                                                                                                                           Opinions of the United
1994 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


10-18-1994

Venen v. USA
Precedential or Non-Precedential:

Docket 94-3050




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                   UNITED STATES COURT OF APPEALS
                       FOR THE THIRD CIRCUIT


                              No. 94-3050

                          DAVID P. VENEN,
                             Appellant

                                  v.

                     UNITED STATES OF AMERICA,
                             Appellee

        On Appeal from the United States District Court
           for the Western District of Pennsylvania
                    (D.C. Civil No. 92-1991)

         Submitted pursuant to Third Circuit LAR 34.1(a)
                         July 26, 1994

         Before:    BECKER and ALITO, Circuit Judges
                     and BRODY, District Judge*

                    (Filed:    October 18, 1994)

                     PETER M. SUWAK
                     Pete's Surplus Building
                     P.O. Box #1
                     Washington, PA 15301

                          Attorney for Appellant

                     LORETTA C. ARGRETT,
                       Assistant Attorney General
                     GARY R. ALLEN
                     WILLIAM S. ESTABROOK
                     RANDOLPH L. HUTTER,
                       Attorneys Tax Division
                     Department of Justice
                     P.O. Box #502
                     Washington, DC 20044


     * Hon. Anita B. Brody, United States District Judge for the
Eastern District of Pennsylvania, sitting by designation.
                    BONNIE R. SCHLUETER
                    Assistant U.S. Attorney
                    633 U.S. Post Office & Courthouse
                    Pittsburgh, PA 15219

                           Attorneys for Appellees



                         OPINION OF THE COURT



BRODY, District Judge,

          Plaintiff, David Venen, appeals from the district

court's grant of summary judgment for the defendant United States

in this suit for damages Venen claims resulted from unauthorized

tax collection actions, failure to release a tax lien, and

unauthorized disclosure of tax return information.    This appeal

presents two issues.

          The first issue is whether the plaintiff exhausted his

administrative remedies before seeking relief from the district

court for damages from unauthorized tax collection actions and

failure to release a tax lien.    We hold that plaintiff's failure

to comply with the regulations constitutes a failure to exhaust

and, therefore, the grant of summary judgment on these claims is

proper.

          The second issue arises in the claim for unauthorized

disclosure of tax return information.    Although the Tax Code

generally prohibits the disclosure of tax return information, it

authorizes disclosure when the tax return information relates to

collection activity, including a levy on assets to satisfy an

outstanding tax liability.    Plaintiff contends that the levies
against his assets were unlawful and therefore the information

relating to the levies was impermissibly disclosed.     The question

is whether it is relevant that the levy is unlawful.    We hold

that it is not and, therefore, that the grant of summary judgment

on the disclosure claim is proper.

          28 U.S.C. § 1291 gives us jurisdiction.

                                I.

          Venen's Amended Complaint asserts claims for

unauthorized tax collection actions under 26 U.S.C. § 7433

(Counts I, III and IV); failure to release a tax lien under 26

U.S.C. § 7432 (Counts II and V); and unauthorized disclosure of

tax return information under 26 U.S.C. § 7431 (Count VI).    The

district court granted summary judgment for defendant on Counts

I-V on the ground that Venen had failed to exhaust administrative

remedies as required by sections 7432 and 7433.     The court also

granted summary judgment for defendant on Count VI, holding that

the disclosures did not give rise to damages under section 7431

because the Internal Revenue Service of the United States (IRS)

made the disclosures to obtain information to collect taxes.

          The district court's grant of summary judgment is

subject to plenary review.   American Medical Imaging Corp. v. St.

Paul Fire ad Marine Ins. Co., 949 F.2d 690, 692 (3d Cir. 1991).

Summary judgment is appropriate where "the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party

is entitled to a judgment as a matter of law."   Fed. R. Civ. P.

56(c).   Defendants are entitled to summary judgment only if no

reasonable resolution of the conflicting evidence and the

inferences that could be drawn from that evidence could result in

a judgment for plaintiffs.   Anderson v. Liberty Lobby Inc., 477

U.S. 242, 248 (1986).   "[T]he mere existence of a scintilla of

evidence in support of plaintiffs['] position will be

insufficient[;] there must be evidence on which the jury could

reasonably find for the plaintiff[s]."   Id. at 252.   Since the

district court made no findings of fact, we will state the facts

from the record viewed in the light most favorable to Venen, the

non-moving party.

