Skip to Highlights
Highlights

Attorney-Advisor Claims Group/GGD is advised that a claim against the Internal Revenue Service (IRS)) cognizable under 26 U.S.C. While agreeing that payment from the Judgment Fund is appropriate to this case. (The file is now returned to you as an attachment to this memorandum.). That the authority for allowing it is provided. The bases for these conclusions are explained below. The case is rather simple: IRS allowed a local television news crew to film one of its offices in conjunction with a news story about the IRS. On one of those papers was the claimant's name. Next to it was a handwritten notation to the effect that he was bankrupt. That footage was included in the news story shown in the claimant's community.

View Decision

B-238692 February 26, 1990

Neill Martin-Rolsky, Attorney-Advisor Claims Group/GGD is advised that a claim against the Internal Revenue Service (IRS)) cognizable under 26 U.S.C. Sec. 7431 (1982) (which authorizes civil actions for negligent disclosure of tax information) can be administratively settled (but not compromised) by IRS under authority granted by .31 U.S.C. Sec.(s) 3526, 3702 (1982), as amended, and delegated by GAO to the agencies. The amount due under the settlement may not be paid from the Judgment Fund, 31 U.S.C. Sec. 1304 (1982), and must be returned to IRS for payment from its appropriations.

Memorandum

DATE: February 26, 1990 TO: Judgment Group Manager, GGD/Claim - Ken Schutt, THRU: Acting Assistant General Counsel - Tom Armstrong FROM: Attorney-Advisor - Neill Martin-Rolsky

SUBJECT: Claim of Thomas Easterly against the Internal Revenue Service, Z-2896634 (B-238692)

This case concerns a claim against the Internal Revenue Service (IRS) for negligent disclosure of tax return information. The IRS forwarded this claim for payment from the Judgment Fund, 31 U.S.C. Sec. 1304 (1982), as amended, along with a citation to 31 U.S.C. Sec. 3723 (1982), commonly known as the "Small Claims Act." While agreeing that payment from the Judgment Fund is appropriate to this case, Jon Ellifritz questioned IRS's use of the Small Claims Act as the legal authority for that payment, and forwarded the Z file for my consideration. (The file is now returned to you as an attachment to this memorandum.) After reviewing the file and consulting informally with the IRS staff, /1/ I find that IRS appropriations must be used to pay this claim, and that the authority for allowing it is provided, not by the Small Claims Act, but rather by 26 U.S.C. Sec. 7431, in combination with 31 U.S.C. Sec.(s) 3526, 3702 (1982), as amended. The bases for these conclusions are explained below.

Factually, the case is rather simple: IRS allowed a local television news crew to film one of its offices in conjunction with a news story about the IRS. Among other things, the camera crew shot some footage of an IRS staffer's desk covered with official work papers. On one of those papers was the claimant's name. Next to it was a handwritten notation to the effect that he was bankrupt. That footage was included in the news story shown in the claimant's community. While the news story was not about the claimant or his finances, the information about him on the sheet of paper mentioned above was clearly readable. Adding "insult to injury," IRS subsequently discovered that the claimant was not bankrupt. IRS concluded that it was negligent in allowing the camera crew to film in an area where protected tax return information was accessible. For this reason, IRS decided that early settlement of the claim would be desirable. The claimant felt likewise, and both sides agreed upon $1,000 as the proper value of the claim.

At some point in this process, IRS began to investigate what its authority might be to settle this claim. First, IRS found that the Federal Tort Claims Act (FTCA), 28 U.S.C. ch. 171 (1982), would not apply to this claim. Next, IRS unsuccessfully asked the Justice Department to compromise the debt under 28 U.S.C. Sec. 2414 (1982). Then, IRS considered its liability under 26 U.S.C. Sec. 7431 which provides a right of civil action for negligent disclosure of tax return information. /2/ IRS realized that this statute dealt with the precise problem before it. However, IRS could find nothing in it to authorize administrative settlement of the claim prior to the filing of suit. For this reason, IRS decided it was not applicable.

