REVISED - December 18, 2000
UNITED STATES COURT OF APPEALS
For the Fifth Circuit
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No. 99-40205
___________________________
DENNIS C. GANDY,
Plaintiff-Appellant,
VERSUS
UNITED STATES OF AMERICA,
Defendant-Appellee.
___________________________________________________
Appeal from the United States District Court
For the Eastern District of Texas
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December 11, 2000
Before DAVIS and EMILIO M. GARZA, Circuit Judges, and POGUE1,
District Judge.
W. EUGENE DAVIS, Circuit Judge:
In this action by Dennis Gandy, a taxpayer, against the United
States to recover damages under 26 U.S.C. §7431(a)(1) for wrongful
oral and written disclosures of his “tax return information,” the
district court dismissed the suit and Gandy appeals. The issues on
appeal are: 1) whether the district court clearly erred by finding
that the statute of limitations began to run on the written
disclosures in 1990, and 2) whether the district court erred by
1
Judge, U.S. Court of International Trade, sitting by
designation.
1
holding that the IRS agents made the oral disclosures in good
faith. For the reasons that follow, we affirm.
I.
In 1989, IRS Special Agent Ronnie McPherson (“McPherson”) was
assigned to conduct a criminal investigation of Dennis Gandy
(“Gandy”) for the years 1985, 1986, and 1987. Special Agent Laura
Sanders (“Sanders”) was later assigned to assist with the
investigation. On September 19, 1990, McPherson sent a form letter
soliciting financial information from 269 customers of the Dennis
Gandy Nursery (“Nursery”), which was owned and operated by Gandy.
A sentence in the body of the “circular” letter to Gandy’s
customers stated that Gandy was under investigation by the Criminal
Investigation Division of the IRS.
The district court dismissed as time barred both counts of
Gandy’s complaint seeking recovery for the written disclosures in
the circular letter. The court found that Gandy learned in 1990 of
the wrongful disclosures the agent made in this letter and that the
two year statute of limitations therefore began to run in 1990.
Because Gandy filed his complaint in 1996, the court held that the
two counts of his complaint concerning the written disclosures made
in the letter were time barred.
In addition to Gandy’s claim based on the written disclosures,
Gandy also sought damages based on oral disclosures. The oral
disclosures at issue were made by McPherson and Sanders when they
told potential witnesses and other third parties that they were
conducting a criminal investigation of Gandy.
2
Following a full bench trial, the district court held that
McPherson and Sanders believed in good faith, although erroneously,
that they were authorized by 26 U.S.C. § 6103 to tell third parties
that Gandy was under criminal investigation. The district court
dismissed Gandy’s suit and this appeal followed.
II.
Gandy argues first that the district court erred in dismissing
as time barred his claim for wrongful written disclosure of tax
return information. 26 U.S.C. § 7431 acts as a waiver of sovereign
immunity for suits seeking damages for wrongful disclosure of tax
return information. 26 U.S.C. § 7431(d) provides that a claim for
wrongful disclosure of tax return information must be brought
“within two years after the date of discovery by the plaintiff of
the unauthorized disclosure.” If a waiver of sovereign immunity
contains a limitations period, a plaintiff’s failure to timely file
suit deprives the court of jurisdiction. United States v. Dalm,
494 U.S. 596, 608, 110 S.Ct. 1361, 1368 (1990); Dunn-McCampbell
Royalty Interest, Inc. v. National Park Serv., 112 F.3d 1283, 1287
(5th Cir. 1997)(“. . . failure to sue the United States within the
limitations period is not merely a waivable defense. It operates
to deprive federal courts of jurisdiction.”).
The district court’s finding that Gandy knew of the contents
of the written disclosures in the circular letter more than two
years before filing the complaint is a factual finding reviewed for
clear error. Emmons v. Southern Pacific Transp. Co., 701 F.2d
1112, 1124 (5th Cir. 1983). The court based its finding on the
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testimony of Patricia Davidson (“Davidson”) and Bob Cartwright
(“Cartwright”).
