United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

 Nos. 05-3636/05-3835

___________

Leonard Snider; National Sales & * 

Service, L.L.C., also known as * 

National Service Sales, L.L.C., * 

* 

Appellees/Cross-Appellants, * 

* 

v. *

*

United States of America, * 

* 

Appellant/Cross-Appellee. * 

___________

Appeals from the United States

No. 05-3639 District Court for the 

___________ Western District of Missouri.

Theresa J. Turley, formerly known as * 

Theresa J. Ballister, doing business as * 

AA Cleaning; Labor Resources, L.L.C., *

* 

Appellees, * 

* 

v. *

*

United States of America, * 

* 

Appellant. * 
-2-

___________

No. 05-3836

___________

Theresa J. Turley, formerly known as * 

Theresa J. Ballister, doing business as * 

AA Cleaning; Labor Resources, L.L.C., *

* 

Appellants, * 

* 

v. *

*

United States of America, * 

* 

Appellee. * 

___________

No. 05-4203

___________

Leonard Snider; National Sales & * 

Service, L.L.C., also known as * 

National Service Sales, L.L.C., * 

* 

Appellees, * 

* 

v. *

*

United States of America, * 

* 

Appellant, * 

____________________

Theresa J. Turley, formerly known as * 

Theresa J. Ballister, doing business as * 
1

The case was submitted for oral argument to Judges Heaney, Smith and

Gruender on June 12, 2006. Judge Heaney retired on August 31, 2006. Judge

Wollman joined the panel on October 27, 2006 for consideration of the matter. See 8th

Cir. R. 47E. 

2

26 U.S.C. § 7431

-3-

AA Cleaning; Labor Resources, L.L.C., *

* 

Appellees, * 

* 

v. *

*

United States of America, * 

* 

Appellant. * 

___________

Submitted: June 12, 2006

Filed: November 8, 2006 

___________

Before SMITH, WOLLMAN,1

 and GRUENDER, Circuit Judges.

___________

SMITH, Circuit Judge.

Certain Taxpayers sued the United States2

 alleging numerous disclosures of

taxpayer return information by Special Agent Robert Jackson of the Internal Revenue

Service (IRS), in violation of 26 U.S.C. § 6103. Following a bench trial, the district

court entered judgment in favor of Taxpayers. The court awarded actual, statutory, and

punitive damages, as well as expert witness and attorney's fees. The government

appeals, raising several allegations of error. Taxpayers cross-appeal, arguing that the

district court erred by not finding additional unauthorized disclosures. We affirm in

part and reverse in part. 
-4-

I. Background

Taxpayer Leonard Snider operated a business called National Sales and Service,

LLC ("NSS"). Taxpayer Theresa Turley operated a business called Labor Resources.

These businesses supplied workers to hotels and businesses near the Lake of the

Ozarks, Missouri. In July of 2001, the IRS opened a criminal administrative

investigation against Snider and Turley after receiving a tip that they were not paying

income and employment taxes, employing illegal aliens, submitting false documents

regarding those illegal aliens, and engaging in money laundering. 

Special Agent Robert Jackson with the IRS Criminal Investigation Division in

Kansas City, Missouri, performed the investigation. In the course of his investigation,

Jackson disclosed certain "return information" regarding the Taxpayers without legal

authorization, in violation of § 6103. Essentially, Jackson told many third parties that

the Taxpayers were being investigated for criminal tax violations and accused the

Taxpayers of several crimes. Jackson also warned some of the Taxpayers' business

customers that they might be liable for the Taxpayers' unpaid taxes. 

In one instance, Jackson interviewed Ineke Kirby, who performed accounting

services for Turley in 2000 and 2001. During the interview, Jackson made the

following affirmative statements, all of which constituted return information: (1)

Turley had a large increase in income from 1999 to 2000 that was questionable; (2)

Turley employed illegal immigrants; (3) Turley was avoiding paying employer taxes;

(4) Turley and Snider were involved in money laundering; and (5) Turley's workers

used fake social security numbers. Jackson also disclosed return information when he

showed Turley's 1999 tax return to Kirby, which was the first time she had seen it.

From this encounter, the district court found one unauthorized disclosure as to Snider

and six unauthorized disclosures as to Turley. 

In the course of his investigation, Jackson approached various employees,

business associates, and customers for interviews. During the interviews, Jackson
-5-

stated to the interviewees that he was conducting a criminal investigation of

Taxpayers. He represented to the interviewees that Taxpayers did not pay employment

taxes, employed and harbored illegal immigrants, and were "involved in a scam" and

a "grand conspiracy." In addition, Jackson repeatedly referred to Snider and Turley

as criminals and stated that Snider had been criminally investigated previously.

Jackson also told customers that they might be liable to the United States for Snider

and Turley's "thousands and thousands of dollars" of unpaid taxes. Jackson showed

numerous people various tax documents that the Taxpayers had filed. Lastly, after the

administrative investigation ended and a grand jury investigation began, Jackson told

interviewees that he was conducting a grand jury investigation of Taxpayers.

