Disclosure of Lien

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[95-2 USTC ¶50,629] Stuart A. Leithliter and Judith R. Leithliter, Plaintiffs v. United States of America, Department of The Treasury, Internal Revenue Service, and Chief of The Collection Branch, Defendants

U.S. District Court, So. Dist. Ind., Evansville Div., EV 95-107-C R/H, 10/19/95

[Code Secs. 6103 and 6323 ]

Disclosure of return information: Disclosure upheld: Necessary to effectuate lien.--The act of providing a notice of levy to a taxpayer's employer was not an improper disclosure of return information because such a disclosure was expressly authorized. The IRS could disclose return information necessary to effectuate notices of liens.

ORDER ON MOTION TO DlSMISS

BROOKS, District Judge:

This matter comes before the Court on defendants' Motion to Dismiss and Brief in Support of Defendants' Motion to Dismiss filed August 17, 1995 . An Amended Brief in Support of Defendants' Motion to Dismiss, changes not substantive in nature, was filed August 28, 1995 . Plaintiffs' Answer brief, to be construed as Plaintiffs' Brief in Opposition to Defendants' Motion to Dismiss, was filed August 28, 1995 , and Defendants' Reply Memorandum in Support of Motion to Dismiss was filed September 11, 1995 .

Background

Plaintiffs Stuart A. and Judith R. Leithliter flied an action in this Court June 8, 1995, alleging no less than ten wrongful disclosures of tax information in violation of 26 U.S.C. §§6103 and 7431 . In particular, Plaintiffs allege that the Internal Revenue Service's (IRS) failure to properly process their payments for tax years 1988 and 1989 directly lead to five separate unlawful disclosures of the Leithliter's as a couple, alternatively ten individual disclosures.

As remuneration for the alleged violations Plaintiffs seek both actual and punitive damages.

Defendants have filed their motion to dismiss generally alleging Plaintiffs' failure to state a claim upon which relief can be granted.

Discussion

As an initial matter the Court notes the liberal construction to be afforded the pleadings and practice of these pro se litigants. See Haines v. Kerner, 404 U.S. 519 (1972) (per curiam); Wright v. Tackett, 39 F.3d 155, 157 (7th Cir. 1994).

A complaint is properly dismissed under Federal Rule of Civil Procedure 12(b) when all well-pleaded factual allegations are taken as true and all reasonable inferences therefrom are drawn in favor of the Plaintiff, but nonetheless "it appears beyond doubt that the Plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 335 U.S. 41, 45-46 (1957).

In this instance the Defendants' Motion to Dismiss must be granted because the Plaintiffs have failed to allege a violation of a relevant statutory provision. Title 26, United States Code, Section 6103 provides in relevant part as follows:

An internal revenue officer or employee may, in connection with his official duties relating to any audit, collection activity, or civil or criminal tax investigation or any other offense under the internal revenue laws, disclose return information to the extent that such disclosure is necessary in obtaining information, which is not otherwise reasonably available, with respect to the correct determination of tax, liability for tax, or the amount to be collected or with respect to the enforcement of any other provision of this title. Such disclosures shall be made only in such situations and under such conditions as the Secretary may prescribe by regulations.

26 U.S.C. §6103(k)(6) . Section 7431 provides in relevant part as follows:

If any officer or employee of the United States knowingly, or by reason of negligence, discloses any return or return information with respect to a taxpayer in violation of 6103, such taxpayer may bring a civil action for damages against the United States in a district court of the United States .

26 U.S.C §7431(a)(1) . Section 7431 further provides that "[n]o liability shall arise under this section with respect to any disclosure which results from a good faith, but erroneous, interpretation of section 6103 ." 26 U.S.C. §7431(b) .

In its Brief in Support of Defendants' Motion to Dismiss, the Defendants sets forth three elements a Section 7431 plaintiff must establish prior to recovery thereunder: 1) the disclosure was unauthorized; 2) the disclosure was made knowingly or by reason of negligence; and 3) the disclosure was in violation of 26 U.S.C. §6103 . Jones v. United States [94-2 USTC ¶50,562 ], 869 F.Supp. 747, 753 (D.Neb. 1994); Fostvedt v. United States [93-1 USTC ¶50,299 ], 824 F.Supp. 978, 983 (D.Colo. 1993), aff'd, 16 F.3d 416 (10th Cir. 1994); Flippo v. United States [87-2 USTC ¶9476 ], 670 F.Supp. 638, 641 (W.D.N.C. 1987), aff'd per curiam 849 F.2d 604 (4th Cir. 1988). As Defendants note, Plaintiffs' complaint fails to allege what information was disclosed, to whom it was disclosed, when it was disclosed, and the form in which it was disclosed.

