disclosure, plus (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 (2) the costs of the action, plus (3) in

the case of a plaintiff which is described in section 7430(c)(4)(A)(ii) [meets the

requirements of 28 U.S.C. § 2412(d)(1)(B), i.e., by submitting request within 30

days showing entitlement], 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)).

To be considered the prevailing party under section 7430, plaintiffs must establish (1)

that the position of the United States is not substantially justified, and (2) that they have

prevailed with respect to the amount in controversy or with respect to the most

significant issue presented. I.R.C. § 7430(c)(4).32

There is little case law on the application of the provisions under sections 7430 and 7431. Before

1998 when section 7430 was amended, the circuits were split as to whether a plaintiff could recover

attorneys fees for successfully prosecuting a section 7431 suit. Compare McLarty v. United States, 6

F.3d 545 (8th Cir. 1993) (where the underlying proceeding was unrelated to a civil tax proceeding,

section 7430 was inapplicable) and Scrimgeour v. IRS, 149 F.3d 318 (4th Cir. 1998) (underlying claim

of unauthorized disclosure did not pertain to determination of any tax) with Huckaby v. United States,

804 F.2d 297 (5th Cir. 1986) (concluding that underlying claim pertained to tax liability because the

IRS was in possession of plaintiff’s records - which were disclosed - for the purpose of determining

his liability). By amending the statute to include attorneys fees, Congress was sending a clear

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V. OTHER ISSUES IN I.R.C. § 7431 ACTIONS

A. Proper Party

The United States is the only proper party defendant for unauthorized

disclosures by federal employees. Nevertheless, the alleged unauthorized

disclosure must have been made by an individual who was an officer or

employee of the federal government at the time of the disclosure.

1. Adelman v. Discover Card Servs., 915 F. Supp. 1163, 1165 (D. Utah

1996) (rejecting argument that United States was liable because of

special relationship between state agency and federal government,

court held no liability where a state employee accessed plaintiff’s files

and disclosed confidential tax records).

2. Clode-Baker v. Cocke, No. A-11-CV-977-LY, 2012 WL 1357023 (April

16, 2012, W.D.Tex.) (Plaintiff failed to state a claim where she alleged

her former daughter-in-law obtained copies of her returns and

forwarded them to the IRS Whistleblowers office. Section 6103 only

prohibits disclosure of return information by certain individuals who fall

within the statute.)

3. Diamond v. United States, 944 F.2d 431, 432 (8th Cir. 1991) (United

States is the only proper party defendant even though special agent's

actions formed the basis for the unauthorized disclosure action).

4. Flippo v. United States, 670 F. Supp. 638, 639 (W.D.N.C. 1987)

(rejected plaintiff's attempt to name a revenue agent as a defendant),

aff'd mem., 849 F.2d 604 (table cite), 1988 WL 60765, at *1 (4th Cir.

June 7, 1988).

5. Hassell v. United States, 203 F.R.D. 241, 244 (N.D. Tex. 1999) (even

assuming IRS employees made unauthorized disclosures of return

information, the claim is against the United States, not individual

employees).

6. Henkell v. United States, No. S-96-2228 MLS GGH, S-97-0017 MLS

GGH, 1998 WL 41565, at *8 (E.D. Cal. Jan. 9, 1998) (by its express

language, section 7431 authorizes suit only against the United States

and not against individual employees).

message that “when the IRS violates taxpayer’s right to privacy by engaging in unauthorized

inspection or disclosure activities, it is appropriate to reimburse taxpayers for the costs of their

damages.” S. REP. NO. 105-174, reproduced at IRS Restructuring and Reform, Law, Explanation and

Analysis, ¶ 10250 at 599 (CCH 1998).

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7. Payne v. United States, No. Civ. A. H-97-2255, 1998 WL 773625, at *3

(S.D. Tex. Feb. 10, 1998) (even though "the United States may not be

held liable in a civil action for unlawful disclosure of tax return

information by a former officer or employee," the plaintiff was given

leave to amend complaint to add former employee).

8. Ungaro v. Desert Palace, No. CV S 88-838 RDF, 1989 WL 199264, at

*4-5 (D. Nev. Nov. 17, 1989) (because the disclosures were specifically

authorized under section 6103(h), no violation of 6103 occurred;

section 7431 does not apply as a remedy against individual

employees).

9. Young v. Boyle, 849 F.2d. 610 (table cite), No. 83-1789, 1988 WL

62397 at *2 (6th Cir. 1988) (claims for damages against judge and law

clerk for summons enforcement proceedings in which financial

information was disclosed were barred by doctrine of judicial immunity),

aff’g No. 83-1789 (E.D. Mich. Nov. 30, 1982) (unpublished opinion).

B. Specificity

A complaint filed pursuant to section 7431 must allege with specificity the returns

or return information inspected or disclosed, the dates of inspection or

disclosure, to whom information was disclosed, and any other facts sufficient to

inform the defendant of the particulars of the alleged violation. Absent such

information, motions to dismiss for failure to state a claim pursuant to Federal

Rule of Civil Procedure 12(b)(6) have been successful. Generally, however,

courts dismiss without prejudice and provide plaintiffs an opportunity to amend

the complaint.

1. Aloe Vera of Am., Inc. v. United States, 580 F.3d 867, 872 (9th Cir.

2009) (two-year statute of limitations on claim for wrongful disclosure of

return information accrues when plaintiffs knew or should have known

of disclosure), remanded to 730 F. Supp. 2d 1020 (D. Ariz. 2010) (on

remand, district court held that certain plaintiffs’ failure to establish

specific dates barred portions of their complaint asserting that the IRS

had disclosed false information to a foreign tax authority and that the

IRS knew or should have known that the information would be leaked),

appeal docketed, No. 10-17136 (9th Cir. Sept. 24, 2010).

2. Bleavins v. United States, No. 90-3178, 1991 U.S. Dist. LEXIS 20975,

at *3-4 (C.D. Ill. Jan. 18, 1991) (complaint did not allege to whom the

information was disclosed or the items of information disclosed; action

dismissed without prejudice, providing plaintiff 20 days to amend

complaint).

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3. Colton v. IRS, No. CV-R-85-635-ECR, 1989 U.S. Dist. LEXIS 12021, at

*17-18 (D. Nev. Apr. 4, 1989) (dismissed complaint because it

contained mere legal conclusions not factual allegations).

4. Flippo v. United States, 670 F. Supp. 638, 641 (W.D.N.C. 1987) (case

dismissed against revenue agent personally and non-government

defendants for failure to allege specific instances of wrongdoing; district

court examined only whether violations of 6103 occurred in revenue

agent’s efforts to contact petitioner or institute collection), aff'd mem.,

849 F.2d 604 (table cite), 1988 WL 60765, at *1 (4th Cir. June 7, 1988).

5. May v. United States, No. 91-0650-CV-W-9, 1992 U.S. Dist. LEXIS

16055, at *6 (W.D. Mo. Apr. 17, 1992) (plaintiff must specifically allege

who made the alleged disclosures, to whom they were made, the

nature of the disclosures, the circumstances surrounding them, and the

dates on which they were made).

6. Soghomonian v. United States, 82 F. Supp.2d 1134, 1146-47 (E.D.

Cal. 1999) (section 7431 claim was subject to dismissal where

complaint failed to state the “specific taxpayer information allegedly

disclosed, the timing of such alleged disclosures,” and other pertinent

information).

7. Tobin v. Troutman, No. Civ. A. 3:98-CV-663-H, 1999 WL 501004, at *4

(W.D. Ky. June 8, 1999) (more than a mere allegation of a violation is

needed to state a claim).

C. Jury Trials

Section 7431 lawsuits are not subject to jury trials. The Seventh Amendment

right to a jury trial does not apply in actions against the federal government

unless Congress has waived sovereign immunity and created that right by

statute. See Lehman v. Nakshian, 453 U.S. 156, 162 n.9 (1981) (“Since there is

no generally applicable jury trial right that attaches when the United States

consents to suit, the accepted principles of sovereign immunity require that a jury

trial right be clearly provided in the legislation creating the cause of action.”); see

also United States v. Testan, 424 U.S. 392, 399 (1976) (“the United States, as

sovereign, is immune from suit save as it consents to be sued . . . and the terms

of its consent to be sued in any court define that court’s jurisdiction . . . a waiver

of the traditional sovereign immunity cannot be implied but must be

unequivocally expressed”) (internal quotations omitted).

Section 7431 is silent regarding a jury trial. Following the rationale in Lehman,

no such right exists in section 7431 cases. Accordingly, courts that have

considered whether a plaintiff is entitled to a jury trial pursuant to section 7431

have unanimously found that there is no such entitlement.

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1. Agbanc v. Berry, 678 F. Supp. 804, 809 (D. Ariz. 1988).

2. Carbo v. United States, No. Civ. A. 97-2461, 1998 WL 918473, at *3

(W.D. La. Dec. 30, 1998).

3. Christensen v. United States, 733 F. Supp. 844, 854 (D.N.J. 1990),

aff'd, 925 F.2d 416 (3d Cir. 1991) (table cite).

4. Ret. Care Assoc. v. United States, 3 F. Supp. 2d 1434, 1445 (N.D. Ga.

1998).