After noting the extensive training and written instructions that Jackson had

received, the district court concluded that "Jackson repeatedly and intentionally

engaged in conduct outside the standard of conduct for IRS special agents" and

"further f[ound] that Jackson's Section 6103 disclosures were made knowingly,

willfully, and intentionally and were the result of gross negligence as defined by [26

U.S.C. §] 7431(c)(1)(B)(ii)." 
3

On page 14 of the district court's opinion, the court stated that Jackson made

78 disclosures of return information. The court stated in the paragraphs that

immediately followed that Snider, NSS, and Turley suffered 44, 5, and 29 disclosures

respectively. By our assessment of the record, this is a typographical error, as the

district court in fact found 79 total disclosures. The reason for the discrepancy is that

NSS actually suffered 6 disclosures of return information. On page 25 of the district

court's opinion, the district court, discussing the damages to be awarded to each party,

awarded NSS actual damages for the improper disclosures to Holiday Inn SunSpree

and The Knolls Condominiums. The court then stated, "Having found 4 additional

unlawful disclosures with respect to NSS, other than those made to the Holiday Inn

Sun Spree [sic] and The Knolls Condominiums, the Court awards plaintiff NSS an

additional $4,000 in statutory damages." 

In the district court's recitation of the facts at the beginning of its opinion, it

fails to mention the basis for the disclosure of NSS return information that caused

NSS actual damages under its contract with The Knolls Condominiums. As discussed

infra in Part II.B, the district court heard substantial evidence that NSS did in fact

suffer such a disclosure, causing actual damages. 

Considering the district court's opinion in its entirety, as well as the briefing of

the parties with respect to the disclosures made to The Knolls, we believe that the

actual number of disclosures found by the district court is 79, six of which were made

as to NSS. 

-6-

In total, the district court found Jackson made 793

 unauthorized disclosures of

return information to approximately 20 people. As demonstrated by the Kirby

interview, the district court counted each piece of return information as an

unauthorized disclosure. Thus, although Jackson only interviewed Kirby once, the six

pieces of Turley's return information disclosed counted as six violations of § 6103.

Similarly, the district court counted one unauthorized statement that was overheard

by two people as two violations. For example, when Jackson interviewed Jennifer Fry,

her husband, Greg Fry, was present and heard the entire conversation. Therefore, the

district court considered each statement of unauthorized return information as two

violations of § 6103 because two people received the disclosure. Counted in this

fashion, the district court determined that Snider suffered 44 unauthorized disclosures,
-7-

NSS suffered 6 unauthorized disclosures, and Turley suffered 29 unauthorized

disclosures. The court declined to find that Jackson's March 10, 2002 Sworn

Declaration filed with the court contained improper disclosures under § 6103. 

The court found that Taxpayers substantially prevailed within the meaning of

26 U.S.C. § 7430(c)(4), entitling them to reasonable litigation costs and attorney's

fees. The court also found that the government's position was not substantially

justified as defined by § 7430(c)(4)(B). Finding that the actual damages sustained by

Snider and Turley were less than $1,000 for each disclosure, the court awarded them

statutory damages of $44,000 and $29,000, respectively. The court found that four of

the disclosures as to NSS resulted in actual damages less than $1,000 and that the

disclosure to two of NSS's clients resulted in actual damages totaling $9,794.63.

Therefore, the court awarded NSS $4,000 in statutory damages and $9,794.63 in

actual damages. 

After finding that punitive damages were "warranted and necessary to punish

the willful behavior and gross negligence of Jackson and to deter such behavior by

others," the court awarded punitive damages using a ratio of two-to-one.

Consequently, Snider, NSS, and Turley received punitive damages of $88,000,

$27,589.26, and $58,000, respectively. The court also awarded Taxpayers expert

witness fees of $4,050, costs of $4,400, and attorney's fees of $463,777.50. 

The government asks this court to reverse the district court in essentially every

respect, including the merits of the action, the calculation of damages, and the award

of attorney's fees. Taxpayers, in their cross-appeal, ask this court to hold that Jackson's

disclosures before the district court were unauthorized and to increase the damages

award. 
-8-

II. Discussion

The Internal Revenue Code (IRC) provides that "Returns and return information

shall be confidential" and strictly prohibits government employees from disclosing

"any return or return information." 26 U.S.C. § 6103(a). The IRC broadly defines

"return information" as

a taxpayer's identity, the nature, source, or amount of his income,

payments, receipts, deductions, exemptions, credits, assets, liabilities, net

worth, tax liability, tax withheld, deficiencies, overassessments, or tax

payments, whether the taxpayer's return was, is being, or will be

examined or subject to other investigation or processing, or any other

data, received by, recorded by, prepared by, furnished to, or collected by

the Secretary with respect to a return or with respect to the determination

of the existence, or possible existence, of liability (or the amount thereof)

of any person under this title for any tax, penalty, interest, fine,

forfeiture, or other imposition, or offense . . . . 

26 U.S.C. § 6103(b)(2)(A). A revenue officer may properly disclose return

information "in connection with his official duties relating to any . . . civil or criminal

investigation . . . to the extent that such disclosure is necessary in obtaining

information, which is not otherwise reasonably available, with respect to" the

investigation. § 6103(k)(6). The statute further requires that "[s]uch disclosures shall

be made only in such situations and under such conditions as the Secretary may

prescribe by regulation." Id. 

A. Authorization

The government argues that the disclosures made by Jackson were authorized.

Specifically, the government contends that § 6103 permits the investigator to identify

himself, state that he is performing a criminal investigation, and name the taxpayer

under investigation. We disagree. 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." Therefore, the disclosures
-9-

made by Jackson were clearly prohibited by statute. In addition, in a section entitled

"Return Information," the Internal Revenue Manual recognizes that "The statutory

definition of 'return information' is very broad." IRM § 9.3.1.2.2. It goes on to state

that an example of "return information" is "the fact that a person is under

investigation." Id.

