PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

ROBERT B. SCRIMGEOUR,

Plaintiff-Appellant,

and

BAYVIEW FARM; DUCK CREEK

PARTNERS, L.P.; KING ROAD

ASSOCIATES; THE SCRIMGEOUR TRUST

UNDER AGREEMENT DATED

JANUARY 3, 1939; THE SCRIMGEOUR

TRUST UNDER COURT ORDER DATED

No. 97-1856

MARCH 21, 1989,

Plaintiffs,

v.

INTERNAL REVENUE; UNITED

STATES OF AMERICA,

Defendants-Appellees,

HARRY M. WALSH, JR.,

Movant.

Appeal from the United States District Court

for the District of Maryland, at Greenbelt.

Deborah K. Chasanow, District Judge.

(CA-94-2135-DKC)

Argued: April 7, 1998

Decided: July 24, 1998

Before WILLIAMS, Circuit Judge, PHILLIPS,

Senior Circuit Judge, and OSTEEN, United States

District Judge for the Middle District of

North Carolina, sitting by designation.

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Affirmed by published opinion. Judge Williams wrote the opinion, in

which Senior Judge Phillips and Judge Osteen joined.

_________________________________________________________________

COUNSEL

ARGUED: John Francis Wester, Jr., SIDLEY & AUSTIN, Washington, D.C., for Appellant. Michelle Bachand O'Connor, Tax Division,

UNITED STATES DEPARTMENT OF JUSTICE, Washington,

D.C., for Appellees. ON BRIEF: Edward R. McNicholas, SIDLEY

& AUSTIN, Washington, D.C., for Appellant. Loretta C. Argrett,

Assistant Attorney General, Jonathan S. Cohen, Thomas J. Clark,

Lynne A. Battaglia, United States Attorney, Tax Division, UNITED

STATES DEPARTMENT OF JUSTICE, Washington, D.C., for

Appellees.

_________________________________________________________________

OPINION

WILLIAMS, Circuit Judge:

After the Internal Revenue Service's (IRS) Atlanta Service Center

improperly released his tax returns to a third-party, Robert Scrimgeour1

brought suit in the district court alleging wrongful disclosure of tax

returns in violation of I.R.C. § 7431 (West Supp. 1998)2 and viola-

(Text continued on page 4)

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1 Several entities in which Robert Scrimgeour held an interest were also

plaintiffs in the suit: Bayview Farm, Duck Creek Partners, L.P., King

Road Associates, Scrimgeour Trust under Agreement dated January 3,

1939, and Scrimgeour Trust under Court Order dated March 21, 1989.

For convenience, we refer to the plaintiffs collectively as Scrimgeour.

2 I.R.C. § 7431 provides for a civil damages action by taxpayers against

the IRS, when the IRS has violated provisions of I.R.C. § 6103 (West

1989 & Supp. 1998), which mandates confidentiality of tax returns. The

text of I.R.C. § 7431, entitled "Civil damages for unauthorized inspection

or disclosure of returns and return information" provides in pertinent

part:

(a) In general. --

 2
(1) Inspection or disclosure by employee of United States.

-- If any officer or employee of the United States knowingly, or by reason of negligence, inspects or discloses any

return or return information with respect to a taxpayer in violation of any provision of section 6103, such taxpayer may

bring a civil action for damages against the United States in

a district court of the United States.

. . . .

(c) Damages. -- In any action brought under subsection

(a), upon a finding of liability on the part of the defendant,

the defendant shall be liable to the plaintiff in an amount

equal to the sum of --

 (1) the greater of --

 (A) $1,000 for each act of unauthorized inspection or

disclosure of a return or return information with respect to

which such defendant is found liable, or

 (B) the sum of --

 (i) the actual damages sustained by the plaintiff as

a result of such unauthorized inspection or disclosure, plus

 (ii) in the case of a willful inspection or disclosure

or an inspection or disclosure which is the result of gross

negligence, punitive damages, plus

 (2) the costs of the action.

I.R.C. § 7431 (West Supp. 1998).

Section 6103, entitled "Confidentiality and disclosure of returns and

return information" provides:

(a) General rule. -- Returns and return information shall be confidential, and except as authorized by this title--

(1) no officer or employee of the United States,

(2) no officer or employee of any State, any local child support enforcement agency, or any local agency administering a

program listed in subsection (l)(7)(D) who has or had access to

returns or return information under this section, and

(3) no other person (or officer or employee thereof) who has

 3
tions of the Privacy Act, 5 U.S.C.A. § 552a(b) & (c) (West 1996 &

Supp. 1998).3 At the conclusion of a three-day bench trial, the district

court determined that the tax returns had been negligently released

and awarded Scrimgeour statutory damages under I.R.C. § 7431.