D. Exclusive Remedy

It is the IRS’s position, and most courts have agreed, that section 7431 is the

exclusive remedy for unauthorized disclosure of returns or return information.

This section explores some other remedies that plaintiffs have sought for alleged

disclosure violations.

1. Bivens

In Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, 403

U.S. 388 (1971), the Supreme Court recognized a cause of action against

federal employees who violated an individual’s Fourth Amendment rights,

even though the Fourth Amendment did not expressly authorize a remedy.

The court reasoned that “‘it is . . . well settled that where legal rights have

been invaded, and a federal statute provides for a general right to sue for

such invasions, federal courts may use any available remedy to make

good the wrong done.’” Id. at 396 (citing Bell v. Hood, 327 U.S. 678, 684

(1946)). However, the courts generally have declined to provide Bivens

relief to taxpayers for claims premised on tax administration activities

because of the comprehensive remedial scheme Congress passed in the

Code.

a. Cameron v. IRS, 773 F.2d 126, 129 (7th Cir. 1985) (“Congress

has given taxpayers . . . rights against an overzealous [official],

including . . . the right to sue the government for a refund if

forced to overpay taxes, and it would make the collection of

taxes chaotic if a taxpayer could bypass the remedies provided

by Congress simply by bringing a damage action against

Treasury employees”).

b. Fishburn v. Brown, 125 F.3d 979, 982-83 (6th Cir. 1997) (court

declined to create Bivens action against revenue officers for

alleged due process violations during seizure) (section 7433

case).

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c. Judicial Watch, Inc. v. Rossotti, 317 F.3d 401, 413 (4th Cir.

2003) (“‘it would be inappropriate to supplement the regulatory

scheme with a new judicial remedy’ for alleged retaliatory tax

audits”) (citing Bush v. Lucas, 462 U.S. 367 (1983)).

d. Malis v. United States, No. CV 83-7767 (CBM), 1986 WL 15721,

at *6 (C.D. Cal. Dec. 17, 1986) (no Bivens remedy lies for

improper disclosure of returns or return information).

e. Shreiber v. Mastrogiovanni, 214 F.3d 148, 155 (3d Cir. 2000)

(denial of Bivens remedy where plaintiff alleged violation of

equal protection based on religious animus because

“Congress’s efforts to govern the relationship between the

taxpayer and the taxman indicate that Congress has provided

what it considers to be adequate remedial mechanisms for

wrongs that may occur in the course of this relationship”).

2. Federal Tort Claims Act

A Federal Tort Claims Act (FTCA) claim cannot be premised on an

unauthorized disclosure because the liability of the United States arises

only when the law of the state where the alleged wrong occurred would

impose it. Because section 6103 - which creates the general

confidentiality rule covering returns and return information - is federal law,

not state law, there can be no action for unauthorized disclosures under

the FTCA.

a. Cecile Indus., Inc. v. United States, 793 F.2d 97, 100 (3d Cir.

1986) (FTCA not satisfied by federal statutes or regulations).

b. Fishburn v. Brown, 125 F.3d 979, 982 (6th Cir. 1997) (suits

alleging liability based on activity connected to the assessment

or collection of taxes are expressly excluded from the FTCA).

c. Johnson v. Sawyer, 47 F.3d 716, 729-30 (5th Cir. 1995) (en

banc) (claim wholly grounded on a duty imposed by federal

statute is not enough; state law of “negligence per se” and

respondeat superior were insufficient bases for federal tort

claim), rev’g and remanding, 980 F.2d 1490 (5th Cir. 1992).

d. Sellfors v. United States, 697 F.2d 1362, 1365 (11th Cir. 1983)

(FTCA not intended to redress breaches of federal statutory

duties).

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3. Exclusionary rule

a. In re Grand Jury, M.D.B. No. 82 536, slip op. at 10 (D. Mass.

Feb. 22, 1983) (quashing of a grand jury subpoena on the

grounds of a section 6103 violation is not a proper remedy under

section 7431).

b. Nowicki v. Commissioner, 262 F.3d 1162, 1163 (11th Cir. 2001)

(“[The] imposition of the exclusionary rule is not warranted for a

disclosure of return information which violates section 6103.

Congress has specifically provided civil (section 7431) as well

as criminal penalties (section 7213) for violations of section

6103. There is no statutory provision requiring exclusion of

evidence obtained in violation of section 6103 and we will not

invent one.”).

c. United States v. Chem. Bank, 593 F.2d 451, 457 (2d Cir. 1979)

(suppression of evidence may be available for a section 6103

violation) (dicta).

d. United States v. Lavin, 604 F. Supp. 350, 355-56 (E.D. Pa.

1985) (relying on Chemical Bank, above, to set aside portions of

an affidavit supporting a search warrant application because of

unauthorized disclosure).

e. United States v. Mangan, 575 F.2d 32, 41 (2d Cir. 1978)

(sections 7431 and 7213 are exclusive and therefore the

exclusionary rule is not available to redress alleged wrongful

disclosures) (dicta).

4. Injunctive relief

Trahan v. Regan, 718 F.2d 449, 455-57 (D.C. Cir. 1983) (declaratory

judgment is available to declare contemplated disclosures illegal and that,

if declared illegal, injunctive relief could be granted to enjoin the

contemplated disclosures) (subsequent history omitted).33

This is the only case where a court determined that declaratory relief was available to halt a

proposed disclosure. The facts of the case make the holding unique. Congress had directed the

Social Security Administration to check on the eligibility of benefits recipients. The GAO suggested

that the SSA use returns and return information to identify ineligible recipients. Faced with the

confidentiality provision of section 6103, the SSA mailed consent forms to over 4 million benefits

recipients. Contemporaneous class actions were brought against the IRS and SSA to, inter alia, halt

the disclosures, and for a determination as to the appropriateness of the consents. In granting the

injunction, the court of appeals noted that the consent forms mailed by the SSA failed to meet the

requirements of the Treasury regulations under section 6103(c).

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5. Conditional summons enforcement

There is a split in the circuits concerning conditional enforcement of

summonses.

a. United States v. Author Servs., Inc., 804 F.2d 1520, 1525 (9th

Cir. 1986) (relying on Texas Heart, below, even though

government had satisfied all the requirements for summons

enforcement, a court may, as part of its inherent authority to

assure that part of its process is not abused, condition summons

enforcement on the requirement that the government secure

court approval before the summoned records are disclosed to

other government agencies (the condition being imposed to

assure that any disclosure is in accordance with section 6103)),

amended by, 811 F.2d 1264 (9th Cir. 1987).

b. United States v. Barrett, 837 F.2d 1341, 1349 (5th Cir. 1988) (en

banc) (overruled Texas Heart, below, indicating that conditional

summons enforcement was inappropriate), cert. denied, 492

U.S. 926, reh'g denied, 493 U.S. 883 (1989).

c. United States v. Texas Heart, 755 F.2d 469, 482 (5th Cir. 1985)

(appropriate for district court to determine whether section 6103

was violated and, if so, to condition summons enforcement on

compliance with that section) overruled by Barrett, above.

d. United States v. Zolin, 491 U.S. 554, 561 (1989) (equally divided

Supreme Court let stand Ninth Circuit’s position on conditional

summons enforcement first adopted in Author Services, above)

on remand to 905 F.2d 1344 (9th Cir. 1990).

6. Privacy Act

Generally, courts have held that the Privacy Act is not available to redress

unauthorized disclosures of return information.

a. Berridge v. Heiser, 993 F. Supp. 1136, 1144 (S.D. Ohio 1997)

(plaintiffs erroneously brought their suit under the Privacy Act;

section 7431 is the exclusive remedy by which to bring a cause

of action for the unauthorized disclosure of returns or return

information).

b. Hobbs v. United States, 209 F.3d 408, 412 (5th Cir. 2000)

(“§ 6103 is a more detailed statute that should preempt the more

general remedies of the Privacy Act, at least where, as here,

those remedies are in conflict”).

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c. Sinicki v. United States, No. 97 CIV. 0901 (JSM), 1998 WL

80188, at *2-3 (S.D.N.Y. Feb. 24, 1998) (plaintiff brought suit

alleging that IRS violated Privacy Act by placing her tax returns

in her personnel file; court rejected IRS’s arguments that section

6103 prevails over the Privacy Act, and held that plaintiff may

pursue action for wrongful disclosure under both the Privacy Act

and section 7431, but noted, however, that to extent the Privacy

Act conflicted with section 6103, section 6103 prevailed).

7. 18 U.S.C. § 1030(g)

For claims arising from the alleged unauthorized inspection of return

information through the use of a computer, a civil remedy may also be

available under this criminal statute. However, certain conditions apply.

