PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

ROBERT B. SCRIMGEOUR,
Plaintiff-Appellant,

and

BAYVIEW FARM; DUCK CREEK
PARTNERS, L.P.; KING ROAD
ASSOCIATES; THE SCRIMGEOUR TRUST
UNDER AGREEMENT DATED
JANUARY 3, 1939; THE SCRIMGEOUR
TRUST UNDER COURT ORDER DATED
                                                               No. 97-1856
MARCH 21, 1989,
Plaintiffs,

v.

INTERNAL REVENUE; UNITED
STATES OF AMERICA,
Defendants-Appellees,

HARRY M. WALSH, JR.,
Movant.

Appeal from the United States District Court
for the District of Maryland, at Greenbelt.
Deborah K. Chasanow, District Judge.
(CA-94-2135-DKC)

Argued: April 7, 1998

Decided: July 24, 1998

Before WILLIAMS, Circuit Judge, PHILLIPS,
Senior Circuit Judge, and OSTEEN, United States
District Judge for the Middle District of
North Carolina, sitting by designation.

_________________________________________________________________
Affirmed by published opinion. Judge Williams wrote the opinion, in
which Senior Judge Phillips and Judge Osteen joined.

_________________________________________________________________

COUNSEL

ARGUED: John Francis Wester, Jr., SIDLEY & AUSTIN, Washing-
ton, D.C., for Appellant. Michelle Bachand O'Connor, Tax Division,
UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Appellees. ON BRIEF: Edward R. McNicholas, SIDLEY
& AUSTIN, Washington, D.C., for Appellant. Loretta C. Argrett,
Assistant Attorney General, Jonathan S. Cohen, Thomas J. Clark,
Lynne A. Battaglia, United States Attorney, Tax Division, UNITED
STATES DEPARTMENT OF JUSTICE, Washington, D.C., for
Appellees.

_________________________________________________________________

OPINION

WILLIAMS, Circuit Judge:

After the Internal Revenue Service's (IRS) Atlanta Service Center
improperly released his tax returns to a third-party, Robert Scrimgeour1
brought suit in the district court alleging wrongful disclosure of tax
returns in violation of I.R.C. § 7431 (West Supp. 1998)2 and viola-
(Text continued on page 4)
_________________________________________________________________
1 Several entities in which Robert Scrimgeour held an interest were also
plaintiffs in the suit: Bayview Farm, Duck Creek Partners, L.P., King
Road Associates, Scrimgeour Trust under Agreement dated January 3,
1939, and Scrimgeour Trust under Court Order dated March 21, 1989.
For convenience, we refer to the plaintiffs collectively as Scrimgeour.
2 I.R.C. § 7431 provides for a civil damages action by taxpayers against
the IRS, when the IRS has violated provisions of I.R.C. § 6103 (West
1989 & Supp. 1998), which mandates confidentiality of tax returns. The
text of I.R.C. § 7431, entitled "Civil damages for unauthorized inspection
or disclosure of returns and return information" provides in pertinent
part:

         (a) In general. --

                    2
          (1) Inspection or disclosure by employee of United States.
          -- If any officer or employee of the United States know-
          ingly, or by reason of negligence, inspects or discloses any
          return or return information with respect to a taxpayer in vio-
          lation of any provision of section 6103, such taxpayer may
          bring a civil action for damages against the United States in
          a district court of the United States.

          ....

          (c) Damages. -- In any action brought under subsection
          (a), upon a finding of liability on the part of the defendant,
          the defendant shall be liable to the plaintiff in an amount
          equal to the sum of --

          (1) the greater of --

           (A) $1,000 for each act of unauthorized inspection or
          disclosure of a return or return information with respect to
          which such defendant is found liable, or

           (B) the sum of --

            (i) the actual damages sustained by the plaintiff as
          a result of such unauthorized inspection or disclosure, plus

            (ii) in the case of a willful inspection or disclosure
          or an inspection or disclosure which is the result of gross
          negligence, punitive damages, plus

          (2) the costs of the action.

I.R.C. § 7431 (West Supp. 1998).

Section 6103, entitled "Confidentiality and disclosure of returns and
return information" provides:

          (a) General rule. -- Returns and return information shall be con-
          fidential, and except as authorized by this title--

          (1) no officer or employee of the United States,

          (2) no officer or employee of any State, any local child sup-
          port enforcement agency, or any local agency administering a
          program listed in subsection (l)(7)(D) who has or had access to
          returns or return information under this section, and

          (3) no other person (or officer or employee thereof) who has

                    3
tions of the Privacy Act, 5 U.S.C.A. § 552a(b) & (c) (West 1996 &
Supp. 1998).3 At the conclusion of a three-day bench trial, the district
court determined that the tax returns had been negligently released
and awarded Scrimgeour statutory damages under I.R.C. § 7431.
Because the court determined that the IRS's release of the information
was neither willful nor grossly negligent, the district court denied
punitive damages under I.R.C. § 7431 and found for the IRS on the
Privacy Act claims. Scrimgeour made a post-trial motion for recovery
of attorneys' fees under I.R.C. § 7430 (West Supp. 1998).4 The dis-
_________________________________________________________________

          or had access to returns or return information under subsection
          (e)(1)(D)(iii), paragraph (6) or (12) of subsection (l), paragraph
          (2) or (4)(B) of subsection (m), or subsection (n),

          shall disclose any return or return information obtained by him
          in any manner in connection with his service as such an officer
          or an employee or otherwise or under the provisions of this sec-
          tion. For purposes of this subsection, the term"officer or
          employee" includes a former officer or employee.

