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42.00 RESTRICTIONS ON OBTAINING AND USING
"TAX RETURNS," "TAXPAYER RETURN INFORMATION,"
AND "RETURN INFORMATION"
Updated September 2001
42.01 STATUTORY LANGUAGE: 26 U.S.C. § 6103(a)
42.02 GENERALLY
42.03 THE STATUTORY STRUCTURE
42.03[1] Generally
42.03[2] Return Information Remains Subject to
The Non-Disclosure Rules of § 6103 Even After it Has Been Made Public
42.04 "RETURN INFORMATION" DEFINED: 26 U.S.C. § 6103(b)
42.04[1] Generally
42.04[2] Information Obtained from Non-IRS Sources Is Not "Return Information"
42.05 PERMISSIBLE DISCLOSURES OF RETURNS AND RETURN INFORMATION
42.05[1] Generally
42.05[2] Section 6103(h) -- Disclosure to Certain Federal Officers and Employees for Purposes of Tax Administration, etc.
42.05[3] Disclosures to the Department of Justice for Tax Administration
42.05[3][a] Procedures for Disclosure
42.05[3][b] Joint Tax-Non-Tax Criminal Investigation
42.05[3][c] Investigative Disclosures
42.05[3][d] Disclosure in Judicial and Administrative Tax Proceedings
42.05[4] Section 6103(i) - Disclosure to Federal Officers or Employees for Administration of Federal Laws Not Related to Tax Administration
42.05[4][a] Generally
42.05[4][b] Disclosure Pursuant to Court Order: Tax Returns and Taxpayer Return Information
42.05[4][c] Application for the Order
42.05[4][d] Use or Further Disclosure of Returns and Return Information in Judicial Proceedings
42.05[4][d][i] Information Obtained by Ex Parte Order
42.05[4][d][ii] Other Return Information Obtained by Letter
42.05[4][d][iii] Withholding Return Information and Suppression
42.05[4][d][iv] Disclosure of Return Information For Other Purposes
42.06 REMEDIES FOR VIOLATIONS OF § 6103
42.06[1] Criminal Sanctions
42.06[2] Civil Remedies
APPENDIX
Sample Application For Section 6103(i)(1) Order
Sample 6103(i)(1) Order
42.01 STATUTORY LANGUAGE: 26 U.S.C. § 6103(a)
§ 6103. Confidentiality and disclosure of returns and return
information
(a) General rule. -- Returns and return information shall
be confidential, and except as authorized by this title
--
(1) no officer or employee of the United States,
(2) no officer or employee of any State, any local child
support enforcement agency, or any local agency administering a program
listed in subsection (l)(7)(D) who has or had access to returns or
return information under this section, and
(3) no other person (or officer or employee thereof) who has
or had access to returns or return information . . . [pursuant to
certain provisions of this section],
shall disclose any return or return information obtained by him in any
manner in connection with his service as such an officer or an employee
or otherwise or under the provisions of this section. For purposes of
this subsection, the term "officer or employee" includes a former
officer or employee.
42.02 GENERALLY
Section 6103 of the Internal Revenue Code of 1986 generally prohibits
the disclosure of "tax returns" and other "tax return information" outside the
Internal Revenue Service (IRS) unless the disclosure falls within one of the
specific provisions of section 6103(c) through (o). Note particularly that
the statute provides the sole and exclusive means by which return information
may be disclosed; the courts do not possess any extra-statutory power to order
the IRS to produce return information, either sua sponte or on a motion
by a defendant. See United States v. Lochmondy, 890 F.2d
817, 823-24 (6th Cir. 1989) (Section 6103(i) grants no authority for courts to
issue sua sponte orders for the disclosure of tax information);
United States v. Barnes, 604 F.2d 121, 145-46 (2d Cir. 1979).
In cases involving "tax administration" (e.g., criminal tax
prosecutions or other criminal cases that have been specifically designated as
"related" to tax administration) that have been referred to the Department of
Justice, the IRS may, in its own discretion, disclose to the Department of
Justice prosecutors handling the case the tax returns and tax return
information that "may" relate to the case (section 6103(h)(2)). Under section
6103(h)(2), the prosecutors may use the returns and return information for
investigative purposes. Section 6103(h)(4) authorizes the prosecutor to
introduce into evidence at trial a return or piece of return information that
"is" relevant to the case.
In non-tax criminal cases, Federal prosecutors may obtain and use for
investigative purposes returns and other information filed with the IRS by a
taxpayer only through an ex parte order of a United States district
court based upon an application (that must be signed by the United States
Attorney) showing that the information is relevant to an ongoing criminal
prosecution. [FN1] The prosecutor may use that information at trial
(e.g., introduce it into evidence or otherwise make it public in the
proceeding) only upon a showing to the court that the information is
"probative of an issue" in the case.
Willful violations of the provisions of section 6103 are punishable as a
felony and dismissal from Federal service, while negligent violations subject
the United States to a suit for damages. See 42.06, infra.
42.03 THE STATUTORY STRUCTURE
42.03[1] Generally
Section 6103(a) requires officers and employees of the United States to
keep tax returns and return information confidential, and prohibits them from
disclosing such information, except as authorized by the Internal Revenue
Code. [FN2] Section 6103(b) defines "return," "return information," and
"taxpayer return information." Sections 6103(c) - (o) contain the exceptions
that allow disclosure of returns and returns information to taxpayers, the
Department of Justice, and other governmental entities. Section 6103(p)
provides rules and procedures for the handling, storage, and disposition of
return information by the IRS and by those within the Department to whom
return information has been disclosed. [FN3]
42.03[2] Return Information Remains Subject to The Non-Disclosure Rules
of § 6103 Even After it Has Been Made Public
The section 6103 prohibitions on disclosure are source-based. That is,
the statute bars the public disclosure of information directly from IRS files,
as well as the disclosure of returns and return information that has been
accumulated in Department files. The statute contains no exception that lifts
the non-disclosure prohibition for return information once it has been
disclosed in public, such as in a judicial proceeding. (In contrast, the
secrecy provisions of Federal Rule of Criminal Procedure (Fed. R. Crim. P.)