The government's argument that agents should be able to show their badges and

identify themselves as criminal investigators as a necessary part of their investigation

misses the mark. Such conduct is not prohibited by statute and does not constitute a

disclosure of 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.

The government has neither shown that the disclosure of the Taxpayers' identity

was necessary nor does the record reveal any necessity for the disclosures. First,

Snider's attorney offered to supply the information that the IRS sought. However,

Officer Jackson never attempted to obtain the documents from Snider. Second, Officer

Jackson maintained throughout the litigation that he never made the disclosures during

his investigation. The district court logically concluded the disclosures could not be

both necessary and yet unmade during Jackson's investigation. We agree with the

district court's analysis. 

B. Good Faith

The government next asserts that it should not be liable because the disclosures

were made in good faith. Even if an unauthorized disclosure is made, the Internal

Revenue Code excludes liability "with respect to any disclosure which results from

a good faith, but erroneous, interpretation of section 6103." 26 U.S.C. § 7431(b)(1).

Under the good-faith defense, a government official may avoid liability for violating

a constitutional or statutory right where that right is not clearly established such that

a reasonable person would have known that his or her conduct violated the right. See

Jones v. United States, 97 F.3d 1121, 1124 (8th Cir. 1996) (citing Harlow v.
4

Although the government says that only one district court opinion from another

circuit supports the decision below, this argument misses the point, which is that the

plain text of the statute prohibits Officer Jackson's actions. Therefore, the law was

clearly established, albeit not by a court decision but by legislative pronouncement.

Furthermore, the government fails to point to any case that actually adopted the rule

that the government proposes. As mentioned, the government bears the burden of

proving good faith. 

-10-

Fitzgerald, 457 U.S. 800, 818 (1982)). The government bears the burden of proving

the good-faith defense. Jones, 97 F.3d at 1124. 

We hold that the district court did not err in finding that the government failed

to establish the good-faith defense. As mentioned above, the plain language of the

statute prohibits the disclosure of both "a taxpayer's identity" and "whether the

taxpayer's return was, is being, or will be examined or subject to other investigation,"

as both forms of information constitute "return information." Therefore, it cannot be

said that a reasonable officer would have failed to understand that such a disclosure

would violate a clearly established right of the taxpayer.

C. Grand Jury Investigation

The government next contends that disclosing the fact that Taxpayers were

under grand jury investigation is not a disclosure of return information. However, the

statute plainly provides that the fact that a taxpayer is under grand jury investigation

constitutes "return information" because the statute defines "return information" to

include "whether the taxpayer[ ] . . . is being, or will be . . . subject to other

investigation . . . ." § 6103(b)(2) (emphasis added). While the government is correct

that an agent can disclose that he or she is making an official inquiry, this does not

mean that the agent can disclose the target of the investigation. The same reasons

mentioned above that apply to disclosing the identity of the taxpayer under criminal

investigation apply to disclosing the identity of a taxpayer under grand jury

investigation. Therefore, the disclosure that the taxpayers were under investigation by

a grand jury was not authorized and was not made in good faith.4
-11-

D. Counting Disclosures

Next, the government challenges the district court's method of counting. The

government urges that we hold that (1) a disclosure to more than one person at a time

amounts to one act of disclosure; and (2) a disclosure of more than one piece of return

information in a single interview constitutes a single act of disclosure. We disagree.

Increased culpability warrants increased punishment. Direct disclosures to multiple

persons multiplies the harm to the taxpayer. Our sister circuit has held that one

disclosure to two people counts as two separate disclosures. Mallas v. United States,

993 F.2d 1111, 1125 (4th Cir. 1993). As Mallas recognized, § 7431(c)(1)(A) imposes

statutory damages for "each act of unauthorized disclosure of . . . return information,"

and § 6103(b)(8) defines "disclosure" as "making known to any person in any manner

whatever a return or return information." Id. Accepting the government's position

would nullify the language "in any manner whatever." Id. If a government official

directly discloses a taxpayer's return information to two listeners at the same time, the

official has informed both listeners and caused as much harm as telling them

separately. Id. We see no reason why the government should benefit from a wider

audience, especially where a wider audience means an increased injury to the

taxpayer's privacy. The same reasoning applies to the quantity of information

disclosed. 

At the same time, we recognize the concerns addressed in Miller v. United

States, 66 F.3d 220 (9th Cir. 1995). In Miller, the Ninth Circuit held that the IRS's

disclosure of return information to a Los Angeles Times reporter, who subsequently

published 184,000 newspapers containing the information, represented a single act of

disclosure rather than 184,000 acts of disclosure. Id. at 223–24. The court reasoned

that § 7431 "punishes 'disclosure,' not subsequent disseminations" and declined to

extend Mallas to such a situation. Id. at 224. We agree that the proper limitation of

liability is the initial act of disclosure, not secondary disclosures made by others such

as the media. Because § 7431 represents a waiver of sovereign immunity, it must be

"strictly construed, in terms of its scope, in favor of the sovereign." Lane v. Pena, 518

U.S. 187, 192 (1996). 
-12-

However, we do not agree with the Ninth Circuit's holding in Siddiqui v. United

States, 359 F.3d 1200, 1202–03 (9th Cir. 2004), which extended Miller and declined

to impose liability for an agent's unauthorized disclosure of return information in a

speech to a party of 100 people. As discussed above, we believe that liability should

track culpability and injury. A disclosure to 100 people is certainly more egregious

than a disclosure to one person, and we believe that Congress drafted the statute to

scale damages to injury and culpability with respect to the agent's own acts of

disclosure. The method of counting performed by the district court is affirmed. 