8. I.R.C. § 7433

The Code provides a civil damages remedy for unauthorized collection

activity occurring after November 10, 1988. The exclusive remedy for

alleged unauthorized disclosures occurring in the course of collection

activities is section 7433.

a. Elias v. United States, No. CV 90-0432-WJR(JRX), 1990 WL

264722, at *2 & n.7 (C.D. Cal. Dec. 21, 1990) (taxpayer may not

use section 7431 to challenge the merits of the assessment; it is

reasonable to assume that Congress did not intend for section

7431 damage suits to be maintained in situations arising from

collection activities given enactment of section 7433), aff'd

mem., 974 F.2d 1341 (9th Cir. 1992) (table cite).

b. Mann v. United States, 204 F.3d 1012, 1017 (10th Cir. Feb. 18,

2000) (section 7433 provides taxpayers a remedy for

unauthorized collection activities; court does not address

exclusivity issue).

c. Schipper v. United States, No. CV-94-4049 (CPS), 1998 WL

786451, at *9-12 (E.D.N.Y. Sept. 15, 1998) (United States liable

for unauthorized disclosures resulting from erroneous levies in

the course of a failed collection of a tax refund on plaintiff’s

wages and bank accounts despite plaintiff’s and plaintiff’s

counsel’s effort to correct the error; not a section 7433 matter

because IRS sought to recover an erroneous refund rather than

a tax assessment).

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d. Shwarz v. United States, 234 F.3d 428, 432-33 (9th Cir. 2000)

(section 7433 addresses the willful or negligent act of

disregarding Title 26 during the collection of taxes; therefore any

violation of section 6103 during collection of taxes is addressed

by section 7433).

e. Simpson v. United States, No. 90-30021-RV, 1991 WL 253014,

at *6-7 & n.8 (N.D. Fla. Oct. 9, 1991) (although disclosures in

various liens and levies were authorized by section 6103(k)(6),

section 7433(a) applied to one of the levy claims and precluded

any section 7431 liability).

f. Soghomonian v. United States, 82 F. Supp. 2d 1134, 1147 (E.D.

Cal. 1999) (plaintiff failed to state a claim when he brought claim

for unauthorized disclosure through filing of Notice of Federal

Tax Lien; section 7433 is the exclusive remedy).34

E. Authorized Disclosures Based Upon Validity of Summonses, Liens or

Levies

There is a split in the circuits concerning the relevance of the validity of

summonses, liens or levies to whether certain disclosures were authorized.

1. "[W]hether a disclosure is authorized under section 6103 is in no way

dependent upon the validity of the underlying summons, lien, or levy."

Elias v. United States, No. CV 90-0432-WJR (JRX), 1990 WL 264722,

at *5 (C.D. Cal. Dec. 21, 1990), aff'd mem., 974 F.2d 1341 (9th Cir.

1992) (table cite).

a. Farr v. United States, 990 F.2d 451, 455 (9th Cir. 1993) (where

disclosures were necessary to collection procedures, fact that

they may have been defective does not make disclosures

wrongful).

b. Huff v. United States, 10 F.3d 1440, 1447 (9th Cir. 1993)

(possible procedural lapses in collection process will not render

necessary disclosures wrongful).

c. Mann v. United States, 204 F.3d 1012, 1018-19 (10th Cir. 2000)

(distinguishing Chandler v. United States, 687 F. Supp. 1515 (D.

The amendments to section 7433 in RRA 98 lowered the threshold from willful to negligent

violations in the collection process and eliminated the use of section 7431 to collaterally attack

unauthorized collection actions.

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Utah 1988), aff’d per curiam, 887 F.2d 1397 (10th Cir. 1989),

which had been decided before the passage of section 7433,

where section 6103(k)(6) permits the issuance of levies and the

filings of liens, it is irrelevant whether there is a procedural

defect in the collection activity; “sections 6103 and 7431 address

improper disclosure of return information and not improper

collection activity”).

d. McAdams v. United States, Civ. A. No. 3:95-621, 1996 WL

303271, at *3 (W.D. La. June 24, 1996) (principle "that the

propriety of the underlying actions is irrelevant to the propriety of

the disclosure at issue, controls here").

e. Spence v. United States, 114 F.3d 1198 (table cite), No. 962196, 1997 WL 314836, at *4 (10th Cir. June 12, 1997) ("Neither

the plain language of the statute or the Treasury regulation [sic]

authorize this court to look behind the summons to determine

whether they [sic] were properly issued; §§ 7431 and 6103

address improper disclosure, not improper summons").

f. Venen v. United States, 38 F.3d 100, 105 (3d Cir. 1994) (court

joined "those cases that decline to consider the validity of the

underlying levy in deciding whether the IRS has disclosed in

violation of [I.R.C.] § 6103").

g. Wilkerson v. United States, 67 F.3d 112, 117-18 n.10 (5th Cir.

1995), reversing in part, No. 3:92-cv-78 (E.D. Tex. May 16,

1994) (Congress enacted separate and distinct provisions

concerning collection activities and information handling, and

"[t]hese two bodies of law must remain distinct[;]" absent

additional evidence, proof of a wrongful levy is "legally

insufficient" to support a claim for wrongful disclosure).

2. Another line of cases does consider the validity of the levy to be

relevant to and/or determinative of unauthorized disclosures under

section 7431.

a. Husby v. United States, 672 F. Supp. 442, 445 (N.D. Cal. 1987)

(disclosures made pursuant to a levy resulting from a computer

error did not fall under "good faith" exception because no

interpretation of section 6103 was involved).

b. Maisano v. United States, 908 F.2d 408, 409-10 (9th Cir. 1990)

(although not specifically linking the two, court considered

validity of the underlying tax liens and levies before finding IRS

authorized to disclose under section 6103).

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c. Rorex v. Traynor, 771 F.2d 383, 386 (8th Cir. 1985) ("disclosure

in pursuance of an unlawful levy violates the confidentiality

requirement of § 6103(a) and is not authorized under

§ 6103(k)(6)").

d. Schipper v. United States, No. CV-94-4049 (CPS), 1998 WL

786451, at *9-12 (E.D.N.Y. Sept. 15, 1998) (United States held

liable for unauthorized disclosures resulting from repeated

erroneous levies on plaintiff’s wages and bank accounts despite

plaintiff’s and plaintiff’s counsel’s effort to correct error; however,

the disclosures in this case occurred in the context of a failed

collection of a tax refund, not the collection of a tax liability).

e. William E. Schrambling Accountancy Corp. v. United States, 689

F. Supp. 1001, 1006 (N.D. Cal. 1988) (improper notice of levy is

basis for liability under section 7431), rev'd on other grounds,

937 F.2d 1485 (9th Cir. 1991).

See also Chapter 4, pertaining to investigative disclosures, and Treas. Reg.

§ 301.6103(k)(6)-1.

F. Statute of Limitations

Section 7431(d) provides that actions for alleged unauthorized inspections or

disclosures of returns or return information must be brought within two years

after the date of discovery by the plaintiff of the unauthorized inspection or

disclosure.

1. Aloe Vera of Am., Inc. v. United States, 580 F.3d 867, 872 (9th Cir.

Sept. 2, 2009) (two-year statute of limitations on claim for wrongful

disclosure of return information accrues when plaintiffs knew or should

have known of disclosure), remanded to 730 F. Supp. 2d 1020 (D. Ariz.

Aug. 3, 2010) (district court held that plaintiffs’ failure to establish

specific dates barred portions of their complaint asserting false IRS

disclosures to a foreign tax authority), appeal docketed, No. 10-17136

(9th Cir. Sept. 24, 2010).

2. Amcor Capital Corp. v. United States, No. CV 94-6814 (GHKx), 1995

WL 515690, at *2-5 (C.D. Cal. June 13, 1995) (unauthorized disclosure

claim was time-barred because plaintiff failed to allege that it

discovered the unauthorized disclosure within two years of date claim

was made against United States; plaintiff's own letters and internal

memoranda proved that its allegations of not discovering the

government's misconduct and unauthorized disclosures until a later

date were false), aff'd, 106 F.3d 406 (table cite), 1997 WL 22248 (9th

Cir. Jan. 15, 1997).

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3. Carlson v. United States, CV. No. 94-00924 ACK, 1995 WL 687110, at

*2 (D. Haw. Sept. 22, 1995) (action filed in 1994 was outside the

limitations period when Certificate of Assessments and Payments

demonstrated that the administrative levies made against plaintiff

resulted in payments to IRS in 1989 and 1990).

4. Clark v. Internal Revenue Service, No. 06-CV-00544, 2011 WL

3157196, *15-16 (D. Haw. July 26, 2011) (District Court held that it did

not have jurisdiction over plaintiff’s section 7431 action upon finding

that plaintiff had actual knowledge that the Service issued a refund

check to an incorrect party (and thus made an unauthorized disclosure)

more than sixteen years before plaintiff filed her lawsuit alleging the

unauthorized disclosure of return information. The court concluded

that plaintiff’s “knowledge of the improperly issued refund check put her

on inquiry notice of any disclosures prior to the issuance of the refund

check.” Thus, the court did not have jurisdiction over plaintiff’s section

7431 lawsuit.)

5. Darby v. Jensen, 75 A.F.T.R.2d 95-2549, at *11-12 (D. Colo. May 15,

1995) (complaint, filed March 10, 1994, was outside statute of

limitations where plaintiff alleged his response to the IRS's letter

concerning dispute about 1989 exemptions and tax withholding was

mailed on March 22, 1991), aff’d, 78 F.3d 597 (table cite), 1996 WL

84111 (10th Cir. Feb. 27, 1996).