           Venen's claims result from efforts by the IRS to

collect the federal income taxes he owed for a ten-year period,

from 1977 through 1986.   In July 1979, Venen filed his tax

returns for years 1977 and 1978.   In March 1985, Venen filed

federal tax returns for years 1979 through 1983.     Shortly

thereafter, Venen entered into an agreement with the IRS to pay

his taxes in installments.   The installment agreement covered tax

years 1977 and 1978 as well as 1979 through 1983.1

          On November 27, 1987, while Venen was complying with

the installment agreement, the IRS issued to Venen's employer the

     1
        Appendix at 52a (Defendant's Statement of Material Facts
as to Which it Contends There is no Genuine Issue ¶ 3). The
record does not contain the actual installment agreement.
first of four disputed Notices of Levy to collect taxes.   This

Notice of Levy was for the collection of taxes for the years 1980

through 1984 and 1986.   After that notice was issued but before

the IRS issued a second notice, Venen met with IRS Agent Argento,

who placed the account on "non-collectible status."   Appendix at

118a (Affidavit of David Venen ¶ 10).

           On September 25, 1990 the IRS issued a second Notice of

Levy to Venen's employer for tax years 1977 and 1978.   In October

1990, IRS Agent Gregorakis "reviewed the file at Venen's request

and told Venen that the levy should not have been issued in view

of Venen's 'non-collectible' status, apologized, and said the

levy would be released."   Appendix at 118a (Venen Affidavit ¶

12).   On January 15, 1991, the IRS issued a third Notice of Levy

to Venen's employer for tax years 1977 and 1978, and a fourth on

April 17, 1991 to his employer and to his bank, for tax years

1977 through 1984 and 1986.

           After "numerous negotiations" between Venen and the IRS

to release the fourth levy, Agent Gregorakis told Venen that no

further administrative remedies were available.   Appendix at 119a

(Venen Affidavit ¶¶ 16 & 18).   On June 27, 1991 Venen's attorney

confirmed that representation in a letter to Agent Gregorakis

stating "It is my understanding that you stated all

administrative remedies have been exhausted and should we wish to

pursue the matter further [Venen's] only recourse would be to

file a civil suit against the Internal Revenue Service."
Appendix at 214a (Letter from Attorney Peter Suwak to Agent

Gregorakis).   The letter asks Agent Gregorakis to respond if that

understanding is incorrect.   Id.      Agent Gregorakis did not

respond and does not recall receiving the letter.

           Venen's complaint is based on improper collection

activities, including breach of the installment agreement by

attempts to levy on Venen's wages and bank account.       Count VI is

based on improper disclosures relating to those activities,

specifically disclosures contained in the notices of levy.

                                  A.

           In Counts I through V, Venen asserts claims under 26

U.S.C. § 7432 for failure to release a tax lien and under 26

U.S.C. § 7433 for unauthorized tax collection activities.2        Both
     2
         Section 7432 provides:

           (a) If any officer or employee of the Internal Revenue
           Service knowingly, or by reason of negligence fails to
           release a lien under section 6325 on property of the
           taxpayer, such taxpayer may bring a civil action for
           damages against the United States in a district court
           of the United States.
                               . . .
           (d) Limitations. --
                (1) Requirement that administrative remedies be
                exhausted. -- A judgment for damages shall not be
                awarded . . . unless the court determines that the
                plaintiff has exhausted the administrative
                remedies available to such plaintiff within the
                Internal Revenue Service.

           Section 7433 provides:

           (a) In general. -- If, in connection with any
           collection of Federal tax with respect to a taxpayer,
           any officer or employee of the Internal Revenue Service
           recklessly or intentionally disregards any provision of
Tax Code provisions require a plaintiff to exhaust administrative

remedies before filing a civil suit.    See 26 U.S.C. §§ 7432(d)

and 7433(d).    Failure to exhaust deprives the court of

jurisdiction.    Information Resources, Inc. v. United States, 950

F.2d 1122 (5th Cir. 1992).

