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IRS AGENTS GONE WILD!

March 14, 2004

Oh, those wacky IRS agents!

IRS Agent Greg Heck was retiring after years of toiling in the vineyards of the tax law. IRS agents like a good party, like anyone else. One hundred revelers filled a restaurant in Tempe, Arizona, to celebrate Agent Heck's career. For whatever reason, the guest list included two defense attorneys with clients who were subjects of an ongoing criminal tax investigation.

That's how the party really got going.

We'll let the opinion of the Ninth Circuit Court of Appeals set the scene:

During the party, some of the guests "roasted" Special Agent Heck about his career as an IRS agent. In response to his friends' attempts at humor, Special Agent Heck read a prepared "counter-roast" and presented mementos to accompany his remarks. When he gave a Bagel Nosh baseball cap to a colleague, he commented as follows:

And from the owner of Bagel Brothers, Bagel Nosh, I almost said that right, Bagel Nosh. An item of evidence that you missed at the search of the Vullo's [sic] and ah Siddiqui's [sic] house. They want you to have it. It says tax evasion evidence inside. It's still a pending case.

Embroidered on the back of the cap was a citation to 26 U.S.C. § 7201. Section 7201 provides that tax evasion is a felony, punishable by a fine and/or imprisonment of not more than five years. When the citation was read aloud, one of (Bagel Nosh's) defense counsel called out "7206(1)." Section 7206(1) of the Internal Revenue Code provides that a person who willfully makes a false statement is guilty of a felony punishable by a fine and/or imprisonment of not more than three years.

Yessir, this party had it all: a roast, souvenirs, code sections countered by code subsections - and, as the court put it,

...a grossly negligent violation of § 6103(a)(1).

Section 6103 is the law requiring the IRS to keep taxpayer information confidential.

100 REVELERS, 100 VIOLATIONS?

A district court awarded the aggrieved taxpayers - five business owners and the business itself - $1,000 each in damages for one unauthorized disclosure of tax return information. The taxpayers thought that there were 100 unauthorized disclosures because there were 100 people in the room. Under that arithmetic, the awards to the six taxpayers would total $600,000, rather than $6,000.

The Ninth Circuit turned to Webster's Dictionary and decided that one "act" of disclosure occurred, even though 100 people witnessed the act. The court also ruled that punitive damages weren't clearly authorized under the facts, so they could not be assessed. After attorney fees, it's unlikely that the $1,000 received by each of the six taxpayers will go very far.

Ironically, now we all know about the Tempe Bagel Nosh criminal tax investigation, thanks to the lawsuit. What a party that is...

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