Davidson, who worked as a receptionist at the Nursery,
testified that shortly after the letters were mailed, she answered
phone calls from approximately 100 customers who wanted to speak to
Gandy about the IRS letter. Davidson testified that she overheard
Gandy reassuring these customers that the IRS would clear him of
any wrongdoing. Cartwright, one of Gandy’s customers, testified
that after receiving the letter, he called Gandy and told him he
had received a letter from a criminal investigator.
Gandy testified that he did not have actual knowledge of the
contents of the letters. But credibility calls are for the
district court and it committed no error in choosing to believe
Davidson and Cartwright, rather than Gandy. Thus, the district
court’s finding that the statute of limitations began to run on the
written disclosures in 1990 was not clearly erroneous. Therefore,
the district court correctly concluded that the two counts of
Gandy’s complaint relating to written disclosures were time barred.
The district court had no jurisdiction over this claim because the
United States has not waived sovereign immunity for untimely suits.
III.
Gandy next argues that McPherson and Sanders made unnecessary
disclosures of tax return information when they orally disclosed to
potential witnesses that they were conducting a criminal tax
investigation of Gandy. The district court held that the United
States was not liable for McPherson and Sanders’s oral disclosures
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of Gandy’s tax return information because the IRS agents acted
under a good faith, although erroneous, interpretation of 26 U.S.C.
§ 6103. We review the district court’s conclusion that agents
McPherson and Sanders acted in good faith as a mixed question of
fact and law. We review the court’s subsidiary fact findings for
clear error and its legal conclusions and application of law to
fact de novo. Robicheaux v. Radcliff Material, Inc., 697 F.2d 662,
666 (5th Cir. 1983). The subsidiary facts are undisputed.
Therefore, the legal question is whether McPherson and Sanders, as
reasonable agents, acted in good faith when they orally disclosed
that Gandy was under criminal investigation. We begin our analysis
with a consideration of the relevant statutes and the IRS’s
interpretation of these statutes as reflected in its regulations
and manuals.
26 U.S.C. § 6103(a)(1) states that “no officer or employee of
the United States . . . shall disclose any return or return
information obtained by him in any manner . . . .” The government
stipulates that the agents’ oral statements that they were
conducting a criminal investigation constitute disclosure of return
information. However, 26 U.S.C. § 6103(k)(6), which includes an
exception to 26 U.S.C. § 6103(a)(1), provides, in pertinent part:
An internal revenue officer or employee may, in
connection with his official duties relating to any . .
. criminal tax investigation . . ., disclose return
information to the extent that such disclosure is
necessary in obtaining information, which is not
otherwise reasonably available, with respect to the . .
. liability for tax . . . . Such disclosures shall be
made only in such situations and under such conditions as
the Secretary may prescribe by regulation.
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Id. (emphasis added).
The relevant provisions in the IRS’s regulations and manuals
are Treasury Regulation § 301.6103(k)(6)-1 and §§ 348.3 and 347.2
of the Handbook. Treasury Regulation § 301.6103(k)(6)-1 states
that:
[A]n officer or employee of the Internal Revenue Service
. . . is authorized to disclose taxpayer identity
information (as defined in section 6103(b)(2)), the fact
that the inquiry pertains to the performance of official
duties, and the nature of the official duties in order to
obtain necessary information relating to the performance
of such official duties . . . .
Id. (emphasis added). Section 348.3 of the Handbook, entitled
Disclosures for Investigative Purposes, provides that:
Special agents are specifically authorized by I.R.C. §
6103(k)(6) to disclose return information to the extent
necessary to gather data which may be relevant to a tax
investigation. Situations in which special agents may
have to make such disclosures in order to perform their
duties arise on a daily basis. For example, this occurs
whenever they contact third parties believed to have
information pertinent to a tax investigation.