Armed with the knowledge of their complaint's fatal defects as alleged by the Defendants, Plaintiffs' Brief in Opposition details only a single notice of levy sent to the "employer of one of the plaintiffs" on June 8, 1993, and assures the Court "[i]t is similar regarding other wrongful disclosures...." (Plaintiff's Brief in Opposition at 3). ¹

If Plaintiffs contest the notice of levy as a wrongful disclosure in and of itself, they are doomed for dismissal. The regulations developed pursuant to 26 U.S.C. §6103(k)(6) expansively provide for areas of permissive disclosure by the Government. Disclosure is broadly permitted, for instance, to

establish or verify the financial status or condition and location of the taxpayer against whom collection activity is or may be directed, to locate assets in which the taxpayer has an interest, to ascertain the amount of any liability ... to be collected, or otherwise to apply the provisions of the Code relating to establishment of liens against such assets, or levy on, or seizure, or sale of, the assets to satisfy any such liability....

26 C.F.R. §301.6103(k)(6)-1(b)(6) . Section 6323(f) of Title 26 expressly authorizes the filing of a notice of tax lien in any state, county, or federal office and provides for disclosure of return information necessary to effectuate notices of liens. See 26 U.S.C. §6323(f) ; 26 C.F.R. §301.6323(f)-1 . Finally, the ultimate tax lien itself may be disclosed as a matter of public record. 26 C.F.R. §301.6323(i)-1(c) .

Plaintiffs have failed to establish disclosure activity in contravention of these established statutes and regulations. The very act of providing notice of a levy to the "employer of one of the plaintiffs" fails to accomplish this task because such disclosures are expressly authorized.

Nonetheless, while Plaintiffs argue wrongful disclosure, the Government correctly notes that Plaintiffs appear to contest the amount of taxes owed or owing. However, this line of argument is no more accommodating to Plaintiffs' cause.

This Court's jurisdiction over a tax matter is governed by 28 U.S.C. §1346(a) which gives the "district courts ... original jurisdiction ... [over] [a]ny civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected ... 28 U.S.C §1346(a)(1) (1992). In Flora v. United States [58-2 USTC ¶9606 ], 357 U.S. 63 (1958), and later on rehearing 362 U.S. 145 (1960), the Supreme Court held full payment of the assessed taxes is a prerequisite to filing a refund suit in a federal district court. In this case it is not sufficiently clear whether the Plaintiffs have fulfilled this prerequisite to suit, but it is ultimately irrelevant to the outcome of this action. Assuming arguendo the Government was entirely mistaken and in fact prematurely pursued its levy and lien options, the Government would be no more liable because any error with respect to assessment would not cause the collection activity to constitute an improper disclosure of tax return information.

Conley v. Gibson requires the Court to draw all inferences in favor of the plaintiff, however, the Court need not speculate over the nature of the plaintiff's claim or refuse to grant a motion for judgment on the pleadings simply because the plaintiff may, theoretically, be entitled to recover under a cause of action based upon facts never stated in the complaint. Murphy v. White Hen Pantry Co., 691 F.2d 350, 353 (7th Cir. 1982). To be sure, a complaint is not required to narrate all relevant facts or recite the law, all it has to do is set out a claim for relief, Hrubec v. National R.R. Passenger Corp., 981 F.2d 962, 963 (7th Cir. 1992), but in this instance Plaintiffs have failed to set forth requisite factors by which liability can attach. Plaintiffs' complaint, be it allegations of wrongful disclosure or claims of improper assessment, must be DISMISSED for failure to state a claim upon which relief can be granted.

IT IS SO ORDERED.

¹ By and through this single "example" the Court will assume, arguendo, that this action is not barred by the statute of limitations. This assumption is made only because alternative grounds for dismissal are more readily apparent.