E. Actual Damages

The government also challenges the district court's award of actual damages to

NSS, contending that they are not supported in the record. "'In reviewing a district

court's order entering judgment after a bench trial, we review the court's factual

findings for clear error and its legal conclusions de novo.'" Robinson v. GEICO Gen.

Ins. Co., 447 F.3d 1096, 1101 (8th Cir. 2006) (quoting Tadlock v. Powell, 291 F.3d

541, 546 (8th Cir.2002) (citing Fed. R. Civ.P. 52(a))). A factual finding is clearly

erroneous when "although there is evidence to support a finding, on the entire

evidence we are left with the definite and firm conviction that a mistake has been

committed." Hoefelman v. Conservation Comm'n of Mo. Dept. of Conservation, 718

F.2d 281, 285 (8th Cir. 1983). "A factual finding supported by substantial evidence

on the record is not clearly erroneous. A district court's choice between two

permissible views of evidence cannot be clearly erroneous." Robinson, 447 F.3d at

1101 (citation and internal quotations omitted).

Here, the actual damages award is composed of two sets of damages—one from

the Holiday Inn SunSpree's refusal to pay $3,638 under its contract with NSS and the

other from The Knolls Condominiums' refusal to pay $6,156 under its contract with

NSS. As for Holiday Inn, the district court committed no clear error. The court

specifically found that Jackson made an unauthorized disclosure of NSS return

information to Mark Bowman, the general manager of Holiday Inn SunSpree.

Furthermore, the district court specifically found that "[t]he evidence at trial
5

Although Jackson made unauthorized disclosures to Marjorie Forbis, the

housekeeping supervisor at The Knolls, the district court found that these disclosures

pertained to Turley and Snider—not to NSS. 

-13-

demonstrates that the Holiday Inn terminated its contract with NSS after Jackson

advised the general manager of the potential civil liability for payroll taxes due on

accounts of the workers NSS supplied to the hotel. . . . Holiday Inn Sun Spree [sic]

and The Knolls Condominiums both refused to pay outstanding invoices due and

owing to NSS after meeting with Jackson." 

With regard to The Knolls, the district court did not make specific mention of

any unauthorized disclosure of NSS return information to any representative of the

Knolls. However, Taxpayers point out that the district court heard evidence that on

October 4, 2001, Jackson interviewed Dick Musial, the general manager of The

Knolls, and Marjorie Forbis, the housekeeping supervisor at The Knolls, and that

while Jackson was still on the premises, The Knolls "immediately terminated all

workers supplied by [NSS] even though they were good workers."5

 The court also

heard testimony from two witnesses that The Knolls considered NSS to have breached

its contract. On this record, we are not left with a firm conviction that a mistake was

made and affirm. 

F. Punitive Damages

The government alleges that punitive damages are not available to the

Taxpayers under § 7431(c)(1). The government is correct. Section 7431(c)(1) allows

either (A) statutory damages; or (B) actual damages plus punitive damages, when

available. Therefore, a plaintiff receiving statutory damages for an unauthorized

disclosure cannot also recover punitive damages. Mallas, 993 F.2d at 1125–26. Other

than the disclosures made to Holiday Inn SunSpree and The Knolls, the district court

found that "the actual damages sustained by [Tapayers] as a result of the unauthorized

disclosures of return information are less than $1,000 for each disclosure." However,
-14-

the court awarded punitive damages to Snider in the amount of $88,000, to NSS in the

amount of $27,589.26, and to Turley in the amount of $58,000. 

To the extent that the punitive damages overlap with statutory damages, the

district court erred. We thus vacate the award of punitive damages to Snider and

Turley. However, with respect to the punitive damages awarded to NSS, part of this

award was based on actual damages. Because the district court followed a two-to-one

ratio in assessing punitive damages, we amend the court's award to NSS to $19,589.26

in punitive damages based upon the $9,794.63 in actual damages. The remaining

$8,000 in punitive damages awarded to NSS were based on the $4,000 in statutory

damages awarded, and we vacate this portion of the punitive damages awarded to

NSS. 

G. Attorney's Fees

The government argues that the Taxpayers were not entitled to attorney's fees

because "they did not substantially prevail as to the amount in controversy, and

because the position of the United States was substantially justified." The government

does not challenge the amount of the award. The Taxpayers respond that (1) they are

entitled to fees even if the government's position was substantially justified; (2) they

substantially prevailed with respect to the amount in controversy and the most

significant issue (that Jackson made numerous disclosures of return information); and

(3) the government's position was not substantially justified. 

Section 7431(c)(2)(3) allows a plaintiff to recover reasonable attorney's fees

against the United States but only if the plaintiff is a "prevailing party" within the

meaning of 26 U.S.C. § 7430(c)(4). Section 7430(c)(4) defines "prevailing party" as

a party who either "has substantially prevailed with respect to the amount in

controversy" or "has substantially prevailed with respect to the most significant issue

or set of issues presented." However, "[a] party shall not be treated as a prevailing

party . . . if the United States establishes that the position of the United States in the

proceeding was substantially justified." § 7430(c)(4)(B). We review the district court's
6

The government attempts to make a legislative history argument that the

amount in controversy is "determinative." However, the plain language of the statute

says that a "prevailing party" is one that has substantially prevailed "with respect to

the amount in controversy" or "with respect to the most significant issue." 26 U.S.C.