6. Gandy v. United States, 234 F.3d 281, 283-84 (5th Cir. 2000) (plaintiff

became aware that circular letters were sent to clients in September

1990, but suit was filed in August 1996; therefore, the section 7431

claim pertaining to those letters was time barred).

7. Hobbs v. United States, 1997 U.S. Dist. LEXIS 19230, at *18 (S.D.

Tex. Nov. 3, 1997) (plaintiff was aware that disclosures of his returns

and return information were made as early as 1990 and certainly by

April 1994; thus, when suit was brought in November 1996, claims

which accrued prior to November 1994 were time barred).

8. Pack v. United States, Civil No. 90-1002-LKK-PAN, 1991 U.S. Dist.

LEXIS 15523, at *3-4 (E.D. Cal. Oct. 11, 1991) (claims time barred

where plaintiff failed to submit any admissible evidence that he

discovered alleged wrongful disclosures within two years of filing of

complaint).

9. William E. Schrambling Accountancy Corp. v. United States, 689 F.

Supp. 1001, 1008 (N.D. Cal. 1988) (claims regarding levies issued

more than two years before filing of lawsuit barred by the statute of

limitations).

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G. Limited Stay of Discovery

Courts will often issue a limited stay of discovery in section 7431 cases while

awaiting the outcome of a pending related criminal proceeding.

1. Diamond v. United States, No. 3:87-cv-80086 (S.D. Iowa Sept. 6,

1990) (limited stay of discovery in section 7431 case because there

was a potential criminal prosecution of the plaintiff pending)

(subsequent history omitted).

2. Lancon v. United States, No. 4:92-cv-3499 (S.D. Tex. Feb. 11, 1998)

(Order Nov. 12, 1993 to "administratively close” section 7431 action

until conclusion of criminal proceedings involving the IRS employee

who made the alleged unauthorized disclosure).

3. McQueen v. United States, No. 4:91-cv-329 (S.D. Tex. Sept. 29, 1997)

(June 7, 1991 order granting an unlimited stay of discovery pending

resolution of related criminal investigation).

H. Survivability

Courts are split in determining whether a cause of action under section 7431

survives death of the plaintiff such that a plaintiff's estate may be substituted for

the plaintiff.

1. Schachter v. United States, 847 F. Supp. 140, 141-42 (N.D. Cal. 1993)

(rejecting argument that a section 7431 case was in the nature of a

personal tort action not intended to survive plaintiff's death, instead

finding it a property interest that should survive death and noting that

the statute provided for actual damages, an indication that property

rights were to be taken into account; administrator could be substituted

as plaintiff).

2. Shapiro v. Smith, 652 F. Supp. 218, 218-19 (S.D. Ohio 1986) (statute

was designed to protect only personal privacy rights and is therefore

governed by the rule that privacy actions do not survive the death of

the injured party).

I. Standing

1. Brown v. United States, 755 F. Supp. 285, 286-87 (N.D. Cal. 1990) (no

cause of action for disclosure of a Notice of Levy to plaintiff's employer

regarding her former husband's liability because it was not plaintiff's

return information, but that of her husband; under section 6103 there

had been no wrongful disclosure of her return information).

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2. Haywood v. United States, 642 F. Supp. 188, 192 (D. Kan. 1986)

(notice sent to taxpayer's employer revealed husband's tax liability, not

plaintiff's).

3. Kaiawe v. Dep't of Treasury, Civ. No. 95-00166 HG, 1995 WL 552260,

at *1 (D. Haw. June 21, 1995) (notwithstanding plaintiff's status as

president and sole shareholder of corporate taxpayer, plaintiff lacked

standing to assert wrongful disclosure and wrongful collection claims

pursuant to sections 7431 and 7433 on behalf of corporate taxpayer;

no evidence was presented that plaintiff was taxpayer's alter ego or

that he had personally suffered any injury).

4. Newberry v. United States, No. LR-C-86-13, 1986 WL 9460, at *3 (E.D.

Ark. June 4, 1986) (allegation that IRS received information unlawfully

resulted in dismissal for failure to state a claim under section 7431

because action lies only for the improper disclosure of returns or return

information).

5. Rogers v. United States, No. 94-1305-J(AJB), 1995 WL 775245, at *1

(S.D. Cal. Oct. 24, 1995) (government incorrectly assumed that plaintiff

was asserting that the return information of a third party was wrongfully

disclosed; court read complaint to clearly assert that plaintiff's own

return information was wrongfully disclosed and thus the government’s

motion to dismiss for lack of standing was denied).

6. Ruiz-Rivera v. IRS, 226 F. Supp. 2d 345, 349 (D.P.R. 2002) (only the

taxpayer whose return or return information has allegedly been

disclosed has standing to sue under section 7431).

7. Simpson v. United States, No. 91-30293 RV, 1991 WL 330932, at *2-3

(N.D. Fla. Nov. 27, 1991) (plaintiff’s allegations that - concerning

investigation of husband - circular letters requesting payment history of

husband, his company or payments made to plaintiff, insufficient to

confer standing to sue upon plaintiff), aff'd mem., 986 F.2d 507 (table

cite) (11th Cir. 1993).

8. Soghomonian v. United States, 82 F. Supp. 2d 1134, 1147 (E.D. Cal.

1999) (wife of taxpayer complainant does not have standing under

section 7431; also, where information disclosed was that of

partnership, not the plaintiff, and plaintiff was neither a partner nor

liable for partnership’s taxes; plaintiff does not have standing to sue for

unauthorized disclosure of return information).

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VI. OTHER CODE SECTIONS AUTHORIZING DISCLOSURE

Section 6103(a) provides that return information is confidential and may not be

disclosed "except as otherwise provided by" Title 26. Accordingly, permissible

disclosures of returns and return information are not limited to the exceptions to the

general rule enumerated in section 6103(c)-(o).

A. Case Law

1. Messinger v. United States, 769 F. Supp. 935, 938 (D. Md. 1991)

(under section 3406(c)(1), the IRS is authorized to release return

information to financial institutions to notify them of the necessity to

deduct interest and dividends for payees who are underreporting when

certain conditions occur; “Title 26 U.S.C. § 3406(c)(1) allows the IRS to

disclose the return information in question, provided that it met the

specific requirements set forth in the statute”).

2. O’Donnell v. United States, No. 84-2055-CIV-KEHOE, 1985 WL 1565,

at *2-3 (S.D. Fla. Mar. 26, 1985) (the IRS did not violate section 6103

by disclosing to plaintiff’s employer that plaintiff had filed a defective

certificate of exemptions because section “6103(a) prohibits the

disclosure of certain tax information except as authorized by this title

which refers to Title 26 U.S.C., the Internal Revenue Code,” and

section 3402 requires an employer to withhold taxes from wages in

accordance with procedures promulgated by the Secretary; inasmuch

as the procedures provide that the IRS will notify the employer when

the certificate is defective, it is evident that the IRS cannot so notify the

employer without disclosing the employee’s return information).

3. Swierkowski v. United States, 620 F. Supp. 149, 151 (E.D. Cal. 1985)

(section 3402(m)-(n) authorizes the promulgation of regulations relating

to claims for withholding allowances and for exemptions from

withholding; Treas. Reg. § 31.3402(f)(2)-1(g)(5) instructs the IRS to

furnish an employer with information such as an employee's status,

withholding allowances, etc.), aff'd mem., 800 F.2d 1145 (9th Cir. 1986)

(table cite).

4. Van Skiver v. United States, No. 89-1490-C, 1990 WL 11038, at *2 (D.

Kan. Jan. 31, 1990) (subsequent history omitted) (dealing with the

disclosure of return information through the filing of proper Notices of

Federal Tax Lien and issuing of levies authorized under Title 26; as a

matter of law, “[b]oth acts are not only permitted but required by the

statutes and the Regulations of the Internal Revenue Service when tax

assessments have been made and unpaid”; thus disclosures to

effectuate such liens or levies do not violate section 6103).

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B. I.R.C. § 9706(f)(1)

A mine operator can, within 30 days of receipt of an assignment of a United Mine

Workers of America (UMWA) beneficiary, “request from the Commissioner of the

Social Security Administration detailed information as to the work history of the

beneficiary and the basis of the assignment.” I.R.C. § 9706(f)(1). If section

9706(f)(1) permits the mine operator to request the wage information of the

assigned beneficiaries from the SSA, it necessarily implies that the SSA can

disclose the wage information to the mine operators. Section 9706 also

contains, at subparagraph (g), a provision pertaining to the confidentiality of such

information.

CONFIDENTIALITY OF INFORMATION — Any person to which

information is provided by the Commissioner of Social Security under this

section shall not disclose such information except in any proceedings

related to this section. Any civil or criminal penalty which is applicable to

an unauthorized disclosure under section 6103 shall apply to any

unauthorized disclosure under this section.

Reading subsections (g) and (f) of section 9706 in concert suggests that

Congress had a distinct reason for allowing and limiting the disclosure of

beneficiaries’ wage information in order to effectuate the Energy Policy Act of

1992, amended by Pub. L. No. 103-296, Title I, § 108(h)(9)(B) (1994), 108 Stat.

