FLORIDA TAX REVIEW
VOLUME 1 1993 NUMBER 10

IRC §§ 7431 and 7433:
Civil Remedies for Abusive Practices by the IRS

R. Tracv Sprouls"

I. INTRODUCTION
II. LIABILITY FOR UNAUTHORIZED DISCLOSURES

A. Section 7431: Civil Damages for Violation of Section 6103
1. There Must Have Been a Release of a Return or of

Return Information
2. The Information Must Have Been Return Information

of the Taxpayer Bringing the Suit
3. The Release Must Have Been a "Disclosure"
4. The Release Must Have Been Made by an Officer or

Employee of the United States
5. The Person Making the Disclosure Must Have Acted

"Knowingly or by Reason of Negligence"
6. The Release Must Have Been in Violation of Section

6103
7. Good Faith Defense

B. Elvis Johnson: Liability Under the Federal Tort Claims Act
for Violation of Section 6103
1. No FTCA Claim Can Be Based on the Violation of

Federal Law
2. The Claim Was Preempted by Section 7217

IT[. LIABILITY FOR COLLECTIONS ACTIVITIES: SECTION 7433
IV. COORDINATION OF SECTIONS 7431 AND 7433: OvERLAP AND GAPS

A. Overlap
B. Gaps in Coverage

1. No Liability for Abuses During Assessment Phase
2. Liability for Negligent Collections Activity
3. Limit on Damages Under Section 7433

V. CONCLUSION

* Underwood, Wilson, Berry, Stein & Johnson, P.C., Amarillo, Texas; University

of New Mexico, J.D. 1981, University of Florida, LL.M. (taxation) 1993. The author wishes
to express his appreciation to Professor Michael A. Oberst for his comments on the initial draft
of this article.



Florida Tax Review

I. INTRODUCTION

A government must have revenue to exist, and a government the size
of the present-day United States government requires a staggering amount of
revenue.' As the revenue assessing and collecting branch of the government,
the Internal Revenue Service performs the crucial function of ensuring the
steady and continuous flow of revenue. To enable it to perform this function,
Congress and the courts have granted the Service broad powers of investiga-
tion and seizure that are denied most other law enforcement agencies by
statutory and constitutional safeguards, and have generally shielded the
Service from accountability to the taxpayers involved or to any other
authority.2

In 1976, however, Congress began enacting legislation intended to
ensure the proper exercise by the Service of its extensive powers, and to
prevent the misuse of the massive database that the Service has constructed
on American taxpayers. Given the ever-expanding use of the tort system in
the United States as a means of private law enforcement, it is not surprising
that one of the tools chosen by Congress to police the Service was the
taxpayer lawsuit for damages against the federal government. This Article
will focus on two provisions, section 7431 (and its substantive base, section
6103) and section 7433, in which Congress established this method of
accountability.3

1. In 1992, for example, the federal government revenues totalled
$1,075,000,000,000 (while government expenditures totalled even more, $1,475,000,000,000).
Harry E. Figgie, Jr. & Gerald J. Swanson, Bankruptcy 1995 143 (1992) (citing the Office of
Management and Budget as the source of these figures).

2. David Burnham, A Law Unto Itself 21 (1989). This combination of power and
unaccountability has inevitably resulted in a fear and hatred of the Service. In his testimony
before the Senate in 1987, one tax practitioner told the Senators that "[t]he IRS is the most
hated organization in the United States. People would rather deal with the KGB." Taxpayers
Bill of Rights: Hearings on S. 579 and S. 604 Before the Subcommittee on Private Retirement
Plans and Oversight of the Internal Revenue Service of the Senate Committee on Finance,
100th Cong., 1st Sess. 177 (Apr. 10, 1987) [hereinafter Hearings on S. 579 and S. 604]
(testimony of Jack Warren Wade, Jr., author of "Power to Tax").

3. Outside the scope of this article are two other provisions of the Code enacted in
1988 that authorize actions for damages against the United States: § 7430 (concerning claims
for attorneys' fees in cases where the taxpayer prevails and the government has taken an
unreasonable position) and § 7432 (concerning claims for damages based on the government's
refusal to release a lien). For a general discussion of § 7430, see Marilyn Devin, Tax Court
Review of IRS's Position: When May Taxpayers Recover Legal Fees?, 68 J. Tax'n 368 (June
1988).

Also outside the scope of this article are other provisions of the Code that will, under
appropriate circumstances, offer some protection and/or redress to the taxpayer and third
parties, other than an award of damages. See IRC § 742 1(a) (allowing injunction or judicial
review of specific Service activities under limited circumstances); IRC § 7605 (prohibiting

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IRC §§ 7431 and 7433

Ideally, from the taxpayers' point of view, the statutes should cover
the continuum of Internal Revenue Service activity, allowing the recovery of
damages for injuries sustained as a result of any improper exercise of the
Service's powers. In fact, however, the statutes leave large, and again from
the taxpayers' point of view, unjustifiable, gaps in the coverage. These gaps,
together with pending legislation designed to address some of these gaps are
also discussed.

In analyzing these provisions, or any other legislation that purports
to place significant limitations on the powers of the Service, one fact must be
kept in mind: If the constant flow of revenue to the government stops, the
government stops as well. Despite all the speechmaking and posturing and
even, perhaps, sincere concerns about the need to curb abuses by the Service,
the government cannot afford to enact legislation that would significantly
interfere with the Service's enforcement of the tax laws or interrupt the
constant flow of revenue into the government coffers.!

II. LIABILITY FOR UNAUTHORIZED DISCLOSURES

The Internal Revenue Code requires taxpayers, lenders, employers,
and others to provide information to the Service and authorizes the Service
to tap other sources of information. Consequently, the Service's files have
become a repository of extensive, detailed information regarding the financial
affairs of American taxpayers. Congressional investigations into Watergate
revealed that the White House had obtained access to this information and
had used it for purposes unrelated to the collection of taxes.' This revelation
raised serious concerns on the part of members of Congress about the use of

unnecessary examinations or investigations of taxpayer note that although an injunction is
prohibited under § 7421(a), the taxpayer can assert impropriety in response to the Service's
action to obtain an order to enforce summons or an action to collect deficiency or to collect
refund); IRC § 7426(a) (allowing civil actions by third-parties to recover surplus proceeds of
levy and sale by Internal Revenue Service).

4. In fact, § 7431 and § 7433 were themselves in no small part enacted to enhance,
not limit, the Service's ability to administer the tax laws in such a way as to produce revenue
most efficiently by encouraging the voluntary compliance aspect of our tax system. See, e.g.,
Hearings on S. 579 and S. 604, supra note 2, at 152 (testimony of Jack Warren Wade, Jr.);
Taxpayer Rights Issues: Hearings on S. 2400 Before the Subcommittee on Oversight of the
Internal Revenue Service of the Senate Committee on Finance, 98th Cong., 2d Sess. 129 (Mar.
19, 1984) (written statement of Edwin I. Davis, referring specifically to the Ombudsman
Program); Proposals for Administrative Changes in Internal Revenue Service Procedures:
Hearings Before the Subcommittee on Oversight to the House Committee on Ways and Means,
94th Cong., 1st Sess. 2, 6-7 (1975) [hereinafter Proposals] (testimony of Hon. Jerry Litton;
testimony of Senator Lowell P. Weicker). See also id. at 7 (testimony of Senator Lowell P.
Weicker).

5. See infra note 7.

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Florida Tax Review

the Service to further political ends, about the potential for abuse of privacy,
and even about the continued existence of the "voluntary assessment" system
that is considered critical to the efficient administration of the tax law in this
country.6

These concerns led Congress to enact section 6103 in 1976.7

Although various subsections of section 6103 have been amended since its
enactment, the basic scheme remains the same: subsection "a" of section 6103
prohibits all disclosures of "return information" except those "authorized by
this title," subsection "b" provides relevant definitions, and the remaining
subsections of section 6103 provide numerous specific exceptions to the
general prohibition of subsection "a."'

At the same time that it enacted section 6103, Congress enacted two
provisions as the enforcement mechanisms of that section, one criminal and
one civil. The criminal arm, now codified at section 7213(a), provides that

6. Rep. Jerry Litton, one of the sponsors of legislation proposed to address this
misuse of information, made this point in his statement to the House Subcommittee on
Oversight during its hearings on the proposed legislation. Regarding the issue of potential
abuse of privacy by disclosure of Internal Revenue Service information, he said:

The important point that we have to establish first is that the IRS is there
for one purpose: To collect taxes to run the country, not to collect
information on the lives of private citizens like some Gestapo agency to
turn over to whoever may be in power in the Government. This, in my
opinion is the sole purpose of the IRS and the objective of our bill.

... The documented use of the Internal Revenue Service as an intelligence
body to derive information harmful to enemies of the Nixon administration
and helpful to its friends, flaunts the fundamental principles on which our
Government was founded.

The method in which taxpayers voluntarily comply with our tax laws and,
in most cases, fully report their earnings is the envy of most other nations
where dishonesty is often the rule rather than the exception. If taxpayers
become convinced that the confidential data they each submit is being
used for political purposes, how long will it be before taxpayer compliance
and trust in our system of taxation is forever lost?

See Proposals, supra note 4, at 3, 6-7 (testimony of Hon. Jerry Litton). See also id. at 7
(testimony of Senator Lowell P. Weicker). Regarding the concern that misuse of Internal
Revenue Service information would impair the voluntary assessment system, see Joint
Committee Explanation at 314, 1976-3 C.B. (vol. 2) 326.

7. Tax Reform Act of 1976, Pub. L. 94-455, § 1202(a), 90 Stat. 1667. This
legislation might also be viewed, as many viewed the Watergate scandal itself, as another
episode in the continuing power struggle between the legislative and executive branches of the
federal government. There was no overt reference to such a motive in the legislative history.

8. For purposes of this article, one of the most important exceptions is § 6103(k)(6),
which authorizes disclosures in the course of tax administration, including assessment and
collection activity. See infra note 61 and accompanying text.

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IRC §§ 7431 and 7433

the unauthorized disclosure of return information in violation of section
6103(a) is a felony, punishable by a fine of up to $5,000 and/or up to five
years in prison.9

A. Section 7431: Civil Damages for Violation of Section 6103

The first civil mechanism which Congress devised for the enforce-
ment of section 6103 was codified in 1976 as section 7217, the predecessor
of the present section 7431.' Section 7217 authorized an action for damages
against any person who "knowingly or by reason of negligence" made a
disclosure of return information unauthorized under section 6103." The
section authorized both actual and punitive damages, with a statutory
minimum of $1,000, plus costs.' 2

Except for a very brief reference to negligence in the General
Explanation of the Tax Reform Act of 1976,' 3 the legislative history
indicates that Congress's primary motive in enacting this legislation was to
prevent the intentional use of information gathered by the Internal Revenue
Service, pursuant to policy decisions made at the highest levels, for purposes
other than proper tax administration. The inclusion of negligence in section
7217 indicates that Congress must have had another goal as well, since
negligence has nothing to do with such an organized, policy-directed misuse
of information. Rather, the authorization for a negligence-based claim was
intended to protect taxpayers' right to privacy from the unintentional or
careless actions of an individual, not made in furtherance of a carefully
formulated Service policy.

In addition to the numerous specific exceptions in section 6103 to the
general rule of nondisclosure, section 7217(d) provided significant protection
from liability in the form of a "good faith" defense, i.e., no liability would

9. Section 7213(a) significantly increased the already-existing criminal penalties for
disclosure of return information, making the crime a felony rather than a misdemeanor,
increasing the maximum imprisonment from one year to five, and increasing the maximum
fine from $1,000 to $5,000.

10. The former § 7217 was enacted by Pub. L. 94-455. § 1202(e) and repealed in
1982 by Pub. L. 97-248, § 357(b)(1).

11. Note that this is different from present law under § 7431. which authorizes
claims against any person other than a federal officer or employee, in which case the claim
must be brought against the government.

12. According to the General Explanation of the Tax Reform Act of 1976,
"Congress also decided that, in order to redress any injury sustained and to aid in the
enforcement of the confidentiality rules, a civil action for damages should be provided to any
person injured by a willful or negligent disclosure in violation of the Act." 1976-3 C.B. (vol.
2) 355-56.