§ 7430(c)(4)(A). Because the statute is clear and unambiguous, we need not resort to

legislative history.

Similarly, the government's attempt to distinguish legal issues from factual

issues is unpersuasive. The statute says "issues" and does not distinguish between

factual and legal issues. 

-15-

award of attorney's fees for an abuse of discretion. Kaffenberger v. United States, 314

F.3d 944, 960 (8th Cir. 2003). 

Given the plain language of the statutes, Taxpayers fail in their argument that

they are entitled to attorney's fees notwithstanding whether or not the government's

position was substantially justified. The issues, then, are whether Taxpayers

substantially prevailed and whether the government has shown that its position was

substantially justified. We hold that the Taxpayers substantially prevailed and that the

government's position was not substantially justified. Thus, the award of attorney's

fees stands. 

The Taxpayers substantially prevailed because they established that Jackson

made numerous disclosures of return information. The conduct of Jackson certainly

was "the most significant issue . . . presented" because the entire case turned upon his

conduct, i.e., whether he made unauthorized disclosures of return information. By

prevailing on this point, the Taxpayers substantially prevailed within the meaning of

§ 7430(c)(4)(A).6

We hold that the government's position was not substantially justified. The

government contends that its position was substantially justified, arguing primarily

that the decisive issue was one of witness credibility. The government cites Jones v.

United States, 207 F.3d 508, 512–13 (8th Cir. 2000), which held that the district court
-16-

correctly found that the government was substantially justified in its position because

the IRS agent asserted that he never told the informant about the search warrant and

the government was warranted in aggressively resisting the taxpayers' excessive

damages claims. The government argues that under Jones, if the issue is witness

credibility, then the government's position is always substantially justified. 

We do not read Jones so broadly. Jones is distinguishable from the case at bar

due to the number of disclosures involved and, more importantly, the number of

witnesses to those disclosures. Jones involved the disclosure of a search warrant to

one person—an informant. Here, Jackson made numerous unauthorized disclosures

of return information to approximately twenty people. After deposing several of the

Taxpayers’ witnesses before trial, the government should have realized that Jackson

lied when he maintained that he never made the alleged disclosures and thus that the

government's position was not substantially justified. To that end, the district court

made the following pointed observation: "At trial, [Taxpayers] produced 20 disclosure

fact witnesses. Their collective testimonies were remarkably consistent in describing

repeated, virtually identical, unnecessary disclosures, and provide compelling

evidence of a pattern of improper disclosures by Jackson." Accordingly, we affirm the

district court's award of attorney's fees.

H. Expert Witness Fees

The district court awarded Taxpayers $4,050 in expert witness fees. The

government posits that expert witness fees are not recoverable, and Taxpayers

concede as much. We therefore vacate the award of expert witness fees. 

I. Disclosures During Instant Litigation

In their cross appeal, Taxpayers allege that Jackson made additional

unauthorized disclosures to the Department of Justice in his March 5, 2002 Sworn

Declaration and that these disclosures were then disclosed to the court. Specifically,

Taxpayers argue that (1) the disclosures were "unnecessary to defend a civil damage

claim and are contrary to the scope and purpose of § 6103;" and (2) the government
-17-

failed to "obtain the requisite request to disclose return information" in the

proceedings below. 

The government's most persuasive response is that the Taxpayers raise these

arguments for the first time on appeal. We agree. Taxpayers argued before the district

court that the disclosures were unauthorized because the civil proceedings below were

"not 'tax administration' proceedings as defined in 26 U.S.C. § 6103(b)(4)." We agree

with the government that this is not the same argument advanced on appeal. 

As a general rule, we will not consider issues raised for the first time on appeal.

Norwest Bank of N.D., N.A. v. Doth, 159 F.3d 328, 334 (8th Cir. 1998). "We may,

however, consider an issue for the first time on appeal 'when the argument involves

a purely legal issue in which no additional evidence or argument would affect the

outcome of the case,' or where manifest injustice might otherwise result." Id. (citation

omitted). With respect to Taxpayers' argument regarding obtaining the requisite

request for disclosure, the issue is not properly before us. Although Taxpayers aver

that they raise "only issues of law," their opening brief belies this contention by

pointing to the government's failed attempt to establish authorization pursuant to §

6103(h)(3). Taxpayers’ argument regarding the necessity of the disclosure is closer

to a purely legal issue; however, we decline to broadly review issues not raised and

ruled upon by the district court. 

III. Conclusion

We affirm in part and reverse in part. Jackson's numerous disclosures of return

information, including the fact that Taxpayers were under grand jury investigation,

were unauthorized and were not made in good faith. Additionally, the district court

properly counted the number of violations because the Taxpayers suffered increased

injury to their statutorily protected privacy by the increased volume of information

disclosed and the widened audience to whom the disclosures were made. We hold that

the actual damages awarded are allowed by law and supported by the record. With

regard to the punitive damages, we reverse the award with respect to the disclosures
7

While we have held that an agent’s use of “Criminal Investigative Division”

in circular letters to describe his or her position is not necessary, see Diamond v.

