Pre-Inspection of Return

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7213A- Unauthorized Browsing Through Taxpayer Files: Pre-Taxpayer Browsing Protection Act: Inspection of Return

 

 

[2001-1 USTC ¶50,357] D. William Wewee, Plaintiff v. United States of America , Defendant

U.S. District Court, Dist. Ariz., CV 98-455 TUC JMR, 3/29/2001

[Code Sec. 6103 ]

Unauthorized disclosure: Tax return information: Evidence: Burden of proof: Summary judgment.--Summary judgment was appropriate because a tax return preparer failed to provide evidence in support of his claim that an IRS agent unlawfully disclosed his tax return information when he placed a transcript of the preparer's tax return in the preparer's tax preparer's penalty file. Although the preparer suspected that other IRS employees saw his return after it was placed in the file, he developed no evidence indicating that any disclosure took place at all.
[Code Secs. 7213A and 7431 ]

Unauthorized inspection: Tax return information: Effective date.--A tax return preparer's claim that the IRS inspected his tax return for the tax year at issue without appropriate authorization under Code Sec. 7213A , although not addressed by the government in its motion for summary judgment, was not considered. The provision applied to violations occurring on or after August 5, 1997 , which was almost one year after the alleged offense.
ORDER

ROLL, District Judge:

Pending before the Court is Defendant's Motion for Summary Judgement [sic]. Defendant's motion is granted as Plaintiff has failed to produce any evidence to support his claim that Defendant unlawfully disclosed his tax return information in violation of 26 U.S.C. §6103.

Procedural History

In September of 1998, Plaintiff filed his complaint, styled as "Bivens Complaint for Civil Rights Damages" and alleged eight causes of action under the First, Fourth, Fifth, Ninth, and Fourteenth Amendments to the United States Constitution and under Internal Revenue Code 26 U.S.C. §§6103 and 7431(a)(1). Plaintiff filed his complaint against seven employees of the Internal Revenue service and the Internal Revenue Service (IRS). In April of 1999, the Court dismissed Plaintiff's first through seventh causes of action with prejudice and substituted the United States as the sole defendant in the remaining count. The only remaining claim alleged by Plaintiff is for the "unlawful inspection and numerous unauthorized disclosures of Plaintiff's confidential tax return information" pursuant to 26 U.S.C. §§6103 and 7431. Defendant moves for summary judgment on this claim, pursuant to Rule 56 of the Federal Rules of Civil Procedure.

Background

Plaintiff is an accountant who prepares tax returns and, at times, represents tax payers who are under investigation by the IRS. In 1996, IRS Agent Raymond N. Eatman conducted an audit of the 1992 and 1993 tax returns of a taxpayer who is not a party to this action. Based on his examination, Agent Raymond determined that an understatement of the taxpayer's 1992 and 1993 tax returns had occurred. On September 9, 1996 , Agent Raymond obtained a copy of that taxpayer's Individual Master File (IMF), which indicated that the taxpayer had a paid tax return preparer for that year.

In order to determine the tax preparer's identity, Agent Eatman submitted two requests for transcripts from his group secretary, who had access to the IRS's computer system known as IDRS or Integrated Data Retrieval System, which enables an IRS employee to get access to taxpayers accounts. Agent Eatman requested a CFINQ and an INOLES transcript. The CFINQ transcript identified Plaintiff as the tax preparer and indicated that he resided at "6401 N. Via Piccolina, Tucson , Arizona ." The CFINQ also contained a phone number for Plaintiff at 520-544-0947. The INOLES transcript showed the tax return preparer as "Bill Wewee, Wewee & Assoc. P.C. 829 No. Circle #120, Colorado Springs, CO. 80909."

After reviewing these documents, Agent Eatman decided to pursue a possible Return Preparer Penalty against Plaintiff for allegedly reporting unrealistic positions on his client's tax returns and received permission to conduct the investigation on September 17, 1996 . While conducting his investigation, Agent Eatman submitted a request for an INOLES transcript, an MFTRA transcript, and an AMDISA transcript, all of which are identified by the IRS Return Prepare Program Procedures as appropriate IDRS research. ¹

On September 18, 1996 , because he had not yet received the transcripts ordered the day before, Agent Eatman requested an RTVUE transcript for Plaintiff's most recently filed tax return. An RTVUE is essentially a line by line transcript of a Form 1040 tax return. According to Agent Eatman, he needed the RTVUE in order to verify Plaintiff's most recent address because the documents previously obtained in the investigation of Plaintiff's client listed two different addresses for the Plaintiff. Later that same day, Agent Eatman received Plaintiff's INOLES transcript, which contained his correct address.

