## 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 States 2alleging numerous disclosures of taxpayer return information by Special Agen t 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 witn ess and attorney's fees. The government appeals, raising several alle gations 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 busin ess called National Sales and Service, LLC ("NSS"). Taxpayer Theresa Turley operated a business ca lled Labor Resources. These businesses supplied workers to hotel s and businesses near the Lake of the Ozarks, Missouri. In July of 2001, th e IRS opened a criminal administrative investigation against Snider and Turley afte r receiving a tip that they were not paying income and employment taxes, employing illegal aliens, submitting false documents regarding those illegal aliens, a nd engaging in money laundering.

Special Agent Robert Jackson with the IRS Criminal Investigation Division in Kansas City, Missouri, performed the investig ation. In the course of his investigation, Jackson disclosed certain "return informati on" regarding the Taxpayers without legal authorization, in violation of § 6103. Esse ntially, Jackson told many third parties that the Taxpayers were being investigated fo r 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) Tu rley 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 in terviews. During the interviews, Jackson-5- stated to the inte rviewees that he was conducting a criminal investigation of Taxpayers. He represented to the interview ees that Taxpayers did not pay employment taxes, employed and harbored illegal immigr ants, 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 th e Taxpayers had filed. Lastly, after the administrative investigation ended and a gra nd jury investigation began, Jackson told interviewees that he was conducting a gr and jury investigation of Taxpayers.

After noting the extensive training and written instructions that Jackson had received, the district court concluded th at "Jackson repeatedly and intentionally engaged in conduct outside the standard of conduct for IRS special agents" and "further f[ound] that Jackson's Secti on 6103 disclosures were made knowingly, willfully, and intentionally and were the re sult of gross negligence as defined by [26 U.S.C. §] 7431(c)(1)(B)(ii)."3 On page 14 of the district court's opini on, the court stated that Jackson made 78 disclosures of return information. Th e 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 reco rd, this is a typographical error, as the district court in fact found 79 total disclosu res. The reason for the discrepancy is that NSS actually suffered 6 disclosu res of return information. On page 25 of the district court's opinion, the district court, discussi ng the damages to be awarded to each party, awarded NSS actual damages for the imprope r 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 Condominiu ms, 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 disclosu re of NSS return information that caused NSS actual damages under its c ontract 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 distri ct court is 79, six of which were made as to NSS.

-6- In total, the district court found Jackson made 79 3 unauthorized disclosures of return information to approximately 20 people. As demonstrated by the Kirby interview, the district c ourt counted each pi ece of return information as an unauthorized disclosure. Thus, although Jack son 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 exampl e, when Jackson interviewed Jennifer Fry, her husband, Greg Fry, was present and hear d the entire conversation. Therefore, the district court considered each statement of unauthorized return information as two violations of § 6103 because two people r eceived the disclosure. Counted in this fashion, the district court determined that Snider suffered 44 unauthorized disclosures,-7- NSS suffered 6 unauthorized disclosure s, and Turley suffered 29 unauthorized disclosures. The court declined to find that Jackson's March 10, 2002 Sworn Declaration filed with the court cont ained improper disclosures under § 6103.

The court found that Taxpayers substan tially prevailed within the meaning of 26 U.S.C. § 7430(c)(4), entitling them to r easonable 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). Fi nding that the actual damages sustained by Snider and Turley were less than $1,000 fo r each disclosure, the court awarded them statutory damages of $44,000 and $29,000, respectively. Th e 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 re sulted 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 Turl ey received punitive damages of $88,000, $27,589.26, and $58,000, respec tively. 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 prohi bits 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, exemp tions, credits, assets, liabilities, net worth, tax liability, tax withheld, de ficiencies, overassessments, or tax payments, whether the taxpayer's re turn was, is being, or will be examined or subject to other inves tigation or processing, or any other data, received by, recorded by, prepar ed by, furnished to, or collected by the Secretary with respect to a return or with resp ect to the determination of the existence, or possible existen ce, 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 o fficer may properly disclose return information "in connection with his official duties relating to any . . . civil or criminal investigation . . . to the extent that su ch disclosure is n ecessary in obtaining information, which is not otherwise reas onably 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 disclosu res 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. Secti on 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 st atute. In addition, in a section entitled "Return Information," the Internal RevenueManual 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 s hould 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 prohi bited 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 th at he never made the disclosures during his investigation. The district court logi cally concluded the di sclosures could not be both necessary and yet unmade during Jacks on's investigation. We agree with the district court's analysis.