6(e) governing disclosures of "matters occurring before the grand jury," are
held not to apply to information once it has been publically disclosed.)
Section 6103 does not, however, ban the disclosure of information that
is taken from the public record. Thus, for example, the statute, as
interpreted by the majority of the circuits, prohibits the disclosure from IRS
files (or Department files when disclosure has been made to the Department
under the statute) of a tax-crime defendant's name, or the fact that he was
under investigation or has been indicted for a particular tax crime. To the
extent that same information has been placed in the public record
(e.g., included in an indictment), its dissemination from the public
record does not violate the statute.
Although two circuits have held that once return information has been
made public in a judicial proceeding, the non-disclosure restrictions of
section 6103 no longer apply, Rowley v. United States, 76 F.3d
796, 799-801 (6th Cir. 1996); Lampert v. United States, 854 F.2d
335, 338 (9th Cir. 1988), three other circuits have held that even public
disclosure of return information does not lift the non-disclosure bar to the
same information in the files of the IRS, because the statute does not contain
an exception that permits the disclosure of return information after it has
been made public, Johnson v. Sawyer, 120 F.3d 1307, 1318-19 (5th
Cir. 1997); Mallas v. United States, 993 F.2d 1111, 1120 (4th
Cir. 1993); Rodgers v. Hyatt, 697 F.2d 899, 906 (10th Cir.
1983). The Seventh Circuit, in Thomas v. United States, 890
F.2d 18, 20-21 (7th Cir. 1989), concluded that an IRS press release based on
information in a court opinion did not violate the prohibitions of section
6103 because the "immediate source" of the information in the press release
was a public document. See also Rice v. United States,
166 F.3d 1088, 1091 (10th Cir. 1999) (holding that information about a
taxpayer being classified as "return information" turns on the "immediate
source" of the information).
Prosecutors should not make any out of court disclosures of return
information. They should exercise great care to ensure that any information
provided, for example, to the press, comes only from publicly available
information, such as the indictment. See Memorandum to All United
States Attorneys from Loretta Argrett, Assistant Attorney General, Tax
Division, re: Press Releases in Cases Involving the IRS (October 15,
1997), found in Chapter 2, supra, at 3-36 - 3-39.
42.04 "RETURN INFORMATION" DEFINED: 26 U.S.C. § 6103(b)
42.04[1] Generally
Section 6103(b) defines three categories of information: "return,"
"return information," and "taxpayer return information." A "return" is any
tax or information return filed with the Internal Revenue Service by, on
behalf of, or with respect to a taxpayer. See Section 6103(b)(1).
"Return information" is essentially any information relating to the taxpayer
received by, recorded by, prepared by, furnished to, or collected by the
Internal Revenue Service. See Section 6103(b)(2). This category
includes virtually all information about a taxpayer's dealings with the IRS,
including whether a particular person is a taxpayer, the amount of any
liability, and whether the taxpayer is, will be, or has been investigated. In
short, this category includes all information about a taxpayer and his or her
liability in the possession of the IRS. See Mallas v. United States,
993 F.2d 1111, 1118 (4th Cir. 1992) (information contained in a revenue
agent's report considered "return information"); Chamberlain v.
Kurtz, 589 F.2d 827, 840 (5th Cir. 1979) ("return information" is any
information concerning a taxpayer's liability which has been collected by
the IRS). See also Church of Scientology of California v. Internal
Revenue Service, 484 U.S. 9, 15 (1987). "Taxpayer return information"
is "return information" which is filed with, or furnished to, the Internal
Revenue Service by or on behalf of the taxpayer to whom the return
information relates. See Section 6103(b)(3). It would include, for
example, financial statements, offers in compromise, protest letters, and
similar documents.
42.04[2] Information Obtained from Non-IRS Sources Is Not "Return
Information"
Return information does not include information that does
not come from IRS files. Thus, information that a prosecutor gathers as part
of a grand jury investigation is not "return information" because it is not
information "collected by" the IRS. This is true even in a grand jury
investigation into tax offenses. Under Rule 6(e)(3)(A)(ii), Fed. R. Crim. P.,
IRS agents working on a grand jury investigation are "assist[ing] . . . [the]
attorney for the government in the performance of such attorney's duty to
enforce federal criminal law." The information that they gather at the
direction of the Assistant United States Attorney (AUSA), or under the
authority of the grand jury, is being collected by the Attorney General and
the grand jury. It is not information being "collected by" the IRS, and thus
is not "return information" under the section 6103(b) definition. See
Baskin v. United States, 135 F.3d 338, 342 (5th Cir. 1998)
(copies of checks obtained by grand jury not return information) Ryan v.
United States, 74 F.3d 1161, 1163 (11th Cir. 1996) (financial
information independently obtained by prosecutor not "return information," as
it did not come from IRS files); Stokwitz v. U.S. Dept. of the
Navy, 831 F.2d 893, 897 (9th Cir. 1987) (taxpayer's retained copies of
returns seized from his desk by Navy investigators not "returns" or "return
information" under section 6103 because they did not come from IRS files).
42.05 PERMISSIBLE DISCLOSURES OF RETURNS AND RETURN INFORMATION
42.05[1] Generally
Subsections 6103(c) through (o) set out the situations in which returns
and return information may be disclosed. The subsections authorizing
disclosure to the Department of Justice for use in litigation, sections
6103(h) and 6103(i), are discussed in detail below. The other eleven
subsections under which disclosure of taxpayer returns and return information
may be authorized are as follows:
1. Section 6103(c) -- Disclosure of returns or return
information at the taxpayer's request. See, e.g., Tierney
v. Schweiker, 718 F.2d 449, 454 (D.C. Cir. 1983).