13. Id.

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arise because of a disclosure which results from a good faith, but erroneous,
interpretation of section 6103.4

In 1982, Congress reexamined the civil enforcement mechanism
provided by section 7217 and, redesignating it as section 7431, retained all
but one of the substantive provisions.'" The one (very significant) change
made was to provide that, where an employee of the federal government
makes an unauthorized disclosure, the cause of action lies against the
government rather than against the individual. 6 Congress made this change
because it believed that the United States could be expected to exercise
control over its own employees, so that the action should more appropriately
lie against the United States. 17

To maintain a cause of action against the United States under section
7431(a),' 8 a taxpayer must show that:

1. There has been a release of a return or of return information;
2. The return or information was that of the taxpayer bringing

the suit;
3. The person making this disclosure was an officer or employ-

ee of the United States;
4. This release constitutes a "disclosure";
5. The disclosure was made knowingly or by reason of negli-

gence; and
6. The disclosure was in violation of some provision of section

6103.

Even if the taxpayer can show all six of these elements, the
government can still avoid liability by showing that the disclosure resulted
from a good faith, but erroneous, interpretation of section 6103.19 As a

14. Pub. L. 94-455, § 1202(e), codified at § 7217(b), redesignated § 7217(c) by Pub.
L. 95-6000, § 701(bb)(7)(A), repealed by Pub. L. 97-248, § 357(b)(1).

15. Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248, § 357.
16. All persons other than federal officers or employees remained subject to

personal liability. Id.
17. General Explanation of the Revenue Provisions of the Tax Equity and Fiscal

Responsibility Act of 1982, at 434.
- 18. Section 7431(a)(1) provides:

Disclosure by Employee of United States. 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 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.
19. Section 7431(b) 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

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IRC §§ 7431 and 7433

waiver of sovereignty, section 7431 must be strictly construed in favor of the
government.2° The question of waiver is a jurisdictional one.2,

1. There Must Have Been a Release of a Return or of Return
Information.-Section 7431 (e) adopts the definitions of "return" and "return
information" provided in section 6103(b). Under that section, a "return" is
defined to include any tax or information return, declaration of estimated tax,
or claim for refund, together with any amendment, supplement and attach-
ment;' "return information" includes virtually any information that might
be contained in the Internal Revenue Service's files, including the taxpayer's
identity and financial information, and any information concerning tax
determination or collection.2 Given the very broad definitions of these
terms, plaintiffs have generally had no difficulty proving this element. There
are, however, some significant issues lurking here.

section 6103."
20. Haywood v. United States, 642 F. Supp. 188, 191 (D. Kan. 1986) (citing

Ruckelshaus v. Sierra Club, 463 U.S. 680, 685 (1983)).
21. Id.
22. Section 6103(b)(1) defines "return" as:
any tax or information return, declaration of estimated tax, or claim for
refund required by, or provided for or permitted under, the provisions of
this title which is filed with the Secretary by, on behalf of, or with respect
to any person, and any amendment or supplement thereto, including
supporting schedules, attachments, or lists which are supplemental to, or
part of, the return so filed.
23. Section 6103(b)(2) defines "return information" as:

(A) a taxpayer's identity, the nature, source, or amount of his
income, payments, receipts, deductions, exemptions, credits, assets,
liabilities, net worth, tax liability, tax withheld, deficiencies, overassess-
ments, or tax payments, whether the taxpayer's return was, is being, or
will be examined or subject to other investigation or processing, or any
other data, received by, recorded by, prepared by, furnished to, or
collected by the Secretary with respect to a return or with respect to the
determination of the existence, or possible existence, of liability (or the
amount thereof) of any person under this title for any tax, penalty, interest,
fine, forfeiture, or other imposition, or offense, and

(B) any part of any written determination or any background file
document relating to such written determination .. , which is not open to
public inspection under section 6110.

The flush language of § 6103(b) specifically excludes from this definition "data in a form
which cannot be associated with, or otherwise identify, directly or indirectly, a particular
taxpayer."

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a. The "Immediate Source" Rule.-In Thomas v. United
States,24 the Service had followed its long-standing policy of issuing a press
release to publicize a judicial victory over a taxpayer. The press release,
which was issued after the Tax Court's opinion, contained information that
fell within the definition of "return information" in section 6103(b); all of this
information was also contained in the Tax Court's opinion. The taxpayer
brought suit under section 7431, claiming that the press release constituted an
unauthorized release of return information under section 6103.

First, the court noted a conflict between the circuits regarding whether
the release of return information previously included in the public record
constituted the unauthorized "disclosure" of that information. 25 The court
then ruled that it did not have to enter the fray, because it did not reach that
issue. The court found the press release was not a publication of the
taxpayer's return information, but rather a publication of the Tax Court
opinion:

[T]he definition of return information comes into play only
when the immediate source of the information is a return, or
some internal document based on a return, as these terms are
defined in section 6103(b)(2), and not when the immediate
source is a public document lawfully prepared by an agency
that is separate from the Internal Revenue Service and has
lawful access to tax returns. The Tax Court is such an
agency.26

On the initial reading of the opinion, this "immediate source" rule
appears to be a simple and satisfactory method of avoiding the controversial
"disclosure" issue. Further analysis, however, shows that this approach is not
as simple as it first appears and that it raises other, rather thorny, issues.

The immediate source rule allows the government to rebut the "return
or return information" requirement by showing four elements: first, that an
agency separate from the Internal Revenue Service lawfully obtained the
taxpayer's return or return information; second, that this separate agency
made an authorized disclosure of the information; third, that the disclosure
was made in a public document; and, fourth, that the Service's subsequent
disclosure was based on the information contained in the separate agency's
disclosure.27

24. 890 F.2d 18, 19 (7th Cir. 1989).
25. See infra part II.A.3.
26. Thomas, 890 F.2d at 20-21.
27. See id. at 21.

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IRC §§ 7431 and 7433

The first objection to the "immediate source" rule is that there is no
support for it in either the statutory language or legislative history. On the
contrary, the definition of "return information" given in section 6103(b) is
very broad and straightforward, and contains no suggestion that information
otherwise falling within its terms might be redefined by virtue of the context
in which it is disclosed.

Statutory construction aside, application of the Seventh Circuit's
"immediate source" rule to common fact patterns requires some interesting
and troubling conclusions, which can best be illustrated by a series of
hypothetical situations. For example, assume that Taxpayer's identity and
amount of income reported, and deductions claimed (information within the
definition of "return information") were included in a pleading filed by
counsel for the Service' in a Tax Court proceeding,' and that the Service
subsequently issued a press release based on the pleadings, reciting the return
information. Under the "immediate source" rule, Taxpayer will be able to
satisfy the "return or return information" element of liability under section
7431 because the underlying disclosure (the pleading) was prepared by the
Service, not by an agency separate from it.

Suppose, instead, that the pleading, containing the identical return
information, was filed in federal district court, where the Internal Revenue
Service was represented by attorneys from the Justice Department. Here,
under the "immediate source" rule, Taxpayer will not be able to satisfy the
"return or return information" requirement, and therefore cannot establish
liability under section 7431, because the underlying disclosure was made by
an agency separate from the Internal Revenue Service."

The "immediate source" rule, by focusing inquiry on the immediate
source of the information rather than on the nature of the information itself,
creates a situation where the very same information from ultimately the same
source can co-exist in both protected and unprotected forms. Suppose that, in
the Thomas case itself, the plaintiff had (somehow) been able to prove that
the Internal Revenue Service had taken the information contained in its press
release from the pleading of the Service's counsel, rather than from the Tax

28. In the Tax Court, the Internal Revenue Service is represented by attorneys from
within the Service, not attorneys from the Justice Department. See IRC § 7452.

29. This is an authorized disclosure under § 6103(h)(4). See infra part IIA.3.
30. See T/wmas, 890 F.2d at 21. Perhaps a question might be raised as to whether

the Justice Department in this hypothetical is "separate" from the Internal Revenue Service
within the meaning of the Thomas opinion, which does not define this term. Regardless of the
answer to this question, the analysis of the "immediate source" rule is still valid, since the
same conclusion would be reached if the underlying disclosure was made by a state attorney
general in a state tax case; the state attorney general is certainly "separate" from the Internal
Revenue Service.

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Court's opinion. In the language of the Thomas holding, the "immediate
source" of the information is now the underlying pleading, and the informa-
tion is therefore still protected "return information" even though it has already
been disclosed in a Tax Court opinion and even though a press release based
on that judicial opinion would not be actionable.

Viewed in light of the damage potentially caused by the Service's
disclosure, the factual distinctions in these hypothetical situations do not
justify the difference in the results. The identical information has been
publicly released in the Service's press release, regardless of whether the
underlying pleading was filed by the Service's counsel or by the Justice
Department and regardless of whether the Service copied the facts from the
pleading or from the Tax Court opinion. The potential injury to the taxpayer
is the same in each case.3 '

b. Erroneous Information.-Another potential issue under the
"return or return information" requirement of section 7431 is whether
erroneous information comes within the definition of protected "return
information. 32 Section 6103 defines "return information" as, in essence, any
information concerning the taxpayer's financial or tax situation, including
amount of income, which was "received by, recorded by, prepared by,
furnished to, or collected by" the Internal Revenue Service for tax administra-
tion purposes. There is no express requirement that, to qualify as "return

31. The "immediate source" rule becomes much more rational (and interesting) if
§ 7431 is interpreted as granting taxpayers a privilege in the information which the Service
has assembled concerning them, similar to the attorney-client privilege. This is a variation of
the "loss of confidentiality" defense that the government has raised, which is discussed infra
note 38 and part II.A.3. If this interpretation is in fact the theoretical underpinning of the
"immediate source" rule, the Thomas opinion certainly contains nothing to make this clear, and
it has not been picked up by any other courts.

32. A disclosure of erroneous information by the Service can arise in one of three
ways: first, if the source of the information, whether it is the taxpayer or someone else,
provides erroneous information to the Service; second, if correct information is supplied to the
Service, but is recorded incorrectly in the Service files and the disclosure is based on the
erroneous information as it appears in the file; or, third, if the information is correctly supplied
and recorded, but the person making the disclosure incorrectly relates the information
contained in the files. Although some secondary issues may differ depending on the precise
manner in which the situation arose, all three are similar enough in nature that the following
discussion, which focuses on the third possibility, applies equally to the other two.

The author has found no reported decision expressly addressing the issue under
discussion. For examples of cases involving this situation but not directly addressing it, see
Mallas v. Kolak, 721 F. Supp. 748 (M.D.N.C. 1989) (holding that disclosure of incomplete,
outdated information is actionable), aff'd, 993 F.2d 1111 (4th Cir. 1993); Haywood v. United
States, 642 F. Supp. 188 (D. Kan. 1986) (holding that procedurally proper disclosure of
erroneous information is not actionable).

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IRC §§ 7431 mid 7433

information," the information be correct as supplied to or recorded by the
Service. A strict reading of the statute thus supports the conclusion that
erroneous information is included in "return information;" a looser reading
of the statute will support the contrary conclusion. Support for both positions
can be found in the congressional purposes underlying the legislation,
depending on which of the two underlying purposes is emphasized.

For example, assume that a taxpayer has correctly reported income
of $1,000 for a particular taxable year. Also assume that the Service makes
an unauthorized disclosure regarding the taxpayer for political reasons, but
erroneously states that he had income of $500. A court could look at this
situation and find that the Service made an unauthorized disclosure of the
taxpayer's "amount of income" and, strictly construing the statutory language,
rule that such a disclosure falls within the definition of return information,
regardless of whether the specific amount disclosed is accurate. Such a ruling
would be consistent with the congressional purpose of preventing misuse of
Service information for political reasons. The accuracy of the information
wrongfully disclosed is irrelevant to this policy.

Another court, however, could look at the same situation, and focus
on the specific information disclosed, i.e., that the taxpayer's amount of
income was $500. Since this was not in fact the amount of the taxpayer's
income, it cannot be considered information regarding the taxpayer. Since the
information does not concern the taxpayer, it cannot be defined as his "return
information," and there has therefore been no disclosure of return information
and no violation of sections 6103 and 7431. This approach is supported by
an emphasis on the other congressional purpose, to prevent the negligent or
intentional invasion of taxpayers' right to privacy, since a taxpayer cannot
have a reasonable expectation of privacy in information that by definition
does not actually concern him.

The spirit of the legislation, based on promoting taxpayer rights and
preserving the institutional integrity of the Internal Revenue Service, supports
the imposition of liability for the disclosure of erroneous information. Even
if the information being disseminated by the Service is erroneous, it is
nonetheless being represented as information pertaining to the taxpayer. Such
a disclosure is no less damaging to the taxpayer's business and reputation
merely because the information is false. On the contrary, the very fact that
it is erroneous suggests that it may be even more damaging. Likewise, the
intentional disclosure of erroneous information for political purposes is at
least as far outside the legitimate function of the Service as is the disclosure
of correct information for political purposes.

