In Williams Dev. & Constr. v. United States, 2020 U.S. Dist. LEXIS 187212 (D. S.D. 10/8/20), CL here, the IRS Criminal Investigation (“CI”) agent issued 15 IRS administrative summonses falling into two relevant categories: (i) third party recordkeeper summonses (here to financial institutions) and (ii) third party summonses that are not third party recordkeeper summonses. The summonses stated that they were issued “In the Matter of Craig A. or Craig Arthur Williams.” From the opinion, it appears that Williams is a Houston, TX, based taxpayer and has several related companies. The IRS subsequently withdrew two summonses. The taxpayer and related companies originally petitioned the district court in South Dakota to quash all of the summonses. One problem on the motion to quash was that there was only one summonsee in South Dakota, the venue in which the taxpayer sought to quash all summonses. Thus, the action to quash could continue only as to the South Dakota summonsee, Citibank, N.A. (See prior Magistrate’s Order dated 12/10/19, here.)
While the case was pending, the taxpayer filed an amended complaint including a claim for damages under § 7431 for unauthorized disclosure of return information. The new claim was that the summonses (all of them) improperly disclosed taxpayer return information in violation of § 6103. In relevant part, the claim was that the disclosure of (i) the taxpayer subject to the investigation, (ii) the taxpayer’s address, (iii) the IRS agent’s identity as a CI agent and (iv) the taxpayer identification number. The Government moved for summary judgment. The Court mostly granted the IRS motion but denied as to disclosures of tax identification numbers to the third party (i.e., nonrecordkeeper) summonses.
The discussion of the issues resolved in the opinion may be summarized:
- All of the items (subject of the investigation, fact of CI investigation and taxpayer identification) are return information. So, the question is whether the disclosures were authorized under § 6103(k)(6), called the investigatory purposes exception. As explained by the Court, “The investigatory purposes exception authorizes IRS employees to ‘disclose return information’ in connection with their official duties relating to a criminal tax investigation ‘to the extent that such disclosure is necessary in obtaining information, which is not otherwise reasonably available.’” Further,
The Treasury Regulations define a “disclosure of return information to the extent necessary” as “a disclosure of return information which an [IRS] . . . employee, based on the facts and circumstances, at the time of the disclosure, reasonably believes is necessary to obtain information to perform properly [its] official duties.” 26 C.F.R. § 301.6103(k)(6)-1(c)(1). Under the Treasury Regulations, a “necessary” n1 disclosure of return information need not be “essential or indispensable,” but rather “appropriate and helpful in obtaining the information sought.” Id. The Treasury Regulations further define “information not otherwise reasonably available” as:
n1 The term “necessary” in the context of the revised Treasury Regulations refers to the necessity of the disclosure, not the “necessity of conducting an investigation or the appropriateness of the means or methods chosen to conduct the investigation.” 26 C.F.R. § 301.6103(k)(6)-1(c)(1).
information that an internal revenue . . . employee reasonably believes, under the facts and circumstances, at the time of a disclosure, cannot be obtained in a sufficiently accurate or probative form, or in a timely manner, and without impairing the proper performance of the official duties described by this section without making the disclosure.
26 C.F.R. § 301.6103(k)(6)-1(c)(3).
- Under Reg. § 301.6103(k)(1)-1(a)(3), IRS agents have discretion to disclose the nature of the investigation and the role of the agent.
- Under these provisions, the court found the summonses met the Powell minimum requirements for summonses and the disclosures of the taxpayer identity, address and the IRS agent’s role as CI agent was appropriate.
- As to the taxpayer identification numbers, the Court concluded that (i) the disclosure to financial institutions, third party recordkeepers, met the necessary test — “appropriate and helpful” — since such institutions maintain tax identification numbers and would help in identifying the taxpayer whose records are sought but (ii) the Government had not established for summary judgment that the disclosures to the third parties (jewelers and clubs who are not third party recordkeepers) were necessary. The Court further held that summary judgment on the agent’s good faith defense was not appropriate for summary judgment stage on the record.