Baskin v. United States

UNITED STATES COURT OF APPEALS
For the Fifth Circuit

No. 96-20973

DALTON M. BASKIN,

Plaintiff-Appellant,

VERSUS

UNITED STATES OF AMERICA,

Defendant-Appellee.

Appeal from the United States District Court
For the Southern District of Texas
February 17, 1998

Before DeMOSS and DENNIS, Circuit Judges, and LEE, District Judge.*
DENNIS, Circuit Judge:

The plaintiff-appellant, Dalton M. Baskin, brought this action

for civil damages under 26 U.S.C. §7431 for alleged unauthorized

disclosures of tax return information in violation of 26 U.S.C.

§6103. The district court granted in part and denied in part a

motion for partial summary judgment filed by the United States, the

defendant-appellee. Baskin appealed from that judgment insofar as

the court held that a disclosure of information that was made on

*
District Judge of the Southern District of Mississippi,
sitting by designation.

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April 28, 1993 did not violate the terms of 26 U.S.C. §6103. We

affirm.

The information in question was not “return information”

because it was not data “received by, recorded by, prepared by,

furnished to, or collected by” the Internal Revenue Service (IRS)

as defined by 26 U.S.C. §6103(b)(2)(A). Baskin was an employee of

the Houston Police Department and chairman of the Houston Police

Officers Pension System. A grand jury investigating non-tax crimes

obtained information that Baskin had recieved checks from a

particular source that created a conflict between Baskin’s personal

interests and his duties as chairman. An IRS Special Agent who was

assigned to provide staff support to the grand jury under the

supervision of the United States Attorney gave copies of the checks

obtained by the grand jury to officers of the Internal Affairs

Division of the Houston Police Department. The United States

Attorney had agreed that the Internal Affairs Division officers

would be put on a grand jury list as persons having access to the

information learned by the grand jury. The IRS Special agent’s

possession and transfer of the data to the Houston police officers

while on temporary assignment to the grand jury did not make that

data “return information” for purposes of §6103 because the agent’s

action did not cause the data to be received by, recorded by,

prepared by, furnished to, collected by or transferred from the

Internal Revenue Service.

Background

2
 In the spring of 1993, a grand jury investigation was delving

into the possible non-tax offenses of a number of persons other

than the plaintiff. This investigation was headed by the United

States Attorney for the Southern District of Texas who, in order to

facilitate her inquiry, had assigned to the grand jury a number of

federal agents. Specificaly, IRS Special Agents Ellen Rodriguez

and Lafayette Prince along with Federal Bureau of Investigations

(FBI) Special Agent Justin Fox were all attached to the grand jury

investigation. During the course of the grand jury’s probe, a

grand jury subpoena brought to light six checks made out to Dalton

Baskin in the amount of $6,000.00 each.1 These checks had been

issued by City Associates, Inc., a company connected with one of

the parties being investigated, and were reportedly payments to

Baskin for consulting work.

At the time the checks were produced, Fox, Prince and

Rodriguez were aware that Baskin was a member of the Houston Police

Department (HPD) and heavily involved with the Houston Police

Officer’s Pension System. For reasons that are not made clear by

the record, Fox first discussed Baskin’s activities with Rodriguez

around 1991. Subsequently, in the fall of 1992, Prince and Fox

actually met with Baskin and, in October 1992, Rodriguez obtained

copies of the plaintiff’s tax returns from 1989-1992. Baskin was

“targeted” by the FBI and IRS for a joint investigation by late

1992 or early 1993.

1
It is unclear from the record who or what entity actually
produced the six checks pursuant to the grand jury subpoena but
apparently it was either Milton McGinty or City Associates, Inc.

3
 It was during this intermittent inquiry into the plaintiff’s

activities that Fox, Prince and Rodriguez began their assignment

with the grand jury. While the grand jury proceeding was

progressing, federal authorities learned that the Internal Affairs

Division (IAD) of the HPD was interested in the federal

investigation. After discussions with IAD officers, the federal

prosecutors decided to place the IAD officers on the grand jury

list so that they could be made privy to the grand jury

proceedings. However, it is unclear whether this step was ever

taken. See Fed. R. Crim. P. 6(e)(3). In addition, a meeting was

scheduled between those federal agents assigned to the grand jury

and IAD officers.