I.R.C. § 6103 (West Supp. 1998). After setting out the general rule,
I.R.C. § 6103 provides a series of exceptions, none of which are relevant
here.
3 "The Privacy Act of 1974 was enacted to `protect the privacy of indi-
viduals identified in information systems maintained by Federal agen-
cies,'" Aquino v. Stone, 957 F.2d 139, 141 (4th Cir. 1992) (quoting Pub.
L. No. 93-579, § 2(a)(5), 88 Stat. 1896 (1974)), and to "safeguard[ ] the
public from unwarranted collection, maintenance, use and dissemination
of personal information contained in agency records," Wilborn v. Dep't
of Health & Human Services, 49 F.3d 597, 600 (9th Cir. 1995). The Act
states:

          No agency shall disclose any record which is contained in a
          system of records by any means of communication to any per-
          son, or to another agency, except pursuant to a written request
          by, or with the prior written consent of, the individual to whom
          the record pertains.

5 U.S.C.A. § 522a(b) (West Supp. 1998). An award of damages is autho-
rized only in the case of "intentional or willful" violations. See 5
U.S.C.A. § 552a(g)(1), (4) (West 1996).
4 The text of that section, entitled "Awarding of costs and certain fees"
provides in pertinent part:

                    4
trict court denied the motion on the ground that I.R.C. § 7430 did not
apply to actions arising under I.R.C. § 7431 that were unrelated to any
tax proceeding.

Scrimgeour appeals the district court's ruling that the IRS's release
of his tax returns was neither willful nor grossly negligent. Addition-
ally, he appeals the denial of attorneys' fees. Finding no error, we
affirm.

I.

The material facts are not disputed. The events leading to the
release of Scrimgeour's tax returns began in May 1993 when his sis-
ter, Sally Scrimgeour, filed suit in the Circuit Court of Talbot County,
Maryland. That suit was part of an ongoing dispute between the sib-
lings relating to the management of family trust funds and property.
In an effort to obtain information to support the lawsuit, Sally Scrim-
geour's attorney, Harry M. Walsh, Jr., submitted two sets of forty-
three requests for tax returns related to Scrimgeour, the Scrimgeour
trust, and other entities in which Scrimgeour had a financial interest.
Each of the requests consisted of a completed Form 4506,5 signed by
Walsh, and a "clearly insufficient" subpoena. (J.A. at 380.) One set
of requests was submitted to the IRS's Philadelphia Service Center
and the other set to the Atlanta Service Center.
_________________________________________________________________
           (a) In general. -- In any administrative or court proceeding
           which is brought by or against the United States in connection
           with the determination, collection, or refund of any tax, interest,
           or penalty under this title, the prevailing party may be awarded
           a judgment or a settlement for --

          (1) reasonable administrative costs incurred in connection
          with such administrative proceeding within the Internal Revenue
          Service, and

          (2) reasonable litigation costs incurred in connection with
          such court proceeding.

I.R.C. § 7430 (West Supp. 1998).

5 Form 4506 is the form appropriately used when a taxpayer requests
a copy of his or her own tax return.

                    5
When the Philadelphia Service Center received the requests for the
release of the tax returns, the IRS personnel immediately noticed that
the requests were invalid and refused to supply the requested informa-
tion. At the Atlanta Service Center, however, the deficiencies in the
requests went unnoticed, and Scrimgeour's tax returns were released
to Walsh.

Robert Scrimgeour did not become aware that his tax returns were
being improperly released until the returns were produced during a
November 9, 1993, deposition related to the suit filed by his sister.
After the deposition had concluded, on November 24, 1993, Lester
Fant, Scrimgeour's attorney, wrote and hand delivered a letter to the
IRS's Office of Chief Inspector informing the IRS of the improper
release of his client's tax returns. The letter also requested an investi-
gation and asked that the IRS intervene to stop the ongoing release
of Scrimgeour's tax returns.

The Office of Chief Inspector sent Fant's letter to the Deputy
Inspector for Internal Security who subsequently passed the letter on
to the IRS Integrity and Hotline Section. The Deputy Director who
oversaw the Hotline Section, Keith Alan Kuhn, treated Fant's letter
as a request for a criminal investigation of the releases that had
occurred at the Atlanta Service Center and forwarded the letter to the
Regional Office of Inspector in Philadelphia. After following this cir-
cuitous route, Fant's letter was assigned to an inspector in Washing-
ton, D.C. In the interim, while the letter was changing hands, the
Atlanta Service Center improperly continued to release Scrimgeour's
tax returns.

