The opinion of the court was delivered by: Paul L. Friedman, District Judge.
This case was brought by plaintiffs Norman E. Duquette and Norman E.
Duquette, Inc. ("NEDI") under 26 U.S.C. § 6103 and 7431 of the
Internal Revenue Code. Section 6103 prohibits the disclosure of tax
returns and tax return information except as otherwise authorized by the
Internal Revenue Code. Section 7431 creates a cause of action for damages
for a taxpayer whose tax return or return information is disclosed in
violation of Section 6103.
Plaintiffs Norman Duquette and NEDI assert that the Internal Revenue
Service disclosed tax return information about NEDI to Mr. Duquette's
former wife, Aline Duquette, in violation of Section 6103. The IRS
maintains that the disclosures were authorized under Section 6103; that
even if they were not authorized, they were the result of a good faith
but erroneous interpretation of Section 6103; and that Mr. Duquette (but
not NEDI) lacks standing to prosecute this action. Plaintiffs
seek compensatory damages, punitive damages, attorneys' fees and costs.
The matter is now before the Court on the motion of the IRS for summary
judgment. The Court heard oral argument on August 16, 2000. Upon
consideration of the motions papers, declarations and exhibits filed by
the parties and the arguments of counsel, the Court concludes that there
are no genuine issues of material fact and that the IRS is entitled to
judgment as a matter of law. Defendant's motion for summary judgment will
On November 6, 1995, IRS Revenue Agent Pat Grimes was assigned to audit
the joint federal tax returns of Norman and Aline Duquette for tax years
1992 and 1993, as well as the corporate tax returns of NEDI for the same
years. Declaration of Pat Grimes ("Grimes Decl.") ¶ 1. On May 15,
1996, Agent Grimes notified NEDI that its 1992 and 1993 corporate tax
returns had been selected for examination. Id. ¶ 3. The audits for
both the personal and corporate returns were assigned to the same agent
because "the individual and corporate tax liability were interrelated for
the 1992 and 1993 tax years." Id. ¶ 5. Mr. and Mrs. Duquette were 50
percent shareholders, officers and members of the board of directors of
NEDI for the relevant tax years. Id. ¶ 6. The purpose of the
individual and corporate audits was to determine whether NEDI had been
used by the Duquettes to pay for personal expenses (including costs for
furniture, clothes, condo association fees, prescriptions, books,
magazine subscriptions, a vacuum, dry cleaning, cable TV fees, the cost
of maintaining two cars, certain travel expenses, etc.) and whether those
expenses should be treated as income to the Duquettes in the form of
constructive dividends from NEDI. Id. ¶¶ 7-8.
In July 1996, the Duquettes divorced. Under the terms of the divorce,
Mr. Duquette became the sole owner of NEDI and Mrs. Duquette surrendered
all professional and financial ties to the corporation. According to
plaintiffs, Mrs. Duquette and Agent Grimes had a telephone conversation on
March 26, 1997, in which Agent Grimes provided Mrs. Duquette with tax
liability information, requested information about NEDI's business
practices, and informed Mrs. Duquette that NEDI probably (or definitely)
had a tax deficiency for tax years 1992 and 1993. Declaration of Norman
E. Duquette ("Duquette Decl.") ¶¶ 1-5 and Exhibits 4, 5, 7.
Information gained by Mrs. Duquette through the telephone call was
subsequently used in the Duquettes' divorce property settlement
proceedings, allegedly to Mr. Duquette's disadvantage. Id. ¶¶ 7-8,
Agent Grimes ultimately concluded that the deductions taken by NEDI
were in fact personal expenses, that they should be treated as
constructive dividends to Mr. and Mrs. Duquette, that NEDI's deductions
for the personal expenses should be denied and its tax liability
readjusted, and that the Duquettes' total joint tax liability should be
increased accordingly. Grimes Decl. ¶ 9.
II. SUMMARY JUDGMENT STANDARD
Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment
should be granted if the pleadings, depositions, answers to
interrogatories, admissions on file and affidavits show that there is no
genuine issue of material fact in dispute and that the moving party is
entitled to judgment as a matter of law. Rule 56(c), Fed.R.Civ.P.
Material facts are those "that might affect the outcome of the suit under
the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248,
106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In considering a motion for
summary judgment, the "evidence of the non-movant is
to be believed, and all justifiable inferences are to be drawn in his
favor." Id. at 255, 106 S.Ct. 2505; see also Washington Post Co. v. US.
Dept of Health and Human Services, 865 F.2d 320, 325 (D.C.Cir. 1989).
The non-moving party's opposition, however, must consist of more than
mere unsupported allegations or denials and must be supported by
affidavits or other competent evidence setting forth specific facts
showing that there is a genuine issue for trial. Rule 56(e),
Fed.R.Civ.P.; Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct.
2548, 91 L.Ed.2d 265 (1986). The non-moving party is "required to provide
evidence that would permit a reasonable jury to find" in its favor.
Laningham v. US. Navy, 813 F.2d 1236, 1242 (D.C.Cir. 1987). If the
evidence is "merely colorable" or "not significantly probative," summary
judgment may be granted. Anderson v. Liberty Lobby, Inc., 477 U.S. at
III. THE DISCLOSURE WAS PERMISSIBLE UNDER 26 U.S.C. SECTION 6103
Section 6103(a) of the Internal Revenue Code renders all returns and
return information confidential with certain specified exceptions. The
term "return information" is broadly defined to include:
a taxpayer's identity, the nature, source, or amount
of his income, payments, receipts, deductions,
exemptions, credits, assets, liabilities, net worth,
tax liability, tax withheld, deficiencies,
overassessments, or tax payments, whether the
taxpayer's return was, is being, or will be examined
or subject to other investigation or processing, or
any other data, received by, recorded by, prepared
by, furnished to, or collected by the Secretary with
respect to a return or with respect to the
determination of the existence, or possible
existence, of ...