Finally, IRS turned to the Small Claims Act (SCA). IRS noted that the SCA allows agency heads to settle claims for "damage to, or loss of, privately owned property" where the claims (1) arise from the negligent activity of a government officer or employee acting within the scope of his or her employment, (2) do not exceed $1,000, and (3) are not within the scope of the FTCA. 31 U.S.C. Sec. 3723(a). IRS reasoned that, in the absence of any other applicable statutory authority, the SCA would have to "take up the slack." (The IRS staff with whom I spoke admitted that they saw their conclusion as "twisting" the SCA to a purpose which Congress may not have intended; but they saw no realistic alternative.) The IRS also noted that SCA settlements are payable from the Judgment Fund. 31 U.S.C. Sec. 3723(c). Consequently, IRS submitted the claim to GAO for certification.

It is clear to me that the FTCA and the compromise authority afforded to the Attorney General under 28 U.S.C. 2414 do not apply to this cased /3/ Neither does the SCA. However, my reasoning on this point differs somewhat from Jon's. In challenging the IRS's use of that act, Jon questioned the inclusion of damage to reputation as damage to or loss of "privately owned property." While I am not presently prepared to accept Jon's suggestion that reputation could never be considered "privately owned property" (especially in view of the case law arising under the Due Process clauses of the Constitution with respect to reputational harm, see, e.g., B-205172-O.M., Sept. 19, 1983, citing Wisconsin v. Constantineau, 400 U.S. 433, 437 (1971); 408 U.S. 564, 573 (1972)), I do agree that its inclusion in the present case is inappropriate.

It would appear from the record that Congress, in enacting the SCA, gave little thought to the meaning of the term, "privately owned property." Cf., e .g., , 21 Comp.Gen. 411, 412 (1941), quoting 38 Op. Att'y Gen. 514 (1936). However, the legislative history of that act does make clear that Congress intended it to apply only to those situations where the claimant, both suffered a tortuous loss and, as a result of sovereign immunity, lacked any other legal basis upon which to enforce his or her claim against the government. Thus, the SCA does not apply to any claims which can be legally enforced against the government under other statutory waivers of sovereign immunity. 21 Comp.Gen. at 416418. See also 4 Comp.Gen. 876, 879 (1925) ("[W]here there is both a general and a special statute covering disposition of private property damage claims against the United States, the special statute is exclusively applicable to the class of claims coming thereunder.").

This conclusion forces a reconsideration of 26 U.S.C. Sec. 7431. As noted above, IRS rejected application of this provision to the present claim because no suit had been filed and IRS could find nothing in 26 U.S.C. Sec. 7431 or its legislative history that addressed the possibility of administrative settlement of claims otherwise cognizable under it. The IRS staff familiar with the origin and legislative history of this provision advised me that Congress first created a right of civil action for negligent tax information disclosure in 1976. That right only ran against the individual government employees responsible for the disclosure. See 26 U.S.C. Sec. 7217 (1976). In a 1977 decision, GAO held that IRS could (under separate, discretionary, statutory authority) reimburse its employees for awards made under that law. See 56 Comp.Gen. 615 (1977). In 1982, that law was repealed and replaced with section 7431, which provided a direct right of action against the government, itself. See Pub. L. No. 97-248, Tit. III, Sec. 357(a), 96 Stat. 645 (1982), as amended. There is nothing in the language or (according to the IRS staff) the legislative histories of these two statutes which addresses the issue of prelitigatory, administrative settlements. /4/

It seems absurd to suggest, as IRS does, that the congressional provision of a right of civil action with no mention one way or the other concerning administrative settlement of such claims must necessarily be construed as precluding the latter and requiring the former where this would require the litigation of undisputed claims. What seems far more likely is that it simply never occurred to the Congress that IRS might voluntarily offer to pay such a claim. (Even the IRS staff felt compelled to comment to me on the irony of this case, in view of IRS's legendary "tight-fistedness.") However, in my view, there is no need to dwell upon the possible meaning of this particular bit of congressional silence because Congress has already created a separate and wholly adequate statutory basis upon which otherwise valid claims against the government may be administratively settled: 31 U.S.C. Sec.(s) 3526, 3702.