1487 and Pub. L. No. 109-432, Div. C, Title II, § 212(a)(3) (2006), 120 Stat.

3025.

For additional provisions of the Code that authorize the disclosure of returns and

return information, see generally Chapters 2 - 12, 14.

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PART III: CRIMINAL LIABILITY FOR WILLFUL

UNAUTHORIZED INSPECTION AND DISCLOSURE

I. I.R.C. § 7213 – UNAUTHORIZED DISCLOSURES

A. Background

Section 7213(a) provides for felony criminal liability for the willful unauthorized

disclosure of returns and return information, punishable by imprisonment of not

more than five years, or a fine of not more than $5000, or both, together with

prosecution costs. In the case of an employee or officer of the United States,

section 7213 mandates that the employee or officer be dismissed from office or

discharged from employment upon conviction. The statute does not create a

right of action for a taxpayer against the United States. See Nordbrook v. United

States, 96 F. Supp. 2d 944, 948 (D. Ariz. 2000) (district court dismissed plaintiffs’

claims premised on RICO, wire fraud, false statement, unauthorized disclosures,

and extortion, concluding that these criminal statutes do not apply to the United

States).

Although section 7213 expressly provides for a fine of not more than $5,000, 18

U.S.C. § 3571(b)(3) authorizes a greater fine if certain factors are present. See

generally UNITED STATES SENTENCING COMMISSION, UNITED STATES SENTENCING

GUIDELINES MANUAL, § 5E1.2 (2003), and commentary. For purposes of

sentencing, United States Sentencing Guidelines Manual § 2H3.1 (2009) is

applied. See UNITED STATES SENTENCING COMMISSION, UNITED STATES

SENTENCING GUIDELINES MANUAL, APP. A, 18 U.S.C. App. A (2000). 18 U.S.C.

§ 3571(b)(3) provides for a fine no more than the greater of the amount in the

Code section or $250,000.

B. Elements of I.R.C. § 7213

To sustain a conviction under section 7213(a)(1), the United States must prove

beyond a reasonable doubt that: (1) an officer or employee of the United States,

or any person described in section 6103(n), or a former officer or employee; (2)

disclosed; (3) returns or return information; (4) in a manner not authorized by the

Internal Revenue Code; and (5) the disclosure was made willfully.

1. Persons Covered

a. Section 7213(a)(1) expressly applies to "any officer or employee

of the United States or any person described in section 6103(n)

(or an officer or employee of any such person), or any former

officer or employee." (emphasis added).

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b. It applies to State officers and employees and anybody else who

receives the information under the authority of the Code

sections listed in section 7213(a)(2).

c. Section 7213(a)(3) makes it a criminal offense for any person to

whom returns or return information is disclosed in a manner

which is not authorized by Title 26 willfully to print or publish in

any manner not provided by law any such return or return

information. In other words, a party who knowingly receives

returns or return information in a manner not permitted by Title

26 may be subject to criminal sanctions if such party knowingly

rediscloses, through some media, a return or return information

in a manner not authorized by Title 26.

2. Disclosed

a. Although section 7213 does not define "disclose," or any variant

of that term, section 6103(b)(8) defines "disclosure" as "[t]he

making known to any person in any manner whatever a return or

return information."

b. In cases decided under section 7431, which provides a civil

remedy for unauthorized disclosures of returns and return

information, there is a split of authority regarding whether

returns and return information may be "disclosed," within the

meaning of section 6103, when they are already a matter of

public record as a result of the IRS's tax administration activities

or in judicial tax proceedings.

The Service adheres to a limited public records exception. For a more

detailed discussion of the public record exception to section 6103, see

generally Chapter 2, Part IV.

3. Return or return information

Section 7213(a) expressly references section 6103(b) for the definitions of

return and return information. See generally Chapter 2.

4. Not authorized by the Internal Revenue Code

For a disclosure of any return or return information to be authorized by the

Code, there must be an affirmative authorization because section 6103(a)

otherwise prohibits the disclosure of any return or return information by

any person covered by section 7213(a)(1). In general, however, section

6103 is the primary, but not exclusive, provision of Title 26 that authorizes

disclosure. Section 6103 contains numerous subsections addressing

1-49

various circumstances in which returns and return information may be

disclosed.

5. Willfulness

Section 7213 was amended in 1978 to require proof that a disclosure was

made "willfully." Revenue Act of 1978, Pub. L. No. 95-600

§ 701(bb)(6)(A), 92 Stat. 2763 (1978). The Staff of the Joint Committee

on Taxation explained that the term "willfully" as used in the amendment

of section 7213 relates to a "voluntary, intentional violation of a known

legal duty," citing United States v. Pomponio, 429 U.S. 10, 12 (1976).

General Explanation of the Revenue Act of 1978, H.R. 13511, Pub. L. No.

95-600 (JCS-1-79), at 398 (J. Comm. Print 1979). In Pomponio, the

Supreme Court explained that the term "willfully," in the context of criminal

violations of the Code, does not require a showing of evil motive beyond a

specific intent to violate the law, holding the term simply connotes a

voluntary, intentional violation of a known legal duty. 429 U.S. at 12.

C. Statute of Limitations

The statute of limitations applicable to offenses under section 7213 is section

6531, which prohibits prosecution "unless an indictment is found or the

information instituted within 3 years next after the commission of the offense . . ."

This period is tolled, however, for any period of time that the offender is outside

the United States or is a fugitive from justice within the meaning of 18 U.S.C.

§ 3290.

D. Cases Under I.R.C. § 7213(a)

1. United States v. Beretta, No. 5:93-cr-20013 (N.D. Cal. sentenced Mar.

28, 1994) (indictment of IRS employee for, inter alia, willfully disclosing

tax return information to a third party; employee subsequently pled

guilty to this charge).

2. United States v. Kynard, No. 4:95-cr-00229 (S.D. Tex. sentenced Feb.

20, 1996) (an IRS computer assistant entered a plea of guilty for the

unauthorized disclosure of return information in violation of section

7213, admitting that, at the request of her husband's boss, she used

the IRS's Integrated Data Retrieval System (IDRS) to gain

unauthorized access to return information of the requester’s partner

and disclosing this information to the requester; employee sentenced to

five years probation, a $5,000 fine, and 100 hours of community

service).

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3. United States v. Marty, No. CR-F-87-3 (E.D. Cal. June 8, 1987) (IRS

employee disclosed return information to assist family members'

business enterprise and government had recommended probation; in

sentencing employee to one year in prison for disclosing return

information to assist family members’ business enterprise, court

"absolutely amazed" at government recommendation of probation,

observing "[t]he crime strikes at the very heart of the internal revenue

system"; if people could not be certain that their return information was

confidential, the voluntary system of self assessment would collapse

and further expressed hope that the "sentence is widely communicated

to other" IRS employees).

4. United States v. Moore, 47 F.3d 1171 (table cite), No. 94-5342, 1995

WL 7969, at *3 (6th Cir. Jan. 9, 1995) (per curiam) (conviction and

sentence of 19 months in prison and five years probation affirmed for

IRS tax adjuster who examined taxpayer accounts on IRS computer

systems without authorization and later disclosed information he

accessed in letters; United States was required to prove not only that

employee accessed return information on the IRS's computers, but that

he also disclosed it).

5. United States v. Richey, 924 F.2d 857, 863 (9th Cir. 1991) (upheld

conviction of former IRS employee for willfully disclosing to the press

that while he was an IRS employee and before the judge’s appointment

to the bench, he had audited the judge’s tax returns and found

discrepancies; statements to the press in violation of section 6103 were

not protected by the First Amendment).

6. United States v. Schultz, No. 2:95-cr-277 (E.D. Pa. sentenced

Oct. 6, 1995) (employee entered a guilty plea to one count of

unauthorized disclosure of information under section 7213(a)(1) for

accessing IDRS and obtaining third-party return information that she

forwarded to an attorney who was representing her in a matter

unrelated to any duties she had as an IRS employee; guilty plea

memorandum that United States Attorney submitted to the court stated

that government had evidence confirming that the attorney was

representing the employee without an increased fee in return for the

tax disclosures that the attorney wanted for pursuing her own affairs).

7. United States v. Wilson, No. 1:95-cr-350 (N.D. Ohio sentenced

Jan. 16, 1996) (employee pled guilty to one count of unauthorized

disclosure of information under section 7213(a)(1) acknowledging that,

while employed as a taxpayer service representative, she accessed

return information from an IRS computer multiple times and disclosed

some of the return information to a third party).

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E. Additional Provisions of I.R.C. § 7213

Each of the offenses is punishable by the same term of imprisonment and/or fine

applicable to violations of section 7213(a)(1), together with the costs of

prosecution.

1. Section 7213(a)(2) makes it a criminal offense for state employees and

other persons who acquire returns or return information pursuant to

certain selected provisions of section 6103 willfully to disclose those

returns and return information, except as authorized by the Code.

2. Section 7213(a)(3) makes it a criminal offense for any person to whom

returns or return information is disclosed in a manner which is not

authorized by Title 26 willfully to print or publish in any manner not

provided by law any such return or return information. In other words,

a party who knowingly receives information in a manner not permitted

by Title 26 may be subject to criminal sanctions if such party knowingly

rediscloses, through some media, a return or return information in a

manner not authorized by Title 26.