Agent Eatman completed the penalty file on September 18th, and recommended that a Preparer Return Penalty be assessed against Plaintiff. On September 19th, Agent Eatman received the remainder of the transcripts he had requested the day before. Agent Eatman placed virtually all of the transcripts regarding Plaintiff into the Return Preparer Penalty File. ² Agent Eatman affirms that he did not display or disclose Plaintiff's RTVUE with anyone. Agent Eatman does not know whether any other IRS employees reviewed any of the transcripts placed into the Return Preparer Penalty file.

Discussion

Summary Judgment Standard

Summary judgment is proper where no genuine issue as to any material fact exists, and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Material facts are those which, under applicable substantive law, may affect the outcome of the case. A dispute is genuine when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. While "reasonableness" is generally a fact question for the jury, it is a question of law, thus allowing summary judgment, where undisputed facts leave no room for a reasonable difference of opinion. West v. State Farm Fire & Gas. Co. (9th Cir. 1989) 868 F.2d 348, 350.

Summary judgement [sic] for a defendant is appropriate when the plaintiff fails to make a showing sufficient to establish the existence of an element essential to that party's case and on which that party will bear the burden of proof at trial. Celotex, 477 U.S. at 322. The initial burden rests on the moving party to point out the absence of any genuine issue of material fact, but the moving party need not support its motion with affidavits or other supporting materials. Fed. R. Civ. P. 56(a); Celotex, 477 U.S. at 323. Once satisfied, the burden shifts to the opponent to demonstrate through production of probative evidence that an issue of fact remains to be tried. Id. at 323-24. The Court must accept the non-movant's evidence as true and view all inferences in the light most favorable to the non-movant. Eisenberg v. Insurance Co. of North America , 815 F.2d 1285, 1289 (9th Cir. 1987).

In this case, Defendant argues that summary judgment is appropriate because no disclosure of Plaintiff's tax return information took place. Defendant further argues that, in the alternative, even if Defendant disclosed Plaintiff's tax return information, such disclosure would have been authorized under 26 U.S.C. §6103(h)(1). A review of the arguments follows.

1. Disclosure of Tax Return Information

According to §6103, "[r]eturns and return information shall be confidential, and except as authorized by this title--no officer or employee of the United States 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." The term " 'disclosure' means the making known to any person in any manner whatever a return or return information." 26 U.S.C. §6103(b)(8). Violations of §6103 by "any officer or employee of the United States" who "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 §6103" are grounds for civil actions by the taxpayer pursuant to 26 U.S.C. §7431.

However, 26 U.S.C. §6103 provides for situations in which disclosure is appropriate. For example, according to §6103(h)(1), "[r]eturns and return information shall, without written request, be open to inspection by or disclosure to officers and employees of the Department of the Treasury whose official duties require such inspection or disclosure for tax administration purposes." 26 U.S.C. §6103(h)(1) (Emphasis added). Tax administration includes assessment, collection, enforcement, litigation, publication, and statistical gathering functions under such laws, statutes, or conventions. 26 U.S.C. §6103(B)(4)(b).

In this case, Plaintiff argues that Agent Eatman unlawfully disclosed his 1995 tax return information when Agent Eatman placed the RTVUE in Plaintiff's Tax Preparer's Penalty file. ³ Plaintiff alleges Agent Eatman unlawfully disclosed the tax return information to (1) Scott Schmidt, IRS Group Manager, (2) Sandra Mann, IRS Return Program Coordinator, (3) Jose Gonzales, IRS Appeals' Officer, and (4) all other IRS employees who have access to Plaintiff's Tax Preparer Penalty file. ⁴ Plaintiff argues that Agent Eatman was not "required" to obtain his 1995 tax return information in order to access a tax preparer penalty upon him because Agent Eatman could have telephoned him to get his correct address. In addition, Plaintiff argues that because time was not of the essence, Agent Eatman could have waited for Plaintiff's INOLES transcript, which arrived a day after it was requested and contained his address. Plaintiff also maintains that Agent Eatman obtained his RTVUE in violation of IRS policy because the IRS Return Preparer Program Procedures did not list the RTVUE as appropriate research material.

