Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 83 C 1399--William T. Hart, Judge.
Before BAUER, COFFEY, Circuit Judges, and GRAY, Senior District Judge.*fn*
The plaintiffs, Thomas E. Rueckert and barbara Rueckert, appeal the district court's determination, in granting the defendants' motion for summary judgment, that they were not entitled to recover damages against state and federal tax officials under 26 U.S.C. Sec. 7217 for an allegedly unauthorized disclosure of their federal income tax returns. We affirm.
Thomas Rueckert is employed by the State of Illinois Department of Revenue ("IDR") as a Revenue Fraud Agent. In June of 1981, the Internal Security Division of the IDR received reports that Rueckert had been engaged in outside employment in violation of the Department's rules. Defendant Richard Dunn, the Inspector-in-Charge of the Internal Security Division, examined Rueckert's Illinois state income tax returns and discovered that his reported income exceeded his salary for the years 1978, 1979 and 1980. To determine the source of the excess income, Dunn requested that Kansas City Service Center of the Internal Revenue Service to provide him with Rueckert's federal tax returns and income schedules for the taxable years 1978, 1979 and 1980. The requests were made on standard forms utilized by the IDR to obtain information from the IRS pursuant to a Federal/State Tax Coordination Agreement. The form recited that the requestor "understands that disclosure or use of the information received for other than authorized tax administration purposes is subject to statutory penalties as provided by Section 7213 and 7217 of the Internal Revenue Code." In the portion of the form asking for the reason for the request, Dunn checked a box marked "Other" and wrote on the accompanying line, "to establish sources of income."*fn1 Either defendant Gore or defendant Spencer approved Dunn's request and forwarded the Rueckerts' joint tax returns to him in September of 1981. The return showed that Rueckert had been engaged in the practice of law while employed by the IDR. Dunn incorporated information relating to Thomas Rueckert's federal tax return*fn2 into a memorandum originally prepared by defendant Groeper. The memorandum was distributed to defendant Johnson, Director of Revenue for the State, who forwarded the investigative report to the Deputy Director of the IDR. The Deputy Director reprimanded Rueckert for engaging in unauthorized outside employment.
The Rueckerts filed suit in the United States District Court for the Northern District of Illinois alleging, inter alia, that the disclosure of their federal tax returns violated their right to confidentiality guaranteed by 26 U.S.C. Sec. 6103(a).*fn3 After the parties filed cross-motions for summary judgment, the district court found that the release of the information was not authorized by 26 U.S.C. Sec. 6103(d), the tax administration exception to confidentiality, because, in his opinion, the investigation into Rueckert's outside employment did not involve the administration of state tax laws. However, Judge Hart granted summary judgment in favor of the state and federal tax official because disclosure had been made in a good faith but erroneous interpretation of the meaning of "tax administration" under Section 6103(d). The Rueckerts argue that the district court erred in granting summary judgment because the question of whether defendants Dunn, gore and Spencer acted in good faith presented an issue of material fact that could not be resolved in a motion for summary judgment.*fn4 The defendants contend that the district court erred in finding that the internal investigation of a state revenue fraud agent was not "tax administration" under 26 U.S.C. Sec. 6103(d).
We first turn to the question of whether the IDR's investigation of its revenue fraud agent falls within the tax administration exception to Sec. 6103. Section 6103(a) of the Internal Revenue Code of 1954 provides that, as a general rule, tax returns and tax return information are confidential and may not be disclosed by any federal or state officer "except as authorized by this title." Included in the exceptions to the general rule of confidentiality is disclosure to state tax officials:
"(d)(1) In general. --Returns and return information shall be open to inspection by, or disclosure to, any State agency, body, or commission, or its legal representative, which is charged under the laws of such State with responsibility for the administration of State tax laws for the purpose of, and only to the extent necessary in, the administration of such law, including any procedures with respect to locating any person who may be entitled to a refund."
Section 6103(d)(1). Tax administration is defined as:
(A)(i) The administration, management, conduct, direction, and supervision of he execution and application of the Internal Revenue laws or related statutes (or equivalent laws and statutes of a State) and tax conventions to which the United States is a party, and
(ii) the development and formulation of Federal tax policy relating to existing or proposed internal revenue laws, related statutes, and tax conventions, and
"(B) Includes assessment, collection, enforcement, litigation, publication, and statistical gathering functions under such laws, statutes, or conventions."
Section 6103(b)(4). We have not been provided with, and our research has failed to reveal, any cases on the question of whether a state tax department's investigation of one of its tax fraud agents is "tax administration" under Sec. 6103(d). Accordingly, we turn to the legislative history of the ...