Because the court determined that the IRS's release of the information

was neither willful nor grossly negligent, the district court denied

punitive damages under I.R.C. § 7431 and found for the IRS on the

Privacy Act claims. Scrimgeour made a post-trial motion for recovery

of attorneys' fees under I.R.C. § 7430 (West Supp. 1998).4 The dis-

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or had access to returns or return information under subsection

(e)(1)(D)(iii), paragraph (6) or (12) of subsection (l), paragraph

(2) or (4)(B) of subsection (m), or subsection (n),

shall disclose any return or return information obtained by him

in any manner in connection with his service as such an officer

or an employee or otherwise or under the provisions of this section. For purposes of this subsection, the term"officer or

employee" includes a former officer or employee.

I.R.C. § 6103 (West Supp. 1998). After setting out the general rule,

I.R.C. § 6103 provides a series of exceptions, none of which are relevant

here.

3 "The Privacy Act of 1974 was enacted to `protect the privacy of individuals identified in information systems maintained by Federal agencies,'" Aquino v. Stone, 957 F.2d 139, 141 (4th Cir. 1992) (quoting Pub.

L. No. 93-579, § 2(a)(5), 88 Stat. 1896 (1974)), and to "safeguard[ ] the

public from unwarranted collection, maintenance, use and dissemination

of personal information contained in agency records," Wilborn v. Dep't

of Health & Human Services, 49 F.3d 597, 600 (9th Cir. 1995). The Act

states:

No agency shall disclose any record which is contained in a

system of records by any means of communication to any person, or to another agency, except pursuant to a written request

by, or with the prior written consent of, the individual to whom

the record pertains.

5 U.S.C.A. § 522a(b) (West Supp. 1998). An award of damages is authorized only in the case of "intentional or willful" violations. See 5

U.S.C.A. § 552a(g)(1), (4) (West 1996).

4 The text of that section, entitled "Awarding of costs and certain fees"

provides in pertinent part:

 4
trict court denied the motion on the ground that I.R.C. § 7430 did not

apply to actions arising under I.R.C. § 7431 that were unrelated to any

tax proceeding.

Scrimgeour appeals the district court's ruling that the IRS's release

of his tax returns was neither willful nor grossly negligent. Additionally, he appeals the denial of attorneys' fees. Finding no error, we

affirm.

I.

The material facts are not disputed. The events leading to the

release of Scrimgeour's tax returns began in May 1993 when his sister, Sally Scrimgeour, filed suit in the Circuit Court of Talbot County,

Maryland. That suit was part of an ongoing dispute between the siblings relating to the management of family trust funds and property.

In an effort to obtain information to support the lawsuit, Sally Scrimgeour's attorney, Harry M. Walsh, Jr., submitted two sets of fortythree requests for tax returns related to Scrimgeour, the Scrimgeour

trust, and other entities in which Scrimgeour had a financial interest.

Each of the requests consisted of a completed Form 4506,5 signed by

Walsh, and a "clearly insufficient" subpoena. (J.A. at 380.) One set

of requests was submitted to the IRS's Philadelphia Service Center

and the other set to the Atlanta Service Center.

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(a) In general. -- In any administrative or court proceeding

which is brought by or against the United States in connection

with the determination, collection, or refund of any tax, interest,

or penalty under this title, the prevailing party may be awarded

a judgment or a settlement for --

(1) reasonable administrative costs incurred in connection

with such administrative proceeding within the Internal Revenue

Service, and

(2) reasonable litigation costs incurred in connection with

such court proceeding.

I.R.C. § 7430 (West Supp. 1998).

5 Form 4506 is the form appropriately used when a taxpayer requests

a copy of his or her own tax return.

 5
When the Philadelphia Service Center received the requests for the

release of the tax returns, the IRS personnel immediately noticed that

the requests were invalid and refused to supply the requested information. At the Atlanta Service Center, however, the deficiencies in the

requests went unnoticed, and Scrimgeour's tax returns were released

to Walsh.

Robert Scrimgeour did not become aware that his tax returns were

being improperly released until the returns were produced during a

November 9, 1993, deposition related to the suit filed by his sister.

After the deposition had concluded, on November 24, 1993, Lester

Fant, Scrimgeour's attorney, wrote and hand delivered a letter to the

IRS's Office of Chief Inspector informing the IRS of the improper

release of his client's tax returns. The letter also requested an investigation and asked that the IRS intervene to stop the ongoing release

of Scrimgeour's tax returns.

The Office of Chief Inspector sent Fant's letter to the Deputy

Inspector for Internal Security who subsequently passed the letter on

to the IRS Integrity and Hotline Section. The Deputy Director who

oversaw the Hotline Section, Keith Alan Kuhn, treated Fant's letter

as a request for a criminal investigation of the releases that had

occurred at the Atlanta Service Center and forwarded the letter to the

Regional Office of Inspector in Philadelphia. After following this circuitous route, Fant's letter was assigned to an inspector in Washington, D.C. In the interim, while the letter was changing hands, the

Atlanta Service Center improperly continued to release Scrimgeour's

tax returns.

