DAVID G. PFLUM, Plaintiff, Vs. UNITED STATES OF AMERICA, Defendant., IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS, No. 99-4170-SAC, March 19, 2002

DAVID G. PFLUM, Plaintiff, Vs. UNITED STATES OF AMERICA, Defendant.

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

No. 99-4170-SAC

March 19, 2002

MEMORANDUM AND ORDER

The case comes before the court on the report and recommendation (Dk. 37) filed by the United States Magistrate Judge and the plaintiff's objections (Dk. 38) to it. The plaintiff pro se filed this action alleging the Internal Revenue Service ("IRS") wrongfully disclosed his tax return information, in part, while defending two prior actions that the plaintiff had initiated with the filing of petitions to quash third-party administrative summonses. These summonses had been issued to financial institutions and others by Special Agent Laurence Schmidt of the IRS's Criminal Investigation Division as part of an investigation into the plaintiff's failure to file tax returns.

The government filed a motion for judgment on the pleadings (Dk. 12) ⁽¹⁾ which was referred to the magistrate judge for report and recommendation. The magistrate judge found that the plaintiff's complaint at ╤╤ 16-19 alleges the disclosures were made in judicial proceedings which pertained to tax administration and to which the plaintiff was a party. Consequently, the magistrate judge concluded that the defendant's disclosures of the tax information in response to the plaintiff's petitions to quash were authorized under 26 U.S.C. ╖ 6103(h)(4)(A). Based on this finding and conclusion, the magistrate judge recommended that the court grant the defendant's motion for judgment on the pleadings concerning the allegations and claims at ╤╤ 16-19 of the plaintiff's complaint.

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^1. The defendant's motion expressly seeks judgment only as to the claims alleged in ╤╤ 16-19 of the plaintiff's complaint. As stated, the defendant intends to address in a subsequent motion the plaintiff's other claims. (Dk. 13, p. 2, n. 1).

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The plaintiff objects to the report and recommendation arguing that the magistrate judge erroneously interpreted the statutory exception at ╖ 6103(h)(4)(A). The plaintiff maintains Congress could not have intended to allow an exception whenever the taxpayer is a party to a proceeding pertaining to tax administration. The plaintiff complains that such a broad exception undermines the confidentiality and protection otherwise afforded taxpayers by this statute. The plaintiff asks the court to circumscribe this exception by borrowing relevancy or necessity requirements from other provisions.

The defendant points out that the plaintiff's battle is with the plain terms of ╖ 6103(h)(4)(A) which clearly permit the kind of disclosures at issue here. As shown by the terms of other exceptions, Congress knew how to write an express relevancy requirement into ╖ 6103(h)(4)(A) but decided against this additional limitation when the taxpayer is a party to the proceeding. The relevancy requirement from the rules of evidence when read in conjunction with the particular law governing the judicial proceeding prevents the IRS from "dumping" confidential and irrelevant information in an effort to deter taxpayers from challenging IRS summonses. Finally, the defendant maintains that ╖ 6103(h)(4)(A) simply permits it to introduce that evidence believed necessary to satisfy its burden to enforce a summons.

STANDARD OF REVIEW

"De novo review is statutorily and constitutionally required when written objections to a magistrate's report are timely filed with the district court." Summers v. State of Utah , 927 F.2d 1165, 1167 (10th Cir. 1991) (citations omitted). Rule 72(b) of the Federal Rules of Civil Procedure requires a district judge to "make a de novo determination upon the record, . . ., of any portion of the magistrate judge's disposition to which specific written objection has been made in accordance with this rule. Those parts of the report and recommendation to which there has been no objection are taken as true and judged on the applicable law. See Campbell v. United States District Court for the Northern Dist. of California , 501 F.2d 196, 206 (9th Cir.), cert. denied , 419 U.S. 879 (1974). The district court has considerable discretion in choosing what reliance to place on the magistrate judge's findings and recommendations. See Andrews v. Deland , 943 F.2d 1162, 1170 (10th Cir. 1991) (citing United States v. Raddatz , 447 U.S. 667 (1980)), cert. denied , 502 U.S. 1110 (1992). When review is de novo , the district court is "'free to follow . . . or wholly . . . ignore'" the magistrate judge's recommendation, but it "'should make an independent determination of the issues'" without giving "'any special weight to the prior'" recommendation. Andrews v. Deland , 943 F.2d at 1170 (quoting Ocelot Oil Corp. v. Sparrow Industries , 847 F.2d 1458, 1464 (10th Cir. 1988)). In short, the district court may accept, reject, or modify the magistrate judge's findings, or recommit the matter to the magistrate judge with instructions. See 28 U.S.C. ╖ 636(b)(1)(C).

In deciding a Rule 12(c) motion for judgment on the pleadings, the district court employs the same standards governing a Rule 12(b)(6) motion to dismiss. Mock v. T.G. & Y. Stores Co., 971 F.2d 522, 528-29 (10th Cir. 1992). Dismissal should not be granted "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief," GFF Corp. v. Associated Wholesale Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir. 1997) (quoting Conley v. Gibson , 355 U.S. 41, 45-46 (1957)), or unless an issue of law is dispositive, Neitzke v. Williams, 490 U.S. 319, 326 (1989). A court judges the sufficiency of the complaint accepting as true all well- pleaded facts, Maher v. Durango Metals, Inc., 144 F.3d 1302, 1304 (10th Cir. 1998), and drawing all reasonable inferences from those facts in favor of the plaintiff. Witt v. Roadway Express, 136 F.3d 1424, 1428 (10th Cir.), cert. denied, 525 U.S. 881 (1998). These deferential rules, however, do not allow the court to assume that a plaintiff "can prove facts that it has not alleged or that the defendants have violated the . . . laws in ways that have not been alleged." Associated General Contractors v. California State Council of Carpenters, 459 U.S. 519, 526 (1983) (footnote omitted).

