United States v. Zak

• Decision Date: 24 August 2020
• Docket Number: Civil Action No. 1:18-cv-05774-AT
• Parties: UNITED STATES of America, Plaintiff, v. Nancy ZAK, et al., Defendants.
• Court: U.S. District Court — Northern District of Georgia

481 F.Supp.3d 1305

UNITED STATES of America, Plaintiff,

v.Nancy ZAK, et al., Defendants.

Civil Action No. 1:18-cv-05774-AT

United States District Court, N.D. Georgia, Atlanta Division.

Signed August 24, 2020

Neeli Ben-David, Office of the United States Attorney, Erin R. Hines, Atlanta, GA, Alison A. Yewdell, Casey S. Smith, Richard Gerald Rose, Office of the United States Attorney-Tax Division, Ann Tillinghast Porter, Charles P. Hurley, Harris Phillips, Lauren Darwit, Eric Martin Aberg, U.S. Department of Justice, Washington, DC, for Plaintiff.

Frederick Eli Nelson, Laura Mulherin, Matthew D. Lerner, Pro Hac Vice, Nathan E. Clukey, Sidley Austin, LLP, Washington, DC, Samuel Fenn Little, Jr., S. Fenn Little, Jr. P.C., Atlanta, GA, for Defendant Nancy Zak.

Amanda M. Leon, Christopher S. Rizek, Niles A. Elber, Ross R. Sharkey, Pro Hac Vice, Caplin & Drysdale, Chartered, Washington, DC, Robert C. Khayat, Jr., The Khayat Law Firm, Atlanta, GA, for Defendant Claud III Clark.

Benjamin John Razi, Marianna F. Jackson, Matthew V. Miller, Nicholas Pastan, Sean Murphy Akins, Covington & Burling, LLP, Washington, DC, Elizabeth L. Clack-Freeman, Thomas T. Tate, Andersen, Tate & Carr, P.C., Duluth, GA, for Defendants Ecovest Capital, Inc., Alan N. Solon, Robert M. McCullough, Ralph R. Teal, Jr.

ORDER

Amy Totenberg, United States District Judge

This matter is before the Court on the United States’ Motion to Dismiss Defendant Claud Clark, III's Counterclaim.

[Doc. 161.] For the following reasons, the Motion is GRANTED .

I. Background

On December 10, 2019, this Court denied Defendant Claud Clark III's ("Defendant" or "Clark") Motion to Dismiss. (See Order, Doc. 119; Clark Motion to Dismiss, Doc. 41.) Clark subsequently filed his Answer, and asserted a Counterclaim, alleging that the United States improperly disclosed his tax return information, in violation of 26 U.S.C. § 6103 and 26 U.S.C. § 7431. (Clark Answer and Counterclaim, Doc. 123 at 116.) Clark alleges that "IRS and DOJ Officials made public statements about Mr. Clark in formal press releases, to the press, and at speaking engagements that impermissibly disclosed ‘data, received by, recorded by, prepared by, furnished to, or collected by the Secretary ... with respect to the determination of the existence, or possible existence, of liability (or the amount thereof) of [Mr. Clark] under [the Code] for any tax penalty, interest, fine, forfeiture, or other imposition, or other offense.’ " (Doc. 123 at 118 (quoting 26 U.S.C. § 6103(b)(2)(A) ) (brackets in original).)

Clark alleges that the Internal Revenue Service ("IRS") and Department of Justice ("DOJ") made at least nine statements that implicate 26 U.S.C. § 6013. (Doc. 123.) In one example, Clark alleges that on December 19, 2018, the DOJ Office of Public Affairs disclosed to the general public a press release describing the Complaint filed in the instant case. (Doc. 123 at 119.) The press release claimed that Defendants (including Clark, who is named) willfully provided false valuations of land in pursuit of fraudulent conservation easement tax shelters. (Doc. 123 at 119.) Clark further alleges that in November 2019, the IRS issued several more press releases or statements to the press that similarly described the IRS and DOJ's intent to pursue this case as part of those agencies’ joint interest in stopping what they consider to be abusive tax avoidance schemes predicated upon knowingly fraudulent valuations of property. (Doc. 123 at 119–121.) In another example, Clark alleges that the Deputy Commissioner of IRS Services and Enforcement told the attendees of the American Institute of CPAs National Tax Conference or a member of the press that, "I'm very comfortable we will have wins in conservation easement cases because some of the appraisals are really bad and can't stand on their own." (Doc. 123 at 122–23.) The other statements highlighted by Clark are similar in both tone and content, as well as their level of specificity regarding the case and Mr. Clark's involvement in it.

