Rorex v. Traynor, 84-2308
| Decision Date | 22 August 1985 |
| Docket Number | No. 84-2308,84-2308 |
| Citation | 771 F.2d 383 |
| Parties | -5701, 85-2 USTC P 9636 Harold G. ROREX and Geneva M. Rorex, Appellees, v. Steven P. TRAYNOR, Individually and in his Former Capacity as an Internal Revenue Officer, Appellant. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Thomas A. Gick, Washington, D.C., Justice Dept., for appellant.
Stanley D. Rauls, Little Rock, Ark., for appellees.
Before ROSS, Circuit Judge, BRIGHT, Senior Circuit Judge, and NICHOL, * Senior District Judge.
Harold and Geneva Rorex (taxpayers) brought this statutory action against Steven Traynor, a former Internal Revenue Service (IRS) officer, seeking damages because of his alleged wrongful disclosure of information regarding the taxpayers' federal income tax returns. The taxpayers recovered a combined judgment of $45,000 representing actual and punitive damages assessed by a federal court jury. After denial of post trial motions for judgment n.o.v. or a new trial, Traynor appeals, contending that the district court erred as a matter of law: (1) in concluding that the disclosure violated the Internal Revenue Code, and (2) in failing to direct a verdict of dismissal. In addition, Traynor argues that the jury's damage award was excessive. We affirm in part but remand for the entry of a judgment of $1,000 for each taxpayer, without punitive damages, based on the applicable statute.
In February 1981, the taxpayers met with Traynor, who was then a revenue officer trainee with the Internal Revenue Service, and executed an installment agreement for the payment of their 1977, 1979, and 1980 income taxes. Subsequently, a dispute developed over whether the taxpayers were making payments under the agreement in a timely fashion. The taxpayers asserted that all payments had been on time, but agreed to enter into a second installment agreement on August 7, 1981. The terms of the second agreement were identical to the terms of the first: the taxpayers were required to pay off their balance in $40 monthly payments due the 10th of each month. It is undisputed that the taxpayers paid their installments under the second agreement when due.
Both installment agreements were executed on IRS Form 433-D. This form carries the statement: On August 25, 1981, Traynor's supervisor Charles Schaefer allegedly disapproved the second installment agreement. Schaefer instructed Traynor to request full payment on the account and to file a tax lien and serve a levy on the taxpayers' property if full payment was not made. Traynor testified that on September 16, 1981, he informed the taxpayers of the disapproval and requested full payment. Harold Rorex contested this testimony and stated that he had never been notified of the disapproval.
Traynor served a notice of levy on the taxpayers' bank on October 21, 1981. This notice contained confidential return information about the taxpayers, including their names and the amount of their unpaid federal taxes for 1979 and 1980. In addition, the notice contained the statement that the taxpayers had "neglected or refused to pay" taxes and statutory additions totaling $520.05. The taxpayers testified that as a result of this notice, they had to "beg" the bank for a loan to pay the remaining balance on their taxes, and that this experience caused them embarrassment, took their pride away, and made them feel like deadbeats.
At trial, the district court determined as a matter of law that the agreement of August 7, 1981 remained in effect notwithstanding Schaefer's disapproval. In addition, because the taxpayers had made all payments under the second agreement when they became due, the court determined that the Internal Revenue Code did not authorize a levy on the taxpayers' bank account. The court concluded that because the levy was not authorized, disclosure of the taxpayers' return information violated 26 U.S.C. Sec. 6103 (1976). The court denied Traynor's motion for a directed verdict on the basis of good faith immunity and submitted the remaining issues to the jury, which returned a verdict awarding $15,000 in actual damages and $7,500 in punitive damages to each taxpayer, for a total award of $45,000 ($22,500 for each taxpayer). After entry of judgment, the court denied Traynor's motion for judgment n.o.v. or a new trial. Traynor then brought this appeal.
26 U.S.C. Sec. 7217 (1976) provides that: "Whenever any person knowingly, or by reason of negligence, discloses a return or return information * * * with respect to a taxpayer in violation of the provisions of section 6103, such taxpayer may bring a civil action for damages * * *." Traynor first argues that the district court erred in instructing the jury that the disclosure in this case violated section 6103.
Section 6103(k)(6) provides as follows:
An internal revenue officer or employee may, in connection with his official duties relating to any * * * collection activity * * * disclose return information to the extent that such disclosure is necessary * * * with respect to the enforcement of any * * * provision of this title. Such disclosures shall be made only in such situations and under such conditions as the Secretary may prescribe by regulation.
The Secretary of the Treasury has promulgated regulations prescribing conditions under which return information may be disclosed. Treas.Reg. Sec. 301.6103(k)(6)-1(a) authorizes disclosure "where necessary in order to properly accomplish" certain activities, including application of Code provisions relating to a levy on the taxpayer's assets to satisfy an income tax liability. See Treas.Reg. Sec. 301.6103(k)(6)-1(b)(6).
The district court concluded that under this language, disclosure of return information, such as that contained in the notice of levy in this case, could be made only when a levy was properly authorized. It determined that the levy in this case was not proper because the taxpayers were meeting their obligations under a valid installment agreement. 1 Traynor argues that the court's interpretation is erroneous: he contends that disclosure is authorized as long as the information disclosed is necessary to accomplish a levy, regardless of whether the levy is lawful under the provisions of the Code.
Traynor relies on the case of Timmerman v. Swenson, 44 A.F.T.R.2d 79-5727 (D.Minn.1979) to support his interpretation. Timmerman concerned a taxpayer who had failed to pay an admitted tax deficiency despite repeated notices. Through a clerical error, the IRS served a notice of levy on a bank where the taxpayer did not have an account. The magistrate held that the notice of levy was lawful under 26 U.S.C. Sec. 6331 () and, consequently, that the disclosure did not violate section 6103.
Timmerman is clearly distinguishable from the present case because here the taxpayers have not neglected or refused to pay any tax. On the contrary, the district judge found that they had met all of their obligations under a valid installment agreement. Moreover, Timmerman is inconsistent with the statutory scheme embodied in section 7217. That section establishes two prerequisites for unauthorized disclosure liability: the disclosure must be made "knowingly or by reason of negligence," and it must be "in violation of section 6103." Under Traynor's interpretation, disclosure would not violate section 6103 so long as no more information was disclosed than was necessary to effectuate a levy, even if the levy was not authorized by the Internal Revenue Code. Thus, Traynor's interpretation would open a significant loophole in section 7217 in that IRS employees could disclose return information about any taxpayer simply by making the disclosure in the form of a notice of levy. The employees would never be subject to liability under section 7217 because their conduct would never satisfy the first prerequisite to liability.
The Government attorneys who represented Traynor have offered no strong reason for restricting a broad application of the general rule stated in section 7217(a), imposing liability when a disclosure is made "in violation of the provisions of section 6103 * * *." Although the question is a close one, we conclude that a disclosure in pursuance of an unlawful levy violates the confidentiality requirements of section 6103(a) 2 and is not authorized under section 6103(k)(6).
At the close of the evidence, Traynor moved for a directed verdict on the basis of good faith immunity. The court denied his motion and submitted the issue of Traynor's good faith to the jury. Traynor contends that this was error.
In Harlow v. Fitzgerald, 457 U.S. 800, 102 S.Ct. 2727, 73 L.Ed.2d 396 (1982), the Supreme Court held that Government officials performing discretionary functions are "generally shielded...
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