In response, Defendant argues that Agent Eatman never showed nor discussed the RTVUE transcript with anyone else and that Agent Eatman does not know whether any other IRS employee reviewed any of the transcripts in the file. Significantly, Defendant insists that summary judgment is appropriate on this ground alone because Plaintiff has failed to develop any evidence to indicate that any disclosure took place at all. In addition, Defendant argues that even if disclosure occurred, the disclosure would have been for tax administrative purposes as permitted under §6103(h)(1) because any agent with access to Plaintiff's Tax Preparer Penalty file would be assisting in the assessment of a tax preparer penalty against Plaintiff pursuant to §§6694-6695.

Defendant further maintains that the fact that the Return Preparer Program Procedures failed to list an RTVUE as an appropriate research document does not mean that Agent Eatman's retrieval violated policy because no policy existed that specifically prohibited the retrieval. Moreover, Defendant notes that "[r]ules contained in the Internal Revenue Manual and other internal IRS documents, such as district guidelines, do not have force and effect of law, are not binding on the IRS, and do not convey rights to taxpayers." United States v. Caceres [79-1 USTC ¶9294], 440 U.S. 741, 751-52(1979).

Upon review, summary judgment is appropriate in this case because Plaintiff has failed to produce any evidence to show that any disclosure occurred. Plaintiff should have conducted further investigation, including the taking of depositions or affidavits, of individuals he suspected of having been exposed to his 1995 tax return. As previously indicated, summary judgement [sic] for a defendant is appropriate when the plaintiff fails to make a showing sufficient to establish the existence of an element essential to that party's case and on which that party will bear the burden of proof at trial. Celotex, 477 U.S. at 322. Here, Plaintiff must show that some disclosure has occurred or else he has no claim. Plaintiff failed to do so. Consequently, summary judgment must be granted.

2. Unauthorized Inspection of Tax Return

Although Defendant does not address this claim in its Motion for Summary Judgment, Plaintiff also asserts that Defendant inspected his 1995 tax return without appropriate authorization. According to §7213A, it is unlawful for any officer or employee of the United States, such as Agent Eatman, to willfully inspect any return or return information except as authorized by Title 26. Congress enacted §7213A, also known as the Taxpayer Browsing Protection Plan, on August 5, 1997 , to protect taxpayers. The enactment of this section, however applies to violations occurring on and after August 5, 1997 . The alleged offense in this case occurred in September of 1996. Therefore, Plaintiff's claim is not covered by the act and cannot be considered.

Accordingly,

IT IS ORDERED that Defendant's Motion for Summary Judgment is GRANTED.

¹ Agent Eatman appropriately submitted a request for the following master file transcripts: (1) a Business Master File transcript, which contains Plaintiff's employer identification number and is required to determine whether any other miscellaneous penalties have been assessed against the tax preparer's business; (2) an Individual Master File transcript, which contains Plaintiff's taxpayer's identification number for the tax years at issue and is required to determine whether any other miscellaneous penalties have been assessed against the tax preparer personally; (3) an INOLES transcript for Plaintiff's taxpayer identification number, which shows the name and address of the tax preparer; and (4) an AMDISA transcript for the taxpayer's identification number and verifies the statute of limitation dates for assessment of the Return Preparer Penalty.

² One of the exceptions was the AMDISA transcript for the client taxpayer, which was placed in that client's taxpayer's examination file.

³ The Parties agree that the RTVUE retrieved and placed into Plaintiff's Tax Preparer Penalty file is a tax return or tax return information as defined under 26 U.S.C. §6103.

⁴ Plaintiff's June 12, 2000 , Rule 26(a)(1) disclosure contained a list of twenty names of individuals who may have discoverable information. However, Plaintiff has provided no evidence to show that any of those individuals, or anyone else, has been unlawfully exposed to his 1995 tax return information due to its placement in the Tax Preparer Penalty file.