2. Section 6103(d) -- Release of returns and return
information to State tax officials and State and local law
enforcement agencies charged with the administration of State tax
laws to assist in the administration of such laws. See
Huckaby v. Internal Revenue Service, 794 F.2d 1041,
1046 (5th Cir. 1986).
N.B.: There is no other provision authorizing the disclosure
of returns and return information to State or local officials.
Thus, returns and return information may not be
disclosed to state agents or officers who may be working on task
forces or otherwise assisting prosecutors in investigating or
prosecuting Federal crimes. Disclosure for the sole and limited
purpose of assisting the Federal criminal investigation may be
appropriate to those State police officers or agents who have been
deputized as Deputy United States Marshals.
3. Section 6103(e) -- Disclosure of a taxpayer's returns
and return information to individuals who have a material interest
in that information. The section lists those persons who will be
deemed to have a material interest in such information
(e.g., either the husband or the wife in the case of a
joint return, a partner in a partnership, a stockholder owing more
than 1 percent of the outstanding stock of a corporation in the
case of a corporate return, etc.). See, e.g., Martin v.
IRS, 857 F.2d 722, 724 (10th Cir. 1988) (partnership
returns).
4. Section 6103(f) -- Disclosure of returns and return
information to committees of Congress. See Church of
Scientology v. Internal Revenue Service, 484 U.S. 9, 15
(1987).
5. Section 6103(g) -- Disclosure of returns and return
information to the President, and employees of the White House
designated by the President. See United States v.
Barrett, 837 F.2d 1341, 1354 (5th Cir. 1988).
6. Section 6103(j) -- Disclosure of returns and return
information to be used in structuring the census and conducting
related statistical analyses. See Baskin v. United
States, 135 F.3d 338, 341 (5th Cir. 1998).
7. Section 6103(k) -- Disclosure of returns and return
information for tax administration purposes. Section 6103(k)(6)
permits the disclosure of return information by Service employees
for investigative purposes. Agents and other employees may
"disclose return information to the extent that such disclosure is
necessary in obtaining information, which is not otherwise
reasonably available . . . ." See Vote v. United
States, 753 F. Supp. 866, 870 (D. Nev. 1990),
aff'd, 930 F.2d 31 (9th Cir. 1991). See also Barrett
v. United States, 795 F.2d 446, 450 (5th Cir. 1986), for a
discussion of information which is not "otherwise reasonably
available."
8. Section 6103(l) -- Disclosure of returns and return
information for purposes other than tax administration --
e.g., programs administered by the Social Security
Administration, Railroad Retirement Board, Department of Labor,
etc.. See United States v. Bacheler, 611 F.2d 443,
446 (3d Cir. 1979).
9. Section 6103(m) -- Disclosure of taxpayer identity
information to various agencies and individuals. See Ryan
v. Bureau of Alcohol, Tobacco and Firearms, 715 F.2d 644,
652 (D.C. Cir. 1983).
10. Section 6103(n) -- Disclosure of returns and return
information as necessary in conjunction with the "processing,
storage, transmission, and reproduction" of returns and return
information; and for purposes of "programming, maintenance,
repair, testing and procurement of equipment." See
Wiemerslage v. United States, 838 F.2d 899, 900 (7th
Cir. 1988).
11. Section 6103(o) -- Disclosure of returns and return
information relating to alcohol, tobacco and firearms taxes, and
returns and return information relating to the wagering excise tax
for limited purposes.
42.05[2] Section 6103(h) -- Disclosure to Certain Federal Officers and
Employees for Purposes of Tax Administration, etc.
Section 6103(h) is one of two provisions that authorize disclosure of
returns and return information to the Department of Justice for use in
investigating and prosecuting criminal cases. It governs the disclosure of
return information to specified federal officers and employees for purposes of
tax administration, including the use of returns and return information in
criminal and civil tax litigation. Section 6103(h)(1) provides the authority
for employees of the Department of the Treasury to have access to returns and
return information as needed for tax administration purposes. [FN4]
See First Western Govt. Securities, Inc. v. United
States, 796 F.2d 356, 360 (10th Cir. 1986).
42.05[3] Disclosures to the Department of Justice for Tax Administration
Section 6103(h)(2), which governs the disclosure of return information
to officers and employees of the Department of Justice in tax cases, states in
part:
In a matter involving tax administration, a return or return
information shall be open to inspection by or disclosure to officers and
employees of the Department of Justice (including United States
attorneys) personally and directly engaged in, and solely for their
use in, any proceeding before a Federal grand jury or preparation
for any proceeding (or investigation which may result in such a
proceeding) before a Federal grand jury or any Federal or State court,
but only if --
(A) the taxpayer is or may be a party to the proceeding, or the
proceeding arose out of, or in connection with, determining the
taxpayer's civil or criminal liability, or the collection of such
civil liability in respect of any tax imposed under this title;
(B) the treatment of an item reflected on such return is or may
be related to the resolution of an issue in the proceeding or
investigation; or
(C) such return or return information relates or may relate to a
transactional relationship between a person who is or may be a
party to the proceeding and the taxpayer which affects, or may affect,
the resolution of an issue in such proceeding or investigation.
(Emphasis added.)
The italicized portions of the statutory language indicate the
circumstances under which returns and return information may be disclosed to
Department attorneys. First, the matter must involve "tax administration."