On February 7, 1994, the inspector met with Fant and discussed the
factual background of the allegations in the letter. After their discus-
sion, the inspector met with an attorney in the IRS Office of Assistant
Chief Counsel to obtain a legal opinion regarding whether any crimi-
nal violations occurred when the Atlanta Service Center released
Scrimgeour's tax returns. After discussion, the inspector and attorney
agreed that the allegations of criminal wrongdoing were not supported
by the facts. Thereafter, the inspector and the attorney arranged a con-
ference call with the Atlanta Service Center to notify it regarding the
improper disclosures and to obtain further information. After this tele-
phone call to the Atlanta Service Center, employees were notified that

                     6
they should not process any additional Forms 4506 submitted by
Walsh.

II.

Scrimgeour filed his complaint in the United States District Court
for the Southern District of Maryland on August 1, 1994.

Although the initial complaint did not enumerate the requested
damages, by the date of the pretrial conference Scrimgeour sought:
(1) actual damages of $110,000 for additional attorneys' fees
incurred in the lawsuit with his sister; (2) actual damages of
$100,000 for emotional distress; (3) punitive damages of $10 million
for the IRS's willful and/or grossly negligent actions; and
(4) attorneys' fees. In the alternative, Scrimgeour sought statutory
damages of $1000 for each of the unauthorized releases.

The case proceeded to a bench trial, at the conclusion of which the
district court ruled that the IRS had negligently released Scrimgeour's
tax returns and awarded statutory damages of $61,000 in accordance
with the provisions of I.R.C. § 7431(c)(1)(A) (West Supp. 1998).6
The district court, however, determined that the IRS had released the
tax information as the result of simple negligence, not as the result of
gross negligence or willfulness, and declined to award punitive dam-
ages. See I.R.C. § 7431(c)(1)(B)(ii) (West Supp. 1998). Further,
because the district court determined that the release of the tax returns
was neither intentional nor willful, the court entered judgment for the
IRS on the Privacy Act claim. See 5 U.S.C.A.§ 552a(g)(4) (West
1996) (stating that damages for violations of the provisions of the Pri-
vacy Act relating to the unauthorized release of information are
recoverable only when the agency acted in an intentional or willful
manner).
_________________________________________________________________
6 Robert Scrimgeour, Scrimgeour Trust under Court Order dated March
21, 1989, Bayview Farm, and King Road Associates prevailed on their
claims for statutory damages for the release of sixty-one tax documents.
The district court dismissed for lack of standing the claims of Duck
Creek Partners, L.P., and Scrimgeour Trust under Agreement dated Janu-
ary 3, 1939, because those entities were dissolved prior to the release of
the tax returns. Scrimgeour does not appeal this ruling.

                    7
After the trial, Scrimgeour made a motion for reasonable litigation
costs under I.R.C. § 7430 (West Supp. 1998), which provides for the
award of attorneys' fees in litigation with the IRS under certain condi-
tions. Scrimgeour argued that he met the requirements of I.R.C.
§ 7430 because: (1) he had exhausted his administrative remedies,
see I.R.C. § 7430(b)(1); (2) he had substantially prevailed with
respect to the amount in controversy or the most significant issue pre-
sented, see I.R.C. § 7430(c)(4)(A)(i); (3) the IRS's position in the lit-
igation was not substantially justified, see I.R.C. § 7430(c)(4)(B)(i);
and (4) his net worth was not in excess of $2 million at the time the
action was filed, see I.R.C. § 7430(c)(4)(D). The district court, how-
ever, did not reach the merits of these factual assertions because it
determined that, as a matter of statutory construction, I.R.C. § 7430
did not apply to civil actions arising under I.R.C.§ 7431 that are
based upon releases of tax returns that did not occur during the course
of tax collection or a tax-related proceeding.

Subsequently, Scrimgeour filed this appeal. He argues that the dis-
trict court erred when it determined that the IRS did not act in a will-
ful or grossly negligent manner when it released his tax returns.
Additionally, Scrimgeour asserts that the district court's legal analysis
of the attorneys' fees statute was incorrect. We address these chal-
lenges to the district court's decisions in turn.

III.

First, Scrimgeour argues that willfulness is a legal question subject
to de novo review and that the release of his tax returns was willful
as a matter of law because the IRS made a conscious decision to pur-
sue an investigation into potential criminal wrongdoing at the Atlanta
Service Center before ensuring that the improper releases of his tax
returns ceased.7 Therefore, he contends that the district court's deci-
_________________________________________________________________
7 Section 6103 of the tax code, the provision that safeguards the confi-
dentiality of tax returns, and of which the plaintiff must prove a violation
to qualify for damages under I.R.C. § 7431, contains a limited privilege
for the release of tax returns in the course of an investigation. See I.R.C.
§ 6103(k)(6) (West Supp. 1998). That section provides as follows:

          An internal revenue officer or employee may, in connection with
          his official duties relating to any . . . criminal tax investigation

                     8
sion to deny punitive damages under I.R.C. § 7431(c)(1)(B)(ii) was
erroneous. Additionally, Scrimgeour asserts that the definition of will-
fulness under the Privacy Act is "materially indistinguishable" from
that which applies under I.R.C. § 7431(c)(1)(B)(ii). Thus, Scrimgeour
contends that the district court erred when it ruled for the IRS on his
Privacy Act claims. We address these claims in turn.