On February 7, 1994, the inspector met with Fant and discussed the

factual background of the allegations in the letter. After their discussion, the inspector met with an attorney in the IRS Office of Assistant

Chief Counsel to obtain a legal opinion regarding whether any criminal violations occurred when the Atlanta Service Center released

Scrimgeour's tax returns. After discussion, the inspector and attorney

agreed that the allegations of criminal wrongdoing were not supported

by the facts. Thereafter, the inspector and the attorney arranged a conference call with the Atlanta Service Center to notify it regarding the

improper disclosures and to obtain further information. After this telephone call to the Atlanta Service Center, employees were notified that

 6
they should not process any additional Forms 4506 submitted by

Walsh.

II.

Scrimgeour filed his complaint in the United States District Court

for the Southern District of Maryland on August 1, 1994.

Although the initial complaint did not enumerate the requested

damages, by the date of the pretrial conference Scrimgeour sought:

(1) actual damages of $110,000 for additional attorneys' fees

incurred in the lawsuit with his sister; (2) actual damages of

$100,000 for emotional distress; (3) punitive damages of $10 million

for the IRS's willful and/or grossly negligent actions; and

(4) attorneys' fees. In the alternative, Scrimgeour sought statutory

damages of $1000 for each of the unauthorized releases.

The case proceeded to a bench trial, at the conclusion of which the

district court ruled that the IRS had negligently released Scrimgeour's

tax returns and awarded statutory damages of $61,000 in accordance

with the provisions of I.R.C. § 7431(c)(1)(A) (West Supp. 1998).6

The district court, however, determined that the IRS had released the

tax information as the result of simple negligence, not as the result of

gross negligence or willfulness, and declined to award punitive damages. See I.R.C. § 7431(c)(1)(B)(ii) (West Supp. 1998). Further,

because the district court determined that the release of the tax returns

was neither intentional nor willful, the court entered judgment for the

IRS on the Privacy Act claim. See 5 U.S.C.A.§ 552a(g)(4) (West

1996) (stating that damages for violations of the provisions of the Privacy Act relating to the unauthorized release of information are

recoverable only when the agency acted in an intentional or willful

manner).

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6 Robert Scrimgeour, Scrimgeour Trust under Court Order dated March

21, 1989, Bayview Farm, and King Road Associates prevailed on their

claims for statutory damages for the release of sixty-one tax documents.

The district court dismissed for lack of standing the claims of Duck

Creek Partners, L.P., and Scrimgeour Trust under Agreement dated January 3, 1939, because those entities were dissolved prior to the release of

the tax returns. Scrimgeour does not appeal this ruling.

 7
After the trial, Scrimgeour made a motion for reasonable litigation

costs under I.R.C. § 7430 (West Supp. 1998), which provides for the

award of attorneys' fees in litigation with the IRS under certain conditions. Scrimgeour argued that he met the requirements of I.R.C.

§ 7430 because: (1) he had exhausted his administrative remedies,

see I.R.C. § 7430(b)(1); (2) he had substantially prevailed with

respect to the amount in controversy or the most significant issue presented, see I.R.C. § 7430(c)(4)(A)(i); (3) the IRS's position in the litigation was not substantially justified, see I.R.C. § 7430(c)(4)(B)(i);

and (4) his net worth was not in excess of $2 million at the time the

action was filed, see I.R.C. § 7430(c)(4)(D). The district court, however, did not reach the merits of these factual assertions because it

determined that, as a matter of statutory construction, I.R.C. § 7430

did not apply to civil actions arising under I.R.C.§ 7431 that are

based upon releases of tax returns that did not occur during the course

of tax collection or a tax-related proceeding.

Subsequently, Scrimgeour filed this appeal. He argues that the district court erred when it determined that the IRS did not act in a willful or grossly negligent manner when it released his tax returns.

Additionally, Scrimgeour asserts that the district court's legal analysis

of the attorneys' fees statute was incorrect. We address these challenges to the district court's decisions in turn.

III.

First, Scrimgeour argues that willfulness is a legal question subject

to de novo review and that the release of his tax returns was willful

as a matter of law because the IRS made a conscious decision to pursue an investigation into potential criminal wrongdoing at the Atlanta

Service Center before ensuring that the improper releases of his tax

returns ceased.7 Therefore, he contends that the district court's deci-

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7 Section 6103 of the tax code, the provision that safeguards the confidentiality of tax returns, and of which the plaintiff must prove a violation

to qualify for damages under I.R.C. § 7431, contains a limited privilege

for the release of tax returns in the course of an investigation. See I.R.C.

§ 6103(k)(6) (West Supp. 1998). That section provides as follows:

An internal revenue officer or employee may, in connection with

his official duties relating to any . . . criminal tax investigation

 8
sion to deny punitive damages under I.R.C. § 7431(c)(1)(B)(ii) was

erroneous. Additionally, Scrimgeour asserts that the definition of willfulness under the Privacy Act is "materially indistinguishable" from

that which applies under I.R.C. § 7431(c)(1)(B)(ii). Thus, Scrimgeour

contends that the district court erred when it ruled for the IRS on his

Privacy Act claims. We address these claims in turn.