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2. The Information Must Have Been Return Information of the
Taxpayer Bringing the Suit.-In Haywood v. United States,33 the plaintiff's
husband had died with an unpaid tax liability incurred in years when he filed
separately; the plaintiff was not jointly liable. Even after it was advised of the
facts, the Internal Revenue Service sent a notice of levy to the plaintiff's
employer, levying her salary. This notice correctly stated the existence and
amount of the tax liability but incorrectly stated that the plaintiff was jointly
liable with her late husband's estate. The only correct "return information"
of the plaintiff's that was disclosed by the levy was her name and social
security number.

In dismissing the plaintiff's section 7431 cause of action, the court
reasoned that two types of information were released by the notice of levy.
The first was the plaintiff's correct name and social security number.
Regarding this information, the court simply found that there was not an
improper "disclosure," since the information was already known to the
employer.34

The second type of information was that regarding the plaintiff's late
husband's deficiency, incorrectly attributed to her. The court characterized
this situation as one where the government had mistakenly levied on a third
party's property, and held that sections 6103 and 7431 were neither intended
nor designed to address that situation, concluding that the plaintiff's sole
remedy lay under section 7426, which authorizes an action for recovery by
third parties of property wrongfully levied.

The Haywood court correctly determined the rather limited scope of
sections 6103 and 7431. The purpose of these statutes is to prevent the
misuse of the Service's formidable information-gathering powers by
prohibiting the use of its information for political or other reasons not related
to proper tax administration. In furtherance of that goal, section 7431 was
fashioned to address one specific situation, creating a cause of action for the
improper use of information regarding the complaining taxpayer. It was not
designed to apply to situations such as the one presented in Haywood, which
are more properly the province of section 743335 or section 7426.36

33. 642 F. Supp. 188, 192 (D. Kan. 1986).
34. Id. The reasoning of the court was similar to that used by the courts adopting

the government's "loss of confidentiality" argument regarding disclosure of information
contained in public records. See discussion infra part II.A.3.

35. See infra part III. Note that § 7433 was enacted after Haywood and therefore
was not discussed in the opinion.

36. It should be noted that the situation presented in Haywood is different from that
discussed supra part Il.A. L.b. (regarding the unauthorized disclosure of erroneous information).
In Haywood, the Service erroneously attributed one taxpayer's information to another taxpayer
and then commenced otherwise proper collection procedures based on that attribution,
including a disclosure that would have been authorized had the attribution been correct. The

[Vol 1:10



IRC §§ 7431 and 7433

To constitute protected return information of the taxpayer, however,
it is not necessary that the information be obtained or prepared specifically
in regard to the plaintiff's tax liability. In Mallas v. United States,37 the
Fourth Circuit imposed liability for the release of information that fell within
the section 6103(b) definition of "return information," which had been
prepared in connection with the determination of the tax liabilities of third-
parties, who were investors in plaintiff's project.

3. The Release Must Have Been a "Disclosure. "-Section
6103(b)(8) defines "disclosure" as "the making known to any person in any
manner whatever a return or return information." This statutory element has
become an issue in cases where return information was released in a manner
not authorized under section 6103(a), but where the information either was
already known to the person to whom it was released or had previously been
introduced into the public record by way of pleadings or evidence in some
judicial proceeding.

In determining whether there has been an unauthorized "disclosure,"
the courts have developed two, mutually exclusive approaches;" the method

issue here is whether the incorrect attribution somehow taints the subsequent disclosure,
subjecting the Service to liability under § 7431; the conclusion correctly reached in Havwood
is that it does not.

The discussion in part H.A.I.b., however, concerns the Service's disclosure of
erroneous information, where the disclosure would be unauthorized even if the information had
been correct. The issue here is whether information that the Service identifies as a taxpayer's
return information comes within the definition of "return information" and thus within the
protection of §§ 6103 and 7431 even though it is erroneous and therefore not, in fact,
information contained in the taxpayer's return.

Hybrid situations can be similarly analyzed. Assume, for example, that the Service
makes a disclosure of what it identifies as Taxpayer's return information but which is in fact
information from Third Party's tax return. If the disclosure is otherwise authorized, it should
be treated as Haywood-type disclosure, properly the subject of actions under §§ 7426 or 7433,
but not § 7431. If, on the other hand, the disclosure would be unauthorized even if the Service
had used Taxpayer's correct return information, it should be treated as any other unauthorized
disclosure of erroneous information. The source of the erroneous information is irrelevant to
a determination of the Service's liability.

37. 993 F.2d 1111, 1114 (4th Cir. 1993).
38. See, e.g., Lampert v. United States, 854 F.2d 335. 337-38 (9th Cir. 1988)

(comparing Lampert court's approach with that taken by the Tenth Circuit in Rodgers v. Hyatt,
697 F.2d 899 (10th Cir. 1983)), cert. denied, 490 U.S. 1034 (1989). The court in Thomas v.
United States, 890 F.2d 18 (7th Cir. 1989), may implicitly have been propounding a third
approach, based on a taxpayer privilege existing in the return information, and similar to the
"loss of confidentiality" argument discussed below. That opinion, through its "immediate
source" rule, seems to maintain the protection of § 6103 and § 7431 on any document
prepared internally by the Service, regardless of whether the information contained therein has
been otherwise publicized. Once the information has been legally disclosed by an agency

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of analysis chosen invariably determines the outcome. 39 The courts that side
with the government on this issue look beyond the statutory language to the
congressional purpose underlying sections 6103 and 7431, which they define
as the protection of the taxpayers' right to privacy. These courts, led by the
Ninth Circuit in Lampert v. United States,4" have unanimously held that the
condition precedent to the protection afforded by sections 6103 and 7431 is
the confidentiality of the information, reasoning that if the information is
already in the public record or is already actually known to the individual
receiving the information from the government, the information has lost its
confidentiality, and the taxpayer can have no reasonable expectation of
privacy and therefore no remedy under section 7431.

The second group of courts, led by the Tenth Circuit in Rodgers v.
Hyatt,41 frames the issue as one of simple but strict statutory analysis. These
courts hold that the questions of "confidentiality" and "right to privacy" are
irrelevant to a determination of liability under section 7431, and that the only
question is whether the disclosure was authorized. As one court said: "In light
of that explicit statutory and legislative history, this Court concludes that it
cannot judicially carve any additional exceptions to section 6103's general
ban against disclosures."42

The government's "loss of confidentiality" argument, adopted by
Lampert, is flawed for at least three reasons. First, the "loss of confidentiali-
ty" argument, as expressed in Lampert and later cases, is based on the
premise that the sole public policy underlying the legislation is protection of

separate from the Internal Revenue Service (e.g., in a Tax Court opinion), the Service is
allowed to publicize information taken from that source, even though the identical facts in its
own files remain "privileged" information.

39. Perhaps because this statute is relatively new, this issue has arisen in only a few
cases. Although the two positions are well-defined, they have not yet established themselves
as the clear "minority" or "majority" view, contrary to the government's identification of the
more restrictive definition of "disclosure" (the pro-government definition) as being the majority
view. Rubel v. United States, 89-1 U.S. Tax Cas. (CCH) 9149, 62 A.F.T.R.2d (P-H) 88-5468
(W.D.N.C. 1988).

40. 854 F.2d 335 (9th Cir. 1988), cert. denied, 490 U.S. 1034 (1989). See also
Haywood v. United States, 642 F. Supp. 188 (D. Kan. 1986) (finding that notice of levy
wrongfully included taxpayer's name and social security number but information was already
known to the recipient).

41. 697 F.2d 899 (10th Cir. 1983). Rodgers was decided under § 7217. Since the
relevant language in § 7217 regarding the definition of "disclosure" is identical to that in
§ 7431, its holding is equally applicable to the later statute, and is routinely so cited. See also
Chandler v. United States, 687 F. Supp. 1515 (D. Utah 1988), aff'd, 887 F.2d 1397 (10th Cir.
1989); Husby v. United States, 672 F. Supp. 442 (N.D. Cal. 1987); Malis v. United States, 87-
I U.S. Tax Cas. (CCH) 9212, 59 A.F.T.R.2d (P-H) 87-988 (C.D. Cal. 1986).

42. Chandler, 687 F. Supp. at 1519 (quoting with approval Johnson v. Sawyer, 640
F. Supp. 1126, 1133 (S.D. Tex. 1986), aff'd, 980 F.2d 1490 (5th Cir. 1992)).

[VOL 1:10



IRC §§ 7431 and 7433

the taxpayers' right to privacy. If the government can show that the specific
information involved in that case is somehow no longer "confidential," so the
argument goes, then the taxpayer had no reasonable expectation of privacy
and is therefore entitled to no remedy under section 7431.

A review of the legislative history shows that this premise is wrong.
Although protection of the right to privacy in individual cases was one of the
congressional purposes, Congress was also motivated by a much broader,
"institutional" concern: that the Internal Revenue Service was, as a matter of
policy, being used as an intelligence gathering and disseminating agency by
the executive branch.43 Sections 6103 and 7431 were intended to bring
immediate and very tight controls to the practice of releasing return
information for purposes unrelated to proper tax administration. Congress
sought to achieve this goal by prohibiting the release of any return informa-
tion for any purpose not expressly authorized by section 6103 or some other
section of the Code. This second congressional purpose is not satisfied by a
showing that the information was not within the taxpayer's reasonable
expectation of privacy.

Second, the defense is mooted by the plain statutory language. As the
courts in Rodgers and its progeny have stated, there is no requirement in the
statute that the return information be "confidential," whatever that may mean,
before it falls within the protection of sections 6103 and 7431 ." Further,
even if "confidentiality" were a prerequisite for protection under sections
6103 and 7431, that status is clearly provided by the opening sentence of
section 6103(a), which flatly provides that all "[r]eturns and return informa-
tion shall be confidential." (Emphasis added.) There is no provision in
sections 6103 or 7431 or elsewhere for the loss of that status.

Finally, laying aside for the moment these flaws in the theory of the
"loss of confidentiality" defense, the courts have improperly applied it as a
question of law, rather than the question of fact that it is. As it has been
presented and adopted, the defense assumes that information available in a
"public record" is, by virtue of that fact alone, completely outside of the
taxpayer's right of privacy. The Fourth Circuit rejected that assumption in
Mallas v. United States,45 holding that there is no exception to section
6103(a)'s disclosure prohibition that would permit the disclosure of return
information simply because it was available to the public through a public
record. The court describes as a "fiction" the notion that any information

43. See supra note 6 and accompanying texL
44. Rodgers, 697 F.2d at 906.
45. 993 F.2d 1111, 1121 (4th Cir. 1993).

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Florida Tax Review

contained in a public document is thereby known to the whole world, so that
further disclosure can do no additional harm.46

The Fourth Circuit in Mallas was correct. Even accepting the
interpretation of the statutes adopted by the Ninth Circuit in Lampert,
focusing solely upon the taxpayer's reasonable expectation of privacy, these
statutes do not create the black and white dichotomy that the Lampert court
apparently envisioned, and cannot be applied easily to any situation other
than the extremes. When the return information has been included in a
judicial opinion, as in the Thomas case discussed above,47 it is surely
beyond argument that the taxpayer no longer has a reasonable expectation of
privacy in that specific information. The converse is equally clear: a taxpayer
most certainly does have a reasonable expectation of privacy in return
information contained only in Internal Revenue Service files.

In the vast middle ground, however, the conclusions are much more
difficult to draw. In the majority of cases addressing the issue,4" the return
information has been included in court pleadings but not in a published
opinion. Unless the court file has been sealed by the court, such documents
are public records, legally accessible by the media and the general public. In
reality, however, this access is unexercised in all but the highest profile cases.
Although the information may technically fall outside of whatever definition
of "confidential" the government may argue, it is still within the taxpayer's
reasonable expectation of privacy. If the "loss of confidentiality" defense is
to be recognized at all, it must be applied on a case-by-case basis, with the
outcome turning on a resolution of a question of fact: whether the taxpayer
had a reasonable expectation of privacy under the specific circumstances
presented in that case.

The application of this defense also raises a more basic policy
concern. The government has asserted this defense even where it was the only
party that played any role in either placing the information in the public
record or subsequently disclosing it:49 the government assessed the tax that
led to the dispute, the government filed the criminal information containing
the information, and then the government publicized it. It takes no great effort
to imagine the potential for abuse in this situation, where the government
could make an end run around the intended protection of sections 6103 and
7431.

46. Id. at 1120 (quoting with approval Thomas v. United States, 890 F.2d 18, 21
(7th Cir. 1989)).

47. See supra part II.A.l.a.
48. See cases cited supra notes 40-41.
49. This was the situation in Lampert, as discussed in the trial court's opinion, Figur

v. United States, 662 F. Supp. 515 (N.D. Cal. 1987), aff'd sub nom. Lampert v. United States,
854 F.2d 335 (9th Cir. 1988), cert. denied, 490 U.S. 1034 (1989).