A.

Section 7431(c)(1)(B)(ii) of the Internal Revenue Code allows for
the recovery of punitive damages in wrongful disclosure cases only
when the disclosure was willful or grossly negligent.8 Under
_________________________________________________________________
          or any other offense under the internal revenue laws, disclose
          return information to the extent that such disclosure is necessary
          in obtaining information that is not otherwise reasonably avail-
          able . . . with respect to . . . any provision of this title. Such dis-
          closures shall be made only in such situations and under such
          conditions as the Secretary may prescribe by regulation.

Id. The applicable regulation, 26 C.F.R. § 301.6103(k)(6)-1(b)(4) (1993),
authorizes the release of tax returns to the extent necessary to obtain
information "[t]o establish or verify misconduct (or possible misconduct)
or other activity proscribed by the internal revenue laws." Id. For reasons
that are not entirely clear from the record, the IRS did not raise this
potential defense below.
8 Punitive damages are not awarded for the purpose of compensating
the victim for a wrong, but rather are "`assessed for the avowed purpose
of visiting a punishment upon the defendant;'" "rationalized on the
ground that [they] deter[ ] persons from violating the rights of others,"
and "justified as a `bounty' that encourages private lawsuits seeking to
assert legal rights." Smith v. Wade, 461 U.S. 30, 58 (1983) (Rehnquist,
J., dissenting) (emphasis in original) (quoting C. McCormick, Law of
Damages 275 (1935)). Because such damages represent an extraordinary
award, plaintiffs are often required to prove that the defendant acted with
a higher level of culpability than would otherwise be required for the
recovery of compensatory damages. See, e.g., Wedeman v. City Chevro-
let Co., 366 A.2d 7, 13 (Md. 1976) ("wanton or reckless disregard for the
rights of others"); Cook v. Lanier, 147 S.E.2d 910, 915 (N.C. 1966) (not-
ing that actual malice, willful or wanton misconduct, or reckless indiffer-
ence to the rights of others is required for an award of punitive damages);
Hicks v. McClandlish, 70 S.E.2d 629, 631 (S.C. 1952) (requiring wan-
tonness, willfulness, or recklessness). In this instance, Congress has man-
dated that the plaintiff prove either willfulness or gross negligence to
obtain punitive damages. See I.R.C. § 7431(c)(1)(B)(ii) (West Supp.
1998).

                    9
§ 7431(c)(1)(B)(ii), grossly negligent9 conduct is "that which is . . .
marked by wanton or reckless disregard of the rights of another."
Barrett v. United States, 100 F.3d 35, 40 (5th Cir. 1996) (internal
quotation marks omitted) (enunciating the meaning of gross negli-
gence under I.R.C. § 7431(c)(1)(B)(ii)). In contrast, simple negli-
gence is the lack of due care. See Zfass v. Commissioner, 118 F.3d
184, 188 (4th Cir. 1997) ("Negligence denotes`lack of due care or
failure to do what a reasonable and ordinarily prudent person would
do under the circumstances.'" (quoting Korshin v. Commissioner, 91
F.3d 670, 672 (4th Cir. 1996))).

Whether the IRS acted with the requisite gross negligence for an
award of punitive damages under § 7431 is a factual issue. See id. On
appeal from a bench trial, we may only set aside findings of fact if
they are clearly erroneous, and we must give due regard to the oppor-
tunity of the district court to judge the credibility of the witnesses. See
Fed. R. Civ. P. 52(a). "A finding is `clearly erroneous' when although
there is evidence to support it, the reviewing court on the entire evi-
dence is left with the definite and firm conviction that a mistake has
been committed." United States v. United States Gypsum Co., 333
U.S. 364, 395 (1948). "[W]here there are two permissible views of the
evidence, the factfinder's choice between them cannot be clearly erro-
neous." Zfass, 118 F.3d at 188 (alteration in original and internal quo-
tation marks omitted).

In the present case, the district court analyzed the actions taken by
the IRS at the Atlanta Service Center both before and after the receipt
of Fant's letter.

1.

First, the district court analyzed the circumstances surrounding the
initial release of Scrimgeour's tax returns from the photocopy unit at
the Atlanta Service Center in response to the obviously improper
Forms 4506. The district court concluded that the initial releases were
_________________________________________________________________
9 The district court found that the IRS was not grossly negligent in the
handling of Scrimgeour's tax returns and therefore did not address the
higher standard of willfulness. Thus, we also begin our analysis with a
consideration of whether the IRS was grossly negligent.

                     10
the result of negligence. In support of its conclusion that the photo-
copy unit was negligent, the district court stated that a reasonable per-
son in the IRS employees' position "should have realized [the
requests] didn't look right; they didn't look normal; they didn't look
the same as they had been used to processing." (J.A. at 380-81.) Fur-
ther, the district court noted that the initial disclosures were "a negli-
gent oversight, a failure of making sure that the training stuck and that
employees in the photo copy unit in Atlanta knew to ask a supervisor
or the disclosure officer if they saw a subpoena." (J.A. at 383.)