A.

Section 7431(c)(1)(B)(ii) of the Internal Revenue Code allows for

the recovery of punitive damages in wrongful disclosure cases only

when the disclosure was willful or grossly negligent.8 Under

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or any other offense under the internal revenue laws, disclose

return information to the extent that such disclosure is necessary

in obtaining information that is not otherwise reasonably available . . . with respect to . . . any provision of this title. Such disclosures shall be made only in such situations and under such

conditions as the Secretary may prescribe by regulation.

Id. The applicable regulation, 26 C.F.R. § 301.6103(k)(6)-1(b)(4) (1993),

authorizes the release of tax returns to the extent necessary to obtain

information "[t]o establish or verify misconduct (or possible misconduct)

or other activity proscribed by the internal revenue laws." Id. For reasons

that are not entirely clear from the record, the IRS did not raise this

potential defense below.

8 Punitive damages are not awarded for the purpose of compensating

the victim for a wrong, but rather are "`assessed for the avowed purpose

of visiting a punishment upon the defendant;'" "rationalized on the

ground that [they] deter[ ] persons from violating the rights of others,"

and "justified as a `bounty' that encourages private lawsuits seeking to

assert legal rights." Smith v. Wade, 461 U.S. 30, 58 (1983) (Rehnquist,

J., dissenting) (emphasis in original) (quoting C. McCormick, Law of

Damages 275 (1935)). Because such damages represent an extraordinary

award, plaintiffs are often required to prove that the defendant acted with

a higher level of culpability than would otherwise be required for the

recovery of compensatory damages. See, e.g., Wedeman v. City Chevrolet Co., 366 A.2d 7, 13 (Md. 1976) ("wanton or reckless disregard for the

rights of others"); Cook v. Lanier, 147 S.E.2d 910, 915 (N.C. 1966) (noting that actual malice, willful or wanton misconduct, or reckless indifference to the rights of others is required for an award of punitive damages);

Hicks v. McClandlish, 70 S.E.2d 629, 631 (S.C. 1952) (requiring wantonness, willfulness, or recklessness). In this instance, Congress has mandated that the plaintiff prove either willfulness or gross negligence to

obtain punitive damages. See I.R.C. § 7431(c)(1)(B)(ii) (West Supp.

1998).

 9
§ 7431(c)(1)(B)(ii), grossly negligent9 conduct is "that which is . . .

marked by wanton or reckless disregard of the rights of another."

Barrett v. United States, 100 F.3d 35, 40 (5th Cir. 1996) (internal

quotation marks omitted) (enunciating the meaning of gross negligence under I.R.C. § 7431(c)(1)(B)(ii)). In contrast, simple negligence is the lack of due care. See Zfass v. Commissioner, 118 F.3d

184, 188 (4th Cir. 1997) ("Negligence denotes`lack of due care or

failure to do what a reasonable and ordinarily prudent person would

do under the circumstances.'" (quoting Korshin v. Commissioner, 91

F.3d 670, 672 (4th Cir. 1996))).

Whether the IRS acted with the requisite gross negligence for an

award of punitive damages under § 7431 is a factual issue. See id. On

appeal from a bench trial, we may only set aside findings of fact if

they are clearly erroneous, and we must give due regard to the opportunity of the district court to judge the credibility of the witnesses. See

Fed. R. Civ. P. 52(a). "A finding is `clearly erroneous' when although

there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has

been committed." United States v. United States Gypsum Co., 333

U.S. 364, 395 (1948). "[W]here there are two permissible views of the

evidence, the factfinder's choice between them cannot be clearly erroneous." Zfass, 118 F.3d at 188 (alteration in original and internal quotation marks omitted).

In the present case, the district court analyzed the actions taken by

the IRS at the Atlanta Service Center both before and after the receipt

of Fant's letter.

1.

First, the district court analyzed the circumstances surrounding the

initial release of Scrimgeour's tax returns from the photocopy unit at

the Atlanta Service Center in response to the obviously improper

Forms 4506. The district court concluded that the initial releases were

_________________________________________________________________

9 The district court found that the IRS was not grossly negligent in the

handling of Scrimgeour's tax returns and therefore did not address the

higher standard of willfulness. Thus, we also begin our analysis with a

consideration of whether the IRS was grossly negligent.

 10
the result of negligence. In support of its conclusion that the photocopy unit was negligent, the district court stated that a reasonable person in the IRS employees' position "should have realized [the

requests] didn't look right; they didn't look normal; they didn't look

the same as they had been used to processing." (J.A. at 380-81.) Further, the district court noted that the initial disclosures were "a negligent oversight, a failure of making sure that the training stuck and that

employees in the photo copy unit in Atlanta knew to ask a supervisor

or the disclosure officer if they saw a subpoena." (J.A. at 383.)