Section 347.2 of the Handbook deals specifically with circular
letters sent out by IRS agents.2 At the time the agents made the
oral disclosures at issue - before it was changed in 19923 - §
347.2 of the Handbook provided that:
Caution must be exercised not to damage the reputation of
the taxpayer by making the letter either offensive or
suggestive of any wrongdoing by the taxpayer. It must
2
Circular letters are form letters sent out in mass mailings
to gather information about a taxpayer under investigation.
3
We look to the provisions in the regulations and manuals as
they existed at the time of the oral disclosures, regardless of any
subsequent changes. All statements regarding these provisions
refer to the provisions as they existed at the time.
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not be disclosed in the body of the letter that the
taxpayer is under investigation by the Criminal
Investigation Division. Appropriate wording could be
“The Internal Revenue Service is conducting an
investigation of . . .”. [sic] Any reference to the
Criminal Investigation Division must be restricted to the
signature blocks or ancillary headings. . . . The title
“Special Agent” and Criminal Investigation Division will
be included in the signature block.”
The district court held that the oral disclosures at issue
were not necessary. However, we need not decide the difficult
legal question of whether agents McPherson and Sanders’s oral
disclosures that Gandy was under criminal investigation were
necessary if we agree with the district court that agents McPherson
and Sanders, as reasonable agents, were in good faith in believing
that the disclosures were authorized and therefore necessary. We
therefore turn to the United States’ good faith defense.
26 U.S.C. § 7431 supplies a civil remedy for violations of 26
U.S.C. § 6103. However, § 7431(b) provides that “[n]o liability
shall arise under this section with respect to any inspection or
disclosure--(1) which results from a good faith, but erroneous,
interpretation of section 6103 . . . .” Id. (emphasis added).
This court defined the test for good faith under 26 U.S.C. §
7431(b) in Huckaby v. United States, 794 F.2d 1041 (5th Cir. 1986).
We stated that “the good-faith defense in section 7431(b) should be
judged by an objective standard analogous to that employed in
Harlow. . . . Harlow would find officials acting in good faith
when ‘their conduct does not violate clearly established statutory
or constitutional rights of which a reasonable person would have
known.’” Id. at 1048 (quoting Harlow v. Fitzgerald, 457 U.S. 800,
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818, 102 S.Ct. 2727, 2738 (1982)).
We later stated in Huckaby that:
The question then, as we have noted, is whether a
reasonable IRS agent would be acquainted with the
statute, and his own agency’s interpretation of the
statute as reflected in its regulations and manuals. The
answer is self-evident. A reasonable IRS agent can be
expected to know the provisions of sections 6103 and
7431, as they may be further clarified by IRS regulations
and other IRS interpretations.
Id. at 1048-49 (footnote omitted).4
This Court interpreted the good faith provision of 26 U.S.C.
§ 7431(b) once again in Barrett v. United States, 51 F.3d 475 (5th
Cir. 1995). We stated that “[a] reasonable IRS agent can be
expected to know statutory provisions governing disclosure, as
interpreted and reflected in IRS regulations and manuals.” Id. at
479 (citing Huckaby, 794 F.2d at 1048). We stressed the importance
of the agent following the procedures and rules that are found in
the Handbook. We concluded that the disclosure in Barrett was not
in good faith because “the Chief of the Criminal Investigation
Division had not approved the content of the circular letters as
4
Gandy also argues that in addition to the factors listed by
this Court to determine whether an agent has acted in good faith,
another factor is federal court decisions. Gandy cites three cases
from other circuits: Heller v. Plave, 657 F.Supp 95 (S.D. Fla.
1987), Rodgers v. Hyatt, 697 F.2d 899 (10th Cir. 1983), and May v.