On April 28, 1993, FBI Special Agent Fox, IRS Special Agents

Rodriguez and Prince met with three members of the Houston Police

Department’s IAD, Lieutenant Greg Neely, Sergeant Roy House, and

Sergeant Martin Fite at the IRS agents’ office. During the

meeting, IRS Special Agent Rodriguez2 disclosed to the three police

officers the existence of six checks made payable to Baskin for

consulting work performed for City Associates, Inc., a company

connected to a party the federal authorities were investigating.

The checks represented $36,000 in income for the plaintiff.

Following the April 1993 encounter, interactions occurred

2
None of the federal agents present at the meeting remember
who specifically disclosed the six checks in question to the
Houston police officers. However, the final determination of this
issue is immaterial to our inquiry and we can assume for the
purposes of reviewing the district court’s summary judgment ruling
that the plaintiff/non-movant’s allegation that Rodriguez disclosed
the six checks is accurate.

4
between the HPD, the United States prosecutors and grand jury, and

Baskin for over a year. The nature and substance of this activity

is not relevant on this appeal. Baskin was never indicted by a

federal or state grand jury. Baskin claims, however, that he was

forced to retire from the HPD as a result of a third-party’s

allegations and the federal agent’s allegedly illegal disclosures

of the six checks to the HPD’s IAD.

In the present suit, filed in May 1994, the plaintiff alleged

that government employees, Rodriguez and Prince, made a number of

illegal disclosures of “return information” in violation of the

Internal Revenue Code (IRC, Title 26) from April 1993 until 1994.

See 26 U.S.C. §6103. The district court entertained motions for

summary judgment from both sides and decided all of the issues

raised. Of significance herein, the district court held that the

disclosure of the six checks by IRS Special Agent Rodriguez on

April 28, 1993 was not an improper disclosure of “return

information” because the checks in question were grand jury

information and not IRS “return information” as defined by the IRC.

See 26 U.S.C. §6103(b)(2)(A). In other words, because the six

checks had not been filed with and disclosed by the IRS there had

been no violation of the IRC for which the government could be held

liable. Additionally, the district court held that the assistance

rendered the grand jury investigation by IRS Special Agent

Rodriguez did not somehow convert the grand jury information, i.e.

the six checks, into return information. It is from this

determination alone that Baskin appeals. We review the district

5
court’s grant of the defendant’s motion for summary judgment on

this issue de novo. Stults v. Conoco, Inc., 76 F.3d 651, 654 (5th

Cir. 1996).

Analysis

The Internal Revenue Service is a unique government

organization which has, in the fulfillment of its statutory

function, assembled information pertaining to virtually every

citizen in the United States. See Note, Elena M. Gervino, Tax Law-

The Internal Revenue Code: Interpreting the ‘Haskell Amendment’ to

26 U.S.C. §6103-Defining ‘Return Information,’ 9 W. New Eng. L.

Rev. 269, 270-1 (1987)(“The IRS has more information about more

people than any other agency in this country.”). Prior to 1976,

the material gathered and recorded by the IRS was readily available

to other agencies of the government pursuant to rather lax

disclosure polices. Stokwitz v. United States, 831 F.2d 893, 894

(9th Cir. 1987). In fact, the IRS was accused of having becoming

a virtual “‘lending library’” for the government. Id. at

894(quoting, 122 Cong. Rec. 24013 (1976)(remarks of Sen. Weiker)).

The use of this information in the mid-1970's by other governmental

agencies had reached such a prodigious level that Congress became

concerned with the possible use of the IRS as a political tool.

Id. at 894-895(quoting and citing, 122 Cong. Rec. 24013 (1976)).