United States, 944 F.2d 431, 436 (8th Cir. 1991), I agree with the Court that this

disclosure is necessary during a personal interview because an interview is different

than a circular letter. See Payne v. United States, 289 F.3d 377, 390-91 (5th Cir.

2002) (Garza, J., dissenting in part) (stating that witnesses have “social expectations

about police identifying themselves” during an interview). 

-18-

for which the district court assessed statutory damages, reducing the punitive damages

to $19,589.26. Because the Taxpayers substantially prevailed and the government's

position was not substantially justified, we affirm the award of attorney's fees. We

vacate the district court's award of expert witness fees. As for Taxpayers' cross appeal,

we decline to reach the merits because the issues were not presented to the district

court.

GRUENDER, Circuit Judge, concurring in part and dissenting in part. 

I respectfully dissent from parts II.A, B, D and G of the Court’s opinion. I

agree with the Court that § 6103(a) does not forbid an agent from showing his badge

and identifying himself as a criminal investigator.7

 I also agree that Special Agent

Jackson violated the statute when he disclosed return information beyond the

identities of the Taxpayers under investigation. However, I would hold that Jackson’s

disclosures that the Taxpayers were under investigation do not constitute violations

of § 6103(a) because they were necessary under § 6103(k)(6). In addition to being

necessary, these disclosures were made consistent with the IRS’s good faith

interpretation of § 6103(k)(6) and the corresponding regulation at 26 C.F.R.

§ 301.6103(k)(6)-1 and Jackson’s good faith interpretation of the IRS policy

memorandum. See § 7431(b)(1). I also would hold that the number of disclosures for

statutory damages purposes should be calculated based on each specific act of

Jackson’s disclosure, regardless of the number of individuals who heard each

improper disclosure or the number of pieces of information disclosed in any single act
-19-

of disclosure. Finally, I would hold that the Taxpayers are not entitled to attorney’s

fees because the Government’s position was substantially justified. 

Turning first to the question of Jackson’s disclosures that the Taxpayers were

under investigation, I would hold that these disclosures were not violations of

§ 6103(a). I agree with the Court that Jackson disclosed return information as defined

in § 6103(b)(2)(A), but these disclosures were necessary under § 6103(k)(6).

Furthermore, these disclosures were based on the IRS’s good faith interpretation of

§ 6103(k)(6) and the corresponding regulation as well as Jackson’s good faith

interpretation of the IRS policy memorandum. See § 7431(b)(1). 

It frequently will be necessary for a special agent to disclose that a taxpayer is

under investigation when he questions a third-party witness during an investigation.

The term “necessary” in § 6103(k) is undefined by that statute. Two possible

interpretations are “strictly essential” or “appropriate or helpful.” Payne v. United

States, 289 F.3d 377, 389 (5th Cir. 2002) (Garza, J., dissenting in part). The “strictly

essential” meaning, which the district court appeared to adopt, would require absolute

proof that there was no other possible means for obtaining information. Id. at 389-90.

This rigid definition is not commonly used in legal contexts. Id. (citing Comm’r v.

Heininger, 320 U.S. 467, 471 (1943)). Instead, the “appropriate or helpful” meaning

of “necessary” is the only practical interpretation in this context. Id. In fact, just prior

to some of the final interviews at issue in this case, the IRS expressly adopted the

“appropriate or helpful” definition pursuant to Congress’s authorization for the IRS

to identify the situations where a disclosure is necessary. § 6103(k)(6). The

temporary regulation defined “necessary” as “appropriate and helpful in obtaining the

information sought.” 26 C.F.R. § 301.6103(k)(6)-1T(c)(1) (effective July 10, 2003).

The current regulation continues to employ this definition of “necessary.” 26 C.F.R.

§ 301.6103(k)(6)-1(c)(1) (2006). Therefore, I would adopt the “appropriate or

helpful” meaning of “necessary.” 
8

It is true that a special agent could inform the witness that he or she is not

being investigated without identifying the taxpayer who is being investigated.

However, such evasiveness by the special agent about the true target of the criminal

investigation would likely leave some doubt in the witness’s mind about his or her

status as a potential target and create an untrustworthy environment for the ensuing

interview. Instead, an agent’s specific disclosure of the actual taxpayer being

investigated is more likely to reassure the witness and result in a successful and candid

interview. 

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A special agent’s disclosure of the taxpayer who is under investigation is almost

always appropriate or helpful during an interview because third-party witnesses expect

an agent to disclose the reason for the interview. See Payne, 289 F.3d at 390 (Garza,

J., dissenting in part); Gandy v. United States, 234 F.3d 281, 286 (5th Cir. 2000). This

disclosure is helpful because of the spontaneous and personal nature of an interview

and the witness’s apprehension naturally occasioned by the presence of a criminal

investigator. Absent this degree of introductory detail, a third-party witness typically

will fear that he or she is a target of the investigation and, as a result, be less than

candid or exercise his or her right to refuse to answer questions. Setting the witness’s

mind at ease on this point will often be necessary to encourage the witness to speak

freely in response to an agent’s questions.8

 See Fostvedt v. United States, 824 F.

Supp. 978, 983 (D. Colo. 1993) (finding the disclosure of “such minimal,

‘nonsensitive’ facts as the taxpayer’s name” during an investigation was necessary),

aff’d 16 F.3d 416 (10th Cir. 1994) (unpublished); Rhodes v. United States, 903 F.