That term is defined in section 6103(b)(4) to include the enforcement and
litigation of the tax laws and "related statutes." Preparing for and
conducting grand jury investigations and prosecuting tax offenses, or offenses
charged under statutes that have been determined to be "related to" tax
administration, are activities that are part of "tax administration." For
cases involving the interpretation of "tax administration," See Rueckert
v. I.R.S., 775 F.2d 208, 209-12 (7th Cir. 1985); United States
v. Mangan, 575 F.2d 32, 40 (2nd Cir. 1978).
Second, the disclosure is made to those attorneys who are "personally
and directly" involved in the litigation of the tax matter, and not to the
Department of Justice itself. Thus, the individual prosecutors or attorneys
handling a case or matter are responsible for controlling and managing the
returns and returns information and for any subsequent disclosures. The term
"personally and directly engaged in" includes supervisors and support staff.
Treas. Reg. § 301.6103(h)(2)-1.
Finally, the information to be disclosed to Department attorneys must
meet one of the criteria set out in (A), (B), and (C), commonly referred to as
the "party," "item," and "transaction" tests. Department attorneys may have
access to the return information of any taxpayer who is or may be a party to a
tax case, or whose liability gives rise to a case under the federal tax laws.
United States v. Michaelian, 803 F.2d 1042, 1044 (9th Cir. 1986)
(disclosure to obtain search warrant); United States v. Olson,
576 F.2d 1267, 1270 (8th Cir. 1978) (taxpayer as party to case). Second,
under the "item" test, prosecutors may obtain those items on a third party's
return that are or may be related to a pending case or investigation.
Finally, Department attorneys involved in a tax case may be given access to
third party return information that reflects a transaction between the
taxpayer and the third party, if the information pertaining to the transaction
is or may be related to a pending case or investigation. Davidson v.
Brady, 559 F.Supp. 456, 461 (W.D. Mich. 1983), aff'd on other
grounds, 732 F.2d 552 (6th Cir. 1984). Under both the item test and the
transaction test, access to return information is limited to those portions of
the third party return that reflect the relevant item or transaction.
See S. Rep. No. 94-938(I) at 682 (1976).
42.05[3][a] Procedures for Disclosure
Section 6103(h)(3) provides two different methods by which taxpayer and
third party return information may be released to the Department of Justice.
The first method is used in any case that has been "referred" to the
Department. Upon referral, the Internal Revenue Service may disclose returns
and return information pertaining to the referred case to the Department
attorneys responsible for the case. See Section 6103(h)(3)(A);
United States v. Bacheler, 611 F.2d 443, 447 (3d Cir. 1979). Although
the section contains no definition as to what constitutes a "referral," the
term has generally been construed as an institutional decision by the Internal
Revenue Service to request that Justice defend, prosecute or take other
affirmative action in a case, or where the Internal Revenue Service seeks pre-
referral advice from the Department.
The term "referral" is defined in section 7602(d) of the Internal
Revenue Code in the context of an administrative summons and includes a
recommendation for a grand jury investigation or criminal prosecution for
offenses connected with the administration or enforcement of the internal
revenue laws. However, a "referral" for section 6103 purposes is not limited
to a referral as defined in section 7602, but would also include other matters
where the Department of Justice is asked to prosecute, defend or take action
on a case on behalf of the IRS, including search warrants, summons
enforcement, writs of entry, etc. See United States v.
Michaelian, 803 F.2d 1042, 1048-49 (9th Cir. 1986) (disclosure to
Justice to obtain a search warrant.); Bacheler, 611 F.2d at 447-
48 (technical requirements of a referral); United States v. Chemical
Bank, 593 F.2d 451, 456-57 (2nd Cir. 1979) (technical requirements of
a referral). The term "referral" should also be understood to include
disclosures made for the purpose of obtaining pre-referral advice from the
Department.
In those instances where no "referral" has been made, the Department may
obtain tax returns and return information by a written request to the
Secretary of the Treasury from the Attorney General, the Deputy Attorney
General, or an Assistant Attorney General, that sets forth the need for
disclosure of a specific return or specific return information. Section
6103(h)(3)(B).
(N.B.: The authority to request returns and return information
by letter is limited to the specified officials and cannot be delegated.
Thus, a United States Attorney cannot use this provision to obtain returns or
return information. Redford v. United States, 84-1 U.S.M.C.
Par. 9421 (D. Tenn. 1984).
42.05[3][b] Joint Tax-Non-Tax Criminal Investigation
Under specific limited conditions, prosecutors may use returns and
return information in the non-tax portion of a joint tax/non-tax investigation
under section 6103(h). Treas. Reg. § 301.6103(h)(2)-1 authorizes the use
of returns and return information in the non-tax portion of an investigation
pursuing both tax and non-tax charges if: (1) the return information has been
obtained for use in, and is being used in, the tax portion of the case; (2)
the tax portion of the investigation has been duly authorized by the Tax
Division; and (3) the information will be directly used in connection with
the tax administration proceeding. The regulation also requires that if the
tax administration portion of the investigation is terminated, the prosecutor
cannot continue to use the information without obtaining an order under
section 6103(i). [FN5]
42.05[3][c] Investigative Disclosures
Section 6103(h) contains no specific provision for investigative
disclosures by federal prosecutors. Treas. Reg. §
301.6103(h)(2)-1(b)(i)-(iii) allows redisclosure of returns and return
information by federal prosecutors. Such redisclosures include, but are not
limited to, disclosures made: (1) to accomplish any purpose or activity of the
nature described in 26 C.F.R. 301.6103(k)(6)-1 (e.g., verify
correctness of return; determine responsibility for filing return; establish,
verify or collect any tax liability or penalty; identify misconduct under the
tax laws; obtain services of persons with special knowledge or skill; (2) to
interview and obtain relevant information from a taxpayer or third-party
witness who may be called in the proceeding; or (3) to conduct plea or
settlement negotiations, or to obtain stipulations of facts. Redisclosure of
return or taxpayer return information for such purposes is permitted only in
those instances where the proper purpose of section 6103(h) cannot otherwise
be accomplished without the disclosure.
