1Judge, U.S. Court of International Trade, sitting by

designation.

1

REVISED - December 18, 2000

UNITED STATES COURT OF APPEALS

For the Fifth Circuit

___________________________

No. 99-40205

___________________________

DENNIS C. GANDY,

Plaintiff-Appellant,

VERSUS

UNITED STATES OF AMERICA,

Defendant-Appellee.

___________________________________________________

Appeal from the United States District Court

For the Eastern District of Texas

 ___________________________________________________

December 11, 2000

Before DAVIS and EMILIO M. GARZA, Circuit Judges, and POGUE1,

District Judge.

W. EUGENE DAVIS, Circuit Judge:

In this action by Dennis Gandy, a taxpayer, against the United

States to recover damages under 26 U.S.C. §7431(a)(1) for wrongful

oral and written disclosures of his “tax return information,” the

district court dismissed the suit and Gandy appeals. The issues on

appeal are: 1) whether the district court clearly erred by finding

that the statute of limitations began to run on the written

disclosures in 1990, and 2) whether the district court erred by
2

holding that the IRS agents made the oral disclosures in good

faith. For the reasons that follow, we affirm.

I.

In 1989, IRS Special Agent Ronnie McPherson (“McPherson”) was

assigned to conduct a criminal investigation of Dennis Gandy

(“Gandy”) for the years 1985, 1986, and 1987. Special Agent Laura

Sanders (“Sanders”) was later assigned to assist with the

investigation. On September 19, 1990, McPherson sent a form letter

soliciting financial information from 269 customers of the Dennis

Gandy Nursery (“Nursery”), which was owned and operated by Gandy.

A sentence in the body of the “circular” letter to Gandy’s

customers stated that Gandy was under investigation by the Criminal

Investigation Division of the IRS. 

The district court dismissed as time barred both counts of

Gandy’s complaint seeking recovery for the written disclosures in

the circular letter. The court found that Gandy learned in 1990 of

the wrongful disclosures the agent made in this letter and that the

two year statute of limitations therefore began to run in 1990.

Because Gandy filed his complaint in 1996, the court held that the

two counts of his complaint concerning the written disclosures made

in the letter were time barred.

In addition to Gandy’s claim based on the written disclosures,

Gandy also sought damages based on oral disclosures. The oral

disclosures at issue were made by McPherson and Sanders when they

told potential witnesses and other third parties that they were

conducting a criminal investigation of Gandy. 
3

Following a full bench trial, the district court held that

McPherson and Sanders believed in good faith, although erroneously,

that they were authorized by 26 U.S.C. § 6103 to tell third parties

that Gandy was under criminal investigation. The district court

dismissed Gandy’s suit and this appeal followed.

II.

Gandy argues first that the district court erred in dismissing

as time barred his claim for wrongful written disclosure of tax

return information. 26 U.S.C. § 7431 acts as a waiver of sovereign

immunity for suits seeking damages for wrongful disclosure of tax

return information. 26 U.S.C. § 7431(d) provides that a claim for

wrongful disclosure of tax return information must be brought

“within two years after the date of discovery by the plaintiff of

the unauthorized disclosure.” If a waiver of sovereign immunity

contains a limitations period, a plaintiff’s failure to timely file

suit deprives the court of jurisdiction. United States v. Dalm,

494 U.S. 596, 608, 110 S.Ct. 1361, 1368 (1990); Dunn-McCampbell

Royalty Interest, Inc. v. National Park Serv., 112 F.3d 1283, 1287

(5th Cir. 1997)(“. . . failure to sue the United States within the

limitations period is not merely a waivable defense. It operates

to deprive federal courts of jurisdiction.”). 

The district court’s finding that Gandy knew of the contents

of the written disclosures in the circular letter more than two

years before filing the complaint is a factual finding reviewed for

clear error. Emmons v. Southern Pacific Transp. Co., 701 F.2d

1112, 1124 (5th Cir. 1983). The court based its finding on the
4

testimony of Patricia Davidson (“Davidson”) and Bob Cartwright

(“Cartwright”). 