Supp. 819, 824 (M.D. Pa. 1995) (holding that minimal disclosures such as the name

of the investigated taxpayer fall within the § 6103 exception). 

Jackson’s disclosures that the Taxpayers were under investigation were

necessary despite the Taxpayers’ witnesses’ post hoc testimony at trial that they would

have been cooperative without these disclosures by Jackson. The district court

incorrectly determined that these disclosures were unnecessary based on a “strictly

essential” definition of “necessary.” However, under the “appropriate or helpful”

meaning of “necessary,” Jackson’s disclosures were “helpful” in establishing the
9

Jackson did deny disclosing other facts to the third-party witnesses, such as the

facts that one Taxpayer employed illegal immigrants and that two Taxpayers did not

pay taxes on workers. Trial Transcript at 861-62, 865-66. However, these facts are

not at issue. 

-21-

needed trust of the witnesses at the outset of the interviews. If Jackson had missed an

introductory opportunity to gain this trust, the interview may not have been

salvageable. While there might have been another way to gain this trust, evidence

showing “some [other] possible way” to obtain information cannot render an oral

disclosure unnecessary under the “appropriate or helpful” definition. Payne, 289 F.3d

at 390 (Garza, J., dissenting in part). Therefore, Jackson’s disclosures of the identities

of the Taxpayers under investigation were necessary.

The Court and the district court incorrectly dismiss Jackson’s necessity defense

based on the assertion that Jackson denied making these disclosures. This reasoning

is flawed in its premise because Jackson, in fact, did testify at trial that he began his

interviews by disclosing the names of the taxpayers being investigated.9

 Trial

Transcript at 783-84, 824. Because Jackson did, in fact, acknowledge disclosing that

the Taxpayers were under investigation, his necessity defense cannot be denied on that

basis. 

Even if I were to find that the disclosures were not necessary, I would find that

Jackson’s disclosures that the Taxpayers were under investigation also resulted from

the IRS’s and Jackson’s good faith interpretations that such disclosures were

necessary under § 6103(k)(6). When an agent discloses return information that is not

necessary under § 6103(k)(6), the IRS and its agent will not be liable if the disclosure

“results from a good faith, but erroneous, interpretation of § 6103.” § 7431(b)(1). We

have expressed two different viewpoints regarding this good faith exception. Under

one view, the good faith exception only applies when the IRS, not the special agent,

interprets the statute in good faith. Diamond, 944 F.3d at 435. Under the second

view, the good faith exception also applies when the special agent interprets the IRS
-22-

guidelines in good faith. Jones v. United States, 97 F.3d 1121, 1125 (8th Cir. 1996).

Under either viewpoint, Jackson’s disclosures that the Taxpayers were under

investigation resulted from a good faith interpretation of § 6103(k)(6) and the

corresponding regulation. 

At the time of Jackson’s disclosures, the courts had not provided clear guidance

concerning the necessity of orally disclosing the identity of the taxpayer under

investigation. See Diamond, 944 F.2d at 437; Gandy, 234 F.3d at 285. The Fifth

Circuit in Gandy avoided the question and simply stated that the necessity of

disclosing the identity of the taxpayer under criminal investigation during an interview

with a witness was a “difficult legal question.” Id. Rather than addressing that

difficult question, the Fifth Circuit instead affirmed the oral disclosures based on the

agent’s good faith in making the disclosures. Gandy, 234 F.3d at 285. 

In the absence of controlling authority, the IRS interpreted § 6103(k)(6) and the

corresponding regulation in good faith and determined that it was necessary for its

special agents to disclose the identity of the taxpayer under investigation during thirdparty interviews. The IRS released a memorandum based on this good faith

interpretation of § 6103(k)(6) that provided direction to special agents as to the

appropriate method of introducing themselves at a third-party witness interview. The

memorandum directed special agents to identify themselves as follows: 

Mr. or Ms. XXXXXX my name is John Doe, I am a special agent

with Internal Revenue Service, Criminal Investigation (display

credentials for examination and introduce any other officials

present). I am conducting an investigation of Mr. or Ms. XXXXX

and I would like to ask you some questions regarding this matter.

Memorandum for CI Special Agents in Charge, Internal Revenue Service, Criminal

Investigation, Feb. 2, 2001 (Def. Exhibit 51). The memorandum, along with the lack

of clear guidance by the courts, suggests that the IRS interpreted the necessary

exception of § 6103(k)(6) in good faith. In Diamond, we applied this good faith
10The IRS memorandum suggests that agents should disclose that the taxpayers

are under investigation, but not under criminal investigation. The district court found

that Jackson disclosed that one or more of the Taxpayers were “under criminal

investigation” in some interviews and that one or more of the Taxpayers were “under

investigation” in other interviews. I find no reason to distinguish between the two

situations because Jackson, in both situations, interpreted the IRS memorandum in

good faith. Jackson could reasonably believe that it was appropriate to disclose that

the Taxpayers were under criminal investigation when he was also authorized to state

(1) he was a special agent in the Criminal Investigation Division and (2) he was

investigating the Taxpayers. Any reasonable person would deduce that a special agent

working in the Criminal Investigation Division was conducting a criminal

investigation. Thus, in light of the conclusion that § 6103(a) allows Jackson to

identify himself as an agent in the Criminal Investigation Division, the distinction

between a criminal investigation and an investigation is insignificant.

