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September 13, 2005

IRS Disclosure of Confidential Information

IRS Debts

Houston Tax Attorney

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The IRS is prohibited from disclosing taxpayer information to third parties.  There are a number of exceptions.  But when the laws are violated, the courts can and do award damages to taxpayers.  The Ward v. United States, 973 F. Supp. 996 (Dist. Colo. 1997) court case provides a prime example.

Facts & Procedural History

The taxpayer owned and operated a retail store located in the Citadel Mall, Villa Italia Mall, and the Lakeside Mall.  The IRS seized the business.

The taxpayer alleged that shortly after the seizure several IRS employees unlawfully disclosed the taxpayers confidential tax return information.

The government admitted that its employees unlawfully disclosed the taxpayer’s confidential tax return information when IRS employees participated in a live radio talk show program, when IRS employees provided a fact sheet to the television program Inside Edition, and when an IRS employee wrote a letter to the editor of the local newspaper.

The taxpayer brought suit against the IRS to recover damages for the IRS’s unlawful disclosure of confidential information.

IRS Disclosure of Tax Return Information

The IRS is generally prohibited from disclosing the taxpayer’s tax return information to third parties.  Tax return information is defined broadly as:

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, overassessments, 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,

There are several other items that are included in this definition.  There are also several exceptions, such as the IRS’s ability to share information with law enforcement, etc.

Damages for Unlawful Disclosure

The code also provides for an award of damages if the IRS discloses a taxpayer’s tax return information.  The amount is:

the greater of—
(A) $1,000 for each act of unauthorized inspection or disclosure of a return or return information with respect to which such defendant is found liable, or
(B) the sum of—
(i) the actual damages sustained by the plaintiff as a result of such unauthorized inspection or disclosure, plus
(ii) in the case of a willful inspection or disclosure or an inspection or disclosure which is the result of gross negligence, punitive damages, plus
(2) the costs of the action, plus
(3) in the case of a plaintiff which is described in section 7430(c)(4)(A)(ii), reasonable attorneys fees

Given the extreme disclosures in this case, the court awarded Ward $325,000 in damages, which was $111 more than the initial tax assessed against the taxpayer.

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