          Treasury regulations specify the administrative

remedies to exhaust.    Administrative remedies for section 7432

are set forth in Treasury Regulation § 301.7432-1; remedies for

section 7433 are found in Treasury Regulation § 301.7433-1.      Both

regulations apply to "civil actions . . . filed in federal

district court after January 30, 1992."    Because Venen filed suit

September 25, 1992, the regulations apply to this case.    See

McGarvin v. United States, 93-1 U.S.T.C. ¶ 50,325 (E.D. Mo.),

aff'd 12 F.3d 1102 (8th Cir. 1993).

          An administrative claim for failure to release a tax

lien must include the taxpayer's identifying information, a copy

of the notice of lien affecting the property, the grounds for the
(..continued)
          this title, or any regulation promulgated under this
          title, such taxpayer may bring a civil action for
          damages against the United States in a district court
          of the United States. Except as provided in section
          7432, such civil action shall be the exclusive remedy
          for recovering damages resulting from such actions.
                              . . .
          (d) Limitations. --
               (1) Requirement that administrative remedies be
               exhausted. -- A judgment for damages shall not be
               awarded . . . unless the court determines that the
               plaintiff has exhausted the administrative
               remedies available to such plaintiff within the
               Internal Revenue Service.
claim, a description of injuries, and the amount of the claim.

See Treas. Reg. § 301.7432-1(f).   An administrative claim for

unauthorized collection actions also must include identifying

information, the grounds for the claim, a description of

injuries, and the amount of the claim.   See Treas. Reg. §

301.7433-1(e).

          Both regulations require a taxpayer to make the claim

for relief "in writing to the district director . . . in the

district in which the taxpayer currently resides."   Treas. Reg.

§§ 301.7432-1(f); 301.7433-1(e).   The Seventh Circuit has held

that a letter addressed to the revenue officer listed on the

notice of levy did not comply with a similar treasury regulation

requiring a written request "addressed to the district director."

Amwest Surety Insurance Co. v. United States, No. 93-2915 (7th

Cir. July 1, 1994) (considering Treas. Reg. § 301.6343-1(b)(2)).

The failure to comply deprives a court of jurisdiction even

though the IRS has received actual notice of the claim and never

informs the taxpayer of the proper procedures.   Amwest, slip op.

at 11.

          Venen failed to comply with the regulations under

sections 7432 and 7433.   He argues that the letter to Agent

Gregorakis explaining that he understands he has exhausted his

administrative remedies satisfies the regulations.   Venen's

letter is inadequate to trigger administrative review both

because it is addressed to a revenue agent and not to the
district director, see Amwest, slip op. at 11, and because it

does not specify the grounds for relief, see Treas. Reg. §§

301.7432-1(f) and 301.7433-1(e).   Agent Gregorakis' alleged

failure to respond to the letter does not excuse Venen.    As the

Seventh Circuit held, a failure to petition the IRS correctly is

a failure to exhaust even if the IRS does not inform a taxpayer

of proper procedures.   Amwest, slip op. at 11.

          Finally, Venen argues that he is excused from the

exhaustion requirement because exhaustion would be futile.     Venen

bases his futility argument on Information Resources, Inc. v.

United States, 950 F.2d 1122 (5th Cir. 1992), in which the Fifth

Circuit held that then-applicable administrative remedies under

section 7432 were excused because the IRS already had provided

the only relief authorized by the remedies--release of the lien.

Information Resources, 950 F.2d at 1127.   Current remedies under

section 7432, effective since the Fifth Circuit decided

Information Resources, provide that administrative relief may

include damages.   Administrative relief under the other section

at issue here, section 7433 also may include damages.     See 26

Treas. Reg. §§ 301.7432-1(f) and 301.7433-1.   The IRS has not

awarded or denied Venen damages on his claims.    Therefore, the

IRS has not granted all available administrative relief and

exhaustion would not be futile.

          The district court's grant of summary judgment on

Counts I-V is, therefore, affirmed.
                                 B.

          In Count VI, Venen seeks damages under 26 U.S.C. §

7431, which provides a civil cause of action for knowing or

negligent disclosure of tax return information in violation of 26

U.S.C. § 6103.3   Title 26 U.S.C. § 6103 establishes the principle

that tax return information is confidential and may not be

disclosed except in certain situations, including those

enumerated in section 6103(k).