Davidson, who worked as a receptionist at the Nursery,

testified that shortly after the letters were mailed, she answered

phone calls from approximately 100 customers who wanted to speak to

Gandy about the IRS letter. Davidson testified that she overheard

Gandy reassuring these customers that the IRS would clear him of

any wrongdoing. Cartwright, one of Gandy’s customers, testified

that after receiving the letter, he called Gandy and told him he

had received a letter from a criminal investigator.

Gandy testified that he did not have actual knowledge of the

contents of the letters. But credibility calls are for the

district court and it committed no error in choosing to believe

Davidson and Cartwright, rather than Gandy. Thus, the district

court’s finding that the statute of limitations began to run on the

written disclosures in 1990 was not clearly erroneous. Therefore,

the district court correctly concluded that the two counts of

Gandy’s complaint relating to written disclosures were time barred.

The district court had no jurisdiction over this claim because the

United States has not waived sovereign immunity for untimely suits.

III.

Gandy next argues that McPherson and Sanders made unnecessary

disclosures of tax return information when they orally disclosed to

potential witnesses that they were conducting a criminal tax

investigation of Gandy. The district court held that the United

States was not liable for McPherson and Sanders’s oral disclosures
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of Gandy’s tax return information because the IRS agents acted

under a good faith, although erroneous, interpretation of 26 U.S.C.

§ 6103. We review the district court’s conclusion that agents

McPherson and Sanders acted in good faith as a mixed question of

fact and law. We review the court’s subsidiary fact findings for

clear error and its legal conclusions and application of law to

fact de novo. Robicheaux v. Radcliff Material, Inc., 697 F.2d 662,

666 (5th Cir. 1983). The subsidiary facts are undisputed.

Therefore, the legal question is whether McPherson and Sanders, as

reasonable agents, acted in good faith when they orally disclosed

that Gandy was under criminal investigation. We begin our analysis

with a consideration of the relevant statutes and the IRS’s

interpretation of these statutes as reflected in its regulations

and manuals. 

26 U.S.C. § 6103(a)(1) states that “no officer or employee of

the United States . . . shall disclose any return or return

information obtained by him in any manner . . . .” The government

stipulates that the agents’ oral statements that they were

conducting a criminal investigation constitute disclosure of return

information. However, 26 U.S.C. § 6103(k)(6), which includes an

exception to 26 U.S.C. § 6103(a)(1), provides, in pertinent part:

An internal revenue officer or employee may, in

connection with his official duties relating to any . .

. criminal tax investigation . . ., disclose return

information to the extent that such disclosure is

necessary in obtaining information, which is not

otherwise reasonably available, with respect to the . .

. liability for tax . . . . Such disclosures shall be

made only in such situations and under such conditions as

the Secretary may prescribe by regulation.
2Circular letters are form letters sent out in mass mailings

to gather information about a taxpayer under investigation.

3We look to the provisions in the regulations and manuals as

they existed at the time of the oral disclosures, regardless of any

subsequent changes. All statements regarding these provisions

refer to the provisions as they existed at the time.

6

Id. (emphasis added).

The relevant provisions in the IRS’s regulations and manuals

are Treasury Regulation § 301.6103(k)(6)-1 and §§ 348.3 and 347.2

of the Handbook. Treasury Regulation § 301.6103(k)(6)-1 states

that: 

[A]n officer or employee of the Internal Revenue Service

. . . is authorized to disclose taxpayer identity

information (as defined in section 6103(b)(2)), the fact

that the inquiry pertains to the performance of official

duties, and the nature of the official duties in order to

obtain necessary information relating to the performance

of such official duties . . . .

