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Section 7431 authorizes a civil action for damages against the United States in a case where an officer or employee of the United States knowingly or negligently inspects or discloses any return or return information with respect to a taxpayer in violation of §6103. This section also authorizes a civil action for damages against any person who is not an officer or employee of the United States for a similar inspection or disclosure. Damages recoverable are equal to the greater of (a) $1,000 for each act of unauthorized inspection or disclosure or (b) the sum of actual damages plus punitive damages in cases of a willful inspection or disclosure, or disclosure resulting from gross negligence. Also recoverable are costs and for some taxpayers reasonable attorney's fees. Actions must be brought within two years after the date of discovery by the plaintiff of the unauthorized inspection or disclosure.

In Aloe Vera of America Inc. v. U.S., 104 AFTR 2d 5709 (9th Cir. 2009), amended by an order of September 2, 2009, the Ninth Circuit recently held that this two-year period of limitations is jurisdictional, not subject to waiver or equitable tolling. Based on the analysis in John R. Sand & Gravel Co. v. U.S., 128 S. Ct. 750, 753 (2008), the Ninth Circuit explained that there were two categories of federal statutes of limitations: the first that “seek[s] primarily to protect defendants against stale or unduly delayed claims” and are subject to forfeiture and waiver and may be equitably tolled; and the second that “seek[s] not so much to protect a defendant's case-specific interest in timeliness as to achieve a broader system-related goal, such as limiting the scope of a governmental waiver of sovereign immunity. This second category of statutes are jurisdictional in nature. Looking to the structure of §7431 (the exception for actions resulting from a good faith but erroneous interpretation of §6103 or one requested by the taxpayer, the two-year time period, and the phrasing of part (d) (“notwithstanding any other provision of law”)), the Ninth Circuit concluded that the two-year period was a jurisdictional limitations period. The Fifth Circuit reached the same conclusion in Gandy v. U.S., 234 F.3d 281 (5th Cir. 2000), and the Supreme Court held in U.S. v. Brockamp, 519 U.S. 347 (1997), that §6511 governing claims for refund is not subject to equitable tolling.

The Ninth Circuit went on to hold that the two-year period begins on the date that the plaintiff discovers that the allegedly unauthorized inspection or disclosure has taken place, even though the plaintiff at that time may have believed that the inspection or disclosure was authorized. The statute refers to the date of discovery of the unauthorized inspection or disclosure, and the term “unauthorized” serves only to identify the pertinent inspection or disclosure. The court found support for its position in U.S. v. Kubrick, 444 U.S. 111 (1979), holding that the date an action accrues under the Federal Tort Claims Act is the date when the plaintiff becomes aware of his injury, not the date when the patient discovers that the injury may have resulted from negligence or the date when a plaintiff recognizes the legal claim.

The pleadings were deemed insufficient to determine timeliness. Accordingly, the case was remanded to the district court for findings regarding the dates on which plaintiff discovered the disclosures underlying each of its claims. The dates it discovered that the disclosures were unauthorized are irrelevant.

For more information, in the Tax Management Portfolios, see Galotto, La Puma and Pai, 625 T.M., Obtaining Information from the Government - Disclosure Statutes, and in Tax Practice Series, see ¶3823, Confidentiality and Disclosure of Returns and Return Information.