          To prevail in his claim under section 7431, Venen must

"demonstrate [1] a violation of Section 6103, and [2] that such a

violation resulted from knowing or negligent conduct."    Elias v.

United States, No. CV 90-0432, 1990 WL 264722, at *3 (C.D. Cal.

Dec. 21, 1990), aff'd 974 F.2d 1341 (9th Cir. 1992).     Because we

hold that Venen has not demonstrated a violation of section 6103,

we do not reach the second requirement.

          Section 6103(a) states that "[r]eturns and return

information shall be confidential, and except as authorized by

this title . . . no officer or employee of the United States



     3
          Section 7431 provides:

          (a)
          (1) . . . If any officer or employee of the United
          States knowingly, or by reason of negligence, discloses
          any return or return information with respect to a
          taxpayer in violation 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.
. . . shall disclose any return or return information."   26

U.S.C. § 6103(a).   Section 6103(k)(6) contains the authorization

relevant to this case.    It provides that:

          An internal revenue officer or employee may, in
          connection with his official duties relating to any
          audit, collection activity or civil or criminal tax
          investigation or any other offense under the internal
          revenue laws, disclose return information to the extent
          that such disclosure is necessary in obtaining
          information which is not otherwise reasonably
          available, with respect to the correct determination of
          tax, liability for tax, or the amount to be collected
          or with respect to the enforcement of any other
          provision of this title. Such disclosures shall be
          made only in such situations and under such conditions
          as the Secretary may prescribe by regulation.


26 U.S.C. § 6103(k)(6).   Regulations promulgated under the

provision permit disclosure to obtain information necessary "to

apply the provisions of the Code relating to establishment of

liens against [the taxpayer's] assets, or levy on, or seizure, or

sale of, the assets to satisfy any [outstanding] liability."

Treas. Reg. § 301.6103(k)(6)-1(b)(6).

          Venen's section 7431 claim is based on disclosures of

return information in the four contested Notices of Levy.      There

is no dispute that these disclosures were necessary to effect the

levies and that information may be properly disclosed under

section 6103(k)(6) "to effect a . . . levy."   Elias, at *4.

Venen maintains, however, that the disclosures violated section

6103(k)(6) because the underlying levies were unlawful.     He

contends that the levies were unlawful because they were issued
while he was complying with an installment agreement and his

account was on non-collectible status.   Venen's factual

contention that the levies were unlawful is material only if an

authorized disclosure of information under section 6103(k)(6) is

converted into an unauthorized one when the disclosure occurs in

the process of establishing an unlawful levy.

          Courts are split on whether the validity of the

underlying levy affects disclosure under section 6103.     One line

of cases holds that "whether a disclosure is authorized under

§ 6103 is in no way dependent upon the validity of the underlying

summons, lien or levy."   Elias, 1990 WL 264722 at *5.   See, e.g.,

Tomlinson v. United States, 1991 WL 338328 (W.D. Wash. 1991)

(validity of lien irrelevant), aff'd 977 F.2d 591 (9th Cir.

1992); Flippo v. United States, 670 F. Supp. 638, 643 (W.D.N.C.

1987) (permissible to disclose information under mistaken

impression that taxes are due), aff'd 849 F.2d 604 (4th Cir.

1988); Bleavins v. United States, 807 F. Supp. 487, 489 (C.D.

Ill. 1992) ("§ 7431 does not apply to disputed merits of an

assessment"), aff'd 998 F.2d 1016 (7th Cir. 1993).

          Another line of cases does consider the validity of the

levy to be relevant to disclosure under section 6103.    The Eighth

Circuit, without analysis, concludes that disclosure in pursuance

of an unlawful levy violates section 6103(k)(6).   Rorex v.
Traynor, 771 F.2d 383 (8th Cir. 1985) (finding levy unlawful due

to compliance with installment agreement).   See also Maisano v.
United States, 908 F.2d 408 (9th Cir. 1990) (although not

specifically linking the two, considering validity of the

underlying tax liens and levies before finding IRS authorized to

disclose under § 6103); William E. Schrambling Accountancy Corp.

v. United States, 689 F. Supp. 1001, 1006 (N.D. Cal. 1988)

(following Rorex rule that improper notice of levy is basis for

liability), rev'd on other grounds 937 F.2d 1485 (9th Cir. 1991)

(reversing because information already public record and

therefore not protected by § 6103), cert. denied 112 S. Ct. 956

(1992).

