Opinion ID: 567990
Heading Depth: 2
Heading Rank: 1

Heading: Circular Letters

Text: 7 Because this issue arises from summary judgment, we review the district court's judgment de novo and view the evidence in the light most favorable to Diamond. See Robinson v. Monaghan, 864 F.2d 622, 624 (8th Cir.1989). 8 Diamond contends that it was not necessary for Agent Jay to identify himself on the circular letters as a member of the Criminal Investigation Division. Citing 26 U.S.C. § 7431(a)(1), which provides that a taxpayer may bring a civil action for damages caused by the unauthorized disclosure of the taxpayer's tax information by a federal government employee in violation of section 6103 of the Internal Revenue Code, Diamond argues that Agent Jay violated the confidentiality of Diamond's tax records as generally protected by section 6103. 6 9 Diamond's agitation with Agent Jay's course of action is understandable. In our society, even without an actual conviction, the suggestion of criminal activity can transform and devastate an individual's life; in Diamond's case, it might destroy the confidence of his patients in their doctor, leaving him without a practice. Congress passed section 6103 to prevent such damage. Indeed, one of the four proclaimed purposes of the Tax Reform Act of 1976, from which section 6103 emerged, was to strengthen the rights of taxpayers. H.R.Rep. No. 658, 94th Cong., 1st Sess. 7 (1975), reprinted in 1976 U.S.Code Cong. & Admin.News 2897, 2902. Commenting on this subject, the Senate Committee on Finance explained: 10 The most significant administrative purposes are those which strengthen taxpayers' rights. 11 The committee amendment provides definitive rules relating to the confidentiality of tax returns, an area where there has been much abuse in the past. It strictly limits disclosure from tax returns. 12 S.Rep.No. 938, 94th Cong., 2nd Sess., pt. 2, at 19, reprinted in 1976 U.S.Code Cong. & Admin.News at 3455. 13 The IRS recognizes its obligation to respect the rights and confidentiality of taxpayers. The Internal Revenue Manual, Handbook for Special Agents warns that caution must be exercised not [to] damage the reputation of the taxpayer by making the [circular] letter either offensive or suggestive of any wrongdoing by the taxpayer. Internal Revenue Service, Internal Revenue Manual, Handbook for Special Agents, § 347.2 at 9781-111. Similarly, the Handbook for Special Agents recognizes, If not judiciously used, mail circularization may result in unwarranted embarrassment to the taxpayer. Id. at § 347.1. The need to minimize disclosures is particularly important when it is remembered that our voluntary assessment system of tax action is in large measure dependent upon the realization of a taxpayer's expectation that the information required of him for this purpose would be kept confidential. Flippo v. United States, 670 F.Supp. 638, 642 (W.D.N.C.1987) (emphasizing that Congress realized this fact when enacting section 6103); see also S.Rep.No. 938, 94th Cong., 2nd Sess., pt. 2, at 318, reprinted in 1976 U.S.Code Cong. & Admin.News 2897, 3747 (explaining that section 6103 attempts to balance the particular office or agency's need for the information involved with the citizen's right to privacy and the related impact of the disclosure upon the continuation of compliance with our country's voluntary assessment system.). 14 Agent Jay initially defends his action on the basis that identifying himself as a member of the Criminal Investigation Division did not disclose return information about Diamond. We do not find this defense persuasive. The Code expressly defines return information as meaning whether the taxpayer's return was, is being, or will be examined or subject to other investigation. 26 U.S.C. § 6103(b) (1988). The identifier Criminal Investigation Division clearly falls within this definition and thus qualifies as a disclosure of return information. 15 Jay next contends that his disclosure was authorized by section 6103(k)(6) of the Code, which permits the disclosure of return information to the extent that such disclosure is necessary in obtaining information ... only in such situations and under such conditions as the Secretary may prescribe by regulation. The Code of Federal Regulations authorizes disclosure only if the necessary information cannot, under the facts and circumstances of the particular case, otherwise reasonably be obtained.... 26 C.F.R. § 301.6103(k)(6)-1 (1991). 16 In our opinion, Agent Jay did not need to identify himself as a member of the Criminal Investigation Division to secure the desired information. In follow-up letters to many of the canvassed patients, Agent Jay identified himself only as Special Agent and did not mention his affiliation with the Criminal Investigation Division. Similarly, in the summonses prepared to gather information on Diamond's financial transactions, Agent Jay did not mention that he was with the Criminal Investigation Division. Moreover, other agents operating in the same state as Agent Jay have issued circular letters without the Criminal Investigation Division identification. Finally, in its pretrial stipulation of facts, the government did not mention the Criminal Investigation Division when detailing Agent Jay's position with the IRS. See generally United States v. Barrett, 837 F.2d 1341, 1351 (5th Cir.1988) (Brown, J., dissenting) (detailing the extent to which Congress sought to ensure that only necessary disclosures are acceptable under the Code). Indeed, Agent Jay's failure to reiterate his affiliation with the Criminal Investigation Division in his follow-up letters demonstrates that such identification was not necessary to obtain the requested information. See Heller v. Plave, 657 F.Supp. 95, 98-99 (S.D.Fla.1987) (letters stating that agent was in the Criminal Investigation Division and conducting a criminal tax investigation of taxpayer were unnecessary and improper and depict a lack of integrity on the part of the government). 