Sunday, December 24, 2023

Repeat Tax Player and Republican Presidential Candidate Loses Unauthorized Return Information Disclosure Suit on Appeal (12/24/25)

As I close out my postings for the year, I decided to report on Castro v. United States2023 WL 8825316 (5th Cir. 12/21/23), unpublished (CA 5 here; GS here). The Fifth Circuit panel did not think it worthy of publication, so I initially decided to forego making it a topic of a blog. But then I learned that the plaintiff, John Anthony Castro, has been “player” in a series of tax cases is a presidential candidate, a Republican seeking to take Trump’s place as the frontrunner and ultimate nominee. See Castro’s Wikipedia page here (i) offering significant discussion of his playing in tax cases and (ii) noting that his status as a licensed attorney may be in doubt. So, I’ll discuss the recent 5th Circuit opinion, for its discussion of settled law that do not justify a precedential opinion. In this opinion, Castro appears as plaintiff rather than as attorney (although, I suppose, he could be pro se attorney for himself).

In order avoid recreating the wheel with new discussion (with no temptation to plagiarize or make up new words without value) and given that brevity of the relevant discussion in the opinion, I just quote the opinion (using the cleaned up technique to eliminate parts that are not relevant to the point I want to make).

During an IRS criminal investigation into Castro, criminal investigative agent Tuan Ma (“Agent Ma”) contacted two potential witnesses to obtain information in furtherance of his investigation. The parties dispute whether Agent Ma disclosed to the two potential witnesses that Castro was under criminal investigation but that the investigation did not target the two potential witnesses. For the purpose of summary judgment, we assume that Agent Ma did in fact disclose such information to the two potential witnesses. The two potential witnesses submitted affidavits indicating that they spoke with Agent Ma after he reassured them that they were not under investigation.

            Even accepting as true that Agent Ma made the alleged disclosures in violation of §6103 of the Internal Revenue Code, a safe harbor provision shields the Government from liability if the agent's disclosure was based on “a good faith, but erroneous, interpretation of section 6103[.]” 26 U.S.C. §7431(b)(1) (“No liability shall arise under this section with respect to any inspection or disclosure . . . which results from a good faith, but erroneous, interpretation of section 6103[.]”). This circuit uses an objective standard to evaluate the applicability of this “good faith” exception to liability under the Internal Revenue Code.

            Here, Agent Ma reasonably and in good faith believed that — based on case law, statutory authority, regulations, and the IRS Manual (“IRM”) — the disclosures were “necessary in obtaining information, which was not otherwise reasonably available[.]” 26 U.S.C. §6103(k)(6). Treasury Regulation § 301.6103(k)(6)-1 defines “necessary” as “appropriate and helpful” and clarifies that an agent is not required to first seek information from the taxpayer as an otherwise reasonably available source. The IRM further instructs agents that they may identify themselves as members of the criminal investigation unit of the IRS and disclose the criminal nature of investigations when “necessary” because the witness is “disinclined to cooperate.” Moreover, this circuit has stated that §7431‘s good faith exception protects an agent's disclosure of “the nature of their official duties as a criminal tax investigation.” Gandy v. United States, 234 F.3d 281, 286–87 (5th Cir. 2000) (reasonable agents “had a good faith belief that they could disclose the criminal nature of the investigation”). Castro did not present any evidence suggesting that Agent Ma's interpretation of the relevant authorities was unreasonable under these circumstances. Agent Ma's disclosure thus fell within §7431(b)(1)‘s “good faith” exception to Government liability.

Note: although not mentioned in the 5th Circuit opinion, Castro's action was apparently brought under § 7433, here, authorizing a suit for damages from unauthorized disclosure of return information.

Added 12/24/23 1:00pm:

Fun Fact: Castro has an as-yet still live suit in South Carolina to have Trump eliminated from the ballot "arguing the former president’s candidacy violates Section 3 of the 14th Amendment." See Alexander Thompson, After Colorado court bars Trump from ballot, similar South Carolina case awaits ruling (Post & Courier Palmetto Politics 12/21/23), here. The article further says:

In November, a federal magistrate recommended that U.S. District Judge Mary Geiger Lewis dismiss the parts of the lawsuit related to Trump and the 14th Amendment, writing that Castro does not have standing to sue over the issue.

Federal judges have tossed similar lawsuits Castro filed in four other states.

A ruling in South Carolina is likely in the coming weeks.

The case is Castro v. Donald John Trump (D. S.C. 3:23-cv-04501). The CourtListener Docket Entries may be viewed here.

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