[VOL 1:10



IRC §§ 7431 and 7433

The converse situation, where the taxpayer himself places the
information in the public record, does not present any more palatable a
context for the "loss of confidentiality" argument. In this situation, the
government is arguing that, by filing a Tax Court petition or a claim for
refund and pleading the facts necessary to state a cause of action, the
taxpayer is waiving the confidentiality of any return information included in
the pleading and thus waiving the protection of sections 6103 and 7431. In
effect, the government is putting the taxpayer to an election: he can choose
either to file in court or to maintain the statutory protection of his return
information. As the court in Husby v. United States said, "Congress could not
have intended such an absurd result."50

Although the court in Malis v. United States5' agreed with the courts
in Rodgers and Husby, and extended the statutory protection to the situation
where the taxpayer himself had made the information part of the public
record, it also correctly noted that the taxpayer's own prior disclosure of the
information could have a very important effect on his potential recovery
under section 7431: even though the prior release of the information would
not preclude a finding of liability, it could negate the proximate cause nexus
between the unauthorized governmental disclosure and plaintiff's alleged
damages.52

4. The Release Must Have Been Made by an Officer or Employee of
the United States.-As with the "return information" requirement, this
element has not yet been the source of much controversy. Two points should

50. 672 F. Supp. 442, 444 (N.D. Cal. 1987). In Husby. the Service was apparently
arguing that the inclusion of any return information in the Tax Court petition constituted the
waiver of all return information relevant to that case. Id. See also Chandler v. United States,
687 F. Supp. 1515 (D. Utah 1988) (Service arguing waiver of confidentiality upon tiling of
injunctive suit), aff'd, 887 F.2d 1397 (10th Cir. 1989).

51. 87-1 U.S. Tax Cas. (CCH) 9212, 59 A.F.T.R.2d (P-H) 87-988 (C.D. Cal.
1986).

52. 87-1 U.S. Tax Cas. (CCH) at 87,351, 59 A.F.T.R.2d (P-H) at 87-992. Even in
the total absence of proximate cause between the subsequent disclosure and the asserted
damages, a plaintiff is still entitled to a recovery of at least the minimum statutory damages
of $1,000 and his costs. IRC § 7431(c). The courts have split on the question of whether a
plaintiff who is not entitled to actual damages is nonetheless entitled to punitive damages.
Cases holding against plaintiffs on this issue include Smith v. United States, 730 F. Supp. 948
(C.D. 111. 1990), aft'd, 964 F.2d 630 (7th Cir. 1992). cert. denied. 113 S. Ct. 1015 (1993);
William E. Schrambling Accountancy Corp. v. United States, 689 F. Supp. 1001 (N.D. Cal.
1988), rev'd on other grounds, 937 F.2d 1485 (9th Cir. 1991). Cases holding in favor of
plaintiffs include Mallas v. United States, 993 F.2d I I II(4th Cir. 1993); Malis v. United
States, 87-1 U.S. Tax Cas. (CCH) [ 9212, 59 A.F.T.R.2d (P-H) 87-988 (C.D. Cal. 1986)
(citing Mid-South Music Corp. v. United States. 85-2 U.S. Tax Cas. (CCH) J 9782. 56
A.F.T.R.2d (P-H) 85-6250 (M.D. Tenn. 1985)).

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Florida Tax Review

be noted, however. First, the statute subjects the government to potential
liability for the disclosures by any employee, not just those working for the
Internal Revenue Service. 3 Second, the statute does not require that the
person be acting in his capacity as a federal employee (i.e., within the course
and scope of his employment) at the time the disclosure is made.-4

At first glance, this element might appear to be a non-issue, since a
taxpayer failing to prove that the person making the disclosure was an officer
or employee of the United States for purposes of section 7431(a)(1) would
simply proceed under section 7431 (a)(2), which authorizes an identical action
for damages against any person not an officer or employee of the United
States." This could, however, be a critical issue to both the taxpayer and the
government. From the government's perspective, the materiality of the issue
is obvious: if the person making the disclosure was not its officer or
employee, the government is not liable. This is also an important issue from
the taxpayer's standpoint, since the infinitely deep pocket of Uncle Sam
would be replaced by the much shallower pocket of the individual.56

53. The actions of judges, as government officers or employees, can just as easily
subject the government to liability under § 7431 as can the actions of Internal Revenue Service
agents. A release of return information in a court opinion is permitted under § 6103(h)(4),
which authorizes disclosure "in a Federal or State judicial or administrative proceeding
pertaining to tax administration" where, among other limitations, the taxpayer is a party. If a
judge were to release such information under other circumstances, however, such as in an
extrajudicial setting or in another action to which the taxpayer was not a party, he would
subject the government to liability under § 7431.

54. The specific provision, contained in the flush language of § 6103(a), is
somewhat muddled: "[N]o 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 any employee or otherwise or under the provisions of this section."

It is not clear whether the phrases "in any manner" and "in connection with his
service" modify "disclose" or "obtained." When read together with the phrase "or under the
provisions of this section," the most logical interpretation is that they modify "obtained," so
that the subsection prohibits any disclosure of information (regardless of whether the disclosure
is related to the employment), whether that information was obtained in connection with his
service, or obtained under the provisions of § 6103, or otherwise obtained.

This question is rendered moot, however, by the phrase "or otherwise." Even if "in
any manner in connection with his service" modifies "disclose," the immediately following
phrase "or otherwise" would extend the prohibition to all other disclosures.

55. Such a situation would arise, for example, where an unauthorized disclosure of
return information is made by a state tax official who was provided with return information
by the Service under the provisions of § 6103(d).

56. A summary judgment ruling dismissing the government might also complicate
the taxpayer's pre-trial discovery, since the extensive discovery powers over parties to the
litigation would no longer apply to the government, the source of much of the relevant
information.

[VOL 1:10



IRC §§ 7431 and 7433

5. The Person Making the Disclosure Must Have Acted "Knowingly
or by Reason of Negligence. "-Section 7431 provides for liability where
"any officer or employee of the United States knowingly, or by reason of
negligence, discloses any return or return information."' This language goes
far beyond establishing the standard by which liability is to be determined.
It also sharply limits the government's potential liability by restricting the
cause of action to claims based on the intent or negligence of only the
specific person making the disclosure. Neither the legislative history nor the
reported cases directly address this issue. It is clear from the reported
opinions, however, that this interpretation of the statute is the accepted
standard."8 For example, in Flippo v. United States, "9 a mistake or delay
by the Internal Revenue Service in updating its files led an agent to issue a
notice of lien based on old information that erroneously indicated that the
plaintiff had not paid a deficiency assessed against him. In ruling that there
was no showing of negligence or intentional misdeeds, the court discussed
only the actions of the agent making the disclosures and not those of the
employees who failed to timely update the files or, at a higher level, to
institute the proper procedures to ensure timely updating.

The "knowingly or by reason of negligence" language is a hold-over
from section 7217, the predecessor to section 7431, under which only the
individual officer or employee making the disclosure was potentially liable
for damages. In the context of that prior statutory scheme, the limitation
makes sense: absent some sort of vicarious liability not relevant here, an
individual cannot be held liable for someone else's intentional or negligent
wrongdoing. This limitation is, however, neither necessary to the current
statutory approach nor conducive to achieving the congressional purposes.

As discussed above, the congressional purposes underlying sections
6103 and 7431 were to prevent the intentional, policy-based disclosure of
return information for reasons other than tax administration and to prevent the
violation of citizens' right to privacy by the intentional or negligent disclosure
of return information. If the government is not liable for the negligent or
intentional actions of any person involved in an erroneous disclosure except
the final actor, the Service can, by design or neglect maintain an outmoded,
inefficient, or chronically unreliable system or procedure that may with great
frequency result in inappropriate disclosures of return information. As long
as the last employee in the chain relies on the information provided to him

57. IRC § 743 1(a).
58. But cf. Johnson v. Sawyer, 640 F. Supp. 1126 (S.D. Tex. 1986). aff'd in part

and modified in part, 980 F.2d 1490 (5th Cir. 1992) (reserving ruling on question of whether
only government employee directly involved in press release could be held liable under
§ 7217).

59. 670 F. Supp. 638 (W.D.N.C. 1987), aff'd, 849 F.2d 604 (4th Cir. 1988).

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Florida Tax Review

by this system or procedure, the government is not liable. In effect, it is
shielded by its own incompetence. Such a result frustrates both of the
congressional purposes, but especially the concern for taxpayers' right to
privacy. 6°

To close this large gap in taxpayer protection, Congress should
amend the language of section 7431 to provide expressly for liability
whenever negligent or intentional actions on the part of any governmental
officer or employee, whether alone or in concert, result in an unauthorized
disclosure of information.

The cost, in terms of required modernization, monitoring of
employees, and liability, however, may be more than Congress is willing to
pay to protect the rights of individual taxpayers. There is no legislation
currently pending to amend this facet of section 7431.

6. The Release Must Have Been in Violation of Section
6103.-Generally speaking, to further the congressional goal of preventing
the misuse of information gathered by the Internal Revenue Service, section
6103 provides a blanket prohibition on the disclosure of such information
"except as authorized by this title." The succeeding subsections of section
6103, which provide exceptions to the general rule of nondisclosure, are
drafted to permit only the minimum disclosure necessary to achieve specific
purposes. Section 6103(k)(6), for example, authorizes disclosure of return
information by agents in connection with audits, collections, and civil or
criminal tax investigations.6 The statute allows such disclosure, however,

60. This is not to say that actionable negligence occurs any time a disclosure is
prompted by incorrect information from Service personnel or computers. If the incorrect
information is the result of an isolated problem and the Service takes reasonable actions both
to correct any harm to that specific taxpayer and to ensure that the underlying problem does
not recur, then the Service has not acted knowingly or negligently. Any more stringent
standard would be unreasonable. See Christensen v. United States, 733 F. Supp. 844, (D.N.J.
1990), affd, 925 F.2d 416 (3d Cir. 1991). If, however, the underlying cause of the erroneous
information is a recurrent problem, of which the Service is aware but which it has made no
attempt to correct, then it would be reasonable to impose liability.

61. Section 6103(k)(6) provides that:
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 regulation.

[VOL. 1:10



IRC §§ 7431 and 7433

only "to the extent that such disclosure is necessary" to achieve the defined
purposes; each of the other authorization provisions is similarly limited.
Disclosures in excess of the specific authorization are actionable.62

A difficult question is presented where the assessment underlying the
collection is erroneous: Is an otherwise authorized disclosure made in
connection with the procedurally-proper effort to collect an erroneous
assessment still "authorized" under section 6103(k)(6)? This question
highlights a gap in the statutory scheme to provide damages for improper
activities by the Internal Revenue Service.'

In Flippo v. United States,6' an agent mistakenly thought that the
plaintiff had not paid an assessed deficiency, and disclosed return information
in the course of his efforts to collect that deficiency. The court held that this
disclosure was not actionable under section 7431 because of what the court
interpreted as congressional intent that section 7431 should not interfere with
the collection of taxes. The court held that section 7431 simply does not
apply to any action taken in the process of tax collection, even where the
collection effort is mistaken.

In Husby v. United States6" and Rorex v. Traynor,' however, the
courts reached the contrary conclusion, holding that such a disclosure is not
authorized under section 6103(k)(6) and is therefore actionable under section
7431. The court in Husby ruled that section 6103(k)(6) authorizes the
disclosure of information only to the extent that it is necessary to the
collection of valid tax deficiencies, stating: "The plain language of this
subsection authorizes only disclosures which are necessary in obtaining
information related to official duties. The disclosures at issue clearly were not

Although the language of this section is somewhat murky, and might be interpreted to
authorize disclosures only during the investigative phase, any doubt as to the broader scope
of this authorization is resolved by reference to §§ 6323 and 6331, which are incorporated into
§ 6103(a) by the phrase "as authorized by this title."

62. E.g., Heller v. Plave, 657 F. Supp. 95 (S.D. Fla. 1987) (decided under § 7217.
in which the court also noted that Regs. § 301.6103(k)(6)-l(a) provides similar restrictions on
disclosures). On a side issue relevant to this point, the court in Timmerman v. Swenson. 79-2
U.S. Tax Cas. (CCH) 9588, 44 A.F.T.R.2d (P-H) 79-5727 (D. Minn. 1979). citing
§ 6103(k)(6) and Regs. § 404.6103(k)(6)-l(b) (now § 301.6103(k)(6)-l(b)). held that where
the taxpayer had disappeared with outstanding tax deficiencies, the Service was authorized to
send levies to any financial institution in the area, hoping to locate property belonging to the
taxpayer. The fact that some of the levies were sent to banks not holding the taxpayer's
property did not render the levies improper so as to form the basis for § 7217 liability.

