A district court held that taxpayers had adequately stated a claim for relief in their pleadings in a suit for damages for unauthorized disclosure of a tax return, despite the fact that the pleadings lacked certain information that the IRS had but would not provide to the taxpayers.
Background
Hollie and James Lindsay alleged that around March 2018 they received five income tax returns from the IRS — none of which was their return. When they contacted the IRS about this, an IRS representative told them that the IRS had sent their 2017 tax return to a person "somewhere in a five-state region." Although the opinion of the district court does not specify why the IRS sent the return, the Lindsays did not authorize the IRS to send the return to someone else. According to the Lindsays, the IRS's mistake caused them to be victims of identity theft and also led to various credit problems, hindering their ability to secure a home loan, purchase a work truck, and apply for student loans, among other issues.
Accordingly, the Lindsays brought suit in district court against the IRS, seeking damages under Sec. 6103 for the unauthorized disclosure of their tax return information. The IRS made a motion under Fed. R. Civ. P. 12(b)(6) to dismiss the Lindsays' case for failing to state a claim on which relief could be granted.
The law
Sec. 6103 provides that "no officer or employee of the United States . . . shall disclose any return or return information obtained by him in any manner in connection with this service as such an officer or an employee or otherwise . . . ." If this happens, Sec. 7431 authorizes a taxpayer to bring suit for the unauthorized disclosure of a return or return information. To state a claim under Sec. 7431, a taxpayer must allege sufficient facts to show: "(1) the disclosure was unauthorized; (2) the disclosure was made 'knowingly or by reason of negligence'; and (3) the disclosure violated [Sec.] 6103" (15 Corps., Inc. v. Denver Prosecutor's Office, No. 13-CV-0251-WJM-MJW (D. Colo. 10/25/13) (slip op. at 6)).
In reviewing a Fed. R. Civ. P. 12(b)(6) motion to dismiss, a court must accept all well-pleaded allegations in the complaint as true and view them "in the light most favorable to the plaintiff." While the complaint does not need to recite "detailed factual allegations," "a plaintiff's obligation to provide the grounds of his entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." The pleaded facts must establish that the claim is plausible.
The court's decision
The district court denied the IRS's motion to dismiss the Lindsays' case for failure to state a claim. It found that the Lindsays' complaint contained enough information to state a claim upon which relief could be granted and that, further, part of the insufficiency in the complaint that the IRS alleged was caused by the IRS's own actions.
The IRS argued that the Lindsays' complaint failed under Sec. 7431 because it did not specify who from the IRS allegedly sent their returns, to whom the returns were sent, the specific information the IRS purportedly disclosed, or the dates and circumstances surrounding the alleged disclosures.
As required by Fed. R. Civ. P. 12(b)(6), the court viewed all the allegations in the complaint as true and in the light most favorable to the Lindsays. Doing so, it found that the Lindsays' complaint met the three requirements of Sec. 7431.
Unauthorized disclosure: The court stated that for these purposes disclosure means "the making known to any person in any manner whatever a return or return information." The Lindsays' complaint asserted that an IRS representative advised them that their tax return was not sent to them but instead sent somewhere in a five-state region. It also asserted that as a result of the IRS's actions, they were victims of identity theft. Taken as true and viewed in the light most favorable to the Lindsays, these allegations demonstrated that the IRS disclosed their return information and that later their personal information, which may have been provided by the IRS, was used by a stranger. The court found that the complaint sufficiently alleged that the disclosure was unauthorized, because in it the Lindsays characterized the disclosure as negligent and did not indicate that they consented to the disclosure or that the disclosure was used in a proceeding authorized by statute.
Negligence: Regarding the second requirement of negligence, the court determined that although the Lindsays' assertion that their "tax return had been negligently sent" was a legal conclusion, the element was sufficiently pleaded because the complaint also stated that their tax return was not sent to them (the proper place for one's own tax return to be sent) and instead was sent somewhere else; viewed in the light most favorable to the Lindsays, this, according to the court, demonstrated negligent disclosure of their tax return.
Violation of Sec. 6103: To have violated Sec. 6103, the IRS must have disclosed the Lindsays' tax return to someone other than them, and the disclosure must not have been authorized. On this point, the IRS argued that the complaint was insufficient because it did not explicitly state who at the IRS sent the Lindsays' return or to whom it was sent. However, the Lindsays' complaint stated that this information could not be included because, although the IRS knew to whom their 2017 return was sent, and likely knew who in the Service sent it, the IRS refused to share the information with the Lindsays. Therefore, the court rejected the IRS's argument, concluding that the IRS could not claim insufficiency of the pleadings when the information is missing because of its own silence.
Reflections
Given that it admitted it harmed the Lindsays through its carelessness, one might think that out of decency the IRS would not try to have their case thrown out on a technicality. Happily, the district court has allowed the Lindsays the chance to present their case.
Lindsay, No. CIV-19-966-PRW (W.D. Okla. 6/30/20)