In 1976, in response to these perceived abuses and in order to

significantly tighten the restrictions pertaining to the use of

information collected by the IRS by other government agencies,

6
Congress enacted a general prohibition against the disclosure of

information complied by the IRS. Tax Reform Act of 1976, Pub. L.

No. 94-455, 90 Stat. 1520 (1976); see Church of Scientology of

California v. Internal Revenue Service, 484 U.S. 9, 16 (1987);

Johnson v. Sawyer, 120 F.3d 1307, 1317 (5th Cir. 1997). This

general prohibition, codified in section 6103(a) of the Internal

Revenue Code, states 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 his service as such an
officer or an employee or otherwise or under the
provisions of this section....

The exceptions to this general rule of non-disclosure are legion,

ranging from disclosure of a taxpayer’s address to the National

Institute for Occupational Safety and Health for the purposes of

locating people who may have been exposed to occupational hazards,

§6103(m)(3), to information furnished to the Department of Commerce

for statistical use, §6103(j). However, none of the multitude of

specific exceptions are relevant to the present matter.

The terms “return” and “return information” found in IRC

§6103(a) are terms of art specifically defined by the statute. A

“return” is defined as

any tax or information return, declaration of estimated
tax, or claim for refund required by, or provided for or
permitted under, the provisions of this title which is
filed with the Secretary by, on behalf of, or with
respect to any person, and any amendment or supplement
thereto, including supporting schedules, attachments, or
lists which are supplemental to, or part of the return so
filed. 26 U.S.C. §6103(b)(1).

“Return information,” a more comprehensive term and of paramount

importance herein, is delineated as

7
 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).

Subsequent to passage of the more restrictive §6103 in 1976, and in

order to give teeth to the general prohibition against the

disclosure of return and return information, IRC §7431 was enacted

giving an aggrieved taxpayer a cause of action for damages directly

against the United States for any disclosure of return or return

information knowingly or negligently made by an employee or officer

of the United States that was not the result of a good faith but

erroneous interpretation of §6103. See Thomas v. United States,

890 F.2d 18, 20 (7th Cir. 1989)(“Section 7131 was enacted in 1982

against a rich background of abuses by the Internal Revenue Service

of the confidentiality of federal tax returns....”).

Section 7431, in pertinent part, provides:

§ 7431. Civil Damages for unauthorized disclosure of
returns and return information.

(a) In General. (1) Disclosure by employee of United
States. If any officer or employee of the United States
knowingly, or by reason of negligence, discloses any
return or return information with respect to a taxpayer
in violation of any provision of section 6103, such
taxpayer may bring a civil action for damages against the
United States in a district court of the United States.

* * *

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 (e) Return; return information. For purposes of this
section, the terms “return” and “return information” have
the respective meanings given such terms in section
6103(b).

* * * *

Baskin seeks damages pursuant to IRC §7431 alleging that an

employee of the United States, IRS Special Agent Rodriguez,

disclosed return information to the IAD of the HPD in the form of

the six checks payable to the plaintiff in violation of the general

proscription created by §6103(a). Baskin contends principally

that, regardless of the fact that the checks had been procured

pursuant to a grand jury subpoena and that Agent Rodriguez was in

possession of the checks solely through her work with the grand

jury, her actions violated §6103 because: (1) Section 6103 defines

“return information” to include the nature, source or amount of a

taxpayer’s income and expressly provides that no officer or

employee of the United States shall disclose “return information”

obtained by him in any manner in connection with his service as

such an officer; (2) The information about Baskin’s consulting

income was “return information” as defined by §6103(b)(2)(A)

because IRS Special Agent Rodriquez undertook a non-grand jury

investigation of Baskin in late 1992 or early 1993. Therefore, her

receipt of the information caused it to be “received

by,...furnished to or collected by the Secretary;” and (3) Section

6301(d) provides that return information may be disclosed to a

state agency administering state tax laws “only upon the written

request by the head of such agency” and subject to other

9
conditions. Therefore, §6301(d) was violated when Rodriquez

disclosed the six checks to local officials other than for tax

administrative purposes and without a written request of the state

or local tax agency.

1.