B. Good Faith The government next asserts that it shoul d 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 disc losure which results from a good faith, but erroneous, interpretati on of section 6103." 26 U.S.C. § 7431(b)(1). Under the good-faith defense, a government o fficial 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 onedistrict court opinion from another circuit supports the decision below, this ar gument misses the point, which is that the plain text of the statute prohibits OfficerJackson'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 me ntioned above, the plain language of the statute prohibits the disclosure of both "a taxpayer's identity" and "whether the taxpayer's return was, is bei ng, or will be examined or s ubject to other investigation," as both forms of information constitute "r eturn 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 di sclosing the fact that Taxpayers were under grand jury investigation is not a disclo sure of return inform ation. However, the statute plainly provides that the fact that a taxpayer is under grand jury investigation constitutes "return information" because th e statute defines "return information" to include "whether the taxpayer[ ] . . . is being, or will be . . . subject to other investigation . . . ." § 6103(b)(2) (emphasis adde d). While the government is correct that an agent can disclose that he or sh e is making an official inquiry, this does not mean that the agent can disclose the targ et 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 th at the taxpayers wereunder 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 disc losure to more than one person at a time amounts to one act of disclosure; and (2) a di sclosure of more than one piece of return information in a single interview constitute s a single act of disclosure. We disagree. Increased culpability warrants increased puni shment. 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 unauthorizeddisclosure 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 liste ners 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 governme nt should benefit from a wider audience, especially where a wider audi ence means an increas ed 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 Lo s Angeles Times reporte r, who subsequently published 184,000 newspapers containing the in formation, 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 s ubsequent disseminati ons" 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 wa iver 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 Ci r. 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 discu ssed 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 distri ct 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 benc h 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 evid ence to support a finding, on the entire evidence we are left with the definite a nd 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 aw ard 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' refu sal 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 specifica lly found that "[t]he evidence at trial5 Although Jackson made unauthorized disclosures to Marjorie Forbis, the housekeeping supervisor at The Knolls, the di strict court found that these disclosures pertained to Turley and Snider—not to NSS.
-13- demonstrates that the Holiday Inn terminat ed 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 refuse d to pay outstanding invoices due and owing to NSS after meeting with Jackson."

With regard to The Knolls, the districtcourt did not make specific mention of any unauthorized disclosure of NSS return information to any representative of the Knolls. However, Taxpayers poi nt 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 housekeep ing supervisor at The Knolls, and that while Jackson was still on the premises, Th e 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 recei ving 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 le ss than $1,000 for each disclosure." However,-14- the court awarded punitive damages to Sniderin 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 th e award of punitive damages to Snider and Turley. However, with respectto the punitive damages awar ded to NSS, part of this award was based on actual dama ges. Because the district court followed a two-to-one ratio in assessing punitive damages, we am end 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 preva il as to the amount in controversy, and because the position of the United States wa s 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 pos ition was substantially justified; (2) they substantially prevailed withrespect 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). Secti on 7430(c)(4) defines "p revailing party" as a party who either "has substantially prevailed with respect to the amount in controversy" or "has substantially prevaile d with respect to the most significant issue or set of issues presented." However, "[a] party shall not be tr eated 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's6 The government attempts to make a legislative history argument that the amount in controversy is "determinative." Ho wever, the plain language of the statute says that a "prevailing party" is one that has substantially prev ailed "with respect to the amount in controversy" or "with respectto the most significant issue." 26 U.S.C. § 7430(c)(4)(A). Because the statute is clearand 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. Th e issues, then, are whether Taxpayers substantially prevailed and whether the gove rnment has shown that its position was substantially justified. We hold that the Ta xpayers substantially prevailed and that the government's position was not substantially ju stified. Thus, the award of attorney's fees stands.

The Taxpayers substantially prevailed b ecause they established that Jackson made numerous disclosures of return info rmation. The conduct of Jackson certainly was "the most significant issue . . . presen ted" because the entir e case turned upon his conduct, i.e., whether he ma de unauthorized disclosures of return information. By prevailing on this point, the Taxpayers subs tantially prevailed within the meaning of § 7430(c)(4)(A). 6

We hold that the government's position wa s 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), whic h 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 aggressi vely 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 involve d 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 tw enty people. After deposing several of the Taxpayers’ witnesses be fore trial, the government shoul d have realized that Jackson lied when he maintained that he never madethe alleged disclosures and thus that the government's position was not substantially jus tified. To that end, the district court made the following pointed observation: "At trial, [Taxpayers] produced 20 disclosure fact witnesses. Their collective testimonies were remarkably cons istent in describing repeated, virtually identical, unnecessary disclosures, and provide compelling evidence of a pattern of improper disclosure s 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 expe rt witness fees are not recoverable, and Taxpayers concede as much. We ther efore vacate the award of expert witness fees.

I. Disclosures During Instant Litigation In their cross appeal, Taxpayers al lege that Jackson made additional unauthorized disclosures to the Departmentof Justice in his March 5, 2002 Sworn Declaration and that these disclosures were then disclosed to the court. Specifically, Taxpayers argue that (1) th e disclosures were "unnecessary to defend a civil damage claim and are contrary to the scope a nd 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 respons e is that the Taxpayers raise these arguments for the first time on appeal. We ag ree. Taxpayers argued before the district court that the disclosures were unauthorizedbecause the civil pr oceedings 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 i ssues 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' ar gument 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 priv acy by the increased volume of information disclosed and the widened audience to whom the disclosu res were made. We hold that the actual damages awarded are allowe d by law and supported by the record. With regard to the punitive damages, we reverse the award with respect to the disclosures7 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 in terview because an in terview 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 ju stified, 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 inpart 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 notforbid 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 madeconsistent with the IRS’s good faith interpretation of § 6103(k)(6) and th e 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 informati on 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 positi on was substantially justified.