42.05[3][d] Disclosure in Judicial and Administrative Tax Proceedings
Section 6103(h)(2) only authorizes the disclosure of tax return
information to the Department of Justice. Section 6103(h)(4) governs
the Department's further dissemination of that material in judicial and
administrative tax proceedings. The section contains "party," "item," and
"transaction" tests similar to those in section 6103(h)(2). It also
authorizes disclosure:
(D) to the extent required by order of a court pursuant to section 3500
of title 18, United States Code, or rule 16 of the Federal Rules of
Criminal Procedure, such court being authorized in the issuance of such
order to give due consideration to congressional policy favoring the
confidentiality of returns and return information as set forth in this
title.
However, such return or return information shall not be disclosed as
provided in subparagraph (A), (B), or (C) if the Secretary determines
that such disclosure would identify a confidential informant or
seriously impair a civil or criminal tax investigation.
Return information may be disclosed in judicial proceedings, pursuant to
section 6103(h)(4), as long as one of the four listed criteria is met.
Conklin v. United States, 61 F.3d 915 (10th Cir. 1995) (unpublished
table decision) (application of section 6103(h)(4)(B)). The authority in
section 6103(h)(4) extends only to judicial and administrative tax
proceedings; it does not allow disclosures to the public or for any other
purpose.
Note that sections 6103(h)(4)(A) - (C) contain more stringent tests than
the parallel tests in sections 6103 (h)(2)(A) - (C). Under subsection
(h)(2), the IRS is permitted to disclose returns and return information to
the Department of Justice if the taxpayer "is or may be" a party to the
proceeding, the treatment of an item on the return "is or may be" related to
the resolution of an issue in the proceeding or investigation, or such
return or return information "relates or may relate" to a transactional
relationship between a person who is or may be a party and the taxpayer.
However, in section (h)(4), the disclosure of the information by the
Department is limited to those instances in which a "taxpayer is a
party," the information "is directly related to" the resolution of an
issue in the proceeding or investigation, or such return or return
information "directly relates to" a transactional relationship between a
person who is a party and the taxpayer. [FN6] See
United States v. Mangan, 575 F.2d 32, 38-39 (2d Cir. 1978); United
States v. Tsanas, 572 F.2d 340, 348 (2d Cir. 1978). [FN7]
Finally, section 6103(h)(4) allows the prosecutor to produce returns and
return information when ordered to do so by the court to meet the Government's
discovery obligations. Standing court rules providing for discovery are
sufficient to meet the requirement for a court order. Although that section
specifically refers only to Federal Rule of Criminal Procedure 16 and 18
U.S.C. ' 3500, it must be read to allow disclosure of return information
necessary to meet the Government's obligation to provide exculpatory
information to the defendant under Brady v. Maryland, 373
U.S. 83 (1963), and United States v. Giglio, 405 U.S. 150
(1972).
42.05[4] Section 6103(i) - Disclosure to Federal Officers or Employees
for Administration of Federal Laws Not Related to Tax Administration
42.05[4][a] Generally
Section 6103(i) authorizes the disclosure of tax returns and return
information to Department of Justice prosecutors for use in nontax criminal
investigations and prosecutions. The statute distinguishes between
information obtained from the taxpayer or his representative and return
information in general. Section 6103(i) provides that a federal agency
enforcing a nontax federal criminal law must obtain an ex parte order
in order to obtain a tax return or taxpayer return information. Other return
information can be obtained through a written request by a specifically
designated federal official.
42.05[4][b] Disclosure Pursuant to Court Order: Tax Returns and Taxpayer
Return Information
Section 6103(i)(1) provides that tax returns and taxpayer
return information (i.e., return information that was submitted to
the IRS by the taxpayer or his representative) may, upon the grant of an ex
parte order by a Federal district court judge or magistrate, be disclosed
to officers and employees of any federal agency (not to the agency itself) for
nontax criminal investigation purposes. The purposes for which the return
information may be used are limited to: (1) preparation for any judicial or
administrative proceeding pertaining to the enforcement of a specifically
designated Federal criminal statute (not involving tax administration) to
which the United States or the Federal agency is or may be a party; (2) any
investigation which may result in such a proceeding; or (3) any Federal grand
jury proceeding pertaining to enforcement of a federal nontax criminal
statute.
42.05[4][c] Application for the Order
Section 6103(i)(1)(B) specifies that only the Attorney General, the
Deputy Attorney General, the Associate Attorney General, any Assistant
Attorney General, any United States Attorney or special prosecutor appointed
under 28 U.S.C. ' 593, or any attorney in charge of a criminal division
organized crime strike force may authorize application for an order seeking
disclosures of returns and taxpayer return information in nontax criminal
cases. Acting officials may also authorize applications pursuant to section
6103(i)(1). See United States v. Bledsoe, 674 F.2d 647, 669-70
(8th Cir.1982). However, that authority may not be delegated.
An application pursuant to section 6103(i) must establish: (1)
reasonable cause to believe that a specific non-tax criminal violation has
occurred; 2) reasonable cause to believe that the return or return information
is or may be related to a matter relating to the commission of the crime; 3)
that the return or return information will be used solely for the criminal
investigation of the referenced crime; and 4) that such information cannot
reasonably be obtained from another source. 26 U.S.C. §
6103(i)(1)(B)(i)-(iii). See also In re Hamper, 651 F.2d 19, 21
(1st Cir. 1981). A copy of a sample application and proposed order are
attached.
As noted above, section 6103(i) also provides a mechanism for the
release of return information that is not taxpayer return information.