Baskin’s first argument is based on an incomplete reading of

§§ 6301 and 7431. In order to prove a violation of §6301(a) and

recover under §7431, the plaintiff must demonstrate both that an

officer or employee of the United States disclosed information and

that the data disclosed was either a return or return information

with respect to a taxpayer. Contrary to Baskin’s argument,

§6103(b)(2) does not define “return information” merely as “a

taxpayer’s identity, the nature, source, or amount of his income,

payments, receipts....” Section 6103(b)(2) expressly states that

“[t]he term ‘return information’ means--” the forgoing information

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” of a taxpayer. Therefore, to be

“return information” any information must first be “received by,

recorded by, prepared by, furnished to, or collected by” the IRS.

Id. The plain language of the statute reveals that “return

information” must be information which has somehow passed through,

is directly from, or generated by the IRS. See Ryan v. United

States, 74 F.3d 1161, 1163 (11th Cir. 1996)(“[T]he statutory

10
definition of ‘return information’ confines it to information that

has passed through the IRS.”); Thomas, 890 F.2d at 21(“[W]e believe

that the definition of return information comes into play only when

the immediate source of the information is a return, or some

internal document based on a return, as these terms are defined in

§6103(b)(2)....”); Stokwitz, 831 F.2d at 896(“[T]he central fact

evident from the legislative history, structure, and language of

section 6103 (including the definitions of ‘return and return

information’) [is] that the statute is concerned solely with the

flow of tax data to, from, or through the IRS.”). In sum, section

6103 requires that the source of the disclosed information must

have been the IRS in order for there to be a violation of the

general prohibition against the disclosure of return information.

See also Johnson, 120 F.3d at 1323(a violation of §6103 is premised

on the source of the information.).

From the summary judgment evidence of record, the district

court concluded that the tax information received under subpoena by

the grand jury and in the custody of those federal agents assisting

with a non-tax grand jury proceeding was not filed with or

disclosed by the IRS, and was not protected by section 6103.

Baskin v. United States, 1996 WL 512384, at *7 (S.D. Tex. June 21,

1996)(citing S. Rep. No. 94-938, 94th Cong., 2d Sess. 330,

reprinted in 1976 U.S.Code Cong. & Admin. News 3759 (disclaiming

any intention to limit the right of an agency or other party to

obtain returns or return information directly from the taxpayer

through the applicable discovery procedures.)); Commodity Futures

11
Trading Comm’n v. Collins, 997 F.2d 1230, 1233 (7th Cir.

1993)(Section 6103 “does not block access, through pretrial

discovery or otherwise, to copies of tax returns in the possession

of litigants; all it prevents is the IRS’s sharing tax returns with

other government agencies.... The subpoena is directed not at the

returns, which remain safely locked in IRS’s files, but at copies

in the possession of the individual.”).

We agree with the district court’s conclusions. It should

be noted, however, that the district court’s reference only to

information “filed with” the IRS as falling within the definition

of return information was not intended to exclude from the meaning

of that term information received by the IRS by other means. E.g.

see Huckaby v. United States, 794 F.2d 1041, 1048 (5th Cir.

1986)(“Return information includes the taxpayer’s identity, the

fact that the taxpayer is under investigation or subject to further

investigation, and data that the IRS has collected about a

return.”). The “filed with” requirement is appropriate when

determining whether information falls under the definition of

“return.” 26 U.S.C. §6103(b)(1). To be “return information,” the

information need not be filed; the statute requires only that the

data be “received by, recorded by, prepared by, furnished to, or

collected by” the IRS with respect to the legislatively prescribed

purposes. 26 U.S.C. §6103(b)(2)(A).

2.

We also agree with the district court that the record evidence

12
does not support a reasonable inference that the information in

question was furnished to the IRS by Special Agent Rodriquez. The

six checks at issue in the present case were obtained pursuant to

a grand jury subpoena and remained within the possession of agents

of the grand jury.