We are not "left with a definite and firm conviction" that the district court made a mistake when it concluded that the initial release

of Scrimgeour's tax returns was the result of simple negligence. The

record reflects that the employees who responded to the Forms 4506

were simply careless. They processed and released tax returns that the

employees in the Philadelphia Service Center immediately recognized

to be inadequate. There is no evidence on the record before us that

indicates that the Atlanta Service Center's response reflects any

greater level of culpability than simple negligence, i.e., lack of due

care. To prevail under § 7431(c)(1)(B)(ii) Scrimgeour bears the burden of demonstrating that the employees' actions were "marked by

wanton or reckless disregard of the rights of another," Barrett, 100

F.3d at 40 (internal quotation marks omitted). Because there was no

evidence presented showing that the service center personnel possessed the higher level of culpability required for gross negligence,

the district court did not clearly err when it held that the initial

releases of Scrimgeour's tax forms did not meet the threshold for

recovery under either § 7431(c)(1)(B)(ii).

2.

Scrimgeour argues, however, that even if the initial disclosures

were not willful or grossly negligent, the disclosures that continued

after Fant's letter was received at the IRS investigative division were

the product of willfulness. Scrimgeour's argument has two components: (1) that the IRS acted willfully when it opted to place a higher

priority on investigating possible criminal wrongdoing at the Atlanta

Service Center than it placed on stopping ongoing releases of his tax

returns; and (2) that the IRS willfully mishandled the investigation

when it passed Fant's letter from hand to hand delaying the investiga-

 11
tion process and thereby unnecessarily allowing the Atlanta Service

Center to continue disclosing his tax information. We address these

contentions in turn.

a.

First, the district court determined, and we agree, that the IRS's

decision to pursue a criminal investigation was not the product of

gross negligence. Fant's letter implied that the releases might have

been the product of an illegal arrangement between Walsh and someone within the Atlanta Service Center and specifically requested that

the IRS investigate this possible illicit connection. To facilitate the

criminal investigation, there was no immediate order issued to stop

the continuing release of Scrimgeour's tax returns. The investigator

who first handled the letter thought that the investigation would be

foiled should Walsh's contact at the Atlanta Service Center discover

that the IRS was seeking the source of the releases. With the benefit

of omniscient hindsight, this judgment has been called into question

because of the length of the ensuing delay. The initial decision, however, was made by the IRS's investigative team in an effort to safeguard Scrimgeour's rights, as well as the rights of all other taxpayers

whose forms were processed at the Atlanta Service Center. Because

the IRS investigative team was using procedures intended to followup on the taxpayer's request for an investigation, ultimately to protect

his privacy rights, we do not believe that the district court clearly

erred when it determined that this decision-making process was not

grossly negligent.

b.

Scrimgeour further argues that the approximately ten-week delay

in stopping the release of his tax returns that occurred while the IRS

was pursuing its investigation of the Atlanta Service Center and

Fant's letter was passed from hand to hand in various investigative

divisions of the IRS constituted gross negligence.

We agree with Scrimgeour that the delay was unnecessary. Fant's

complaint got tangled in the web of the IRS's bureaucracy and traveled from Washington, D.C., to Philadelphia and back again before

the investigation was concluded and the IRS took steps to stop the

 12
releases of Scrimgeour's tax returns. This delay, however, does not

demonstrate gross negligence. The letter's journey was the result of

a plodding and inefficient attempt to remedy the complaint; gross

negligence requires a higher level of culpability than inefficiency in

accomplishing the objective -- it requires wanton or reckless disregard of rights. The record reflects that each individual who came into

possession of the letter used his best professional judgment to resolve

Fant's complaint. Therefore, here too, the district court's conclusion

was not clearly erroneous.

Both the IRS's initial release of information in response to clearly

inadequate requests and its snail-paced handling of Fant's complaint

did fall below an objective standard of reasonableness, and thus the

IRS was properly liable for damages under I.R.C.§ 7431's negligence

standard. The district court, however, did not clearly err when it determined that the IRS was not grossly negligent. We need not separately

assess whether the IRS's conduct was willful. If conduct does not

meet the threshold of gross negligence, it cannot meet the slightly

higher level of culpability embraced by the willfulness standard.

Therefore, the district court's denial of punitive damages under

§ 7431 was appropriate.

B.

Scrimgeour's Privacy Act claims rest upon the identical factual

allegations as did his claims under I.R.C. § 7431. In contrast to I.R.C.

§ 7431, the Privacy Act establishes a standard of "intentional or willful" behavior that, "`[o]n a continuum between negligence and the

very high standard of willful, arbitrary, or capricious conduct . . . is

viewed as only somewhat greater than gross negligence.'" Waters v.

Thornburgh, 888 F.2d 870, 875 (D.C. Cir. 1989) (quoting Analysis of

House and Senate Compromise Amendments to the Federal Privacy

Act, 120 Cong. Rec. 40,405, 40,406 (1974), reprinted in Legislative

History of the Privacy Act of 1974 at 991 (1976)). Thus, the standard

for intentional or willful behavior under the Privacy Act has been

articulated as "an act committed `without grounds for believing it to

be lawful, or by flagrantly disregarding others' rights under the Act.'"