63. See infra text accompanying notes 106-18 for a discussion of liability under
§ 7433 for collection activities undertaken pursuant to an erroneous assessment.

64. 670 F. Supp. 638 (W.D.N.C. 1987), aftd, 849 F.2d 604 (4th Cir. 1988).
65. 672 F. Supp. 442 (N.D. Cal. 1987). aff'd sub nom. United States v. Lisle, 1993

U.S. App. LEXIS 20987 (9th Cir. 1993).
66. 771 F.2d 383 (8th Cir. 1985) (decided under § 7217).

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Florida Tax Review

necessary to official duties because the underlying assessment was improp-
er."

6 7

Although the Husby court expressly based its ruling on the "plain
language" of the statute, it in fact went beyond the statutory language,
reading into the statute an implicit requirement that the underlying assessment
be valid.

In Rorex, revenue agent Traynor served a notice of levy on plaintiffs'
bank, despite the fact that plaintiffs had timely made all payments due under
an installment settlement agreement with the Service. In his defense to
plaintiffs' claims under section 7217, the predecessor to section 7431,
Traynor argued that his disclosure of return information was authorized by
section 6103(k)(6). The court rejected this defense, noting that such a holding
"would open a significant loophole in section 7217 in that Internal Revenue
Service employees could disclose return information about any taxpayer
simply by making the disclosure in the form of a notice of levy. The
employees would never be subject to liability under section 7217....

Although the holdings in Husby and Rorex advance the goals of
taxpayer protection, they do so only by expanding upon the language of the
statute. The Flippo court's ruling, denying governmental liability, is correct,
based upon a strict interpretation of the statute. Congress has, whether
intentionally or not, created a very large gap in its scheme of taxpayer
protection. The present statutory scheme, strictly construed, will not impose
liability for disclosures made in the course of collection activities that are
based on an assessment, regardless of how completely unjustified and
unsupported that assessment may be.69

7. Good Faith Defense.-Section 7431 (b) 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." The courts that
have addressed the issue agree that the determination of "good faith" is to be
made using an objective standard, defined as whether the agent's conduct
violated clearly established statutory or constitutional rights, as interpreted in
regulations and manuals, of which a reasonable agent would have known.7"

67. 672 F. Supp. at 445. Cf. William E. Schrambling Accountancy Corp. v. United
States, 689 F. Supp. 1001 (N.D. Cal. 1988)(holding that where levy was based on correct
assessment, but proper notice not given, liability under § 7431 could be imposed), rev'd on
other grounds, 937 F.2d 1485 (9th Cir. 1991).

68. Rorex, 771 F.2d at 386.
69. For further discussion of this gap in coverage, see infra part IV.B.
70. See Huckaby v. United States Dep't of Treasury, IRS, 794 F.2d 1041, 1048 (5th

Cir. 1986).

[Vol 1:10



IRC §§ 7431 and 7433

This standard has been applied, for example, to hold agents not liable
under section 7217 based on their misinterpretation of section 6103 as
allowing the disclosure of return information to assist state tax administrators
with an investigation into personnel matters." Another court found that the
existence of a split in authority on the "loss of confidentiality" defense would
support a "good faith" defense.7- This latter interpretation of the "good
faith" defense puts the government in the enviable heads-I-win-tails-you-lose
position of being able to argue, in any circuit except the Tenth, that it is not
liable for a disclosure of information already in the public record because
either the information was not protected, or the Service just thought it was
not protected. It is unlikely, at least in the short run, that the government will
lose many cases on this issue.

By the express terms of section 743 1(b), the "good faith" defense
applies only to misinterpretations of section 6103, not to alleged mistakes of
facL73 It must be noted, however, that an implicit "good faith" defense with
regard to factual issues exists by virtue of the "knowingly or by reason of
negligence" element of section 7431(a)(1), discussed above. This implicit
defense would apply, for example, if the person making the disclosure relies
on erroneous information supplied to him by other governmental employees
(or by anyone else).

B. Elvis Johnson: Liability Under the Federal Tort Claims Act for Violation
of Section 6103

No discussion of governmental liability for the unauthorized
disclosure of return information under section 6103 would be complete
without reference to the recent case of Johnson v. Sawyer,7' in which the
plaintiff was awarded approximately ten million dollars for the Service's
publication of return information in press releases.75 Although the size of the
verdict may be an encouraging portent for future actions by taxpayers,
changes in the law since the Johnson claim arose have rendered Johnson of
questionable value as legal precedent.

71. Rueckert v. Gore, 587 F. Supp. 1238 (N.D. I11. 1984). aff'd in result only sub
nom. Rueckert v. IRS, 775 F.2d 208 (7th Cir. 1985).

72. Rubel v. United States, 89-1 U.S. Tax Cas. (CCH) 1 9149, 62 A.F.T.R.2d (P-H)
88-5468 (W.D.N.C. 1988).

73. See Husby v. United States, 672 F. Supp. 442 (N.D. Cal. 1987).
74. Slip Opinion, Docket No. 91-2763 (Oct. 14, 1993). supplementing and

modifying 980 F.2d 1490 (5th Cir. 1992), aff g in part and modifying in part 640 F. Supp.
1126 (S.D. Tex 1986).

75. It should be noted immediately that liability in Jolmson was found under the
Federal Tort Claims Act, not § 7217 or § 743 1. Joluson, Slip Opinion at . 980 F.2d at 1492.

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In Johnson, the plaintiff, a prominent businessman, had entered into
a plea arrangement with the Department of Justice, whereby he pleaded guilty
to tax evasion in return for, among other consideration, the agreement by the
Department of Justice that it would not issue a press release concerning his
case. Also pursuant to the plea agreement, the pleadings did not include
certain identifying information, including the plaintiffs address and the
nickname by which he was universally known. Following the entry of the
plea, the Internal Revenue Service (not Justice) issued press releases which
included the identifying information intentionally excluded from the court
records.76

The plaintiff filed this action for damages against the agent under
section 7217, the predecessor of section 7431, asserting that the press releases
violated the provisions of section 6103. Because section 7217 created a cause
of action against only against the individual agents, plaintiff could not assert
liability against the government based on that statute. Rather, he asserted a
more imaginative claim against the government, based on the Federal Tort
Claims Act (FITCA).77

To maintain a claim under the FTCA, a plaintiff must show that he
suffered damages caused by the negligent or wrongful act or omission of an
employee of the federal government, committed while acting within the scope
of his office or employment, and that the act or omission occurred under
circumstances where the United States, if a private person, would be liable
to the plaintiff in accordance with the law of the place where the act or
omission occurred.78 In Johnson, the plaintiff based his FTCA claim
alternatively on two separate state torts: first, the tort of public disclosure of
private facts (a form of invasion of privacy), which is independent of section
6103; and second, the tort of negligence per se, based on a violation of
section 6103.

The government asserted an array of defenses against the FTCA
claim.79 For purposes of this discussion, the most important of these are,

76. Johnson, Slip Opinion at _, 980 F.2d at 1492-93.
77. Id. at __, 980 F.2d at 1494.
78. 28 U.S.C. § 1346(b) (1988).
79. In addition to the two defenses discussed in the text, the government raised, and

the Fifth Circuit rejected, the following defenses:
(1) The action sounded in contract, not in tort. The court found this to be a simple

mischaracterization of the plaintiff's claims, which were based on a violation of § 6103.
Johnson, 980 F.2d at 1500-01.

(2) The information disclosed was no longer confidential under § 6103, since it was
included in court documents, i.e., the "loss of confidentiality" defense discussed supra part
II.A.3. The court avoided the controversy inherent in this defense, noting that the press
releases contained information not contained in the court records. Slip Opinion at -, 980
F.2d at .

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IRC §§ 7431 and 7433

first, that no FTCA claim can be based on the violation of federal law and,
second, that the claim was preempted by section 7217. The Fifth Circuit
rejected all of the government's defenses, holding the United States was
indeed liable under the FTCA and affirmed the trial court's multi-million
dollar judgment in favor of plaintiff.8'

1. No FTCA Claim Can Be Based on the Violation of Federal
Law.-In response to the negligence per se cause of action as a basis for the
FTCA claim, the government argued that no FTCA claim can be based on the
violation of federal law. The court acknowledged that this statement is
irrefutable under the language of 28 U.S.C. 1346(b), which requires that the
United States be liable under the laws of the relevant state. As the court
noted, however, plaintiff's argument had a twist to it.

Johnson does not contend simplistically that § 6103 creates
a duty the breach of which constitutes a state tort, or that the
violation of that statute ipso facto creates FTCA liability.
Rather, he asserts that, for purposes of the state tort of public
disclosure of private facts, § 6103 sets a standard of care for
those actors who owe the duty, and that, under Texas tort
law, the violation of such a statutory standard of care is
negligence per se when one to whom the duty is owed is
damaged by violation of this standard of care."

The court analyzed the plaintiff s negligence per se argument, and agreed that
the violation of section 6103 did in fact establish a state cause of action under
the Texas negligence per se doctrine, by creating an applicable standard of
care.8

(3) The claim was barred by the "discretionary function exception" to the FTCA. The
court ruled that this exception "does not shield the government from liability for acts of its
agents taken in furtherance of a general discretionary policy-such as the IRS policy to deter
tax evasion" through publicity of cases such as plaintiffis. 980 F.2d at 1503.

(4) The claim was barred by the "tax assessment and collection" exception to the
FTCA. The court ruled that the actions of Service officers in preparing and issuing press
releases did not constitute the assessment or collection of taxes, so that this exception did not
apply. Id. at 1503-04.

80. Slip Opinion at - 980 F.2d at 1505-06.
81. Slip Opinion at _. Surprisingly, this argument was not discussed in the

opinion of the district court, which based its finding of liability on state law theories of
respondeat superior and negligent supervision of employees. Johnson v. Sawyer, 760 F. Supp.
1216, 1231-32 (S.D. Tex. 1991), aff d in part, modified in part and remanded in part, 980 F.2d
1490 (5th Cir. Tex. 1992).

82. Judge Garwood filed a strong dissent in the case, based primarily on his opinion

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Since the causes of action in Johnson arose, the relevant federal law
has been amended in a manner quite significant to the court's holding on this
point. As discussed above, section 7217 was repealed, replaced by section
7431. The major difference in the two Code provisions is that section 7431
authorizes an action for damages against the United States, rather than against
the federal employee as under section 7217.

Under general principals of negligence per se, that doctrine does not
apply where the legislature has already provided a civil remedy for the
negligent violation of the standard set forth in the statute.83 In Johnson,
decided under section 7217, this was not an issue, since that statute did not
address the question of a claim against the United States. Section 7431
expressly provides such a claim, however, and therefore prevents the
application of the doctrine of negligence per se.

2. The Claim Was Preempted by Section 7217.-Holding that a
remedial statute must be both comprehensive and exclusive to be preemptive
of the FTCA, the court found no evidence of congressional intent that section
7217 "be the exclusive remedy for each and every section 6103 violation.'"
Rather, the court found, section 7217 merely provides a remedy against the
governmental employee for violations of section 6103, and Congress did not
purport to make section 7217 preemptive of the FTCA"

As with the negligence per se issue, subsequent changes in the law
have undermined the future application of the court's reasoning on this point.
The only remedy provided under section 7217 was a suit for damages against
the individual; the statute was silent with regard to liability on the part of the
United States. This silence enabled the Johnson court, speaking in the context
of an action asserting the liability of the United States, to find that the statute
was not exhaustive. On this point, the provisions of section 7431, the
successor to section 7217, are significantly different: section 7431 expressly
provides for liability on the part of the United States. Even though Congress
did not include any language in section 7431 regarding the exclusivity of that
remedy, it is very unlikely that any court, even the Fifth Circuit, would find
that section 7431 has not preempted FTCA liability.

that the majority had improperly expanded the waiver of sovereign immunity under the FTCA
by incorporating the entire federal code into state law under the doctrine of negligence per se.
Johnson, 980 F.2d at 1509 (Garwood, J., dissenting).

83. See, e.g., Restatement (Second) of Torts § 287 (1965) (providing that: "[a]
provision for a penalty in a legislative enactment or an administrative regulation has no effect
upon liability for negligence unless the penalty is found to be intended to exclude it").

