Messinger v. US, Civ. A. No. HAR-90-303.

769 F. Supp. 935

Edward C. MESSINGER, et al., Plaintiffs, v. UNITED STATES of America, Defendant.

Civ. A. No. HAR-90-303.

United States District Court, D. Maryland.

July 22, 1991.

Peter Driscoll, Columbia, Md., for plaintiffs.

Richard D. Bennett, U.S. Atty., Larry D. Adams, Asst. U.S. Atty., Baltimore, Md., Edward J. Snyder, Michael J. Kearns, Michael J. Salem, U.S. Dept. of Justice, Washington, D.C., for defendant.

MEMORANDUM OPINION

HARGROVE, District Judge.

Presently before this Court are cross-Motions for Summary Judgment filed by the parties in this case. The issues have been fully briefed. The material facts are not in dispute. A full hearing was held on these Motions in open court.

FACTS

On December 29, 1988, the Internal Revenue Service's ("IRS") Philadelphia Service Center issued to Plaintiffs Edward C. Messinger and Joan S. Messinger ("Messingers") a Notice of Proposed Changes to Income (Form CP-2000). The notice advised Plaintiffs that employers, banks, and other payors of interest and dividend income had reported $7,469 of income to the IRS attributable to the Messingers that was not listed on the Messingers' 1986 federal income tax return. This unreported income was paid to accounts bearing the same taxpayer identification number as that used by the Plaintiffs on their 1986 federal tax return.¹

In a letter to the IRS' Philadelphia Service Center dated January 27, 1989, Plaintiffs informed the IRS that:

the interest and dividends listed on the notice was sic not earned by Mr. Messinger. It was paid to Mr. Messinger's mother and reported by her on her federal income tax return. This issue has arisen and been resolved for each of the tax years 1981, 1983, 1984, and 1985.

Complaint, Exhibit B. However, this letter offered no explanation as to why the income had been reported as having been paid to accounts under the Messingers' taxpayer identification number.

On March 30, 1989, the IRS issued a notice of deficiency to the Messingers in the amount of $3,148 for unpaid taxes in 1986. Complaint, Exhibit C. Ten days later, the IRS acknowledged Plaintiffs letter of January 27. Plaintiffs were requested to supply as soon as possible "the actual recipients name, address, and social security number" for the disputed income. Complaint, Exhibit D.

The Messingers filed a petition with the United States Tax Court on June 23, 1989, seeking redetermination of the deficiency. Complaint, Exhibit E. The District Counsel for the IRS filed an answer to this petition on August 22, 1989. A month later, the IRS' Philadelphia Service Center issued a "Statement of Change to Your Account" for the 1986 tax year, listing the claimed deficiency along with penalty and interest.

Plaintiffs' counsel notified both the Service Center and the IRS' District Counsel of the pending tax court proceeding on September 28, 1990. In that letter, counsel stated that he believed that the IRS might be liable under 26 U.S.C. §§ 6103, 7431, and 7213 should any backup withholding notices for the asserted delinquency be issued. Complaint, Exhibits I-1, I-2. He further advised the District Counsel that this case "simply involves a mistaken social security number." Complaint, Exhibit I-2. However, Plaintiff did not provide the IRS with the proper name, address and social security number of the proper payee of the disputed income as requested in the IRS' letter of April 10, 1989. The IRS responded that it was looking into the situation.

On October 30, 1989, the IRS issued a "Reminder of Unpaid Tax." The notice requested immediate payment of the delinquency and stated the possibility that "backup withholdings" would begin. Plaintiff responded two days later, again expressing concern over the institution of withholdings and possible disclosure violations.

Two weeks later, District Counsel Trial Attorney Michal Cline wrote Plaintiffs' counsel, advising him that she was attempting to fix the assessment which had been made against the Plaintiffs for their 1986 taxes through a priority adjustment. Complaint, Exhibit M. Despite these efforts, a notice of backup withholding for the 1990 tax year was sent to the Messingers on December 26, 1990. Notices were also sent to all payors of interest and dividends instructing them to withhold income at the rate of 20 percent. Complaint, Exhibit N.

Plaintiffs then instituted this lawsuit claiming that the IRS sent out notices to 41 institutions and that the issuance of these notices was a violation of the disclosure provisions contained in § 6103 of the Internal Revenue Code, 26 U.S.C. § 6103. The Messingers further allege that the IRS violated 26 U.S.C. § 7431, claiming that the notices amount to gross negligence. Pursuant to § 7431(c)(1)(A), Plaintiffs seek $1,000 for each notice sent, along with $20,000 in punitive damages for each disclosure. Complaint, paragraph 32.