Id. (emphasis added). Section 348.3 of the Handbook, entitled

Disclosures for Investigative Purposes, provides that:

Special agents are specifically authorized by I.R.C. §

6103(k)(6) to disclose return information to the extent

necessary to gather data which may be relevant to a tax

investigation. Situations in which special agents may

have to make such disclosures in order to perform their

duties arise on a daily basis. For example, this occurs

whenever they contact third parties believed to have

information pertinent to a tax investigation.

Section 347.2 of the Handbook deals specifically with circular

letters sent out by IRS agents.2 At the time the agents made the

oral disclosures at issue - before it was changed in 19923 - §

347.2 of the Handbook provided that:

Caution must be exercised not to damage the reputation of

the taxpayer by making the letter either offensive or

suggestive of any wrongdoing by the taxpayer. It must
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not be disclosed in the body of the letter that the

taxpayer is under investigation by the Criminal

Investigation Division. Appropriate wording could be

“The Internal Revenue Service is conducting an

investigation of . . .”. [sic] Any reference to the

Criminal Investigation Division must be restricted to the

signature blocks or ancillary headings. . . . The title

“Special Agent” and Criminal Investigation Division will

be included in the signature block.”

The district court held that the oral disclosures at issue

were not necessary. However, we need not decide the difficult

legal question of whether agents McPherson and Sanders’s oral

disclosures that Gandy was under criminal investigation were

necessary if we agree with the district court that agents McPherson

and Sanders, as reasonable agents, were in good faith in believing

that the disclosures were authorized and therefore necessary. We

therefore turn to the United States’ good faith defense. 

26 U.S.C. § 7431 supplies a civil remedy for violations of 26

U.S.C. § 6103. However, § 7431(b) provides that “[n]o liability

shall arise under this section with respect to any inspection or

disclosure--(1) which results from a good faith, but erroneous,

interpretation of section 6103 . . . .” Id. (emphasis added).

This court defined the test for good faith under 26 U.S.C. §

7431(b) in Huckaby v. United States, 794 F.2d 1041 (5th Cir. 1986).

We stated that “the good-faith defense in section 7431(b) should be

judged by an objective standard analogous to that employed in

Harlow. . . . Harlow would find officials acting in good faith

when ‘their conduct does not violate clearly established statutory

or constitutional rights of which a reasonable person would have

known.’” Id. at 1048 (quoting Harlow v. Fitzgerald, 457 U.S. 800,
4Gandy also argues that in addition to the factors listed by

this Court to determine whether an agent has acted in good faith,

another factor is federal court decisions. Gandy cites three cases

from other circuits: Heller v. Plave, 657 F.Supp 95 (S.D. Fla.

1987), Rodgers v. Hyatt, 697 F.2d 899 (10th Cir. 1983), and May v.

United States, 141 F.3d 1169 (8th Cir. 1998)(unpublished opinion),

as well as Johnson v. Sawyer, 640 F.Supp. 1126 (S.D. Tex. 1986) and

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

that these cases prohibit the oral disclosures at issue in this

case. However, the only case Gandy relies on that involves an

agent’s oral disclosure to a potential witness that the taxpayer is

under criminal investigation is a case from the Southern District

of Florida - Heller. We decline to impose a burden on agents to

follow a single district court opinion, particularly from a

jurisdiction outside the territory in which they work. 

8

818, 102 S.Ct. 2727, 2738 (1982)).

We later stated in Huckaby that: 

The question then, as we have noted, is whether a

reasonable IRS agent would be acquainted with the

statute, and his own agency’s interpretation of the

statute as reflected in its regulations and manuals. The

answer is self-evident. A reasonable IRS agent can be

expected to know the provisions of sections 6103 and

7431, as they may be further clarified by IRS regulations

and other IRS interpretations. 

Id. at 1048-49 (footnote omitted).4

This Court interpreted the good faith provision of 26 U.S.C.