Turning first to the question of Jacks on’s disclosures that the Taxpayers were under investigation, I would hold that th ese disclosures were not violations of § 6103(a). I agree with the Court that Jacks on disclosed return information as defined in § 6103(b)(2)(A), but these disclosu res were necessary under § 6103(k)(6). Furthermore, these disclosures were ba sed 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 th ird-party witness during an investigation. The term “necessary” in § 6103(k) is undefined by that statute. Two possible interpretations are “strictly essentia l” 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 possibl e 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 pursuan t to Congress’s authorization for the IRS to identify the situations where a disclo sure is necessary. § 6103(k)(6). The temporary regulation defined “necessary” as “appropriate and help ful 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). Therefor e, I would adopt the “appropriate or helpful” meaning of “necessary.”8 It is true that a special agent could in form the witness that he or she is not being investigated without identifying th e 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 di sclosure of the ac tual taxpayer being investigated is more likely to reassure th e witness and result in a successful and candid interview.
-20- A special agent’s disclosure of the taxpayer who is under investigation is almost always appropriate or helpful during an in terview 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 spontan eous and personal natu re of an interview and the witness’s apprehension naturally occasioned by the presence of a criminal investigator. Absent this degree of introduc tory detail, a third- party witness typically will fear that he or she is a target of th e investigation and, as a result, be less than candid or exercise his or her right to refuseto 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 nam e” 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 disclo sures by Jackson. The district court incorrectly determined that these disclo sures were unnecessary based on a “strictly essential” definition of “necessary.” Ho wever, under the “appr opriate or helpful” meaning of “necessary,” Jackson’s disclosu res were “helpful” in establishing the9 Jackson did deny disclosing other facts to the third-party witnesses, such as the facts that one Taxpayer employed illegal i mmigrants 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). Ther efore, Jackson’s disclosures of the identities of the Taxpayers under inve stigation were necessary.

The Court and the district court incorrec tly dismiss Jackson’s necessity defense based on the assertion that Jackson denied making these disclosures. This reasoning is flawed in its premis e because Jackson, in fact, did te stify 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 inves tigation, his necessity defense cannot be denied on that basis.

Even if I were to find that the disclo sures were not necessary, I would find that Jackson’s disclosures that the Taxpayers were under investigati on also resulted from the IRS’s and Jackson’s good faith interp retations that such disclosures were necessary under § 6103(k)(6). When an agent discloses return information that is not necessary under § 6103(k)(6), th e IRS and its agent will not be liable if the disclosure “results from a good faith, but erroneous, in terpretation of § 6103. ” § 7431(b)(1). We have expressed two di fferent viewpoints regarding th is good faith exception. Under one view, the good faith exception only applie s 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 wh en 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 disc losures 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, th e courts had not provided clear guidance concerning the necessity of orally disc losing the identity of the taxpayer under investigation. See Diamond , 944 F.2d at 437; Gandy , 234 F.3d at 285. The Fifth Circuit in Gandyavoided 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 de termined that it was necessary for its special agents to disclose the identity of the taxpayer unde r investigation during thirdparty interviews. The IRS releaseda 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 J ohn 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 i nvestigation of Mr. or Ms. XXXXX and I would like to ask you some questions regarding this matter.

Memorandum for CI Speci al Agents in Charge , Internal Revenue Service, Criminal Investigation, Feb. 2, 2001 (Def. Exhib it 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 faith10 The 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 moreof 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 situ ations, 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 Crimin al Investigation Division and (2) he was investigating the Taxpayers. Any reasonabl e 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 Crimin al 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 adhe ring to this IRS policy. Jackson testified that he generally followed th e IRS’s recommended method of introducing himself to witnesses, including the disclo sure of the identity of the taxpayer under investigation. Jackson gave the followi ng description of his method of introducing himself to witnesses: “I would introduce myse lf 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 di sclosure 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 interp retation 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 statem ent by a special agent is a single “act,” regardless of the number of people who hearthe statement or the number of separate items of return information included in the st atement. 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 th at 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 retu rn 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 woul d result in $1,000,000,000 in statutory damages. This surely wa s not the result Congress intended when it provided for statutory damages of $1,000 per act of impr oper disclosure in the absence of actual damages. The Court’s concern that counti ng only the agent’s “act” would “nullify the language ‘in any manner whatev er’” 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 mu ltiple 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 the11 In 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 instan t 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 s hould 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 s ubstantially 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). Th e Government correctly argued that Jackson’s credibility was a key issue inthe 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 cr edibility, and a reasonable person could agree with the Government’s position. Cons equently, 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 becauseof their biases and relationships with the Taxpayers. Additionally, the Governmentcould also reasonably believe that the district court would find the special agen t’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 disse nt in part and would remand for a determination of the correct number of viol ations and damages c onsistent with this opinion.

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