Id. (quoting Albright v. United States, 732 F.2d 181, 189 (D.C. Cir.

1984)). Because the Privacy Act requires that a plaintiff meet a standard higher than gross negligence to prove liability, whereas I.R.C.

 13
§ 7431(c)(1)(B)(ii) specifies gross negligence, the plaintiff must demonstrate greater culpability on the part of the defendant to support a

finding of liability under the Privacy Act. Therefore, because, as we

just determined, the district court did not clearly err when it determined that the IRS was not grossly negligent, Scrimgeour cannot

demonstrate the higher standard of culpability required for recovery

under the Privacy Act.

IV.

Scrimgeour also challenges the district court's denial of his posttrial request for an award of attorneys' fees under I.R.C. § 7430. The

district court ruled that § 7430 did not apply to actions for unlawful

disclosure of tax returns arising under I.R.C. § 7431 when a disclosure was not made during the course of the IRS's effort to collect,

determine, or refund a tax, refund, or penalty. Applying our de novo

standard of review to this statutory construction question, see United

States v. Linney, 134 F.3d 274, 282 (4th Cir.), cert. denied, 118 S. Ct.

1852 (1998), we affirm.

Internal Revenue Code § 7430 provides for an award of attorneys'

fees when the taxpayer prevails in an action "[i]n any administrative

or court proceeding which is brought by or against the United States

in connection with the determination, collection, or refund of any tax,

interest, or penalty under this title."10 I.R.C. § 7430(a) (emphasis

added). The district court ruled that, although Scrimgeour's action

under I.R.C. § 7431 clearly qualified as a court proceeding brought

against the United States, his tax returns were not released "in connection with the determination, collection, or refund of any tax, interest or penalty," because the release had occurred in connection with

a family controversy over a trust, not within the context of an adjudication or investigation of a tax dispute. The district court, therefore,

ruled that the release of Scrimgeour's tax returns did not meet the

requirements of I.R.C. § 7430, and he could not recover attorneys'

fees.

_________________________________________________________________

10 Currently, several amendments to I.R.C. § 7430 are pending as part

of the Internal Revenue Service Reform and Restructuring Act. See H.R.

2676, 105th Cong. § 311 (1997). The proposed amendments do not affect

the language at issue here.

 14
Scrimgeour asserts that the district court wrongly decided this legal

question on two theories. First, he asserts that damages recovered

under I.R.C. § 7431 constitute a "penalty" when that term is accorded

its common and ordinary meaning. Therefore, Scrimgeour contends

that all actions arising under I.R.C. § 7431 occur in connection with

the determination of a penalty because the act of meting out damages

under I.R.C. § 7431 is itself the act of determining a penalty. Alternatively, Scrimgeour argues that all illegal releases of tax returns cognizable under § 7431 are made in connection with the determination of

a tax, refund, or penalty because the tax return was initially filed so

that the IRS could determine the proper tax due. Therefore, Scrimgeour contends, the subsequent storage of the tax return, and its eventual unauthorized release, also occur in connection with the

determination of a tax. We address these arguments seriatim.

A.

Scrimgeour first argues that I.R.C. § 7430 applies to actions arising

under I.R.C. § 7431 because the latter section assesses a penalty

against the IRS for wrongful disclosure when one gives "penalty" its

common and ordinary meaning. Scrimgeour cites to us many possible

definitions of "penalty" in support of his assertion.

First, he proffers that a "penalty" is "an`elastic' term which

includes `any extraordinary liability to which the law subjects a

wrongdoer in favor of the person wronged, not limited to damages

suffered.'" (Appellant's Br. at 32-33 (quoting O'Sullivan v. Felix, 233

U.S. 318, 324 (1914)).) Scrimgeour also offers this definition, "`[a]n

enactment which has as its purpose the punishment of conduct perceived as wrongful . . . regardless of the terminology employed by the

legislature.'" (Appellant's Br. at 33 (citing United States v. Unsecured

Creditors' Comm., 977 F.2d 137, 139 (4th Cir. 1992)).) Further,

Scrimgeour cites Black's definition of "penalty," "`[a]n elastic term

with many different shades of meaning' including`[a] statutory liability imposed on [a] wrongdoer in [an] amount which is not limited to

the damages suffered by the party wronged.'" (Appellant's Br. at 33

(alterations in original) (quoting Black's Law Dictionary 1133 (6th

ed. 1990)).) We note that none of these definitions has its origins in

the tax code.

 15
Scrimgeour is correct in asserting that we begin our statutory analysis with the plain language of the statute. See Alexander S. v. Boyd,

113 F.3d 1373, 1383 (4th Cir. 1997), cert. denied, 118 S. Ct. 880

(1998). "If the `statutory language is unambiguous and the statutory

scheme is coherent and consistent,' our inquiry ends." Id. (quoting

Robinson v. Shell Oil Co., 117 S. Ct. 843, 846 (1997)). Words that are

not defined within the statute are accorded their plain and ordinary

meaning. See id. at 1383. "[W]here words are employed in a statute

which ha[ve] . . . a well-known meaning at common law or in the law

of this country, [however] they are presumed to have been used in

that sense." EEOC v. Gilbarco, Inc., 615 F.2d 985, 990 (4th Cir.

