This past April, the Internal Revenue Service (IRS) started to send out Letter 6613-A’s to notify taxpayers that an IRS contractor has been charged with the unauthorized inspection or disclosure of their tax return information.
These notifications are in reference to case US vs. Charles Edward Littlejohn, an IRS contractor. The letter states that Littlejohn was charged with unauthorized inspection or disclosure of tax return or return information between 2018 and 2020. The letters include a copy of IRC 7431 and a copy of the General Allegations of the case against Littlejohn.
The allegations against Littlejohn assert that he distributed taxpayer information associated with “Public Official A,” along with thousands of the nation’s wealthiest people, to two separate “news organizations.”
Based on our observation of these letters, the tax returns impacted have been associated closely with real estate development and investment.
If you or one of your business entities receive Letter 6613, you may be asking yourself: what exactly is IRC Section 7431 and what, if any, action should I or am I required to take?
IRC Section 7431 allows for civil damages if an officer or employee of the United States and/or a person who is not an employee of the United States knowingly, or by reason of negligence, inspects or discloses any return or return information with respect to a taxpayer, in violation of any provision of section 6103, which prohibits the release of tax information by an IRS employee. The consequences for violating these code sections can result in the violators paying the greater of $1000 for each act for which they are found liable or the sum of the actual damages sustained by the persons whose information was breached, including punitive damages and costs of actions. In the case of willful violations of the disclosure rules, a plaintiff may seek punitive damages, along with costs of the action and reasonable attorney’s fees.
If you are responsible for filing tax returns that may include investor-identifying data, such as Forms K-1, you may wonder if there are any required notifications for you to send to your investors. There are no notifications required by the IRS code or regulations; however, in your duty, as the manager of the partnership or an officer of the corporation, you may be required by your operating or shareholder agreement to notify your partners or shareholders. Even if it’s not required to notify your investors, it may be best practice to provide them notice of the potential breach of sensitive information.
Taxpayers affected by the breach have two years from the date of discovery by the plaintiff to take action. It has yet to be seen whether taxpayers will take legal action in this case and what type of renumeration they may achieve. If you have received these letters from the IRS, you should provide copies to your CPA and legal counsel to determine a plan for any potential legal action to take on behalf of yourself or your partners.
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