DiAndrea v. United States

Anthony DiAndrea (plaintiff) owned Metro Denver Maintenance Cleaning, Inc. (Metro) (plaintiff), a janitorial-services company. An Internal Revenue Service (IRS) agent auditing DiAndrea’s and Metro’s tax returns suspected tax fraud and referred the matter to the IRS’s criminal-investigations unit. The IRS investigators sought to reconcile discrepancies between DiAndrea’s and Metro’s financial statements and the information reported on their tax returns. One such discrepancy was that DiAndrea’s lifestyle appeared unsupportable based on his reported income. The investigators did not suspect DiAndrea or Metro of concealing cash payments. An IRS investigator circulated a letter to Metro’s customers seeking information concerning any payments, including cash payments, made to Metro. The letter disclosed facts such as Metro’s address, the existence of a criminal tax investigation, and the IRS’s knowledge of transactions between the recipients and Metro. The IRS investigators eventually resolved all discrepancies using only Metro’s and DiAndrea’s bank records. These records revealed that DiAndrea’s inflated lifestyle was explained by undisclosed money-market accounts into which he had received some undisclosed cash payments. The payments were too low to pursue prosecution, and the investigation was closed. DiAndrea and Metro then sued the United States (defendant), claiming that the IRS had disclosed confidential tax-return information in violation of § 6103 of the Internal Revenue Code (code) with the letter to Metro’s customers. The district court awarded damages to Metro. The district court’s opinion focused on the IRS’s lack of evidence of undisclosed cash payments before disclosing Metro’s tax-return information to its customers in the IRS’s letter. The government appealed.