1980) (internal quotation marks omitted) (first alteration in original).

Outside the context of the tax code, "penalty" has the broad meanings

Scrimgeour urges upon us. Within the tax code, however, the word

"penalty" is a term of art with a more circumscribed meaning.

Although it is not specifically defined in the tax code, "penalty" is

used in two contexts. First, it is frequently used in the phrase "under

penalty of perjury." See, e.g., I.R.C.§ 25(e)(2) (West Supp. 1998).

That usage is plain and needs no further explanation here. In all of its

other iterations within the tax code, the term "penalty" is used to

describe a fine or other punishment taxpayers face when they fail to

comply with the directives of the Internal Revenue Code. See, e.g.,

I.R.C. § 72(q)(1) (West Supp. 1998); I.R.C.§ 138(c)(2) (West Supp.

1998). Nowhere within the code is "penalty" used to describe compensatory damages11 that can be recovered by the taxpayer for gov-

_________________________________________________________________

11 The damages awarded under § 7431 are compensatory in nature,

designed to compensate the plaintiff for an invasion of privacy. Cf. Robert P. Butts, IRS Liability for Wrongful Disclosures Made in the Process

of Tax Collection: Should the Validity of the Underlying Collection

Activity be Considered?, 102 Dick. L. Rev. 67, 71 (1997) (noting that

§ 7431 protects taxpayer privacy). The $1,000 statutory damage award

specified in I.R.C. § 7431(c)(1)(A), is included for the benefit of taxpayers. Actual damages for the invasion of privacy that occurs when tax

returns are wrongfully disclosed can be hard to quantify. In order to

encourage taxpayers to act as "private attorneys general" and pursue suits

against the IRS for violations of I.R.C. § 6103, Congress enacted the statutory damages provision to ensure that in meritorious cases of wrongful

release a taxpayer would not walk away from the courthouse emptyhanded for failure of proving damages. See generally, Barber v. Kimbrell's, Inc., 577 F.2d 216, 222 n.14 (4th Cir. 1978) (explaining the purpose of statutory damages).

 16
ernmental wrongdoing.12 Therefore, construing the tax code as a

whole, we cannot agree with Scrimgeour's argument that damages

recovered under I.R.C. § 7431 constitute a"penalty" as that word is

used in the code. Cf. Alexander S., 113 F.3d at 1384 ("[I]dentical

terms within an Act should be given the same meaning."); Salomon

Forex, Inc. v. Tauber, 8 F.3d 966, 975 (4th Cir. 1993) (stating that

words recurring within statutes must be interpreted consistently).

B.

Scrimgeour next asserts that even if I.R.C. § 7431 does not itself

provide for the determination of a penalty, I.R.C.§ 7430 still applies

to his cause of action. Scrimgeour asserts that the wrongfully released

tax returns were stored after the IRS computed and determined the

tax, refund, or penalty due. Because the storage of the tax return was

a necessary by-product of the tax collection process, Scrimgeour contends that the release of his tax return from storage must have

occurred "in connection with the determination, collection, or refund

of any tax, interest, or penalty under [Title 26]." I.R.C. § 7430(a).

Currently, there is some disagreement among the circuits on the

issue of whether an action under I.R.C. § 7431 automatically falls

within the attorneys' fees provision of I.R.C. § 7430. The Fifth Circuit has held that all I.R.C. § 7431 actions in which the release of tax

returns took place during the course of a tax proceeding occur "in

connection with the determination, collection, or refund of any tax,

interest, or penalty" because such actions arise directly as a result of

IRS possession of tax records. See Huckaby v. United States, 804 F.2d

297, 298 (5th Cir. 1986). On the other hand, the Eighth Circuit,

addressing the question of whether a release of tax returns occurring

outside the tax computation system meets § 7430's requirements, held

that a case-by-case analysis is required. See McLarty v. United States,

6 F.3d 545, 548 (8th Cir. 1993). Scrimgeour's argument tracks the

Fifth Circuit's analysis.

_________________________________________________________________

12 Such recoveries are referred to as "civil damages." I.R.C. § 7431

(West Supp. 1998); I.R.C. § 7432 (West 1989); I.R.C. § 7433 (West

Supp. 1998); I.R.C. § 7435 (West Supp. 1998).

 17
In Huckaby, the Fifth Circuit held that an unauthorized release of

tax return information had occurred because the income tax returns

were in the IRS's possession for the purpose of determining tax liability. See Huckaby v. United States, 804 F.2d 297, 298 (5th Cir. 1986).