84. Johnson, Slip Opinion at -, 980 F.2d at 1501.
85. Id.

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IRC §§ 7431 and 7433

m. LIABILITY FOR COLLECTIONS ACTIVITIES: SECTION 7433

H.R. 4333, the House bill that eventually became the Technical and
Miscellaneous Revenue Act of 1988, originally contained no provisions
regarding the protection of taxpayers' rights.' The Senate version of the
legislation, however, contained the Taxpayer Bill of Rights, which provided,
among other protections, that a taxpayer could sue the federal government for
damages for careless, reckless, or intentional disregard by an Internal
Revenue Service employee of any provision of federal law or any regulation
under the Code in the determination or collection of any federal tax.' The
Joint House and Senate Conference adopted the Senate version, with some
significant modifications,8 and the Taxpayer Bill of Rights was subsequent-
ly enacted as section 6241(a) of the Technical and Miscellaneous Revenue
Act of 1988.89

Under the express language of section 7433,9 a plaintiff must show

86. H.R. Conf. Rep. No. 1104, 100th Cong., 2d Sess. 229. reprinted in 1988
U.S.C.C.A.N. 5048, 5288.

87. Id.
88. H.R. Conf. Rep. No. 1104, 100th Cong., 2d Sess. 229, reprinted in 1988

U.S.C.C.A.N. 5048, 5289. The Conference Report noted the following significant modifica-
tions between the Senate version and the version finally enacted. First, the cause of action can
be based only on allegations of reckless or intentional disregard by an Internal Revenue
Service employee, and not on mere negligence or carelessness. Second, the actions complained
of must be in connection with the collection of tax; an action may not be maintained on
actions taken in connection with the determination of tax. Third, the reckless or intentional
disregard must be of the Code or regulations thereunder, a cause of action may not be
maintained on the alleged violation of any other federal law or regulation. Fourth, the
conference agreement deleted a provision in the Senate bill which would have barred recovery
if the taxpayer was contributorily negligent. Fifth, the Conference Agreement placed a cap on
damages of $100,000, whereas the Senate bill had no such limitations. Sixth, jurisdiction was
given to the federal district courts, and not the Tax Court. Seventh, with the exception of the
remedy provided in § 7432 for failure to release a lien, this provision would provide the
exclusive remedy for recovering damages resulting from reckless or intentional disregard of
a provision of the Code, or a regulation promulgated thereunder, by an Internal Revenue
Service employee engaged in the collection of any federal tax. Id.

89. Pub. L. No. 100-647, 102 Stat. 3342 (1988).
90. Section 7433 provides, in pertinent part:

(a) In General. If, in connection with any collection of Federal
tax with respect to a taxpayer, any officer or employee of the Internal
Revenue Service recklessly or intentionally disregards any provision of this
title, or any regulation promulgated under this title, such taxpayer may
bring a civil action for damages against the United States in a district court
of the United States. Except as provided in section 7432, such civil action
shall be the exclusive remedy for recovering damages resulting from such
actions.

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Florida Tax Review

the following elements to prevail in an action against the United States: (1)
that an officer or employee of the Internal Revenue Service (2) disregarded
a provision of the Internal Revenue Code or of any regulation promulgated
thereunder; (3) that this disregard was reckless or intentional; (4) that the
disregard occurred in connection with the collection of federal tax with
respect to the plaintiff; and (5) that the disregard was the proximate result of
actual direct economic damages sustained by the plaintiff. If the plaintiff
proves all of these elements (as well as follows the procedural requirements
of section 7433(d)), he is entitled to a maximum recovery (including costs)
of $100,000.

These elements impose three significant restrictions on the cause of
action under section 7433. First, the statute targets only actions performed in
connection with the collection process. Abuses connected with the assessment
process are not covered and no action will lie, regardless of how grievous the
abuses may be. The Senate bill did not limit the scope of the coverage to
collections, but would have included abuses committed in the determination
phase, as well.

The legislative history of the Senate bill provides some insight into
the compromise bill's limitation to the collections area. The Senate bill was
the result of hearings dating back to 1984, in which the Senate heard

(b) 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 lesser of $100,000 or the
sum of-

(1) actual, direct economic damages sustained by the
plaintiff as a proximate result of the reckless or intentional
actions of the officer or employee, and

(2) the costs of the action.

(d) Limitations.
(1) Requirement that administrative remedies be ex-

hausted. A judgment for damages shall not be awarded under
subsection (b) unless the court determines that the plaintiff has
exhausted the administrative remedies available to such plaintiff
within the Internal Revenue Service.

(2) Mitigation of damages. The amount of damages
awarded under subsection (b)(1) shall be reduced by the amount
of such damages which could have reasonably been mitigated by
the plaintiff.

(3) Period for bringing action. Notwithstanding any
other provision of law, an action to enforce liability created
under this section may be brought without regard to the amount
in controversy and may be brought only within 2 years after the
date the right of action accrues.

[Vol 1:10



IRC §§ 7431 and 7433

testimony regarding extensive abuses in the collections process.9' In his
testimony before the Senate Oversight Subcommittee, Jule R. Herbert, Jr.,
president of the National Taxpayers Legal Fund, identified two important
reasons why the collections area is perhaps more prone to abusive practices
by the Internal Revenue Service than the area of assessment: first, although
as many as fifty percent of taxpayers being audited are represented by tax
practitioners, less than five percent are represented during the collection
process; and, second, even when taxpayers are represented in the collection
process, tax practitioners themselves know very little about Internal Revenue
Service collection procedures.92

In response to inquiries as to the necessity of providing additional
taxpayer protection during the collection process, then Commissioner
Lawrence B. Gibbs made comments9" in opposition to the legislation that,
ironically, effectively pointed out the need for that very protection. In
attempting to show that sufficient safeguards already existed to protect
taxpayers, Commissioner Gibbs noted that a cause of action under the
Bivens9 doctrine is available for taxpayers whose constitutional rights are
violated by revenue agents under color of law. In an apparent effort to show
that there was no real abuse by his agents, Commissioner Gibbs also noted
that, although over 1,000 Bivens actions were filed against Internal Revenue
Service employees from 1980 to 1986, none of those actions was ultimately
successful.95 In light of the testimony that the Subcommittee had already
heard regarding the very real abuses that do occur, the astounding failure of
the Bivens plaintiffs could hardly have reassured the Senators that no further
protection was needed.96

91. See, e.g., Hearings on S. 579 and S. 604, supra note 2. at 55 (testimony of
Thomas L. Treadway) (relating abuses visited upon him and his companion during collection
of taxes erroneously assessed against him, as result of which both lost their businesses). See
also reprints of Reader's Digest articles introduced into the hearings record: John Barron.
Tyranny in the Internal Revenue Service, Reader's Dig., Aug. 1967, at 42- Robert S. Holzman
with Ann Dear, Needed: New Curbs on the IRS. Reader's Dig., Jan. 1977, at 87: John Barton.
The Tragic Case of John J. Hafer and the IRS, Reader's Dig., Jan. 1969. at 53.

92. Taxpayer Rights Issues: Hearings on S. 2400, supra note 4. at 92-93 (testimony

of Jule R. Herbert, Jr., president of National Taxpayers Legal Fund).
93. Hearings on S. 579 and S. 604. supra note 2. at 233 (statement of Lawrence B.

Gibbs, Commissioner, Internal Revenue Service, accompanied by James I. Owens, Deputy
Commissioner, Thomas Coleman, Acting Associate Commissioner for Operations, and Jack
Petrie, Taxpayer Ombudsman).

94. Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, 403 U.S.
388 (1971).

95. Hearings on S. 579 and S. 604, supra note 2, at 243 (Internal Revenue Service
Comments on Taxpayer Bill of Rights Legislation Submitted by Lawrence B. Gibbs,
Commissioner of Internal Revenue Service).

96. An outstanding example of the inadequacy of the Bivens action to protect

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Florida Tax Review

In proposing the additional protection for taxpayers, the Senate was
concerned not only about the denial of taxpayers' rights but, as with
sections 6103 and 7431, about the continued viability of the voluntary
assessment system. In his statement submitted to the Senate Oversight
Committee, the Chairman of the United States Chamber of Commerce Small
Business Taxation Subcommittee, focusing on the Service's "heavy handed
collection tactics," warned that "in too many cases, honest individual and
small business taxpayers have experienced such frustrations in their dealings
with the Service that the very idea of volunteerism in the tax collection
process is threatened." 97

The other two restrictions on the cause of action provided by section
7433 reveal a marked contrast between section 7431 and section 7433 with
regard to both the difficulty of establishing liability and the damages available
to a plaintiff once liability is established. Under section 7433, the plaintiff
must prove that the Internal Revenue Service's employee's actions were
reckless or intentional. It will not suffice to show that the actions were
negligent, or even grossly negligent. Contrast this with the significantly lower
burden of proving the "knowingly or by reason of negligence" requirement
under section 7431.

Even after the plaintiff has scaled the higher barrier to establish
liability, he is entitled only to significantly lower damages. Under section
7433, the plaintiff's damages are limited to his "actual, direct economic
damages" up to a maximum of $100,000; punitive damages are not
authorized. This is in contrast to the damages allowed under section 7431,
which include "actual" (not "actual, direct economic") damages and punitive
damages, with no maximum amount. Thus, the baseline lev -! of scienter on
the part of the Internal Revenue Service employee that is necessary for the
finding of any liability under section 7433, would be sufficient for an award
of punitive damages under section 7431, damages which are not even
available under section 7433.

From the Conference Report, it appears that these restrictions were
the result of a compromise between the Senate and the House. The Senate bill
would have required only a showing of negligence, rather than the "reckless
or intentional" requirement of the compromise bill; and the Senate bill had
no limitation on the amount of damages recoverable. There is, unfortunately,

taxpayers' rights is the case of Lojeski v. Boandl, 788 F.2d 196 (3d Cir. 1986). The Third
Circuit reversed the trial court's judgment in favor of the plaintiff, finding that, despite the
continued and entirely unjustified harassment of the plaintiff and the liens and levies upon her
property, there had been no violation of her constitutional or statutory rights.

97. Hearings on S. 579 and S. 604, supra note 2, at 179-80 (statement of James D.
McCarthy, Chairman of the United States Chamber of Commerce Small Business Taxation
Subcomm.).

[VOL 1:10



IRC §§ 7431 and 7433

no public record of the Conference Committee's deliberations to indicate why
the conferees adopted these amendments. The very existence of the
limitations suggests that the conferees must have been concerned that
unlimited liability would have undesirable effects of some sort. Perhaps they
were concerned that the government's collection activities would expose it to
liability with such frequency that significant restrictions had to be imposed.

It seems more likely, however, that the conferees were concerned that
unlimited liability would threaten government revenues in ways more serious,
and much more difficult to predict, than the relatively minor cost of damage
awards. To the extent that Congress intended for the statute to deter improper
collection activities, and not merely to compensate injured taxpayers, it must
have expected that the threat of liability would induce the Internal Revenue
Service to employ both education and coercion to ensure that its agents would
not engage in any actionable activities. Given this expected mechanism, it
would be reasonable for Congress to assume that, as the financial threat posed
by the statutory cause of action was increased, the Service would pursue its
program of deterrence with increased vigor and that the more vigorously the
program was pursued, the more likely it would be to intimidate agents into
refraining from the more aggressive collection tactics, even in circumstances
where they would be entirely proper. Such inhibition of agents in their
collection efforts would not only reduce revenues directly, it could also have
an indirect effect. Less aggressive collections would likely reduce the
incentive for taxpayers to engage accurately and promptly in the voluntary
self-assessment process. In the face of such an unpredictable cost, the
limitations on damages would appear to be a reasonable compromise.

In comparing governmental liability under section 7433 with the
relatively unlimited liability under section 7431, it must be remembered that
section 7431 does not restrict collections activities; rather, section 7431 (d)(6)
expressly authorizes disclosure of return information in connection with tax
administration, including collections activities.9" Indeed, one of the reasons
underlying the enactment of sections 6103 and 7431 was to enhance
collections by encouraging voluntary compliance.

Very few cases have been decided under section 7433, and most of
those either simply reiterate the requirements of the statute without lucidating
comment of any sort, or summarily describe the court's determination of fact
questions. With one exception, discussed below, the cases do not raise any
significant issues. A few points worth noting have come out of the cases,
however.

98. See also Flippo v. United States, 670 F. Supp. 638 (W.D.N.C. 1987) (holding
that § 7431 does not apply to disclosures made in connection with collections activities), afftd,
849 F.2d 604 (4th Cir. 1988).