We are not "left with a definite and firm conviction" that the dis-
trict court made a mistake when it concluded that the initial release
of Scrimgeour's tax returns was the result of simple negligence. The
record reflects that the employees who responded to the Forms 4506
were simply careless. They processed and released tax returns that the
employees in the Philadelphia Service Center immediately recognized
to be inadequate. There is no evidence on the record before us that
indicates that the Atlanta Service Center's response reflects any
greater level of culpability than simple negligence, i.e., lack of due
care. To prevail under § 7431(c)(1)(B)(ii) Scrimgeour bears the bur-
den of demonstrating that the employees' actions were "marked by
wanton or reckless disregard of the rights of another," Barrett, 100
F.3d at 40 (internal quotation marks omitted). Because there was no
evidence presented showing that the service center personnel pos-
sessed the higher level of culpability required for gross negligence,
the district court did not clearly err when it held that the initial
releases of Scrimgeour's tax forms did not meet the threshold for
recovery under either § 7431(c)(1)(B)(ii).

2.

Scrimgeour argues, however, that even if the initial disclosures
were not willful or grossly negligent, the disclosures that continued
after Fant's letter was received at the IRS investigative division were
the product of willfulness. Scrimgeour's argument has two compo-
nents: (1) that the IRS acted willfully when it opted to place a higher
priority on investigating possible criminal wrongdoing at the Atlanta
Service Center than it placed on stopping ongoing releases of his tax
returns; and (2) that the IRS willfully mishandled the investigation
when it passed Fant's letter from hand to hand delaying the investiga-

                     11
tion process and thereby unnecessarily allowing the Atlanta Service
Center to continue disclosing his tax information. We address these
contentions in turn.

a.

First, the district court determined, and we agree, that the IRS's
decision to pursue a criminal investigation was not the product of
gross negligence. Fant's letter implied that the releases might have
been the product of an illegal arrangement between Walsh and some-
one within the Atlanta Service Center and specifically requested that
the IRS investigate this possible illicit connection. To facilitate the
criminal investigation, there was no immediate order issued to stop
the continuing release of Scrimgeour's tax returns. The investigator
who first handled the letter thought that the investigation would be
foiled should Walsh's contact at the Atlanta Service Center discover
that the IRS was seeking the source of the releases. With the benefit
of omniscient hindsight, this judgment has been called into question
because of the length of the ensuing delay. The initial decision, how-
ever, was made by the IRS's investigative team in an effort to safe-
guard Scrimgeour's rights, as well as the rights of all other taxpayers
whose forms were processed at the Atlanta Service Center. Because
the IRS investigative team was using procedures intended to follow-
up on the taxpayer's request for an investigation, ultimately to protect
his privacy rights, we do not believe that the district court clearly
erred when it determined that this decision-making process was not
grossly negligent.

b.

Scrimgeour further argues that the approximately ten-week delay
in stopping the release of his tax returns that occurred while the IRS
was pursuing its investigation of the Atlanta Service Center and
Fant's letter was passed from hand to hand in various investigative
divisions of the IRS constituted gross negligence.

We agree with Scrimgeour that the delay was unnecessary. Fant's
complaint got tangled in the web of the IRS's bureaucracy and trav-
eled from Washington, D.C., to Philadelphia and back again before
the investigation was concluded and the IRS took steps to stop the

                     12
releases of Scrimgeour's tax returns. This delay, however, does not
demonstrate gross negligence. The letter's journey was the result of
a plodding and inefficient attempt to remedy the complaint; gross
negligence requires a higher level of culpability than inefficiency in
accomplishing the objective -- it requires wanton or reckless disre-
gard of rights. The record reflects that each individual who came into
possession of the letter used his best professional judgment to resolve
Fant's complaint. Therefore, here too, the district court's conclusion
was not clearly erroneous.

Both the IRS's initial release of information in response to clearly
inadequate requests and its snail-paced handling of Fant's complaint
did fall below an objective standard of reasonableness, and thus the
IRS was properly liable for damages under I.R.C.§ 7431's negligence
standard. The district court, however, did not clearly err when it deter-
mined that the IRS was not grossly negligent. We need not separately
assess whether the IRS's conduct was willful. If conduct does not
meet the threshold of gross negligence, it cannot meet the slightly
higher level of culpability embraced by the willfulness standard.
Therefore, the district court's denial of punitive damages under
§ 7431 was appropriate.

B.

Scrimgeour's Privacy Act claims rest upon the identical factual
allegations as did his claims under I.R.C. § 7431. In contrast to I.R.C.
§ 7431, the Privacy Act establishes a standard of "intentional or will-
ful" behavior that, "`[o]n a continuum between negligence and the
very high standard of willful, arbitrary, or capricious conduct . . . is
viewed as only somewhat greater than gross negligence.'" Waters v.
Thornburgh, 888 F.2d 870, 875 (D.C. Cir. 1989) (quoting Analysis of
House and Senate Compromise Amendments to the Federal Privacy
Act, 120 Cong. Rec. 40,405, 40,406 (1974), reprinted in Legislative
History of the Privacy Act of 1974 at 991 (1976)). Thus, the standard
for intentional or willful behavior under the Privacy Act has been
articulated as "an act committed `without grounds for believing it to
be lawful, or by flagrantly disregarding others' rights under the Act.'"
Id. (quoting Albright v. United States, 732 F.2d 181, 189 (D.C. Cir.
1984)). Because the Privacy Act requires that a plaintiff meet a stan-
dard higher than gross negligence to prove liability, whereas I.R.C.

