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Government Can't Hide Behind Code Sec. 6103 to Deny Documents to Taxpayer
(Parker Tax Publishing: October 29, 2013)

It seemed unlikely to the court that all of the materials confiscated by the IRS that were being sought by the taxpayer constituted returns such that Code Sec. 6103 prevented them from being turned over. Gourmet Express, LLC v. U.S., 2013 PTC 315 (N.D. Calif. 10/9/13).

Robert Scully was the chief executive officer of Gourmet Express from January 2008 until mid-2009. In May 2008, the IRS executed a search warrant and collected evidence at a home owned by Robert in California in connection with a criminal investigation of Robert in Texas. The warrant authorized the seizure of Records related to federal income tax returns filed by ROBERT SCULLY and KEVIN SCULLY and Gourmet Express, LLC, Records relating to Gourmet Express, LLC and its relationship with product suppliers and their representatives including . . . Groupwel1 International (HK) Limited, and Records pertaining to the business of Gourmet Express, LLC. Robert was indicted in Texas for, among other things, tax evasion. The indictment contended that Robert concealed income for tax purposes by creating four shell companies controlled by relatives, including Groupwell International Limited (Groupwell), using them to inflate the cost Gourmet Express paid for food products, and siphoning off those excess costs.

In September 2009, Groupwell filed a civil lawsuit against Gourmet Express in a Kentucky district court seeking payment for the goods they supplied to Gourmet Express. Gourmet Express filed counterclaims against Groupwell contending that they were involved in defrauding Gourmet Express. Gourmet Express asked the government to reproduce the documents it seized in the May 2008 search of Robert's home. The government opposed the request, primarily citing Code Sec. 6103.

Code Sec. 6103 provides that returns and return information are confidential, and except where authorized under the Internal Revenue Code, no officer or employee of the United States can disclose any return or return information obtained by him in any manner in connection with his service as an officer or an employee or otherwise. At the same time, the court noted, Congress realized tax information on file with the IRS was often important to other government agencies and revised Code Sec. 6103 to represent a legislative balancing of the right of taxpayers to the privacy of tax information in the hands of the IRS and the legitimate needs of others for access to that information. The statutory definitions of return and return information to which the entire statute relates, the court observed, confines the statute's coverage to information that is passed through the IRS, but that is as far as the statute goes.

The court ordered the government to reproduce the property requested within 14 days, unless the government filed a motion to stay enforcement of the order that is accompanied by authority supporting its arguments. It seemed unlikely to the court that all of the material at issue constituted returns because Code Sec. 6103(b)(1) provides that a return means any tax or information return, declaration of estimated tax, or claim for refund required by, or provided for or permitted under, the Internal Revenue Code, which was filed with the Secretary of Treasury by, on behalf of, or with respect to any person, and any amendment or supplement thereto, including supporting schedules, attachments, or lists that are supplemental to, or part of, the return so filed. The warrant sought Robert's returns, but it also sought Gourmet Express' tax returns, as well as documents other than tax returns that related to Gourmet Express' business. At least some of the information sought, the court stated, was probably not filed with the Secretary of Treasury by Robert, and in any case, the United States did not demonstrate that all of it was. The question of whether the material constituted a return, the court said, appeared to turn on the scope of the definition of return information of Code Sec. 6103(b)(2).

The court noted that the government had submitted no affidavits or competent evidence of any kind that demonstrated that the materials qualified as return information. If a document's status as return information is contingent on certain facts not known, the court stated, the government had to do more. It was not clear to the court that any IRS official had even reviewed the material and determined which documents qualified as return information, and why. The burden was similarly on the government to justify its decision not to disclose.

For a discussion of Code Sec. 6103, see Parker Tax ¶265,153. (Parker Tax Publishing Staff Writers)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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