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Florida Tax Review

- As with any waiver of sovereign immunity, section 7433 must be
strictly construed in the government's favor.99

- As might be expected with a statute that grants the right to sue the
Internal Revenue Service, section 7433 has attracted a lot of action
from tax protestors."°

- Only the taxpayer with regard to whose tax liability the collection
efforts were directed has standing to sue under section 7433.1°'

- "Collection" is to be given its ordinary meaning: making an
assessment is not a collection action; a notice and demand for
payment does constitute a collection action, as does filing a notice of
tax lien; where the assessment incorporates a demand for payment in
same document, it is a collection action."°

- Section 7433 waives sovereign immunity only where an agent has
violated the taxing statutes or regulations. Rights created by Internal
Revenue Service policy alone do not fall within the waiver; even if
a plaintiff may have substantive administrative rights created by that

99. Gonsalves v. IRS, 975 F.2d 13 (1st Cir. 1992); V-1 Oil Co. v. United States,
813 F. Supp. 730 (D. Idaho 1992).

100. See, e.g., Rogers v. United States Dep't of Treasury, No. 91-35132, 1992 U.S.
App. LEXIS 1570 (9th Cir. Jan. 28, 1992) (not for citation); Zegzula v. United States, No. 90-
35777, 1992 U.S. App. LEXIS 13439 (9th Cir. June 2, 1992) (not for citation). It was perhaps
in recognition of this fact that Congress enacted § 6673(b)(1), which authorizes the court to
impose a penalty of up to $10,000 for "frivolous or groundless" positions maintained by a
taxpayer in an action under § 7433.

101. God's Helping Hands v. United States, 92-1 U.S. Tax Cas. (CCH) 50,262,
69 A.F.T.R.2d (P-H) 92-897 (D. Minn. 1992). The procedural facts of God's Helping Hands
are rather interesting, if irrelevant to the topic at hand. The government had filed liens against
land owned by the plaintiff corporation, on the theory that the corporation was the alter ego
of James and Joan Noske. The corporation brought this § 7433 action based on those
collection efforts, but the court here dismissed the § 7433 claim for lack of standing. The
court, with no expression of regret, noted the Catch-22:

Plaintiff could possibly assert a section 7433 action if it conceded that it
is in fact the alter ego of James and Joan Noske. By making such a
concession, however, plaintiff would be conceding the validity of the tax
liens and levies it challenges in this case, and its action would necessarily
be without merit.

92-1 U.S. Tax Cas. at 84,028, 69 A.F.T.R.2d at 92-898. All but one of the Noskes' own
§ 7433 claims were dismissed for failure to state a claim; the court granted the government's
motion for summary judgment on the one remaining § 7433 claim. Noske v. United States,
92-2 U.S. Tax Cas. (CCH) 50,429 (D. Minn. 1992).

102. Miller v. United States, 763 F. Supp. 1534 (N.D. Cal. 1991).

[VOL 1:10



IRC §§ 7431 and 7433

policy, courts cannot enforce those rights because of sovereign
immunity.

10
3

- One lien may give rise to causes of action under both section
7432 and section 7433: the section 7433 action could be based on the
unauthorized filing of the lien, and the section 7432 action on the
intentional or negligent failure to release it.'"'

As discussed above, section 7433 is expressly limited to collections.
The question has arisen of whether liability can be based on otherwise proper
activities undertaken to collect an erroneous assessment. The Federal District
Court in Alaska addressed this question in Miklautsch v. Gibbs"° and held
that a cause of action does lie under those circumstances. In Miklautsch, the
Tax Court had ruled that a tax shelter in which the plaintiffs had invested was
a sham, and that neither the income reported nor the deductions claimed were
to be given any tax effect. Contrary to this ruling, the Service assessed a
deficiency based on the income from the tax shelter and, when plaintiffs
failed to pay the deficiency, began collection procedures. The plaintiffs then
filed this action, asserting governmental liability on a number of theories,
including section 7433.

The district court denied the government's motion to dismiss, noting,
but rejecting, the Service's argument that section 7433 is inapplicable where
procedurally-correct collection methods are used, regardless of whether the
underlying tax is correctly assessed. In rejecting that argument, the court
clearly identified one of the serious shortcomings of section 7433, its limita-
tion to collection procedures. Then, without citation to authority, the court
concluded that Congress could not have intended such a limitation, saying:

Under the IRS's view, the IRS could arbitrarily-and without
any justification whatsoever-assess a tax, and then collect
on that tax with impunity so long as procedurally proper
methods were employed. It was the intent of Congress to
protect taxpayers, not to allow the IRS to wrongfully bring
a person to financial ruin so long as its collection methods
were procedurally correct.'06

As a matter of fact, however, this limitation is clearly, if unfortunate-
ly, the expression of congressional intent. As noted above, the Senate's

103. Gonsalves v. IRS, 975 F.2d 13 (1st Cir. 1992).
104. Information Resources, Inc. v. United States, 950 F.2d 1122 (5th Cir. 1992).
105. 90-2 U.S. Tax Cas. (CCH) 1 50,587 (D. Alaska 1990).
106. Id. at 86,026.

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Florida Tax Review

version of the legislation had provided that an action would lie for abusive
assessment practices as well as for abusive collection activities. The compro-
mise bill, however, expressly limited the coverage to the collection process,
a fact noted in the Conference Report.10 7

The Miklautsch court also sought support for its holding in a very
strained reading of the statute itself. The court turned the limiting phrase, "in
connection with any collection of Federal tax," on its head, reading it to
allow a damages action based on any act in disregard of any provision in the
Code, so long as there is an eventual "forced collection" of a tax.' The
court expressed its expansive reading of section 7433 as follows:

Under a proper interpretation of section 7433, where a tax
has been wrongfully assessed, and the IRS goes ahead and
enforces collection on that tax, an action shall lie. It is true
Congress chose not to extend section 7433 to damages
arising from the wrongful determination of a tax alone. Yet,
all this means is that where a tax is wrongfully assessed but
the taxpayer voluntarily remits payment, there is no action
for damages because there has been no enforced collec-
tion."°

As before, the court cited no authority for this surprising proposition.
The court's holding raises significant questions that must be answered

before the court's interpretation of section 7433 can be applied. When does
"enforced collection" begin? When does it end and "voluntary payment"
begin? Does the mailing of a deficiency notice constitute "enforced
collection," or does that term apply only to a demand letter, or only to notices
of liens and levies, or only to the actual execution of the liens and levies? If
only to the last, is the Service exempt from liability for any action connected
with the others? If a taxpayer responds to a notice of deficiency, demand, or
notice of lien or levy by paying the tax assessed, is that "voluntary payment,"
thus removing liability?

The court, unfortunately, failed to define the two terms, "voluntary
payment" and "enforced collection," which are critical to its decision and
which are not used in the statute or in the legislative history. From the facts
of the case and from the rationalization of its holding,"0 it appears that the

107. H.R. Conf. Rep. No. 1104, 100th Cong., 2d Sess. 229 (1988), reprinted in 1988
U.S.C.C.A.N. 5048, 5289.

108. Miklautsch, 90-2 U.S. Tax Cas. (CCH) at 86,026.
109. Id. at 86,026-27.
110. In the Miklautsch case itself, the collections actions complained of were the

seizures of three properties owned by the plaintiffs and the levy on their bank accounts and

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IRC §§ 7431 antd 7433

court viewed only the actual seizure of assets to be the potential source of
liability for the Service. Apparently, under the Miklautsch court's reasoning,
if the Service can utilize abusive assessment and collection practices well
enough that the taxpayer is sufficiently terrorized or demoralized to pay an
assessed tax (whether correctly or erroneously assessed) before the Service
has to engage in the actual seizure of assets, then there can be no liability.
Only where the Service uses those tactics inexpertly, and is unable to coerce
a "voluntary" payment, will it be liable to the taxpayer. Surely this is not
what Congress, or even the Miklautsch court, intended. It is certainly not
what Congress enacted in section 7433."'

Although the court was apparently oblivious to this effect of its
ruling, it did realize that its expansive reading of the scope of section 7433,
taken together with the exclusive remedy provision of that section, in fact
worked to the government's benefit. Indeed, the court found this to be further
support for its interpretation of the statute. The court correctly noted that one
clear purpose of the statute is to limit the government's liability for Internal
Revenue Service collection activities, by expressly making the remedy
provided under section 7433 the exclusive damages remedy for such
actions 1 2 From that jumping-off point, however, the court somehow
divined that it was Congress's intent that section 7433 also be the exclusive
remedy for "capricious and arbitrary assessment[s]."1' The court, again,
provided no authority for this conclusion, but reasoned that a contrary holding
would:

their grandchildren's trust accounts. Id. at 86,023. In trying to justify its insertion of these
concepts into the statute, the court stated:

The distinction between enforced collection and voluntary payment is
sensible in that a taxpayer who has voluntarily paid is not likely to suffer
the severe damage that occurs when the IRS brings its full collection
powers to bear. Moreover, a taxpayer who voluntarily makes payments
usually does so in cash which can easily be recouped by way of a refund.
When the IRS collects an outstanding tax, it does so by seizures and levies
on property, creating losses that (as this case demonstrates) cannot be
recovered in an ordinary refund action.

Id. at 86,027.
111. The flaws in the Miklautsch court's reasoning are exposed from another angle

as well: where the Service has engaged in the behavior of properly attempting to collect an
erroneously assessed tax, the Miklautsch holding would require that the government's liability
stand or fall on whether the taxpayer voluntarily pays the tax prior to instituting the action.
But there is no such provision in § 7433. Where the government engages in improper
collection activities, regardless of whether the tax is properly assessed, the taxpayer's voluntary
payment of the tax is irrelevant.

112. IRC § 7433(a).
113. Miklautsch, 90-2 U.S. Tax Cas. (CCH) at 86,027.

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open[] the door to whatever causes of action creative lawyers
could conjure up. In this case alone, plaintiffs have asserted
causes of action under RICO, Bivens, and the Federal Tort
Claims Act. Under any one of these theories, the damages
could well exceed $100,000. Under this view, the Govern-
ment becomes exposed to potential liability far in excess of
$100,000. Such is a result Congress sought to avoid." 4

Because the court found that section 7433 provided the exclusive
remedy for the actions complained of, the court dismissed plaintiffs' damages
claims under Bivens, RICO, and the Federal Tort Claims Act. Recognizing
that "this is a hollow victory for plaintiffs,""' 5 the court appeared to express
regret that it was forced to so hold, announcing with surely unintended irony,
"This court cannot ignore a clear congressional mandate."' 16

The Miklautsch opinion shows quite well both the need for taxpayer
protection from procedurally proper collections actions based on erroneous
assessments, and the fact that section 7433 does not provide that protection.
The attempts by the district court to interpret that statute so as to authorize
a cause of action in this situation serve only to emphasize the statutory
language and legislative history expressly limiting the statute to abusive
collections activities.

IV. COORDINATION OF SECTIONS 7431 AND 7433: OVERLAP AND GAPS

A. Overlap

As discussed above, the enactment of sections 6103 and 7431 arose
out of congressional concerns that information collected by the Internal
Revenue Service was being used for purposes unrelated to proper tax
administration. Section 7431 does not, therefore, create a cause of action for
disclosures legitimately related to tax administration, including collection
efforts." '7 Conversely, section 7433 is expressly limited to, and the exclu-
sive remedy for, improper practices during the collection process. Statutory
construction compels the conclusion that, in a situation where both sections

114. Id.
115. Id. at 86,028.
116. Id. One cannot help wondering if perhaps the court did not actually begin from

its conclusion that Congress intended that there be only limited liability in any action
involving, ultimately, the collection of a tax.

117. See, e.g., Elias v. United States, 91-1 U.S. Tax Cas. (CCH) 50,040, 67
A.F.T.R.2d (P-H) 91-438 (C.D. Cal. 1990), affd, 974 F.2d 1341 (9th Cir. 1992); Flippo v.
United States, 670 F. Supp. 638 (W.D.N.C. 1987), aff'd, 849 F.2d 604 (4th Cir. 1988).

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IRC §§ 7431 and 7433

might arguably apply,1 8 section 7433 controls. In the ordinary case, the
courts have generally had little difficulty in reaching the same conclu-
sion.n 9

B. Gaps in Coverage

1. No Liability for Abuses During Assessment Phase.-A more
difficult question arises in a situation not directly addressed by either statute,
where an otherwise authorized disclosure of information or otherwise proper
collection effort is based on an erroneous assessment. Because Congress has
provided no direct action for improper assessment of tax deficiencies,
taxpayers have sought to mold their claims for such activities to fit the
definitions of section 7431 and section 7433. Although some courts have
extended section 7431 liability to such situations with little apparent violence
to the statutory language or legislative history," ° the same is not true with
regard to section 7433 actions.'

Under the present statutory scheme, taxpayers have no adequate
recourse for damages caused by the disregard of proper assessment proce-
dures or by the procedurally proper collections (and, in some jurisdictions, the
disclosures) that follow. The taxpayer is, of course, entitled to have the
assessment reversed following an administrative orjudicial determination that
it was erroneous, and to the return of the seized property (or the proceeds
from the sale thereof). In many cases, however, such a limited remedy will
be completely inadequate to restore the direct, economic damages sustained
by the taxpayer as a result of the unjustified seizure of property and
interruption of business, to say nothing of collateral injuries such as damage
to the taxpayer's credit and reputation.