GOVERNING LAW

"Section 6103(a) of the Internal Revenue Code prohibits disclosure of tax return information unless expressly authorized by an exception." Rice v. United States , 166 F.3d 1088, 1090 (10th Cir. 1999) (citations omitted), cert. denied , 528 U.S. 933 (1999); 26 U.S.C. ╖ 6103(a). Section 6103 states numerous exceptions or authorized disclosures, including when the taxpayer is a party to a judicial proceeding pertaining to tax administration. 26 U.S.C. ╖ 6103(h)(4)(A). In the event of an unauthorized disclosure, an aggrieved taxpayer may bring a claim for damages against the United States. 26 U.S.C. ╖ 7431(a)(1). There is an exception to civil liability when the unauthorized disclosure "results from a good faith, but erroneous, interpretation of section 6103." 26 U.S.C. ╖ 7431(b)(1).

The statutory exceptions concerning disclosure in judicial and administrative tax proceedings are as follows:

A return or return information may be disclosed in a Federal or State judicial or administrative proceeding pertaining to tax administration, but only-

(A) if the taxpayer is a party to the proceeding, or the proceeding arose out of, or in connection with, determining the taxpayer's civil or criminal liability, or the collection of such civil liability, in respect of any tax imposed under this title;

(B) if the treatment of an item reflected on such return is directly related to the resolution of an issue in the proceeding;

(C) if such return or return information directly relates to a transactional relationship between a person who is a party to the proceeding and the taxpayer which directly affects the resolution of an issue in the proceeding; or

(D) to the extent required by order of a court pursuant to section 3500 of title 18, United States Code, or rule 16 of the Federal Rules of Criminal Procedure, such court being authorized in the issuance of such order to give due consideration to congressional policy favoring the confidentiality of returns and return information as set forth in this title.

However, such return or return information shall not be disclosed as provided in subparagraph (A), (B), or (C) if the Secretary determines that such disclosure would identify a confidential informant or seriously impair a civil or criminal tax investigation.

26 U.S.C. ╖ 6103(h)(4). As is apparent from the "or" connecting them, the exceptions "are stated in the disjunctive." Tavery v. United States , 32 F.3d 1423, 1430 (10th Cir. 1994). If one exception applies, the court need not consider the terms or applicability of any other exception. Id .

ANALYSIS AND HOLDING

The plaintiff does not take issue with the magistrate judge's conclusion that the proceedings he initiated with the filing of petitions to quash are "judicial . . . proceeding[s] pertaining to tax administration." 26 U.S.C. ╖ 6103(h)(4). "The term 'tax administration' is to be interpreted broadly." First Western Government Securities v. United States , 796 F.2d 356, 360 (10th Cir. 1986) (citation omitted). The district court agrees that a proceeding brought pursuant to 26 U.S.C. ╖ 7609(b)(2) to quash an IRS summons comes within the broad definition of a judicial proceeding pertaining to tax administration. Nor can the plaintiff dispute being a party to those proceedings having initiated both with the filing of petitions to quash. Simply put, the plain terms of ╖ 6103(h)(4)(a) apply here, and the plaintiff's complaint at ╤╤ 16-19 does not allege any unauthorized disclosures of tax return information. Moreover, the plaintiff has no factual or legal basis for challenging the applicability of this exception.

The plaintiff's arguments for adding requirements of necessity or relevance to this exception cannot get past the plain and unambiguous language of ╖ 6103(h)(4)(a), ⁽²⁾ are not sustained by the express terms of ╖ 6103(h), in particular the disjunctive nature of the exceptions stated there, and are not supported by any cited legislative history or judicial decisions interpreting or applying ╖ 6103(h)(4)(a). The plaintiff's policy reasons for adding requirements need not be discussed, because the court has no difficulty defining and applying the clear language of the statutory exception. It is not this court's role to graft limits onto the plain terms of this exception. For that matter, the exception of ╖ 6103(h)(4)(A) as applied here does not undermine or frustrate the statutory purpose of ╖ 6103, as the plaintiff initiated the judicial proceedings knowing the government would be required to carry its burden of proving a prima facie case for enforcement of the summons.

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^2. "A statute's plain meaning must be enforced." United States Nat. Bank v. Independent Ins. Agents , 508 U.S. 439, 454 (1993). "If the language is clear and unambiguous, then the plain meaning of the words must be given effect." Resolution Trust Corp. v. Love , 36 F.3d 972, 976 (10th Cir. 1994).

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The court concludes that the magistrate judge properly interpreted and applied the statutory exception and that the plaintiff has no tenable objection, legal or factual, to her report and recommendation. After reviewing de novo the defendant's motion for judgment on the pleadings and the plaintiff's opposition, the court finds that the plaintiff can prove no set of facts in support of his allegations and claims at ╤╤ 16-19 which would entitle him to relief. The court overrules the plaintiff's objection to the report and recommendation and grants the defendant's motion for judgment on the pleadings as to the allegations and claims in ╤╤ 16-19 of the plaintiff's complaint.

IT IS THEREFORE ORDERED that the plaintiff's objections (Dk. 38) to the magistrate judge's report and recommendation are overruled and that the defendant's motion for judgment on the pleadings (Dk. 12) is granted.

Dated this ___ day of March, 2002,

Topeka, Kansas.

Sam A. Crow,

U.S. District Senior Judge

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