See Section 6103(i)(2). Under section 6103(i)(2), non-taxpayer return
information may be disclosed pursuant to a simple written request. The
request must include: (1) taxpayer's name and address; (2) the taxable periods
to which the return information relates; (3) the statutory authority under
which the case or investigation is proceeding; and (4) the specific reason why
disclosure is or may be relevant. Officials authorized to make
the written request are (1) the head of any Federal agency or its Inspector
General, or, in the case of the Department of Justice, the Attorney General,
the Deputy Attorney General, the Associate Attorney General, any Assistant
Attorney General, the Director of the Federal Bureau of Investigation, the
Administrator of the Drug Enforcement Administration, any United States
Attorney, any special prosecutor appointed under 28 U.S.C. § 593, or any
attorney in charge of a criminal division organized crime strike force.
See Section 6103(i)(2)(A); United States v. Chemical
Bank, 593 F.2d 451, 457 (2d Cir. 1979).
42.05[4][d] Use or Further Disclosure of Returns and Return Information
in Judicial Proceedings
42.05[4][d][i] Information Obtained by Ex Parte Order
Section 6103(i)(4) governs the use of returns and return information
obtained under section 6103(i)(1), (2), or (3)(A) in judicial and
administrative proceedings. Returns and return information obtained by way of
an ex parte court order, i.e., taxpayer return information, may
be disclosed in non-tax criminal cases or related civil forfeiture proceedings
only upon a finding by the court that the information is probative of an issue
in the proceeding or upon an order requiring its production in discovery under
Rule 16 or the Jencks Act (18 U.S.C. § 3500).
42.05[4][d][ii] Other Return Information Obtained by Letter
Section 6103(i)(4)( B) provides that return information other than
taxpayer return information may be disclosed in a non-tax criminal case or
related civil forfeiture proceedings without a court order. Even if such
other return information was obtained along with taxpayer return information
as part of an (i)(1) order, the statute does not require any further order or
other permission to use and disclose the non-taxpayer return information in
the criminal trial or civil forfeiture proceeding.
42.05[4][d][iii] Withholding Return Information and Suppression
No return or return information shall be admitted into evidence under
section 6103(i)(4) if the Secretary of Treasury determines and notifies the
Attorney General or his or her delegate that such admission would reveal the
identity of a confidential informant or would otherwise impair a tax
investigation. See Section 6103(i)(4)(C). Any improper admission of
evidence under the subsection is not reversible error. See Section
6103(i)(4)(E); United States v. Barnes, 604 F.2d 121, 146 n.13
(2d Cir. 1979). [FN8]
42.05[4][d][iv] Disclosure of Return Information For Other Purposes
Return information may be disclosed, upon application of certain
specified persons for an ex parte court order, for the purpose of
locating fugitives charged with a federal felony. See Section
6103(i)(5). Only persons named in section 6103(i)(1) may make an application
for disclosure to locate a fugitive. However, return information is not to be
disclosed if it will result in the identification of a confidential informant,
or will otherwise seriously impair a tax investigation. See Section
6103(i)(6).
Under section 6103(i)(3)(A), return information that is evidence of a
possible violation of any federal law, other than a federal tax law, may be
disclosed to the extent necessary to make the appropriate federal agency aware
of the potential violation. In re Grand Jury Investigation, 688
F.2d 1068, 1071 (6th Cir. 1982). In addition, under section 6103(i)(3)(B),
disclosure of return information (other than taxpayer return information) is
authorized in emergency situations, such as those involving a risk of death or
physical injury, or flight from federal prosecution.
42.06 REMEDIES FOR VIOLATIONS OF § 6103
42.06[1] Criminal Sanctions
Sections 7213 and 7213A of the Internal Revenue Code (26 U.S.C.) provide
criminal penalties for willful violations of section 6103.
Section 7213 provides that the willful violation of the non-disclosure
provisions of section 6103 is a felony, punishable with up to five years in
jail, or a $5,000 fine, or both. See United States v. Richey,
924 F.2d 857 (9th Cir. 1991). Under the penalty provisions of 18 U.S.C.
' 3571, the fine may be as high as $250,000. In the case of federal
employees and officers, section 7213 also mandates dismissal or discharge upon
conviction. The statute of limitations for prosecutions brought under the
section is three years. See 26 U.S.C. ' 6531.
Section 7213A is a misdemeanor offense and governs the unauthorized
examination of return information, without regard for whether the "examiner"
discloses the information to others. [FN9] To secure a conviction under
section 7213A, the government must establish that (1) an officer or employee
of the United States, any person described in section 6103(n) of the Code, or
any state or other employee described in section 7213A(a)(2) of the Code; (2)
willfully inspected; (3) any return or return information; (4) in a manner not
authorized by the Code. A violation of section 7213A is punishable by a fine
of up to $100,000 (pursuant to 18 U.S.C. ' 3571), imprisonment of up to one
year, and, if the offender is a federal employee, mandatory discharge from
employment.
42.06[2] Civil Remedies
Section 7431 provides a civil remedy against the United States for
taxpayers who have been injured by the unlawful disclosure of their tax
information by an employee of the United States. Suit may be brought only
against the United States; the individual employees who made the improper
disclosure are neither personally liable nor proper parties to the suit.
Diamond v. United States, 944 F.2d 431, 432 (8th Cir. 1991).
The United States is not civilly liable for unauthorized disclosures made by
former employees. A two-year statute of limitations applies to actions
brought under section 7431, which begins running at the time of discovery of
the disclosure by the taxpayer.