3. Section 7213(a)(4) makes it a criminal offense for any person willfully

to offer any item of material value in exchange for returns or return

information and to receive as a result of such solicitation any such

return or return information.

4. Section 7213(a)(5) makes it a criminal offense for any person to whom

returns or return information is disclosed pursuant to section

6103(e)(1)(D)(iii) (i.e., a person who is at least a one-percent

shareholder) to disclose such returns or return information in any

manner not provided by law.

Note: This criminal provision comports with section 6103(a)(3),

which imposes the general disclosure prohibition of section 6103 on

one-percent shareholders, as well as officers and employees of the

United States, among others.

II. I.R.C. § 7213A – UNAUTHORIZED ACCESSES (UNAX)

A. Background

"Browsing" is a term used to describe the unauthorized access to, or inspection

of, returns or return information without regard to whether the "browser" further

disclosed that information to another person. The IRS also refers to this activity

as unauthorized access, or UNAX. UNAX typically arises in the context of IRS

employees accessing taxpayer accounts on an automated database, such as the

Integrated Data Retrieval System (IDRS), without a tax administration purpose.

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Section 7213A(b) provides that a conviction can result in a fine in any amount not

exceeding $1,000, or imprisonment of not more than a year, or both. In addition,

conviction results in a dismissal from office or discharge from employment.

Although section 7213A expressly provides for a fine of not more than $1,000, 18

U.S.C. § 3571 authorizes a greater fine if certain factors are present. See

generally UNITED STATES SENTENCING COMMISSION, UNITED STATES SENTENCING

GUIDELINES MANUAL, § 5E1.2 (2003), and commentary. For purposes of

sentencing, United States Sentencing Guidelines Manual § 2H3.1 (2009) is

applied. See UNITED STATES SENTENCING COMMISSION, UNITED STATES

SENTENCING GUIDELINES MANUAL, APP. A, 18 U.S.C. App. A (2000). Section 3571

of Title 18 provides for a fine of no more than the greater of the amount in the

Code section or $100,000. See UNITED STATES SENTENCING COMMISSION, UNITED

STATES SENTENCING GUIDELINES MANUAL APP. A, 18 U.S.C. App. A (2000). See

also REVENUE RECONCILIATION ACT OF 1997, REPORT OF THE COMMITTEE ON THE

BUDGET OF THE HOUSE OF REPRESENTATIVE TO ACCOMPANY H.R. 2014, H.R. REP.

NO. 105-148, at 612 n.16 (Comm. Print 1997) (“Pursuant to 18 U.S.C. sec. 3571

(added by the Sentencing Reform Act of 1984), the amount of the fine is not

more than the greater of the amount specified in this new Code section or

$100,000”).

1. Section 7213A(a)(1) makes it unlawful for any officer or employee of

the United States, or any person described in section 6103(l)(18) or (n)

or officer or employee of such person, to willfully inspect, except as

authorized in Title 26, any return or return information.

2. Section 7213A(a)(2), relating to state and other employees who

acquired returns or return information under certain provisions of

section 6103, makes it "unlawful for any [such] person willfully to

inspect such return or return information except as authorized by [Title

26]."

B. Elements of I.R.C. § 7213A

To sustain a conviction under section 7213A(a), the United States must prove

beyond a reasonable doubt that: (1) an officer or employee of the United States,

any person described in section 6103(l)(18) or (n), or a state or other employee

described in section 7213A(a)(2); (2) inspected; (3) any return or return

information; (4) in a manner not authorized by the Internal Revenue Code; and

(5) such inspection was made willfully. The elements are identical to the

elements of a section 7213 offense, with the exception that in the place of an

unauthorized “disclosure,” the prosecution must demonstrate that there was an

unauthorized “inspection.”

Although section 7213A does not define "inspect," or any variant of that term, it

specifically refers to the definitional section at section 6103(b)(7). Section

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6103(b)(7) states that the "terms 'inspected' and 'inspection' mean any

examination of a return or return information." The legislative history evidences a

congressional intent to prohibit unauthorized inspections:

The Committee believes that it is important to have a criminal penalty in

the Internal Revenue Code to punish this type of behavior. . . . The

Congress views any unauthorized inspection of tax returns or return

information as a very serious offense; this new criminal penalty reflects

that view. The Congress also believes that unauthorized inspection

warrants very serious personnel sanctions against IRS employees who

engage in unauthorized inspection, and that it is appropriate to fire

employees who do this.

REVENUE RECONCILIATION ACT OF 1997, H.R. REP. NO. 105-148, reprinted in

Report of the Committee on the Budget House of Representatives to Accompany

H.R. 2014, 105th Cong., 611-12 (1997). The statute specifically provides that

the element of willfulness must be met, as it must be for section 7213 violations.

This is intended to exempt inspections resulting from inadvertent or mistaken

accesses.

III. 18 U.S.C. § 1030(a)(2)(B) – UNAUTHORIZED COMPUTER ACCESSES

A. Statutory Provisions

The Economic Espionage Act of 1996, Pub. L. No. 104-294, 110 Stat. 3488,

amended 18 U.S.C. § 1030(a)(2) to penalize whoever “intentionally accesses a

computer without authorization or exceeds authorized access, and thereby

obtains . . . (B) information from any department or agency of the United

States . . . . ”

The elements of the offense which the United States has to demonstrate, beyond

a reasonable doubt, are that an individual (1) intentionally; (2) accesses a

computer; (3) without authorization or exceeding authorization; and (4) obtains

information from any department or agency of the United States. The statute of

limitations applicable to an offense under 18 U.S.C. § 1030 expires five years

after the date of the alleged offense. 18 U.S.C. § 3282. This statute places no

limitation on the status of the individual making the unauthorized access, i.e., it is

not limited to United States employees.

B. Punishment

18 U.S.C. § 1030(c) has an elaborate punishment provision, depending upon

whether the conviction is a first offense, and whether there is commercial or

financial gain. For purposes of sentencing, United States Sentencing Guidelines

Manual § 2B1.1 (2010) is applied. See UNITED STATES SENTENCING COMMISSION,

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UNITED STATES SENTENCING GUIDELINES MANUAL, APP. A, 18 U.S.C. App. A

(2000).

Note: Section 7213 applies to unauthorized disclosures by former

employees, whereas section 7213A does not apply to former employees.

18 U.S.C. § 1030(a)(2)(B) applies only to the unauthorized access to

government information stored on computers; it does not address

unauthorized access to information stored on other media, e.g., paper

files. On the other hand, section 7213A applies to all unauthorized

inspections of returns and return information, regardless of storage

medium.

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CHAPTER 2

PART I: DEFINITIONS

I. I.R.C. § 6103(b) – DEFINITIONS

A. "Return" – I.R.C. § 6103(b)(1)

1. Tax or information returns (e.g., Forms 1040, 1120, 941, 1099), estimated tax

declarations, or refund claims, and any amendments or supplements,

including supporting schedules (e.g., Schedules A and B for 1040, Schedule

K-1), attachments, or lists which are supplemental to, or part of, the return;

2. That are required by, provided for, or authorized by Title 26; and

3. That are filed with the Secretary by, on behalf of, or with respect to, any

person.

a. "Secretary" means Secretary of the Treasury or his delegate. I.R.C.

§ 7701(a)(11)(B). Thus, “Secretary” includes any officer or employee

of the Department of the Treasury authorized to perform the acts

referred to in each provision of the Code.

b. Forms W-2 and W-3 filed with the Social Security Administration

pursuant to the Combined Annual Wage Reporting program in

accordance with sections 6041, 6051, and 6103(l)(5), are “returns”

within the meaning of section 6103(b). Judicial Watch, Inc. v. SSA, 799

F. Supp. 2d 91, 96, 97 (D.D.C. 2011) (FOIA request for a listing of

employers sent the most “no-match” letters (based upon the Forms W2 filed by the employers) denied because the listing, like the letters, are

the return information of the employers that file the Forms W-2); Davis,

Crowell & Bowe, LLP v. SSA, 2002 WL 1034085 (N.D. Cal. May 16,

2002) (FOIA request sought mismatch information related to W-2 filings

by certain employers), vacated, 281 F. Supp. 2d 1154 (N.D. Cal. 2003)

(joint motion to vacate due to settlement granted.);

c. Copies of returns retained by the taxpayer are not protected by section

6103. See, e.g., Stokwitz v. Dep’t of Navy, 831 F.2d 893, 894-96 (9th

Cir. 1987) (civilian's personal copies of his tax returns, retained in his

office and taken by Navy agents during an investigation, were not

return information), cert. denied, 485 U.S. 1033 (1988); Memorandum

Opinion for the General Counsel, Federal Mine Safety and Health

Review Commission, 3 Op. O.L.C. 201, 201 (1979); S. REP. NO. 94938, at 330, 1976-3 C.B. 369 (1976) ("By this amendment [creating

6103(h)], the Committee does not [intend] to limit the right of an agency

(or other party) to obtain returns and return information directly from the

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taxpayer through the applicable discovery procedures."); Hrubec v.