-23-

exception to the IRS in a similar manner. Although we held that the use of “Criminal

Investigation Division” in circular letters was not necessary, we still found that the

IRS interpreted § 6103(k)(6) in good faith. Diamond, 944 F.2d at 435-36. The IRS

made a similar good faith interpretation in this case.

Jackson also acted in good faith by adhering to this IRS policy. Jackson

testified that he generally followed the IRS’s recommended method of introducing

himself to witnesses, including the disclosure of the identity of the taxpayer under

investigation. Jackson gave the following description of his method of introducing

himself to witnesses: “I would introduce myself as Rob Jackson. I’m a special agent

with IRS Criminal Investigation and I’m conducting an interview [sic] of Mr. Snider

and Ms. Turley and I would show them my credentials.” Trial Transcript at 782. This

testimony demonstrates that Jackson’s disclosure that the Taxpayers were under

investigation was consistent with the IRS’s policy. Therefore, because both the IRS’s

interpretation of § 6103 and Jackson’s interpretation of the IRS’s policy were in good

faith, I would find no liability for Jackson’s disclosures that the Taxpayers were under

investigation.10 
-24-

Next, I would find that § 7431(c)(1)(A) limits the statutory damages for

disclosures to the number of specific acts of disclosure. When there are no actual

damages, the number of violations for purposes of determining statutory damages is

based on “each act of unauthorized inspection or disclosure of a return or return

information with respect to which such defendant is found liable.” 26 U.S.C.

§ 7431(c)(1)(A) (emphasis added). A statement by a special agent is a single “act,”

regardless of the number of people who hear the statement or the number of separate

items of return information included in the statement. Even if one oral disclosure is

heard by numerous people, it is still one “act” of disclosure. Siddiqui v. United States,

359 F.3d 1200, 1202-03 (9th Cir. 2004) (holding that an oral disclosure to 100 people

did not equal 100 disclosures). I agree with the Ninth Circuit’s reasoning in Siddiqui

that this interpretation of § 7431(c)(1)(A) is based on the “plain meaning of the

language used by Congress in § 6103.” Id. at 1202. Additionally, if one oral

disclosure includes numerous items of return information, it is still one “act” of

disclosure. See Rorex v. Traynor, 771 F.2d 383 (8th Cir. 1985).

Under the Court’s expansive reading of the statute, the statutory damages for

a single act of disclosure could result in an unimaginable windfall to a taxpayer for a

disclosure disseminated to a large number of recipients over the internet, television

or radio. For instance, a single disclosure of a taxpayer’s return information to one

million people on national television would result in $1,000,000,000 in statutory

damages. This surely was not the result Congress intended when it provided for

statutory damages of $1,000 per act of improper disclosure in the absence of actual

damages. The Court’s concern that counting only the agent’s “act” would “nullify the

language ‘in any manner whatever’” and not adequately “track culpability and injury”

is unfounded. Ante at 10-11. The statute provides for actual damages where

dissemination to multiple listeners or of multiple items of return information results

in more substantial injury. Because a taxpayer can use evidence of widespread

dissemination to prove actual damages, there is no disproportionality to culpability or

injury. The taxpayer is free to prove that the disclosure resulted in actual damages to

the extent that actual damages exceed the statutory damage amount of $1,000 for the
11In addition, if the district court applied my analysis on remand, Taxpayers

may not have substantially prevailed in this case. See §§ 7431(c)(3), 7430(c)(4). 

-25-

act of improper disclosure. In the instant case, applying the plain language of the

statute would reduce significantly the number of disclosures found by the district court

for which statutory damages are appropriate. For example, the district court found

seven unauthorized disclosures of Leonard Snider’s return information from Jackson’s

interview with Mark Bowman when it should have only found one unauthorized “act”

of disclosure.

Finally, I would hold that the Taxpayers are not entitled to attorney’s fees

because the Government’s position was substantially justified under § 7430(c)(4)(B).11

The Government’s position is substantially justified “if a reasonable person could

think it correct, that is, if it has a reasonable basis in law and fact.” Pierce v.

Underwood, 487 U.S. 552, 556 n.2 (1988). Where the Government relies on its

witness’s credibility, its position is substantially justified. See, e.g., Jones v. United

States, 207 F.3d 508, 512-13 (8th Cir. 2000). The Government correctly argued that

Jackson’s credibility was a key issue in the case. While Jackson admitted to

disclosing both his position with the IRS and the Taxpayers’ identities in interviews,

he denied any further disclosure of the Taxpayers’ return information. As the district

court stated, this was a case of witness credibility, and a reasonable person could agree

with the Government’s position. Consequently, the Government’s position was

substantially justified. 

The Court incorrectly holds that the Government’s position was not

substantially justified because the Taxpayers’ witnesses consistently refuted Jackson’s

testimony. However, the Government reasonably could believe that the district court

would find these witnesses unreliable because of their biases and relationships with

the Taxpayers. Additionally, the Government could also reasonably believe that the

district court would find the special agent’s testimony credible. Because a reasonable
-26-

person could believe the Government’s position, it was substantially justified.

Therefore, the taxpayers should not be entitled to $463,777.50 in attorney’s fees.

 

For these reasons, I respectfully dissent in part and would remand for a

determination of the correct number of violations and damages consistent with this

opinion.

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