The plaintiff seeks to create the required relationship

between the six checks and the IRS by pointing to IRS Special Agent

Rodriguez’s assignment to assist the grand jury and her possession

of the checks at the time of their disclosure. Rodriguez, he

contends, is the conduit through which the checks passed through

the IRS and thus became “return information.” We disagree for

substantially the same reasons that a similar argument was rejected

by the Eleventh Circuit in Ryan v. United States, 74 F.3d 1161

(11th Cir. 1996). In Ryan, the IRS was involved in a prosecution

of a criminal defendant for various drug and tax offenses. To this

end, at least one IRS Special Agent was assigned to assist the

local U.S. Attorney’s Office in the gathering of information.

Ryan, 74 F.3d at 1163. During the prosecution of the case, the

prosecutor disclosed information to the press in the form of

memoranda which did contain tax related information or had been

formulated from such information. Id. The plaintiff in Ryan

alleged that these memoranda contained “return information” because

the information had been gathered with the assistance of an IRS

Special Agent, thus making information contained in the memoranda

“data received and collected” by the IRS. Id. In rejecting this

assertion, the Ryan court pointed to the simple fact that this

13
information had been collected by and was in the custody of the

Department of Justice, i.e. the U.S. Attorney’s Office, and was not

information belonging to the IRS. Id. The assistance rendered by

an IRS Special Agent to a criminal investigation did not change

this fundamental fact or the nature of the information gathered.

Therefore, the source of the information for the prosecution’s

memoranda was the information collected by his office, not the IRS.

The assistance rendered a grand jury investigation by an IRS

Special Agent does not transform grand jury information into return

information. Accordingly, we conclude that without evidence of a

transfer of the data from the Department of Justice to the IRS and

a subsequent disclosure of it by the IRS as the source of the

revelation, a violation of §6103 cannot be found.

In the present case, the record does not indicate the

existence of any persuasive evidence that the checks were ever

received, collected, recorded by or furnished to the IRS. As the

district court pointed out, its conclusion that the record evidence

decisively indicates that the checks did not become data in the

custody of the IRS is bolstered by other factors. As in Ryan,

information collected by the United States Attorney’s Office, even

with the assistance of an IRS Special Agent, is not information

belonging to the Secretary of the Treasury--it is within the

custody of the Attorney General or the Department of Justice.

Baskin, 1996 WL 512384, at *7(citing Ryan, 74 3d at 1163.). In

addition, because the six checks payable to Baskin from City

Associates, Inc., were submitted to and within the custody of the

14
grand jury, they were protected from disclosure by Fed.R.Crim.P.

6(e).3 Id. Moreover, the IRS’s internal rules inform its

personnel that “[i]nformatiion which a Service employee receives or

develops while acting as an agent of a non-tax grand jury is not

return information.” Id. at *9(quoting Internal Revenue Manual

§1272, ch. 27(70)(3)).

3.

There was no violation of § 6301(d) for the same reasons we

have stated above. Section 6301(d) governs the disclosure of tax

returns and tax return information to state and local tax agencies.

Because the information disclosed by Rodriquez was not tax returns

or tax return information Baskin’s argument based on this alleged

violation is also without merit.

Conclusion

The source of the six checks at issue in this case was a grand

jury subpoena and not the Internal Revenue Service. The six checks

in the custody of the United States Attorney were not transferred

to the custody of the IRS. Therefore, the six checks were not

“return information” as defined by IRC §6103(b)(2)(A).

Consequently, disclosure of copies of the checks to the HPD’s IAD

3
Fed. R. Crim. P. 6(e)(2)General Rule of Secrecy.
A grand juror, an interpreter, a stenographer, an operator of
a recording device, a typist who transcribes recorded testimony, an
attorney for the government, or any person to whom disclosure is
made under paragraph (3)(A)(ii) of this subdivision shall not
disclose matters occurring before the grand jury, except as
otherwise provided for in these rules. (emphasis added)

15
officers did not constitute a disclosure of return information in

violation of §6103(a). Moreover, the actions by the IRS Special

Agent while assigned to the grand jury did not transform the

information obtained by the grand jury into “return information.”

The decision of the district court is AFFIRMED.

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