Nat’l R.R. Passenger Corp., No. 91 C 4447, 1994 WL 27882, at *2-3,

n.4 (N.D. Ill. Jan. 31, 1994) (section 6103 “was not intended to curtail

the behavior of people without legitimate access to tax information, but

to ensure that the IRS and other government agencies behave

responsibly in disseminating tax data,” and should not be construed as

a general prohibition against the release of tax information by any

party), aff'd, 49 F.3d 1269 (7th Cir. 1995).

d. "Fifth Amendment" returns with jurat crossed out, left blank except for

Fifth Amendment plea, or those not containing sufficient financial

information from which a tax liability could be calculated, are not

"returns." I.R.C. § 7203.

B. "Return Information" – I.R.C. § 6103(b)(2)

1. Taxpayer's identity (name of person with respect to whom a return is

filed, the person’s mailing address, and taxpayer identifying number

(e.g., SSN, EIN, ATIN, or ITIN), or a combination thereof). I.R.C.

§ 6103(b)(6) and (b)(9); or

2. The nature, source, or amount of income, payments, receipts,

deductions, exemptions, credits, assets, liabilities, net worth, tax

liability, tax withheld, deficiencies, overassessments, tax payments; or

3. Whether the return was, is being, or will be examined or subject to

other investigation or processing; or

4. Any part of any written determination or background file document

which is not open to public inspection under section 6110; or

5. Any advance pricing agreement entered into by a taxpayer and the

Secretary and any background information related to such agreement

or any application for an advance pricing agreement; or

6. Any closing agreement under section 7121, and any similar agreement,

and background information related to the agreement or request for

agreement; or

7. Any other data; and

8. Which is received by, recorded by, prepared by, furnished to, or

collected by the IRS; and

9. With respect to a return or with respect to the determination of the

existence or possible existence of liability or the amount of liability;

10. Of any "person," see section 7701(a)(1);

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11. Under Title 26;

12. For any tax, penalty, interest, fine, forfeiture, or other imposition or

offense.

The term “return information” is broad and includes any information gathered by

the IRS with regard to a taxpayer's liability under the Code. See McQueen v.

United States, 264 F. Supp. 2d 502, 516 (S.D. Tex. 2003), aff’d, 100 F. App’x

964 (5th Cir. 2004); LaRouche v. Dep’t of Treasury, 112 F. Supp. 2d 48, 54

(D.D.C. 2000) ("return information is defined broadly"); Hull et al v. IRS, 656 F.3d

1174, 1195-96 (10th Cir. 2011) (Data created or compiled by the IRS while

determining an employee benefit plan’s compliance is return information).

Despite the breadth of the statutory definition, some courts rejected the IRS’s

position that certain matter constituted return information. The D.C. Circuit

rejected the IRS’s position in a FOIA case that field service advice memoranda,

which were written generally to provide advice to field examiners during the

audits they were conducting of taxpayers, constitute return information in their

entirety, ruling that the national office subject matter experts’ legal analyses

contained in the memoranda was not “data” within the meaning of “return

information” found in section 6103(b)(2)(A). Tax Analysts v. IRS, 117 F.3d 607,

611-16 (D.C. Cir. 1997). In Kamman v. IRS, 56 F.3d 46, 49 (9th Cir. 1995), rev’g

1993 WL 522891 (D. Ariz. July 7, 1993), the 9th Circuit found that the affidavits

introduced by the government in support of its motion for summary judgment in a

FOIA case failed to demonstrate how property appraisals obtained by revenue

officers during their efforts to collect on a taxpayer’s (already established) tax

liability fit within the definition of return information.

Section 521, Title V, of the Ticket to Work and Work Incentives Improvement Act

of 1999, Pub. L. No. 106-170, 113 Stat. 1860, 1925-27 (effective December 17,

1999), amended section 6103 to expressly provide that advance pricing

agreements (APAs) and related background information are confidential return

information. Related background information includes: the request for an APA,

any material submitted in support of the request, and any communication (written

or otherwise) prepared or received by the IRS in connection with an APA,

regardless of when the communication is prepared or received. Protection is not

limited to agreements actually executed; it includes material received and

generated in the APA process that does not result in an executed agreement.

See 149 CON. REC. S10297-02 *10330 (July 30, 2003).

Section 304(a) of the Consolidated Appropriations Act of 2001, Pub. L. No. 106554, 114 Stat. 2763, 2763A-632-33 (effective December 21, 2000), amended

section 6103(b)(2) to explicitly provide that closing agreements under section

7121, similar agreements, and background information concerning them, are

confidential return information under section 6103(b)(2)(D).

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Information concerning Title 26 violations that are not connected to assessment

or collection of taxes (e.g., sections 7213, 7214) is "return information" of the

person(s) being investigated. See, e.g., O'Connor v. IRS, 698 F. Supp. 204, 206

(D. Nev. 1988) (a threat against an IRS employee is a violation of section 7212

and information collected with respect to that offense is return information), aff’d

mem., 935 F.2d 275 (9th Cir. 1991); Conn v. United States, No. C-91-2192JW

(PVT), 1991 WL 333707, at *1, 92-1 U.S.T.C. 50,123 (N.D. Cal. Dec. 10, 1991)

(investigation report prepared by Inspection concerning conduct of IRS employee

accused of making unauthorized disclosure is return information of the accused

employee).

Though protest "Fifth Amendment" returns with crossed-out jurats are not

“returns,” as noted above, they are "return information."

The courts are split with respect to whether information that the Department of

Justice (DOJ) generates or obtains after the IRS’s referral of the tax case is

“return information.” United States v. Bacheler, 611 F.2d 443, 449 (3d Cir. 1979)

determined that this is return information because DOJ acted as the Secretary’s

attorney. By contrast, the court in Ryan v. United States, 74 F.3d 1161, 1163

(11th Cir. 1996), ruled that the statutory definition of return information confines it

to information that has passed through the IRS, and therefore a prosecutor's

memorandum distilled from statements of trial witnesses in a criminal tax case

were not return information. See also Baskin v. United States, 135 F.3d 338,

342-43 (5th Cir. 1998) (IRS special agent's possession of data collected by a

grand jury investigating nontax crimes did not transform the data into return

information, thus transfer of the data to Houston police officers was not

prohibited by section 6103).

Statistical compilations or other amalgamations that do not directly or indirectly

identify a particular taxpayer are excluded from coverage by the plain language

of the statute. I.R.C. § 6103(b)(2) (flush language, commonly referred to as the

Haskell amendment).

Return information from which identifiers (e.g., name, taxpayer identification

number, zip code) have been deleted is still subject to the disclosure restrictions

of section 6103. The statute is more than an identity test. See Church of

Scientology of Cal. v. IRS, 484 U.S. 9, 14-18 (1987); Long v. IRS, No. 08-35672,

2010 WL 3677445 at *2-3 (9th Cir. Sept. 16, 2010) (confidential return

information “maintains that status when it appears unaltered in a tabulation with

only identifying information removed,” citing Long v. IRS, 891 F.2d 222, 223 (9th

Cir. 1989) (even after deletion of taxpayer identifying information, TCMP check

sheets containing reported and corrected return line item data were return

information, and were not a reformulated database eligible for disclosure under

the Haskell amendment)); Judicial Watch, Inc., 799 F. Supp. 2d at 96-97 (list of

employers sent “no-match” letters identifies particular employer taxpayers and

therefore is not a statistical compilation).

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C. "Taxpayer Return Information" – I.R.C. § 6103(b)(3)

Taxpayer return information is return information filed with or furnished to the IRS

by or on behalf of the taxpayer to whom the information relates. Information filed

on the taxpayer's behalf by the taxpayer's representative (e.g., attorney or

accountant), either voluntarily or pursuant to summons, is taxpayer return

information.

1. An item taken directly from a return is taxpayer return information.

2. The distinction between “return information” and “taxpayer return

information” is significant only in the context of disclosures for nontax

federal criminal matters under section 6103(i). See generally

Chapter 5.

D. "Tax Administration" – I.R.C. § 6103(b)(4)

1. Administration, management, conduct, direction, and supervision;

2. Of the execution and application of the internal revenue laws and

related statutes (or equivalent laws of a state);

3. And tax conventions to which the United States is a party; and

4. The development and formulation of federal tax policy relating to

existing internal revenue laws, related statutes, and tax conventions;

5. Including assessment, collection, enforcement, litigation, publication,

and statistical gathering;

6. Under the internal revenue laws, related statutes, and conventions.

The meaning of “tax administration” is sweeping. See, e.g., First W. Gov’t Sec.,

Inc. v. United States, 796 F.2d 356, 360 (10th Cir.1986) (the term “tax

administration” should be interpreted broadly). Nonetheless, not every act

performed by IRS officers and employees is a tax administration function. For

example, as an employer, the IRS routinely addresses employment and

personnel related issues. Whether an employment or personnel issue falls within

the category of a “tax administration” matter depends on the nexus between the

personnel matter at hand and the employee’s ability to support and further the

integrity of the tax laws. Although the relationship between an IRS employee’s

personal compliance with the tax laws and the integrity of the tax system, even

from a purely personnel perspective, is likely to be considered a tax

administration matter, an IRS employee’s compliance with nontax laws that may

affect his or her personnel status does not necessarily rise to the level of a “tax

administration” matter simply because the employer investigating the possible

noncompliance is the IRS. Compare Sanders v. State, 469 A.2d 476, 485 (Md.