            We join those cases that decline to consider the

validity of the underlying levy in deciding whether the IRS has

disclosed in violation of section 6103.   The history of section

6103 indicates that Congress enacted the provision to regulate a

discrete sphere of IRS activity--information handling.       Prior to

the amendment of section 6103 in the Tax Reform Act of 1976, tax

returns were public records but subject to inspection and

disclosure only under special circumstances, including upon order

of the President.    United States v. Bacheler, 611 F.2d 443 (3d

Cir. 1979).    Under the former provision, the IRS provided

extensive tax return information to various governmental

agencies.    S. Rep. No. 94-938, 94th Cong., 2d Sess. 317 (1976),

reprinted in 1976 U.S.C.C.A.N. 3746.
            During the amendment process in 1976, Congress

expressed concern that those disclosures "breache[d] a reasonable
expectation of privacy on the part of the American citizen with

respect to such information."   Id.   The breach threatened to

undermine our voluntary tax assessment system.     Id.   By the

amendment of section 6103, Congress sought to restore taxpayer

confidence in the privacy of return information.    Elias, 1990 WL

264722 at *4.   The revised provision balances the taxpayer's

expectation of privacy with the government's need to collect

taxes by making information confidential "except in those limited

situations delineated in the newly amended section 6103 where it

was determined that disclosure was warranted."   S. Rep. No. 94-

938, 94th Cong., 2d Sess. 318 (1976), reprinted in 1976

U.S.C.C.A.N. 3747.   The Tax Reform Act also contained an

enforcement mechanism for section 6103.   Section 7217, the

predecessor statute to section 7431, provided a civil damages

remedy for knowing or negligent disclosures in violation of

section 6103.   26 U.S.C. 7217 (Pub. L. No. 94-455, § 1202(e)

(1976)).4

            In a claim such as the present one based on an improper

levy, the concern is not improper information handling but rather

improper collection activity.   Collection activity is a separate

sphere of IRS activity governed by a separate body of law.        For

example, the Tax Code specifies procedures for assessing


     4
        In 1982, Congress replaced section 7217 with section
7431, which remedies the same conduct but names the United States
rather than the IRS employee as the proper defendant. Pub. L.
No. 97-248, § 357(a) (1982).
deficiencies and for levying against property.      See §§ 6321-6326

(tax liens) and 6331-6334 (tax levies).     The enforcement

mechanism for collection provisions is 26 U.S.C. § 7433.      It

creates a civil cause of action for damages "[i]f, in connection

with any collection of Federal tax with respect to a taxpayer,

any officer or employee of the Internal Revenue Service

recklessly or intentionally disregards any provision of this

title, or any regulation promulgated under this title" and is the

"exclusive remedy for recovering damages resulting from such

actions."    26 U.S.C. § 7433.   Venen did bring claims under

section 7433 in Counts I, III, and IV, which were barred by his

failure to exhaust administrative remedies.

            These two bodies of law must remain distinct.     Section

6103 and its attendant damages provision, section 7431, were

meant to regulate only one sphere of activity--information

handling--and were "not intended to interfere with . . .

collection actions."   Flippo, 670 F. Supp. at 641 (describing

section 7431).    Thus, the propriety of the underlying collection

action, in this instance the validity of the levy, is irrelevant

to whether disclosure is authorized under section 6103 and the

basis for liability under section 7431.

            The history and structure of the Tax Code's damages

scheme compels this result.      Congress reacted to concerns about

violations of privacy in the Tax Reform Act of 1976 by protecting

return information and creating a damages remedy for unauthorized
disclosures that are the result of knowing or negligent conduct.