In order to make a case for recovery under section 7431, a taxpayer must
show: (1) that an unauthorized examination or disclosure of return information
was made; (2) that the examination or disclosure was knowing, or was the
result of negligence; and (3) that the examination or disclosure violated 26
U.S.C. ' 6103. 26 U.S.C. ' 7431(b); Barrett v. United States,
51 F.3d 475, 479 (5th Cir. 1995) (disclosure of taxpayer information not in
good faith where IRS employee did not review section 6103 and did not secure
approval of supervisor before circulating taxpayer's return information);
Huckaby v. United States, 794 F.2d 1041, 1047 (5th Cir . 1986)
(disclosure of taxpayer information pursuant to taxpayer's oral consent not in
good faith because section 6103 specifically requires written consent of
taxpayer).
If successful, the aggrieved taxpayer may recover the greater of actual
damages or $1,000 per improper disclosure, plus court costs. [FN10]
See 26 U.S.C. ' 7431(c)(1)(A); Miller v. United States,
66 F.3d 220, 223 (9th Cir. 1995) (disclosure to newspaper reporter deemed
single act of disclosure, even though reporter disseminated information to
wider audience); Rorex v. Traynor, 771 F.2d 383, 387 (8th Cir.
1985) (liquidated damages of $1000 awarded for a single act of unauthorized
disclosure which included numerous improperly disclosed items). It is not
clear whether actual damages allow recovery for non-pecuniary loss, such as
emotional trauma. The few cases that have addressed the issue arrive at
vastly different conclusions. Compare, e.g., Rorex v. Traynor,
771 F.2d at 387-88 (finding that "hurt feelings alone [do not] constitute
actual damages") with Johnson v. IRS, 700 F.2d 971, 986 (5th
Cir. 1983) (allowing damages for "mental injury."). In all cases in which the
unauthorized disclosure was willful or was the result of gross negligence, an
injured taxpayer may also recover punitive damages. See 26 U.S.C. '
7431(c)(1)(B)(ii).
APPENDIX
Sample Application For Section 6103(i)(1) Order
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF __________________________
IN RE: ) No. __________
Investigation of ________________ )
)
) APPLICATION FOR EX PARTE
) ORDER FOR DISCLOSURE OF
) RETURNS AND RETURN
) INFORMATION
The UNITED STATES OF AMERICA, through its attorney,
____________________, United States Attorney, [or _______________,
Assistant United States Attorney,] [FN11] hereby makes application to the
Court for an Ex Parte Order directing the Internal Revenue Service (IRS) to
disclose to applicant (and others hereinafter named) all returns and return
information relating to the following:
[Set forth the following as to each person or entity]
Name:
Address:
Social Security No. or
Employer Identification No.:
Taxable Period(s):
In support of this application, the applicant alleges and states as
follows:
1. There is reasonable cause to believe, based upon information
believed to be reliable, that violations of a specific criminal act or acts
have been committed, to wit, violations of Title __, United States Code,
Section ______ [cite statute and describe offense, e.g., "Section 1344
(bank fraud")]. This reasonable cause is based upon information supplied
to the United States Attorney's Office by the [agency], which applicant
believes to be reliable, [and/or information developed pursuant to a Grand
Jury investigation,] which is summarized as follows:
[state facts sufficient to allow court to find reasonable cause to
believe that statute has been violated and, where necessary, the basis
for believing that the information is reliable.]
2. There is reasonable cause to believe that the above-described
returns and return information are or may be relevant to a matter relating to
the possible violations of said criminal statutes. [State the connection
between the material requested to be disclosed and the matter in issue related
to the commission of the crime and facts sufficient for the court to find that
such connection exists.]
3. The returns and return information are sought exclusively for
use in a Federal investigation or proceeding concerning the possible
violations of the criminal statutes described above, [including a Grand
Jury investigation now pending [or which is anticipated to commence] in this
District.]
4. The returns and return information cannot reasonably be
obtained under the circumstances from any other source.
5. Applicant is the United States Attorney [or an Assistant
United States Attorney] for the District of and
is personally and directly engaged in the investigation and prosecution of
matters related to the enforcement of the above-mentioned violations of Title
__ [cite title] of the United States Code, to which the United States
is or may be a party. The information sought herein is solely for use for
that purpose. No disclosure will be made to any other person except in
accordance with the provisions of 26 U.S.C. § 6103 and 26 C.F.R. §
301.6103(i)-1.
6. In addition to applicant, the following individuals are
personally and directly engaged in the investigation of the above-mentioned
violations, and applicant therefore requests that disclosure be permitted to
the following:
[State names and titles of the agents and any other AUSAs involved in
the investigation.]
NOTE: State and local police and other non-Federal agents who may be
working on the investigation or task force may not be given
access to returns and return information, unless they have been
deputized as Deputy United States Marshals and are supervised by a
Federal employee.]
7. Applicant further states that the subject of this
Application is the subject of a pending investigation in this District,
publication of the Application and Order would compromise that investigation,
and the failure to seal the Application and Order would result in the public
disclosure of confidential information relating to the identified taxpayer and
entities related to him.
WHEREFORE, the Applicant respectfully requests this Court to enter
an Order under seal granting disclosure by the Internal Revenue Service of the
returns and return information specified in this Application, and further
ordering that this Application be filed and maintained under seal.
Respectfully submitted,
_____________________________
United States Attorney
[Assistant United States Attorney]
[As noted, the United States Attorney must personally sign the
section 6103(i) application or authorize the application for the (i) order.
Some districts follow the practice of having an Assistant United States
Attorney apply for the order and having the United States Attorney sign an
authorization for the application. A sample of that authorization appears
below. The Tax Division recommends that this practice be followed where an
Assistant United States Attorney applies for the (i) order.]
AUTHORIZATION FOR EX PARTE APPLICATION
The undersigned, being the United States Attorney for the District of
_________________________________, pursuant to Title 26, United States Code,
Section 6103(i)(1), hereby authorizes the foregoing Application for Ex Parte
Order for Disclosure of Tax Returns and Return Information.