                    13
§ 7431(c)(1)(B)(ii) specifies gross negligence, the plaintiff must dem-
onstrate greater culpability on the part of the defendant to support a
finding of liability under the Privacy Act. Therefore, because, as we
just determined, the district court did not clearly err when it deter-
mined that the IRS was not grossly negligent, Scrimgeour cannot
demonstrate the higher standard of culpability required for recovery
under the Privacy Act.

IV.

Scrimgeour also challenges the district court's denial of his post-
trial request for an award of attorneys' fees under I.R.C. § 7430. The
district court ruled that § 7430 did not apply to actions for unlawful
disclosure of tax returns arising under I.R.C. § 7431 when a disclo-
sure was not made during the course of the IRS's effort to collect,
determine, or refund a tax, refund, or penalty. Applying our de novo
standard of review to this statutory construction question, see United
States v. Linney, 134 F.3d 274, 282 (4th Cir.), cert. denied, 118 S. Ct.
1852 (1998), we affirm.

Internal Revenue Code § 7430 provides for an award of attorneys'
fees when the taxpayer prevails in an action "[i]n any administrative
or court proceeding which is brought by or against the United States
in connection with the determination, collection, or refund of any tax,
interest, or penalty under this title."10 I.R.C. § 7430(a) (emphasis
added). The district court ruled that, although Scrimgeour's action
under I.R.C. § 7431 clearly qualified as a court proceeding brought
against the United States, his tax returns were not released "in con-
nection with the determination, collection, or refund of any tax, inter-
est or penalty," because the release had occurred in connection with
a family controversy over a trust, not within the context of an adjudi-
cation or investigation of a tax dispute. The district court, therefore,
ruled that the release of Scrimgeour's tax returns did not meet the
requirements of I.R.C. § 7430, and he could not recover attorneys'
fees.
_________________________________________________________________
10 Currently, several amendments to I.R.C. § 7430 are pending as part
of the Internal Revenue Service Reform and Restructuring Act. See H.R.
2676, 105th Cong. § 311 (1997). The proposed amendments do not affect
the language at issue here.

                    14
Scrimgeour asserts that the district court wrongly decided this legal
question on two theories. First, he asserts that damages recovered
under I.R.C. § 7431 constitute a "penalty" when that term is accorded
its common and ordinary meaning. Therefore, Scrimgeour contends
that all actions arising under I.R.C. § 7431 occur in connection with
the determination of a penalty because the act of meting out damages
under I.R.C. § 7431 is itself the act of determining a penalty. Alterna-
tively, Scrimgeour argues that all illegal releases of tax returns cogni-
zable under § 7431 are made in connection with the determination of
a tax, refund, or penalty because the tax return was initially filed so
that the IRS could determine the proper tax due. Therefore, Scrim-
geour contends, the subsequent storage of the tax return, and its even-
tual unauthorized release, also occur in connection with the
determination of a tax. We address these arguments seriatim.

A.

Scrimgeour first argues that I.R.C. § 7430 applies to actions arising
under I.R.C. § 7431 because the latter section assesses a penalty
against the IRS for wrongful disclosure when one gives "penalty" its
common and ordinary meaning. Scrimgeour cites to us many possible
definitions of "penalty" in support of his assertion.

First, he proffers that a "penalty" is "an`elastic' term which
includes `any extraordinary liability to which the law subjects a
wrongdoer in favor of the person wronged, not limited to damages
suffered.'" (Appellant's Br. at 32-33 (quoting O'Sullivan v. Felix, 233
U.S. 318, 324 (1914)).) Scrimgeour also offers this definition, "`[a]n
enactment which has as its purpose the punishment of conduct per-
ceived as wrongful . . . regardless of the terminology employed by the
legislature.'" (Appellant's Br. at 33 (citing United States v. Unsecured
Creditors' Comm., 977 F.2d 137, 139 (4th Cir. 1992)).) Further,
Scrimgeour cites Black's definition of "penalty," "`[a]n elastic term
with many different shades of meaning' including`[a] statutory liabil-
ity imposed on [a] wrongdoer in [an] amount which is not limited to
the damages suffered by the party wronged.'" (Appellant's Br. at 33
(alterations in original) (quoting Black's Law Dictionary 1133 (6th
ed. 1990)).) We note that none of these definitions has its origins in
the tax code.