See 26 U.S.C. §§ 6103 and 7217 (now § 7431).    Congress addressed

concerns about improper collection actions in 1988, when it

enacted section 7433.   The legislative history of that provision

sheds light on the scope of section 7431.   The House Report

states that, under current law in 1988, "[t]axpayers d[id] not

have a specific right to bring an action against the Government

for damages sustained due to unreasonable actions taken by an IRS

employee."   H. Rep. No. 100-1104, 100th Cong., 2d Sess. 228

(1988) reprinted in 1988 U.S.C.C.A.N. 5288.    That statement

suggests that section 7431, by its incorporation of section 6103,

did not reach the conduct remedied by section 7433--improper

collection actions.

          Venen's interpretation of section 7431 would undermine

the culpability requirement of section 7433.   Although the Senate

Amendment for Section 7433 proposed a cause of action to

encompass careless, reckless or intentional unauthorized

collection actions, section 7433 as enacted provides a claim only

for reckless or intentional actions.   1988 U.S.C.C.A.N. 5289.

Venen's position would allow a taxpayer to premise liability

under section 7431 on an unauthorized collection action that

fails to meet the "reckless or intentional" culpability standard.

Venen argues that disclosure in the course of an unauthorized

collection action, such as an unlawful levy, violates section

6103 and may create liability under section 7431.   Thus, Venen
factors unlawful levies into the analysis under section 7431

without imposing the requirement of section 7433 that the levy

result from reckless or intentional conduct.    This reasoning

opens the door for a taxpayer to base a section 7431 claim on

negligent or even nonculpable conduct that leads to an unlawful

levy.    A taxpayer would gain through the back door of section

7431 what was specifically denied under section 7433.5

            The plain language of section 6103 also mandates the

conclusion that the lawfulness of the levy is irrelevant to

whether disclosure is authorized.    The provision requires only

that information be disclosed for one of the specified purposes--

here, "in connection with . . . collection activity . . . to

obtain information . . . with respect to the correct

determination of tax, liability for tax, or the amount to be

collected or with respect to the enforcement of any other

provision of this title."    § 6103(k)(6).   The regulations

specifically authorize disclosure "to apply the provisions of the

Code relating to establishment of liens against such assets, or

levy on, or seizure, or sale of, the assets to satisfy any

[outstanding] liability."    Treas. Reg. § 301.6103(k)(6)-1(b)(6).

Neither the statute nor the regulations on their face authorize


     5
        Some courts that do look behind collection activity seem
to have responded to this problem by applying the "knowing or
negligent" culpability requirement of section 7431 to the
unlawful collection activity. See, e.g., Chandler, 687 F. Supp.
at 1520. Even under that analysis taxpayers recover for less
than reckless or intentional conduct.
the court to consider whether the collection activity itself is

proper.6   Cf. Creighton R. Meland, Jr., Note, Omnibus Taxpayers'

Bill of Rights Act:   Taxpayers' Remedy or Political Placebo?     86
Mich. L. Rev. 1787, 1812 n.162 (1988).

           Finally, the result urged by Venen, making unlawful

levies the basis for liability under section 7431, might impede

the efficient and orderly collection of taxes.    Aware of possible

liability, an IRS agent might feel the need to check the validity

of the underlying levy before performing the routine task of

establishing a levy to collect taxes.    Such a restraint could

place an undue burden on collection activity.

           The IRS disclosed Venen's tax return information in

pursuit of a levy.    The IRS, therefore, has not violated section

6103 and is not liable under section 7431.

           Accordingly, the district court's grant of summary

judgment in favor of defendant on Count VI is affirmed.



     6
        The Rorex court was concerned that this reasoning
"open[s] a significant loophole" in section 7431: An IRS agent
could disclose information "simply by making the disclosure in
the form of a notice of levy." Rorex, 771 F.2d at 386. One
court addressed this concern by holding that "[t]he provisions of
section 6301(k)(6) [sic] do not authorize disclosures made after
the government admits that the underlying assessment was in
error." Husby v. United States, 672 F. Supp. 442 (N.D. Cal.
1987). Under our reasoning, because a court may not look behind
a levy, section 6103 would authorize disclosure to establish a
levy even if the IRS agent knows that there is no tax liability
or that the levy is an improper means of collection. In that
circumstance, the taxpayer still has a remedy in section 7433 for
reckless or intentional unauthorized collection activity.
                               C.

          For the foregoing reasons, the judgment of the district

court will be affirmed.