Dated: ___________________ ______________________
United States Attorney
Sample 6103(i)(1) Order
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF _________________________
IN RE: ) Case No. ____________
Investigation of ____________ )
)
) ORDER (UNDER SEAL)
)
The Court having received and considered the Application of the United
States for an Ex Parte Order, pursuant to Title 26, United States Code,
Section 6103(i), directing the Internal Revenue Service to disclose certain
returns and return information in connection with the above-referenced
investigation, and good cause appearing, the Court FINDS:
1. There is reasonable cause to believe, based upon information
believed to be reliable, that a specific criminal act or acts have been
committed, namely, [cite statutes violated].
2. There is reasonable cause to believe that the return and return
information is or may be relevant to a matter relating to the commission of
such act or acts.
3. The returns and return information are sought exclusively for use
in a federal criminal investigation and proceeding concerning such act or
acts, and the information sought to be disclosed cannot reasonably be
obtained, under the circumstances, from another source.
4. Applicant, United States Attorney __________________ [or
Assistant United States Attorney _______________ ] and [any other AUSAs
and agents] are employees of the United States Department of Justice
[and, in the case of deputized state or local personnel, are acting under
the direction and control of Applicant] and are personally and directly
engaged in, and the information sought is solely for their use in, the
investigation of possible violations of the above-mentioned criminal statutes.
IT IS, THEREFORE, ORDERED that the Internal Revenue Service (1)
disclose such returns and return information of:
[Set forth the persons, entities, social security numbers and taxable
periods]
as have been filed and are on file with the Internal Revenue Service; (2)
certify where returns and return information described above have not been
filed or are not on file with the Internal Revenue Service; and (3) disclose
such returns and return information described above as may come into the
possession of the Internal Revenue Service subsequent to the date of this
order, but for not longer than [Set forth number of days up to one year,
usually 180 days] days thereafter.
IT IS FURTHER ORDERED that the Applicant, or any other officers or
employees of any federal agency, shall use the returns and return information
disclosed solely in investigating the alleged violations specified and
preparing the matter for trial, and that no disclosure be made to any other
person except in accordance with the provisions of Title 26, United States
Code, Section 6103.
IT IS FURTHER ORDERED that the Clerk of Court shall seal both the
Application and this Order, and that the Application and Order shall remain
under seal unless and until further order of this Court.
DATED this __________ day of __________, 20__.
_______________________________
United States Magistrate Judge
United States District Court
District of ____________
FN 1. See Appendix immediately following this chapter for samples of
both an application for Section 6103(i)(1) order and a Section 6103(i)(1)
order.
FN 2. The term "disclosure" means the "making known to any person in any
manner whatever a return or return information." Section 6103(b)(8).
FN 3. Section 6103(p) imposes an obligation upon agencies and individuals that
receive returns and return information to restrict access to the information
to only those individuals authorized to use it, to safeguard the information
in the manner prescribed by the IRS, to handle copies in the same manner as
originals, to maintain the information in a secure location, and to return the
information to the IRS or destroy it when it is no longer needed.
FN 4. Unlike many other sections of the statute, § 6103(h)(1) does not
require a written request for disclosure: "Returns and return information
shall, without written request, be open to inspection by or disclosure to
officers and employees of the Department of the Treasury whose official duties
require such inspection or disclosure for tax administration purposes." 26
U.S.C. § 6103(h)(1).
FN 5. In some non-tax criminal investigations, the IRS designates some aspects
of the case, such as currency reporting violations and money laundering
charges, as related to tax administration and provides returns and return
information to the prosecutor under section 6103(h)(1) using the so-called
"related statute call" procedures. That return information may not be used
in the non-tax portion of the investigation because it does not satisfy the
Regulation's requirement that the tax-related portion of the investigation be
approved by the Tax Division before the returns and return information may be
used in the non-tax portion of the investigation. See Treas. Reg.
301.6103(h)(2)-1(a)(2)(ii).
FN 6. For a discussion of "directly related," see Tavery v.
United States, 32 F.3d 1423, 1429 (10th Cir. 1994).
FN 7. The return information of a third party witness may not be used to
collaterally impeach that witness unless either the item or transaction test
has been met. United States v. McManus, 651 F. Supp. 382 (D.
Md. 1987), aff'd, 826 F.2d 1061 (4th Cir. 1987) (unpublished
decision).
FN 8. Section 6103(i) does not permit the IRS to disclose return information
for use in a civil case or a civil forfeiture case. United States v.
$57,303 in U.S. Currency, 737 F. Supp. 1041, 1042 (C.D. Ill. 1990).
However, return information obtained by a prosecutor for use in a non-tax
criminal investigation or prosecution may be subsequently used in a "related"
civil forfeiture proceeding if the requirements of section 6103(i)(4) are met
(that the court determine that the material is "probative" of an issue in the
proceeding). United States v. 3814 N.W. Thurman Street, 1996
WL 453043 (D. Ore. 1996); $57,303 in U.S. Currency, 737 F. Supp.
at 1043.
FN 9. The unauthorized examination of computerized taxpayer information may
also be prosecuted under 18 U.S.C. ' 1030(a)(2)(B). Anyone who intentionally
accesses a computer "without authorization or exceeds authorized access, and
thereby obtains . . . information from any department or agency of the United
States" may be imprisoned for a year, or fined, or both.
FN 10. Under section 7431, "costs" do not include attorney's fees.
Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714,
720 (1967). Attorney's fees are awarded to section 7431 litigants under 26
U.S.C. ' 7430, which allows for the recovery of reasonable litigation costs.
Huckaby v. United States, 804 F.2d 297, 298 (5th Cir. 1986).
FN 11. The U.S. Attorney's authority to authorize an application for an order
under section 6103(i) may not be delegated. The U.S. Attorney either
must personally sign the section 6103(i) application or authorize the
application.