Clark claims that the statements made during December 2018 and November 2019 by the DOJ and IRS relating to this case violated 26 U.S.C. § 6103 ’s prohibition of disclosure of "return information," and entitle him to relief pursuant to 26 U.S.C. § 7431. (Doc. 123 at 126.)

II. Standard of Review

"A motion to dismiss a counterclaim pursuant to Federal Rule of Civil Procedure 12(b)(6) is evaluated in the same manner as a motion to dismiss a complaint." Great Am. Assur. Co. v. Sanchuk, LLC , No. 8:10-CV-2568-T-33AEP, 2012 WL 195526, at *2 (M.D. Fla. Jan. 23, 2012). To survive a motion to dismiss under Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). For the purposes of a motion to dismiss, the court must accept all factual allegations in the complaint as true; however, the court is not bound to accept as true a legal conclusion couched as a factual allegation. Twombly , 550 U.S. at 555, 127 S.Ct. 1955. "While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Iqbal , at 679, 129 S.Ct. 1937. Although the plaintiff is not required to provide "detailed factual allegations" to survive dismissal, "threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Twombly , 550 U.S. at 555, 570, 127 S.Ct. 1955 ; Iqbal , 556 U.S. at 678, 129 S.Ct. 1937.

III. Discussion

" 26 U.S.C. § 6103(a) provides generally that tax returns and ‘return information’ are confidential and may not be disclosed by any officer or employee of the IRS." Comyns v. United States , 155 F. Supp. 2d 1344, 1348–49 (S.D. Fla. 2001), aff'd , 287 F.3d 1034 (11th Cir. 2002). The next subsection defines "return information" to mean:

[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[.]

26 U.S.C. § 6103(b)(2)(A). The statute exempts from the definition any data which is "in a form which cannot be associated with, or otherwise identify, directly or indirectly, a particular taxpayer." 26 U.S.C. § 6103(b)(2) ; cf. Long v. U.S. I.R.S. , 395 F. App'x 472, 475 (9th Cir. 2010) ("The latter part of the definition of ‘return information’ is commonly referred to as the Haskell Amendment.")

The definition of "return information" is therefore fairly broad, encompassing, inter alia, the taxpayer's identity, or whether the taxpayer's return "was, is being, or will be examined or subject to other investigation or processing." Taylor v. Pekerol , 624 F. App'x 691, 694 (11th Cir. 2015) (quoting 26 U.S.C. § 6103 (b)(2)(A) ); see also Comyns , 155 F. Supp. 2d at 1348–49 ("[R]evealing the fact that a taxpayer is the subject of a tax investigation constitutes disclosure of ‘return information.’ ") (citing 26 U.S.C. § 6103(b)(2) ). " Section 6103(b)(8) defines ‘disclosure’ broadly to include directly or indirectly ‘making known to any person in any manner whatever.’ " Comyns , at 1348–49. The statute grants IRS officers narrowly defined leeway to make such disclosures in pursuit of their official duties, saying that they may,

in connection with [their] official duties relating to any audit, collection activity, or civil or criminal tax investigation or any other offense under the internal revenue laws, disclose return information to the extent that such disclosure is necessary in obtaining information, which is not otherwise reasonably available, with respect to the correct determination of tax, liability for tax, or the amount to be collected or with respect to the enforcement of any other provision of this title.

26 U.S.C. § 6103(k)(6). "Return information may also be disclosed ‘pursuant to and upon the grant of an ex parte order by a Federal district court judge or magistrate [judge]’ and subject ‘to inspection by, or disclosure to, officers and employees of any Federal agency who are personally and directly engaged in’ (1) ‘preparation for any judicial or administrative proceeding pertaining to the enforcement of a specifically designated Federal criminal statute (not involving tax administration)’; (2) ‘any investigation which may result in such a proceeding’; or (3) ‘any Federal grand jury proceeding pertaining to enforcement of such a criminal statute.’ " Pekerol , 624 F. App'x 691, 694 (11th Cir. 2015) (quoting § 26 U.S.C. § 6103(i)(1)(A)).

The subsections make clear that some nonidentifying information may still be "return information" even if it does not identify a particular taxpayer. Church of Scientology of California v. I.R.S. , 484 U.S. 9, 15–16, 108 S.Ct. 271, 98 L.Ed.2d 228 (1987). "Subsections 6103(f)(1), (2), and (4), for example, allow the release of returns and return information to congressional committees, but distinguish between return information that identifies a taxpayer and return information that does not." Id. However, "[return information] does not include data in a form which cannot be associated with, or otherwise identify, directly or indirectly, a particular taxpayer." Id. (quoting § 6103(b)(2) ).

What all this boils down to is that IRS agents, when conducting an...