17 Despite our belief that Agent Jay need not have disclosed that Diamond was under criminal investigation, we nonetheless affirm the district court's grant of summary judgment. Like the district court, we hold that Agent Jay's action resulted from a good faith, but erroneous, interpretation of section 6103. See 26 U.S.C. § 7431(b) (1988) (No liability shall arise under this section with respect to any disclosure which results from a good faith, but erroneous, interpretation of section 6103.). 18 Unlike the district court, however, we believe that the IRS rather than Agent Jay interpreted section 6103 erroneously but in good faith. Section 7431 actions must be brought against the government generally rather than against the agent individually. See Mid-South Music Corp. v. Kolak, 756 F.2d 23, 25 (6th Cir.1984) (under § 26 U.S.C. 7431(a)(1) the only proper defendant is the United States). Because section 7431 authorizes causes of action against the government for a violation of section 6103, the good faith exception in section 7431(b) applies to the IRS' interpretation of section 6103, not to Agent Jay's compliance with the IRS' interpretation of that section. 7 This is particularly true here, because, as will be discussed shortly, Agent Jay's actions accorded with the specific instructions contained in the IRS Handbook for Special Agents. 19 Section 7431 does not define a good faith interpretation of section 6103. In interpreting the predecessor statute to section 7431, 26 U.S.C. § 7217 (1976), 8 this court adopted an objective standard for ascertaining whether section 6103 was violated in good faith. See Rorex v. Traynor, 771 F.2d 383, 387 (8th Cir.1985) (Government officials performing discretionary functions are 'generally shielded from liability for civil damages insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known.'  (quoting Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S.Ct. 2727, 2738, 73 L.Ed.2d 396 (1982))). We will continue to apply this standard. See Huckaby v. United States Dep't of Treasury, Internal Revenue Serv., 794 F.2d 1041, 1048 (5th Cir.1986). 20 We are persuaded that the IRS reasonably, but erroneously, interpreted the Internal Revenue Code and the regulations implementing this law in developing its internal guidelines. These guidelines appear in the Internal Revenue Manual, Handbook for Special Agents, which instructs special agents on how to conduct a criminal investigation. As discussed above, the Internal Revenue Code rules that disclosure be limited to the extent necessary to obtain information, as prescribed by the Secretary of the Treasury. See 26 U.S.C. § 6103(k)(6) (1988). The regulations issued by the Secretary provide for disclosure only when the necessary information cannot otherwise be reasonably obtained. See 26 C.F.R. § 301.6103(k)(6)-1 (1991). 21 In its Internal Revenue Manual, Handbook for Special Agents, the IRS expressed its interpretation of the above law through two dictates. First, the handbook reiterates the statutory and regulatory guidelines outlined above, instructing: Special agents are specifically authorized by IRC 6103(k)(6) to disclose return information to the extent necessary to gather data which might be relevant to a tax investigation. Internal Revenue Service, Internal Revenue Manual, Handbook for Special Agents, § 348.3 at 9781-112. We find this interpretation to be both in good faith and correct. It is the other expression of the IRS' interpretation of section 6103 which we find to be an erroneous but nonetheless good faith interpretation of section 6103 and its derivative regulations. 22 The Handbook for Special Agents specifically directs agents mailing circular letters to include the title Special Agent, Criminal Investigation Division in the signature block. Id. at § 347.2. We do not believe that it was necessary to disclose that Diamond was the subject of a criminal investigation to obtain the information which Agent Jay desired. We recited the support for this position supra at 434-35. In reaching our conclusion, we emphasize that in no way has the IRS demonstrated that such disclosure was necessary, which is a particularly relevant consideration given Congress' intent, as embodied in section 6103(k)(6), that return information shall be confidential unless necessary to obtain information. 23 The district court in Heller v. Plave, 657 F.Supp. 95 (S.D.Fla.1987), reached a similar conclusion. In Heller, an attorney sued an IRS special agent 9 for the improper disclosure of the attorney's return information to numerous individuals. Among these disclosures were at least seven letters written by the agent which included the statement that he was a Special Agent in the Criminal Investigation Division of the IRS conducting a criminal tax investigation of [the attorney]. Id. at 96. The Heller court found this disclosure to be improper under section 6103 and fined the agent accordingly. Id. at 99. While it does not appear that the disclosure occurred by means of a signature block, the agent in Heller was found to have violated section 6103 for disclosing the same information that the signature block disclosed in this case. 24 Despite our conclusion that the IRS erroneously interpreted section 6103 and the regulatory interpretation of it found at 26 C.F.R. § 301.6103(k)(6)-1 (1991) by instructing its special agents to include the identification Criminal Investigation Division in the signature block of circular letters, we believe that it did so in good faith, and therefore we affirm the district court's summary judgment dismissal of Diamond's section 7431 claim against the United States on this issue. Our finding of good faith stems from the fact that while the IRS unnecessarily instructed its agents to disclose their affiliation with the Criminal Investigation Division, elsewhere in its manual the IRS warned its agents against committing unnecessary disclosures and emphasized that unwarranted embarrassment to the taxpayer and other damaging collateral consequences can result from a nonjudicious use of circular letters.