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App. 1984) (prosecution for planned murder of revenue agent pertained to tax

administration and defendant's returns and return information were lawfully

disclosed in the prosecution) with United States v. Sumpter, 133 F.R.D. 580, 584

n.3 (D. Neb. 1990) (in case with insufficient factual record, court found no

indication that prosecution under 18 U.S.C. § 876 for mailing threatening letters

to IRS agent would cause case to be characterized as tax administration; court

would have granted evidentiary hearing to develop the facts, but deemed it

unnecessary because the relief sought by defendant, suppression of the

evidence, is unavailable for a violation of section 6103).

A state tax authority is authorized, by the tax administration exemption of section

6103(d), to disclose return information in the context of conducting an inquiry

designed to ensure the integrity of the state tax system. Rueckert v. IRS, 775

F.2d 208, 212 (7th Cir. 1985) (relevant, specific information disclosed in the

context of investigating a state tax agency employee’s outside employment

served to ensure the integrity of the state’s system of administering its tax laws,

and was authorized under section 6103).

The use of an IRS employee's returns for handwriting exemplars as evidence

that he prepared and filed false and fictitious returns in others' names was for a

tax administration purpose. United States v. Mangan, 575 F.2d 32, 40 (2d Cir.

1978), cert. denied, 439 U.S. 931 (1978).

Tax administration includes enforcement and litigation functions under the

internal revenue laws, including summons enforcement proceedings. See, e.g.,

Lebaron v. United States, 794 F. Supp. 947, 950 (C.D. Cal. 1992) (tax

administration includes IRS disclosures of returns and return information to a

magistrate during a proceeding to enforce an IRS administrative summons

issued to a third party).

A pro hac vice hearing for an attorney who sought to represent a taxpayer in a

criminal tax prosecution was not a matter pertaining to tax administration for

purposes of section 6103. McLarty v. United States, 741 F. Supp. 751, 755-56

(D. Minn. 1990), reconsideration granted 784 F. Supp. 1401 (D. Minn. 1991)

(defense motion for summary judgment on good faith defense denied).

A proceeding involving the efforts of a confidential informant to recover reward

money from the IRS for providing information leading to the collection of a

taxpayer’s unpaid taxes is a matter pertaining to tax administration under section

6103(b)(4). Confidential Informant 92-95-932X v. United States, 45 Fed. Cl. 556,

559 (2000).

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E. "Disclosure" – I.R.C. § 6103(b)(8)

The term “disclosure” means:

1. The making known

2. to any person

3. in any manner whatever

4. a return or return information.

There is no "making known" of return information if the recipient already has

knowledge of the information. See Brown v. United States, 755 F. Supp. 285,

287 (N.D. Cal. 1990); Haywood v. United States, 642 F. Supp. 188, 190-91

(D. Kan. 1986) (disclosure of taxpayer's name and taxpayer identification number

was tangential consequence of levy and was not material because employer

already knew that information).

If otherwise confidential return information has become a matter of public record

in a judicial or administrative proceeding pertaining to tax administration,

taxpayers no longer have a legitimate claim of privacy in the information and the

information is no longer afforded the protection of section 6103. See generally

Chapter 2, Part IV.

F. "Terrorist Incident, Threat, or Activity" – I.R.C. § 6103(b)(11)

The Victims of Terrorism Tax Relief Act of 2001, P.L. No. 107-134, 115 Stat.

2427 (2002) amended section 6103 in several places to specify authorized

disclosures to aid in combating terrorism. Section 6103(b)(11) was added to

define a terrorist incident, threat, or activity to mean an incident, threat or activity

involving an act of domestic terrorism as defined in 18 U.S.C. § 2331(5) or

international terrorism as defined in 18 U.S.C. § 2331(1).

II. I.R.C. § 6103 – WHOSE INFORMATION IS PROTECTED

A. Section 6103 of the Code Permits Disclosure Only as Authorized By

Title 26.

Before the Tax Reform Act of 1976, disclosures were permitted to the extent

"authorized by law.”

B. Deciding Whose Return/Return Information Is At Issue

1. The source of a tax return or return information is not always controlling.

The same item of information may be the return information of more than

one taxpayer, i.e., data supplied to the IRS by Taxpayer A that may

affect Taxpayer B's tax return may be the return information of Taxpayer

A alone, of Taxpayers A and B, of Taxpayer B alone, or of neither

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Taxpayer A nor B. For example, information contained on a Form 1099

may pertain to both the payor’s tax liability and the payee’s tax liability.

See Tanoue v. IRS, 904 F. Supp. 1161, 1166 (D. Hawaii 1995)

(information collected from FOIA requester during tax investigation of

third party was the third party’s return information).

2. Although information supplied by one taxpayer with respect to his or

her own tax liability often affects the liability of another taxpayer,

section 6103 does not automatically authorize disclosure to that second

taxpayer merely because of its possible effect. Compare Martin v. IRS,

857 F.2d 722, 725-26 (10th Cir. 1988) (following audit of partnership

and adjustment of co-partners’ individual returns, protest filed by each

partner was return information of filing partner, protected by section

6103; one partner was not entitled to disclosure under FOIA of protests

filed by other partners) with Solargistic Corp. v. United States, 921 F.2d

729, 731 (7th Cir. 1991) (the fact of an audit of a shelter promoter was

both promoter’s and investors’ return information; IRS disclosure of

information relating to a tax shelter promoted by a corporate taxpayer

in letters sent to the corporate taxpayer's customers/investors did not

constitute an unlawful disclosure of return information). See also MidSouth Music Corp. v. IRS, 818 F.2d 536, 539 (6th Cir. 1987) (audit of

shelter is also return information of investors); First W. Gov’t Sec., Inc.

v. IRS, 796 F.2d 356, 359-60 (10th Cir. 1986) (information in revenue

agent report was collected during audit of investors and was investors’

return information); Haywood v. United States, 642 F. Supp. 188, 192

(D. Kan. 1986) (disclosure of husband’s return information to wife’s

employer was not a disclosure of the wife’s return information).

3. "Basket Analogy" of Martin:

Suppose the IRS has a basket for each taxpayer and corporate

entity. When the IRS makes a determination about an entity's

return, the report is placed in the entity's basket. Under the

authority of section 6103(e), it is also placed in the baskets of the

entity's partners/shareholders. Individual reactions [i.e., protests] to

the report are placed only in the basket of that taxpayer. If the IRS

then reacts to the protests and [makes adjustments to] the entity's

return, that information is again placed both in the entity's basket

and in those of its partners/shareholders.

Martin, 857 F.2d at 725.

4. In determining whose return information it is, the key factor is not

whose tax liability may be affected by the data, but rather, whose tax

liability is under investigation by the IRS when the information is

obtained or generated by the IRS. Id.

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PART II: DISCLOSURES TO PERSONS WITH A MATERIAL INTEREST

I.R.C. § 6103(e)

I. I.R.C. § 6103(e) – DISCLOSURES UPON WRITTEN REQUEST

A. I.R.C. § 6103(e)(1)(A)

Individual returns are available to:

1. The individual who filed the return.

Example: Mr. and Mrs. Boggs filed separate returns for 1995. Mrs.

Boggs submitted a written request for Mr. Boggs' 1995 return. Mrs.

Boggs is authorized to receive only her own 1995 return; not her

husband’s.

2. The child of the individual to the extent necessary to comply with

section 1(g) (and for tax years beginning before December 31, 1997,

but not thereafter, section 59(j)).

Example: Carl Yaz, 13 year old son of the Yazs, files his own

separate return. To determine his applicable tax rate for his 1990

tax return pursuant to section 1(g), Carl submits a written request

for a copy of the Yazs' 1990 joint tax return. Carl is entitled to a

copy of his parents’ 1990 joint return only "to the extent necessary"

to comply with section 1(g); normally the entire return would not be

available to Carl because normally the entire return would not be

"necessary" for Carl's purposes.

B. I.R.C. § 6103(e)(1)(B)

Joint returns are available to either spouse on whose behalf the joint return was

filed.

Example: Ted and Alice filed a joint return for 1996. They divorced and

filed separate returns for 1997. In 1998, Alice submits a written request

for a copy of the 1996 joint return and Ted's 1997 return. Because a joint

return was filed in 1996, Alice is authorized to receive a copy of that

return. She may not, however, receive a copy of Ted's 1997 return.

Note: The IRS may not disclose to Alice whether Ted filed a return for

1997 or any information from or about such a return.

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C. I.R.C. § 6103(e)(1)(C)

Partnership returns are available to any person who was a member of the

partnership during any part of the period covered by the return.

March

Example: Partner A was a member of the ABC partnership from

16, 1990, through May 16, 1990. Partner A submits a written request for a

copy of the ABC's partnership return for 1990. Because A was a partner

of the ABC partnership for a part of the period covered by the return, A is

authorized to receive a copy of the return.

Example: The ABC partnership utilizes a fiscal year beginning July 1,

1996, and ending June 30, 1997 (“the 1996 return”). B became a partner

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.