Because the tax records were put in storage immediately after the tax

determination process had occurred, the Fifth Circuit reasoned that

their continued storage and eventual release were linked to the determination of the initial tax. Therefore, the release occurred "in connection with the determination, collection, or refund of any tax, interest,

or penalty." The Fifth Circuit reached this conclusion in circumstances where the release of tax return information occurred during a

proceeding directly related to the tax collection process -- the returns

had been released to state tax authorities. See id. at 300-301. Although

the Fifth Circuit announced a broad rule in Huckaby, that court has

not ruled specifically whether a release of tax returns into a forum

completely unrelated to taxes meets § 7430's"in connection with"

requirement. The Ninth Circuit has followed the Fifth Circuit's

approach, noting that its interpretation was a broad reading of the "in

connection with" language of I.R.C. § 7430 and that a broad reading

was proper. See Smith v. Brady, 972 F.2d 1095, 1099-1100 (9th Cir.

1992).

In contrast, the Eighth Circuit, specifically addressing the situation

in which tax returns were wrongfully released in non-tax-related circumstances, determined that the IRS's mere continuing storage of a

taxpayer's old tax returns did not automatically entitle a plaintiff to

recovery of attorneys' fees under I.R.C. § 7430's "in connection with"

language. See McLarty v. United States, 6 F.3d 545, 548 (8th Cir.

1993).

In McLarty, tax return information was disclosed during the course

of a challenge to a pro hac vice admission of an attorney. See id. The

Eighth Circuit reasoned that the release of tax return information had

not occurred "in connection with the determination, collection, or

refund" of his taxes, but rather had occurred during the proceedings

relating to his pro hac vice admission. See id. The Eighth Circuit

explained that I.R.C. § 7430 applied only to"proceedings . . . brought

. . . in connection with the determination, collection, or refund of any

tax," and that an action under I.R.C. § 7431 was not per se a proceeding related to the determination of tax liability. See id. The court fur-

 18
ther noted that a proceeding under § 7431 is brought to vindicate

rights under § 6103, which protects tax payer confidentiality generally

and is not limited to determination, collection, or refund proceedings.

See id. Therefore, in McLarty, the Eighth Circuit held that an award

of attorneys' fees under § 7430 was not warranted when the release

of tax information occurred during the course of a pro hac vice admission proceeding because the pro hac vice proceeding was completely

unrelated to tax matters. See id. Under the Eighth Circuit's reasoning,

the question of whether § 7431 proceedings qualify for recovery of

attorneys' fees under § 7430 must be addressed on a case-by-case

basis after examining the context of the challenged release.

In analyzing the issues presented in this case, we begin by recognizing that proceedings brought under § 7431 do not automatically

qualify as "an[ ] administrative or court proceeding which is brought

by or against the United States in connection with the determination,

collection or refund of any tax, interest or penalty under this title."

I.R.C. § 7430(a). We do not question that tax forms are initially filed

to facilitate tax or refund computation. However, when a tax return

is stored at the IRS and is not reexamined, the determination, collection, or refund of the tax, interest, or penalty has been completed. The

return may be revisited later for a new determination, but in the

interim the IRS is acting merely as a document repository. It is not

daily determining and redetermining the tax owed by or refund due

to the taxpayers represented by the returns. The appropriate timeframe for determining whether an improper release has occurred in

connection with a tax matter is the time of the release, not the time

of storage. Although all tax forms are stored as the result of tax computation activities, not all releases occur "in connection with the

determination, collection, or refund of any tax, interest, or penalty."

Therefore, we agree with the Eighth Circuit that the inquiry of

whether a § 7431 action meets the § 7430 requirements for recovery

of attorneys' fees is contextual.

Examining the context here, we hold that the release of Scrimgeour's tax returns from storage, into a non-tax-related forum has not

occurred "in connection with the determination, collection, or refund

of any tax" and he does not qualify for attorneys' fees under § 7430.

Scrimgeour was not being audited, nor was he the subject of a tax

investigation of any kind. Rather, the release of Scrimgeour's tax

 19
returns occurred during extra-judicial discovery undertaken by an

attorney in the course of an intra-family dispute over the management

of a trust.

We believe this result is not only mandated by the statutory language, but also by precedent. The Supreme Court has noted that an

attorneys' fee award statute is a limited waiver of sovereign immunity. See Ardestani v. INS, 502 U.S. 129, 137 (1991). As such, it must

be narrowly construed in favor of the sovereign. See id.; Research

Triangle Inst. v. Board of Governors of the Fed. Reserve Sys., 132

F.3d 985, 987 (4th Cir. 1997). Section 7430 does not specifically

authorize an award of attorneys' fees for an unauthorized release of

tax returns. Therefore, we believe that the narrower construction of

the statute, which examines each release on a case-by-case basis to

determine whether it has occurred in connection with a tax matter and

awards fees only when the tax returns have been inappropriately

released in the course of a tax-related proceeding or investigation, is

required.

V.

Based upon the foregoing discussion, the rulings of the district

court are affirmed in all respects.

AFFIRMED

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