As you know, sections 3526 and 3702 provide GAO with the authority settle and adjust (i.e., to administratively determine the validity of, but not to compromise) all claims of and against the United States. Cf. Illinois Surety Co. v. United States ex rel Peeler, 240 U.S. 214, 219-221 (1916); 20 Comp.Gen. 573 (1941). GAO has already delegated much of that authority to the agencies. See 4 GAO Policy and Procedures Manual for Guidance of Federal Agencies Sec.(s) 3.1, 5.1 (T.S. No. 4-21). These statutes clearly establish the authority of GAO and its delegatees (including the IRS) to administratively consider and allow those claims against the United States which are otherwise authorized by law. (It might even be presumed, as a matter of statutory construction, that Congress recalled and relied upon these longstanding provisions when it considered and enacted section 7431.) Since 26 U.S.C. Sec. 7431 makes the government liable for claims arising from the negligent release of tax return information, I conclude there was ample authority for IRS to administratively settle the present claim under 31 U.S.C. Sec.(s) 3526 and 3702, without the need to have litigation filed. In my discussions with them, the IRS staff agreed that the confluence of these authorities makes it unnecessary to "twist" the SCA to fit this claim.

With respect to the proper source of payment, however, I must disagree with both Jon and the IRS. Common sense might suggest that, because the administrative settlement of this claim is in lieu of requiring the claimant to pursue a statutory right of litigation which would surely result in judgment against the United States, the administrative settlement of claims cognizable under 26 U.S.C. Sec. 7431 should be paid in the same manner as would be judgments on similar claims. Under this reasoning, since the payment of judgments under section 7431 is not otherwise provided for, Judgment Fund payment of the settlement of this claim would be appropriate. 31 U.S.C. Sec. 1304. However, it has been previously held that settlements made under the authority codified in 31 U.S.C. Sec.(s) 3526 and 3702 are not payable from the Judgment Fund. Cf. B-130140, Jan. 29, 1957. For this reason, I recommend Claims Group return the captioned claim to IRS for payment from its appropriations. The IRS staff has agreed to this disposition of the matter.

Both the IRS staff, and the claimant's counsel asked that this matter receive promos processing by GAO. In view of the small amount that the claimant agreed to accept, as contrasted with the much larger amount that he might still claim and be awarded under section 7431 (if he becomes impatient and files suit), I think it would be prudent to expedite our action in this matter. Feel free to call me if you have any further question on this case.

Attachment

1. The IRS staff with whom I spoke included Mr. Bernie Weberman (252- 8036), Mr. Don Squires and Mr. Art Lappen (566-3321), and Mr. Joe Urban (566-3074). Mr. Urban, in particular, was represented to me by the other IRS staff as "the" expert with respect to the origin and legislative history of 26 U.S.C. 6 7431.

I was also called by the claimant's counsel, Mr. Greg Keller (612-471- 0171).

2. Damages allowable upon such actions include court costs plus the greater of $1,000, or the sum of the actual damages incurred and any punitive damages assessed for "gross negligence." Id.

3. The FTCA is inapplicable because it specifically excludes claims arising from libel, slander, and misrepresentation. 28 U.S.C. Sec. 2680(h), as amended. The compromise authority of 28 U.S.C. Sec. 2414 is similarly inapplicable because it contemplates "imminent litigation" involving a "genuine disagreement or impasse" which--short of mutual concessions--can only be resolved by the courts. Cf., e.g., 58 Comp. Gen. 667 (1979).

4. The IRS staff made a similar statement concerning the issue of what appropriation, if any, would be legally available to pay awards under section 7431. Our 1977 decision, as discussed in the text above, did allow the Judgment Fund to be used by IRS reimburse those of its employees who were held liable under the predecessor to section 7431. That conclusion was based upon provisions of the same separate statutory authority which allowed IRS to reimburse its employees in the first place. 56 Comp.Gen. 615, supra.

GAO Contacts