Hale E. Sheppard article on Improper IRS Disclosures of Taxpayer Data under Section 6103: Recovering Punitive Damages Despite No Actual Damages
Taxpayers always give heaps of confidential data to the Internal Revenue Service (“IRS”) when they file their mandatory tax returns and information returns, and the IRS always has a legal duty to safeguard such data. Taxpayers sometimes become victims of improper
disclosures, and the IRS sometimes gets punished for its transgressions.
This article introduces key legal concepts, including specialized Tax Court procedures for challenging IRS collection actions, data-protection duties of the IRS, manners by which aggrieved taxpayers can sue the IRS for breaches, and the potential for triumphant taxpayers
to recover not only damages, but also costs incurred in fighting the IRS. This article then analyzes the most recent case in this area, Castillo v. United States, which holds that taxpayers might be able to obtain punitive damages from the IRS, even when they do not suffer actual damages because of the IRS’s improper disclosure.