The IRS filed for summary judgment, claiming that it is specifically authorized under 26 U.S.C. § 3406 to instruct financial institutions that a taxpayer is subject to backup withholdings. Therefore, the IRS states, the sending of notices was not contrary to the disclosure provisions of the IRS Code. 26 U.S.C. § 6103.

Plaintiffs responded three days later with their own Motion for Summary Judgment. The Messingers claim that as a matter of law, the mailing of withholding notices to the financial institutions while a case was pending in U.S. Tax Court amounted to unlawful disclosure under 26 U.S.C. § 6103. Plaintiffs claim damages as codified in 26 U.S.C. § 7431. The Messingers further claim that the IRS did not follow the procedural requisites found in 26 U.S.C. § 3406, and therefore, cannot avail themselves of that provision to justify the sending of the withholding notices.

DISCUSSION

Summary judgment will be granted when "there is no genuine issue as to any material fact, and if the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). The underlying facts and all reasonable inferences drawn therefrom must be viewed in the light most favorable to the non-moving party. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). Courts do not "weigh the evidence and determine the truth of the matter." Anderson, 477 U.S. at 249, 106 S.Ct. at 2511. However, "factual disputes that are irrelevant or unnecessary will not be counted." Id., 477 U.S. at 248, 106 S.Ct. at 2510. The mere existence of a "scintilla of evidence" is not enough to frustrate a motion for summary judgment. In order to defeat a motion for summary judgment, the pleadings must show evidence in which the finder of fact could reasonably find for the party opposing judgment. Id., 477 U.S. at 252, 106 S.Ct. at 2512; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986).

A. Defendant's Motion for Summary Judgment:

A significant issue not raised by the parties involves the confidential nature of the released information. Congress recognized the inherent privacy interest of taxpayers when it enacted 26 U.S.C. § 6103(a), which provides that tax return and return information shall be confidential.² The right to bring suit for breach of confidentiality is secured under § 7431 of this Internal Revenue Code.

It is axiomatic that in order to bring suit for breach of confidentiality, the information allegedly published without consent cannot have previously been made public in a legitimate manner. Any previous public use of the information divests the taxpayer of her privacy interest. Thus, in many instances, courts have granted judgment against a taxpayer breach of confidentiality suit where the information is already public. See, e.g., William E. Schrambling Accountancy Corp. v. United States, 937 F.2d 1485 (9th Cir.1991); Lampert v. United States, 854 F.2d 335, 337-38 (9th Cir. 1988), cert. denied, 490 U.S. 1034, 109 S.Ct. 1931, 104 L.Ed.2d 403 (1989); Thomas v. United States, 671 F.Supp. 15 (E.D.Wis. 1987), aff'd, 890 F.2d 18 (7th Cir.1989) (news release by United States using information taken from Tax Court proceeding does not violate § 6103); United Energy Corp. v. United States, 622 F.Supp. 43, 46 (N.D.Cal.1985) (U.S. Attorney's disclosure of information disclosed in court proceeding did not violate § 6103); United States v. Posner, 594 F.Supp. 930, 936 (S.D.Fla. 1984); Cooper v. I.R.S., 450 F.Supp. 752, 755 (D.D.C.1977).

This holding is not universal. Several courts have found that the revealing of tax information previously made public in a lawsuit does not divest the information of confidentiality under the statute. See Rodgers v. Hyatt, 697 F.2d 899, 906 (10th Cir.1983); Chandler v. U.S., 687 F.Supp. 1515, 1517-20 (D.Utah 1988); Husby v. U.S., 672 F.Supp. 442, 444 n. 1 (N.D.Cal. 1987); Johnson v. Sawyer, 640 F.Supp. 1126, 1132-33 (S.D.Tex.1986); Olsen v. Egger, 594 F.Supp. 644, 646 (S.D.N.Y.1984); Dowd v. Calabrese, 101 F.R.D. 427 at 438-39 (D.D.C.1984).

Courts which have found that taxpayers maintain expectations of confidentiality despite disclosure of return information generally base this ruling upon a strict reading of § 6103. This Court considers the inflexible reasoning found in these cases to be unreasonable. Once a document becomes part of a public record, common sense dictates that any expectations of confidentiality are extinguished. Accordingly, this Court finds any information revealed in a public record to be devoid of confidentiality under § 6103.

In the case at bar, Plaintiffs have filed an action in Tax Court prior to the release of return information by the IRS. The return information which the Messingers contend was disclosed without authorization was necessarily included in the materials presented before this Tax Court. Thus, this Court finds that there was no expectation of privacy that could be attached to the material divulged by the...