United States, 141 F.3d 1169 (8th Cir. 1998)(unpublished opinion),
as well as Johnson v. Sawyer, 640 F.Supp. 1126 (S.D. Tex. 1986) and
Huckaby v. United States, 794 F.2d 1041 (5th Cir. 1986). He argues
that these cases prohibit the oral disclosures at issue in this
case. However, the only case Gandy relies on that involves an
agent’s oral disclosure to a potential witness that the taxpayer is
under criminal investigation is a case from the Southern District
of Florida - Heller. We decline to impose a burden on agents to
follow a single district court opinion, particularly from a
jurisdiction outside the territory in which they work.
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required by Chapter 347.2 of the IRS ‘Handbook for Special
Agents.’” Id. at 479.
With this background, we now consider the arguments of the
parties.
IV.
Gandy argues that a reasonable IRS agent could not have acted
in good faith in orally disclosing that Gandy was under criminal
investigation when § 347.2 of the Handbook prohibits such a
disclosure in circular letters - a form of written disclosure.
Gandy argues that no reasonable agent could interpret the IRS
regulations and manuals to authorize a statement if it is made
orally, while forbidding it in a written disclosure.5
We agree with the United States that § 347.2 of the Handbook
does not control the question of whether the agents acted in good
faith by orally disclosing that Gandy was under criminal
investigation. Section 347.2 does not purport to have general
application to all disclosures; it is expressly limited to circular
letters, which are by definition mailed to large numbers -
sometimes hundreds - of potential witnesses.
In contrast to circular form letters mailed to hundreds of
business contacts, oral disclosures are typically made during one-
5
Gandy also argues that McPherson and Sanders should have been
aware of instructions of IRS supervisors within their district
prohibiting an agent from saying that a taxpayer is under criminal
investigation. These alleged instructions were described at trial
by a former IRS Criminal Investigation Division supervisor, Vernon
Hampton. However, the district court was not compelled to credit
Hampton’s testimony, or to find that a reasonable agent should have
been aware of these comments.
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on-one contacts with potential witnesses. These contacts are much
more focused than a mass mailing. Also, agents are obviously more
selective in choosing these witnesses with whom they will
personally meet. Because of the differences in the nature of the
circular letter or mass mailing and the personal contact where oral
disclosures are typically made, we are persuaded that a reasonable
agent would conclude that the specific rules governing written
disclosures in circular letters would not apply across the board to
all disclosures, including oral disclosures.
Treasury Regulation § 301.6103(k)(6)-1 and § 348.3 of the
Handbook buttress this conclusion and tend to support an agent’s
conclusion that he can orally inform a potential witness that he is
conducting a criminal investigation. Treasury Regulation §
301.6103(k)(6)-1 provides that an IRS agent may disclose the
“nature of the [his] official duties . . .” when conducting an
investigation of a taxpayer. This would lead agents McPherson and
Sanders, as reasonable agents, to conclude that they were
authorized to disclose the nature of their official duties as a
criminal tax investigation.
Section 348.3 of the Handbook provides further support for
this conclusion. This section provides that “[s]ituations in which
special agents may have to make such disclosures [of return
information] in order to perform their duties arise on a daily
basis. For example, this occurs whenever they contact third
parties believed to have information pertinent to a tax
investigation.”
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Also, it is clear to us that agents are authorized to display
their credentials and badges identifying them as Criminal
Investigation Division agents when interviewing a third party.6
Knowledgeable persons know that agents in the criminal division
conduct only criminal investigations. An agent’s knowledge that
his badge identifies his area of investigation further supports a
reasonable agent’s conclusion that he is authorized to orally
disclose - what the third party probably already knows - that the
agent is conducting a criminal investigation.
For all the reasons stated above, we agree with the district
court that agents McPherson and Sanders, as reasonable agents, had
a good faith belief that they could disclose the criminal nature of
the investigation.
AFFIRMED.
6
Section 977(11).1(4) of the Internal Revenue Manual currently
states - as it did at the time of McPherson and Sanders’s oral
disclosures - that “a special agent will properly identify
himself/herself by producing his/her pocket commission at the time
of the interview.”
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