Employment Taxes: Return Information of Misclassified Employees Is Discoverable in a Worker Classification Case

Employee MisclassificationEmployers are required to deduct federal income tax from employees’ paychecks. I.R.C. § 3402(a)(1). While the employer will be liable if it fails to withhold, I.R.C. § 3403, in cases where the employees were improperly classified as independent contractors, the prospect exists that they have independently paid their income taxes directly after receiving a 1099. As a consequence, the Internal Revenue Code provides a partial defense to the employer: The employer will not be liable for income taxes to the extent that the improperly classified employees paid them, but will remain liable for any interest and penalties associated with its failure to deduct the taxes from the employees’ wages.… Read More

A Peek Behind the Curtain: How Tax Return Information Is Disclosed in an Investigation Involving Non-Tax Crimes

behind-the-curtain-taxBy their nature, tax returns contain highly sensitive information. Consequently, the Internal Revenue Code makes return information, which is broadly defined, confidential. I.R.C. § 6103(a). This confidentiality provision comes with real teeth:

  • If an employee of the federal government inspects or discloses a return or return information, either “knowingly, or by reason of negligence,” in violation of section 6103, the taxpayer may sue the United States for damages. I.R.C. § 7431(a). If the taxpayer wins, she can recover statutory damages of $1,000 per violation, actual damages if greater, and, if the violation is either willful or the result of gross negligence, punitive damages.
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Unauthorized Disclosure of Return Information: A Look at Damages.

Tax returns and the information that they contain are confidential under Section 6103 of the Internal Revenue Code. Improper disclosure of return information has serious consequences: it can result in criminal prosecution under Section 7213 of the Code, and there is also a civil damage remedy under Section 7431, which authorizes either statutory or actual damages, attorneys’ fees, and, for cases that involve gross negligence, punitive damages. I.R.C. § 7431(c).

A recent case arising from the IRS non-profit scandal provides an interesting look at the civil damage remedy. Citizens Awareness Project, Inc. v. IRS, 2015 U.S. Dist. LEXIS 59355 (D. Colo.… Read More

An Underdog Prevails: Chaka Fattah, Jr. , the IRS and Unauthorized Disclosure of Return Information.

Pro se litigants face special challenges. Proper handling of litigation is complicated, even more so for someone that is unfamiliar with the process. And if the substantive law is technical and complex, the pro se litigant’s position is even weaker.

Last week, a prominent local pro se litigant had a big win against a tough adversary-the federal government. Chaka Fattah, Jr., the son of the Congressman and the target of a pending federal indictment, scored a solid victory in a civil case he brought against the IRS. Fattah v. United States, 2014 U.S. Dist. LEXIS 120021 (E.D. Pa. Aug. 27, 2014).… Read More

Taxpayer Privacy: A Look at the Limitations Period for Wrongful Disclosure Claims.

Tax returns include a variety of sensitive information. Under Section 6103 of the Code, the federal government is required to treat this information as confidential and is only permitted to share it with designated entities, such as state taxing authorities. Confidentiality is reinforced by Section 7431 of the Code, which authorizes a civil action for improper inspection or disclosure of return information and provides for statutory damages or actual damages, along with attorneys’ fees. Section 7431 of the Code is subject to a two year limitation period: an action must be brought “within 2 years after the date of discovery by the plaintiff of the unauthorized inspection or disclosure.” I.R.C.Read More