§ 7431(b) once again in Barrett v. United States, 51 F.3d 475 (5th

Cir. 1995). We stated that “[a] reasonable IRS agent can be

expected to know statutory provisions governing disclosure, as

interpreted and reflected in IRS regulations and manuals.” Id. at

479 (citing Huckaby, 794 F.2d at 1048). We stressed the importance

of the agent following the procedures and rules that are found in

the Handbook. We concluded that the disclosure in Barrett was not

in good faith because “the Chief of the Criminal Investigation

Division had not approved the content of the circular letters as
5Gandy also argues that McPherson and Sanders should have been

aware of instructions of IRS supervisors within their district

prohibiting an agent from saying that a taxpayer is under criminal

investigation. These alleged instructions were described at trial

by a former IRS Criminal Investigation Division supervisor, Vernon

Hampton. However, the district court was not compelled to credit

Hampton’s testimony, or to find that a reasonable agent should have

been aware of these comments.

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required by Chapter 347.2 of the IRS ‘Handbook for Special

Agents.’” Id. at 479.

With this background, we now consider the arguments of the

parties. 

IV.

Gandy argues that a reasonable IRS agent could not have acted

in good faith in orally disclosing that Gandy was under criminal

investigation when § 347.2 of the Handbook prohibits such a

disclosure in circular letters - a form of written disclosure.

Gandy argues that no reasonable agent could interpret the IRS

regulations and manuals to authorize a statement if it is made

orally, while forbidding it in a written disclosure.5

We agree with the United States that § 347.2 of the Handbook

does not control the question of whether the agents acted in good

faith by orally disclosing that Gandy was under criminal

investigation. Section 347.2 does not purport to have general

application to all disclosures; it is expressly limited to circular

letters, which are by definition mailed to large numbers -

sometimes hundreds - of potential witnesses.

In contrast to circular form letters mailed to hundreds of

business contacts, oral disclosures are typically made during one-
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on-one contacts with potential witnesses. These contacts are much

more focused than a mass mailing. Also, agents are obviously more

selective in choosing these witnesses with whom they will

personally meet. Because of the differences in the nature of the

circular letter or mass mailing and the personal contact where oral

disclosures are typically made, we are persuaded that a reasonable

agent would conclude that the specific rules governing written

disclosures in circular letters would not apply across the board to

all disclosures, including oral disclosures. 

Treasury Regulation § 301.6103(k)(6)-1 and § 348.3 of the

Handbook buttress this conclusion and tend to support an agent’s

conclusion that he can orally inform a potential witness that he is

conducting a criminal investigation. Treasury Regulation §

301.6103(k)(6)-1 provides that an IRS agent may disclose the

“nature of the [his] official duties . . .” when conducting an

investigation of a taxpayer. This would lead agents McPherson and

Sanders, as reasonable agents, to conclude that they were

authorized to disclose the nature of their official duties as a

criminal tax investigation.

Section 348.3 of the Handbook provides further support for

this conclusion. This section provides that “[s]ituations in which

special agents may have to make such disclosures [of return

information] in order to perform their duties arise on a daily

basis. For example, this occurs whenever they contact third

parties believed to have information pertinent to a tax

investigation.”
6Section 977(11).1(4) of the Internal Revenue Manual currently

states - as it did at the time of McPherson and Sanders’s oral

disclosures - that “a special agent will properly identify

himself/herself by producing his/her pocket commission at the time

of the interview.” 

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Also, it is clear to us that agents are authorized to display

their credentials and badges identifying them as Criminal

Investigation Division agents when interviewing a third party.6

Knowledgeable persons know that agents in the criminal division

conduct only criminal investigations. An agent’s knowledge that

his badge identifies his area of investigation further supports a

reasonable agent’s conclusion that he is authorized to orally

disclose - what the third party probably already knows - that the

agent is conducting a criminal investigation. 

For all the reasons stated above, we agree with the district

court that agents McPherson and Sanders, as reasonable agents, had

a good faith belief that they could disclose the criminal nature of

the investigation.

AFFIRMED.