                     15
Scrimgeour is correct in asserting that we begin our statutory anal-
ysis with the plain language of the statute. See Alexander S. v. Boyd,
113 F.3d 1373, 1383 (4th Cir. 1997), cert. denied, 118 S. Ct. 880
(1998). "If the `statutory language is unambiguous and the statutory
scheme is coherent and consistent,' our inquiry ends." Id. (quoting
Robinson v. Shell Oil Co., 117 S. Ct. 843, 846 (1997)). Words that are
not defined within the statute are accorded their plain and ordinary
meaning. See id. at 1383. "[W]here words are employed in a statute
which ha[ve] . . . a well-known meaning at common law or in the law
of this country, [however] they are presumed to have been used in
that sense." EEOC v. Gilbarco, Inc., 615 F.2d 985, 990 (4th Cir.
1980) (internal quotation marks omitted) (first alteration in original).
Outside the context of the tax code, "penalty" has the broad meanings
Scrimgeour urges upon us. Within the tax code, however, the word
"penalty" is a term of art with a more circumscribed meaning.

Although it is not specifically defined in the tax code, "penalty" is
used in two contexts. First, it is frequently used in the phrase "under
penalty of perjury." See, e.g., I.R.C.§ 25(e)(2) (West Supp. 1998).
That usage is plain and needs no further explanation here. In all of its
other iterations within the tax code, the term "penalty" is used to
describe a fine or other punishment taxpayers face when they fail to
comply with the directives of the Internal Revenue Code. See, e.g.,
I.R.C. § 72(q)(1) (West Supp. 1998); I.R.C.§ 138(c)(2) (West Supp.
1998). Nowhere within the code is "penalty" used to describe com-
pensatory damages11 that can be recovered by the taxpayer for gov-
_________________________________________________________________
11 The damages awarded under § 7431 are compensatory in nature,
designed to compensate the plaintiff for an invasion of privacy. Cf. Rob-
ert P. Butts, IRS Liability for Wrongful Disclosures Made in the Process
of Tax Collection: Should the Validity of the Underlying Collection
Activity be Considered?, 102 Dick. L. Rev. 67, 71 (1997) (noting that
§ 7431 protects taxpayer privacy). The $1,000 statutory damage award
specified in I.R.C. § 7431(c)(1)(A), is included for the benefit of taxpay-
ers. Actual damages for the invasion of privacy that occurs when tax
returns are wrongfully disclosed can be hard to quantify. In order to
encourage taxpayers to act as "private attorneys general" and pursue suits
against the IRS for violations of I.R.C. § 6103, Congress enacted the stat-
utory damages provision to ensure that in meritorious cases of wrongful
release a taxpayer would not walk away from the courthouse empty-
handed for failure of proving damages. See generally, Barber v. Kim-
brell's, Inc., 577 F.2d 216, 222 n.14 (4th Cir. 1978) (explaining the pur-
pose of statutory damages).

                    16
ernmental wrongdoing.12 Therefore, construing the tax code as a
whole, we cannot agree with Scrimgeour's argument that damages
recovered under I.R.C. § 7431 constitute a"penalty" as that word is
used in the code. Cf. Alexander S., 113 F.3d at 1384 ("[I]dentical
terms within an Act should be given the same meaning."); Salomon
Forex, Inc. v. Tauber, 8 F.3d 966, 975 (4th Cir. 1993) (stating that
words recurring within statutes must be interpreted consistently).

B.

Scrimgeour next asserts that even if I.R.C. § 7431 does not itself
provide for the determination of a penalty, I.R.C.§ 7430 still applies
to his cause of action. Scrimgeour asserts that the wrongfully released
tax returns were stored after the IRS computed and determined the
tax, refund, or penalty due. Because the storage of the tax return was
a necessary by-product of the tax collection process, Scrimgeour con-
tends that the release of his tax return from storage must have
occurred "in connection with the determination, collection, or refund
of any tax, interest, or penalty under [Title 26]." I.R.C. § 7430(a).

Currently, there is some disagreement among the circuits on the
issue of whether an action under I.R.C. § 7431 automatically falls
within the attorneys' fees provision of I.R.C. § 7430. The Fifth Cir-
cuit has held that all I.R.C. § 7431 actions in which the release of tax
returns took place during the course of a tax proceeding occur "in
connection with the determination, collection, or refund of any tax,
interest, or penalty" because such actions arise directly as a result of
IRS possession of tax records. See Huckaby v. United States, 804 F.2d
297, 298 (5th Cir. 1986). On the other hand, the Eighth Circuit,
addressing the question of whether a release of tax returns occurring
outside the tax computation system meets § 7430's requirements, held
that a case-by-case analysis is required. See McLarty v. United States,
6 F.3d 545, 548 (8th Cir. 1993). Scrimgeour's argument tracks the
Fifth Circuit's analysis.
_________________________________________________________________

12 Such recoveries are referred to as "civil damages." I.R.C. § 7431
(West Supp. 1998); I.R.C. § 7432 (West 1989); I.R.C. § 7433 (West
Supp. 1998); I.R.C. § 7435 (West Supp. 1998).