The danger created by this gap in the coverage, which is most
egregious in the collections area, is that the Internal Revenue Service is under
no direct pressure to prevent or avoid unjustified assessments or overassess-
ments. The worst that can happen, after all, is that the Service will have to

118. An example of such a situation would be where an unauthorized disclosure (to
the wrong person, or of incorrect information) is made by way of a procedurally-flawed
collection activity, such as in the case of a levy without proper notice to the taxpayer.

119. See, e.g., Traxler v. United States, 88-2 U.S. Tax Cas. €I 9627, 63 A.F.T.R.2d
89-577 (E.D. Cal. 1988); Flippo v. United States, 670 F. Supp. 638 (W.D.N.C. 1987). aff'd,
849 F.2d 604 (4th Cir. 1988).

120. See supra text accompanying notes 64-67.
121. The opinion in Miklautsch, discussed supra part 111, illustrates the ungainly

results that obtain when a court tries to fill this gap judicially, yet still cling to a pretense of
honoring the statutory language.

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Florida Tax Review

return property that was improperly taken, and then only if the overassess-
ment is discovered, contested, and ruled erroneous.

At least with regard to collections based on erroneous assessments,
this gap in coverage cannot be judicially corrected unless the courts abandon
the language and legislative history of section 7433, as demonstrated by the
opinion in Miklautsch.'2 The only rational and effective solution is for
Congress to address the issue by either expanding the coverage of section
7433 to include disregard of assessment provisions or enacting new
legislation specifically directed toward assessment-based abuses.

Congress is, in fact, aware of this gap in the present statutory
provisions. In his testimony before the Senate Oversight Subcommittee in
February of 1992, the general counsel for a national small business group
stated that many of the group's members "have described the experiences of
undergoing Internal Revenue Service employment tax audits as 'living in
hell,' being 'coerced by terror tactics' and as being 'victimized by legalized
extortion.' ,123 Among the specific abuses cited were:

- Internal Revenue Service auditors unfairly contacting a
taxpayer's customers and workers, which is at least intimidat-
ing to the third parties and may in fact destroy the business
relationships involved;

- Internal Revenue Service auditors using threats of
jeopardy assessments to obtain waivers of the statute of
limitations;

- Internal Revenue Service auditors refusing to disclose
workers' tax returns to a taxpayer even in cases where the
auditors themselves have relied upon those returns to impose
an employment tax liability on the taxpayer, as the workers'
employer; and

- Internal Revenue Service auditors using the audit process
as a method of building the government's best case against

122. See supra part M.
123. Taxpayer Bill of Rights 2: Hearings on S. 2239 Before the Subcommittee on

Private Retirement Plans and Oversight of the Internal Revenue Service of the Senate Finance
Committee, 102d Cong., 2d Sess. 256, 257 (Feb. 21, 1992) (testimony of Harvey J. Shulman,
General Counsel, National Association of Computer Consultant Businesses, addressing the
abuses that occur during the assessment of employment taxes).

[VOL 1:10



IRC §§ 7431 and 7433

the taxpayer, rather than as an impartial fact-gathering
process. 24

Legislation now pending before the House of Representatives, the
Taxpayer Rights Amendments of 1993,2 addresses this problem, expand-
ing the coverage of section 7433 to include improper actions during the
assessment or determination phase as well as the collections phase. When he
introduced the legislation, Representative Joel Hefley noted that agents are
not only aware of this flaw in the statutory scheme, but are in fact exploiting
it. He said:

What is happening here is pretty obvious. IRS agents are
using the knowledge that they can't be sued for actions taken
during the determination process to intimidate and harass
taxpayers into paying excess taxes.... Until the IRS actually
presents an official tax bill, they are immune from re-
course.... [H]arassment and mistreatment by IRS agents
can occur during the determination process as well as the
collection process.26

The legislation proposed by Representative Hefley would simply
insert language into the current section 7433 to authorize a cause of action
for damages caused by governmental activities during the assessment phase.
Although this proposed amendment does possess the virtue of simplicity and
does extend statutory coverage to an area now unregulated, it does not
directly address the problem of collections based on erroneous assessments.
The amended statute could reasonably be interpreted strictly to compartmen-
talize assessment activities and collection activities, since it mentions them
only as separate concepts.

Assume, for example, the following scenario. The Internal Revenue
Service erroneously assessed a deficiency against a taxpayer. During the
assessment phase, the agents engaged in no activity that could be proved to
have caused any damage to the taxpayer, except that it formed the basis of
the subsequent collection activities. Procedurally proper collection activities
do, however, result in direct economic damages to the taxpayer. A court
could interpret section 7433, as amended by the proposed legislation, as
indicating legislative approval of the current case law holding that the
assessment and collection phases are to be kept separate and distinct. Since

124. Id.
125. H.R. 1145, 103d Cong., 1st Sess. § l(a)(l) (1993).
126. 139 Cong. Rec. E455, E456 (daily ed. Feb. 25, 1993) (comments of Rep. Joel

Hefley, introducing the bill).

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Florida Tax Review

the activities during the assessment phase did not directly result in any
damages, the taxpayer will be unable to collect an award for those activities;
since the collection was based on an assessment, the government will not be
held liable for those activities.

Although the amendment proposed by Representative Hefley is a step
in the right direction, section 7433 should be amended to provide protection
for the taxpayer during the assessment period, certainly, but the amendment
should also clearly provide that collection activities and disclosures cannot be
based on an erroneous assessment.

2. Liability for Negligent Collections Activity.-As discussed above,
the protection afforded by section 7433 against the disregard of proper
collection procedures is expressly limited to willful or reckless actions; the
merely negligent disregard of the relevant provisions is not actionable. To
escape liability, the government need only show that the Internal Revenue
Service agent involved was simply not aware of the particular provision
violated. The government fisc is therefore better served, under the present
statutory scheme, by maintaining a staff of poorly-informed but zealous
agents to press all manner of collection tactics, proper and improper, resulting
in the maximum collection of taxes without running the risk of governmental
liability in the event that an abused taxpayer should protest.

The expansion of liability to include negligent activities would
reduce, if not eliminate, the shield of ignorance that the law now provides,
encouraging the proper training and restraint of collections agents. This
expanded protection for the taxpayer will, of course, have a price tag. The
imposition of negligence liability under section 7433, by encouraging the
proper training of agents, would lower revenues in two ways. First, conscien-
tious agents would be informed of the law, which would restrain their more
overreaching (and productive) collection activities. Second, the governhment
would be subjected to liability for damages for the actions of the unscrupu-
lous or overzealous agents who continue to engage in improper collections
activities even after being advised of the impropriety of those actions.

The House of Representatives has taken note of the omission of
negligence from section 7433, and legislation is currently pending before the
House to include negligent behavior within the coverage of section 7433.1 -7
Curiously, the Senate's 1993 taxpayer rights legislation.2 has no such
provision, even though the Senate proposed the inclusion of negligent actions
in the original legislation leading to the enactment of section 7433 in 1988

127. H.R. 1145, 103d Cong., Ist Sess. § l(b)(1) (1993).
128. S. 542, 103 Cong., 1st Sess. (1993) (Taxpayer Bill of Rights 2).

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IRC §§ 7431 and 7433

and again in amendments proposed in 1992,' 9 and despite being advised
of the effect of its omission.130

3. Limit on Damages Under Section 7433.-As discussed above, one
of the odd discrepancies between the remedy provided by section 7431 and
that provided by section 7433 is that, even though a plaintiff under section
7433 has a significantly higher burden to carry regarding the willful or
intentional nature of the Internal Revenue Service employee's actions, the
damages recoverable are significantly limited compared to those allowed
under section 7431. Under section 7433, the taxpayer is limited to a recovery
of $100,000, while there is no limit on damages under section 7431; under
section 7433, the taxpayer cannot recover punitive damages, which are
available under section 743 1.

The 1993 version of the Taxpayers Bill of Rights 2'31 addresses the
first of these limitations. It contains a provision that would raise the cap on
damages under section 7433 from $100,000 to $1,000,000. If damages are
limited, as they are under section 7433, to the taxpayer's "actual, direct
economic damages," any further limit, even one as generous as the proposed
$1,000,000, is difficult to justify. Congressional insistence on maintaining a
limitation on damages, especially when this provision is contrasted with
section 7431, could be interpreted as an acknowledgement that unlimited
liability under section 7433 would have a serious effect on government
revenue, either directly through the cost of the damages awards or indirectly
through the ripple effects that this liability would have on the amount of
revenues collected by the Internal Revenue Service. In any event, the
limitation seems to reflect a balancing of the rights of taxpayers with some
other governmental interest, which Congress has never identified. Barring an
adequate explanation of the need for such a limitation, a more appropriate
amendment would be to lift the cap on damages entirely.

129. The 1992 version of Taxpayer Bill of Rights 2 provided for an amendment to
include negligent actions in § 7433's coverage. S. 2239, 102d Cong., 2d Sess. § 505(a) (1992).

130. In his testimony before the Senate Subcommittee on Oversight in 1991, David
Keating, Executive Vice-President of the National Taxpayers Union, noted that although
Congress has expanded the liability of taxpayers and tax preparers for negligent actions,
"incredibly, Congress refuses to require the IRS to exercise reasonable caution in using its vast
array of enforcement powers." Taxpayers Bill of Rights 2: Hearings on S. 2239 Before the
Subcommittee on Private Retirement Plans and Oversight of the Internal Revenue Service of
the Senate Committee on Finance, 102d Cong., 1st Sess. 135, 135 (Dec. 10, 1991) (statement
of David Keating, Executive Vice-President of the National Taxpayers Union).

131. S. 542, 103d Cong., 1st Sess. § 504(a) (1993).

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Florida Tax Review

V. CONCLUSION

In sections 7431 and 7433, Congress has taken the first steps in an
effort to use the civil justice system as a check on the extensive powers of
investigation and seizure which Congress and the courts have granted the
Service. In whole, the causes of action which these statutes authorize appear
to be effective tools to accomplish that end. An analysis of the statutes and
a review of the case law, however, reveal some gaps and ambiguities in the
coverage that must be addressed.

Section 7431 imposes liability for the unauthorized disclosure of
return information, incorporating the substantive provisions of section 6103.
The scope of this protection is not clear, however, and the courts have
struggled with the question of whether it extends to information previously
disclosed in public records. Although legislative action might clarify the
scope of coverage, this may well be an area more suitable to judicial
resolution, with the evolution of standards flexible enough to adapt to a wide
variety of factual settings.

Section 7431 is also ambiguous as to whether its prohibition applies
to the unauthorized disclosure of erroneous information. The congressional
purposes behind the legislation would be advanced by including such
disclosures within the ambit of the statute. Although the courts should have
no difficulty finding that coverage in the statutory language, a few courts
have, in fact, interpreted it to the contrary. The statute should be amended to
remove the ambiguity.

Another issue that has arisen in the application of section 7431 is
whether a cause of action will lie for a procedurally correct disclosure of
return information made in the course of collecting an erroneous assessment.
As desirable as such a cause of action may be, at least from the taxpayers'
point of view, it is not provided in section 7431, which was designed to
prevent the use of Internal Revenue Service information for political and
other purposes without interfering with the routine administration of taxes. It
was not intended to provide a remedy for damages caused by an erroneous
assessment or by the collection activities based on such an assessment. This
issue is more properly addressed by section 7433, as discussed below.

A final issue that arises under section 7431 is whether the govern-
ment is liable for the unauthorized disclosure of return information where the
unauthorized disclosure was proximately caused by the negligence, not of the
person actually making the disclosure, but of other governmental officers or
employees. The statute is, at best, ambiguous on this point. To further the
congressional purposes, the statute should be amended to provide expressly
for liability in such cases.

In a sense, section 7433 is a rather broad statute, providing govern-
mental liability for the violation of any tax provision during the collection of

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19931 IRC §§ 7431 and 7433 605

taxes. There are three significant limitations on this liability, however, which
should be removed by amendment. First, the statute applies only to reckless
or intentional violations of the law, not to negligent violations. Second, the
statute provides liability only for actions occurring during the collections
phase of tax administration, leaving taxpayers with no remedy for abusive
practices during the assessment phase or for collections based on erroneous
assessments. Third, the statute limits the government's liability to a maximum
of $100,000. The removal of each of these limitations would further the
congressional purpose of providing taxpayers statutory protection from
abusive practices in the administration of taxes.