                    17
In Huckaby, the Fifth Circuit held that an unauthorized release of
tax return information had occurred because the income tax returns
were in the IRS's possession for the purpose of determining tax liabil-
ity. See Huckaby v. United States, 804 F.2d 297, 298 (5th Cir. 1986).
Because the tax records were put in storage immediately after the tax
determination process had occurred, the Fifth Circuit reasoned that
their continued storage and eventual release were linked to the deter-
mination of the initial tax. Therefore, the release occurred "in connec-
tion with the determination, collection, or refund of any tax, interest,
or penalty." The Fifth Circuit reached this conclusion in circum-
stances where the release of tax return information occurred during a
proceeding directly related to the tax collection process -- the returns
had been released to state tax authorities. See id. at 300-301. Although
the Fifth Circuit announced a broad rule in Huckaby, that court has
not ruled specifically whether a release of tax returns into a forum
completely unrelated to taxes meets § 7430's"in connection with"
requirement. The Ninth Circuit has followed the Fifth Circuit's
approach, noting that its interpretation was a broad reading of the "in
connection with" language of I.R.C. § 7430 and that a broad reading
was proper. See Smith v. Brady, 972 F.2d 1095, 1099-1100 (9th Cir.
1992).

In contrast, the Eighth Circuit, specifically addressing the situation
in which tax returns were wrongfully released in non-tax-related cir-
cumstances, determined that the IRS's mere continuing storage of a
taxpayer's old tax returns did not automatically entitle a plaintiff to
recovery of attorneys' fees under I.R.C. § 7430's "in connection with"
language. See McLarty v. United States, 6 F.3d 545, 548 (8th Cir.
1993).

In McLarty, tax return information was disclosed during the course
of a challenge to a pro hac vice admission of an attorney. See id. The
Eighth Circuit reasoned that the release of tax return information had
not occurred "in connection with the determination, collection, or
refund" of his taxes, but rather had occurred during the proceedings
relating to his pro hac vice admission. See id. The Eighth Circuit
explained that I.R.C. § 7430 applied only to"proceedings . . . brought
. . . in connection with the determination, collection, or refund of any
tax," and that an action under I.R.C. § 7431 was not per se a proceed-
ing related to the determination of tax liability. See id. The court fur-

                     18
ther noted that a proceeding under § 7431 is brought to vindicate
rights under § 6103, which protects tax payer confidentiality generally
and is not limited to determination, collection, or refund proceedings.
See id. Therefore, in McLarty, the Eighth Circuit held that an award
of attorneys' fees under § 7430 was not warranted when the release
of tax information occurred during the course of a pro hac vice admis-
sion proceeding because the pro hac vice proceeding was completely
unrelated to tax matters. See id. Under the Eighth Circuit's reasoning,
the question of whether § 7431 proceedings qualify for recovery of
attorneys' fees under § 7430 must be addressed on a case-by-case
basis after examining the context of the challenged release.

In analyzing the issues presented in this case, we begin by recog-
nizing that proceedings brought under § 7431 do not automatically
qualify as "an[ ] administrative or court proceeding which is brought
by or against the United States in connection with the determination,
collection or refund of any tax, interest or penalty under this title."
I.R.C. § 7430(a). We do not question that tax forms are initially filed
to facilitate tax or refund computation. However, when a tax return
is stored at the IRS and is not reexamined, the determination, collec-
tion, or refund of the tax, interest, or penalty has been completed. The
return may be revisited later for a new determination, but in the
interim the IRS is acting merely as a document repository. It is not
daily determining and redetermining the tax owed by or refund due
to the taxpayers represented by the returns. The appropriate time-
frame for determining whether an improper release has occurred in
connection with a tax matter is the time of the release, not the time
of storage. Although all tax forms are stored as the result of tax com-
putation activities, not all releases occur "in connection with the
determination, collection, or refund of any tax, interest, or penalty."
Therefore, we agree with the Eighth Circuit that the inquiry of
whether a § 7431 action meets the § 7430 requirements for recovery
of attorneys' fees is contextual.

Examining the context here, we hold that the release of Scrim-
geour's tax returns from storage, into a non-tax-related forum has not
occurred "in connection with the determination, collection, or refund
of any tax" and he does not qualify for attorneys' fees under § 7430.
Scrimgeour was not being audited, nor was he the subject of a tax
investigation of any kind. Rather, the release of Scrimgeour's tax

                    19
returns occurred during extra-judicial discovery undertaken by an
attorney in the course of an intra-family dispute over the management
of a trust.

We believe this result is not only mandated by the statutory lan-
guage, but also by precedent. The Supreme Court has noted that an
attorneys' fee award statute is a limited waiver of sovereign immu-
nity. See Ardestani v. INS, 502 U.S. 129, 137 (1991). As such, it must
be narrowly construed in favor of the sovereign. See id.; Research
Triangle Inst. v. Board of Governors of the Fed. Reserve Sys., 132
F.3d 985, 987 (4th Cir. 1997). Section 7430 does not specifically
authorize an award of attorneys' fees for an unauthorized release of
tax returns. Therefore, we believe that the narrower construction of
the statute, which examines each release on a case-by-case basis to
determine whether it has occurred in connection with a tax matter and
awards fees only when the tax returns have been inappropriately
released in the course of a tax-related proceeding or investigation, is
required.

V.

Based upon the foregoing discussion, the rulings of the district
court are affirmed in all respects.

AFFIRMED

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