As required by law, the Internal Revenue Service (IRS) has begun issuing notification letters to victims of a former IRS contractor who illegally accessed and stole the tax return information of thousands of companies and individuals. The illegal inspection and subsequent disclosure of this personal tax and financial information raises multiple issues for impacted taxpayers who should consider their specific rights as crime victims under federal law.
Earlier this year, former IRS contractor Charles Littlejohn was sentenced to five years in prison for illegally accessing and disclosing thousands of federal tax returns, associated tax return information, and other private financial information to certain news organizations. [1] While the most prominent figure impacted by this disclosure was former President Donald Trump, it is clear that many more individuals and entities were victims of Littlejohn’s criminal activity.
Recently, as required by law, the IRS began informing the more than 70,000 companies and individuals impacted by Littlejohn’s criminal conduct by mailing brief victim notification letters outlining what Littlejohn had done and their rights as victims, and providing limited additional information (the Notices). Littlejohn’s illegal inspection and subsequent disclosure of personal tax and financial information raises multiple issues for the victims, who must now carefully analyze their next steps including potential related obligations and remedies, their rights under the Crime Victims’ Rights Act [2] and other statutes, and whether to pursue claims against Littlejohn and/or the IRS.
Federal law provides for specific rights for crime victims, including the right to be heard in connection with a criminal case. Federal law also provides for civil damages that may be recovered by impacted taxpayers. A taxpayer may file suit against the United States in district court to recover damages. These damages are limited to $1,000 for each act of unauthorized inspection or disclosure, unless the taxpayer is able to demonstrate greater actual damages sustained as a result of the unauthorized acts.
Under federal law, the IRS (including its current and former employees and contractors) is prohibited from releasing tax returns and tax return information to other parties. “Tax returns” includes any tax or information returns, estimated tax statements or refund claims (including amendments, supplements, supporting schedules, attachments, or lists) required by or permitted under the Internal Revenue Code and filed with the IRS by, on behalf of, or with respect to any person. Examples of returns include forms filed on paper or electronically, such as Forms 1040, 941, 1099, 1120, and W-2.
The term “tax return information” is defined very broadly and includes any information, besides the return itself, that the IRS has obtained from any source or developed itself that relates to the potential liability of any taxpayer under the Internal Revenue Code for any tax, penalties, and/or interest. It also includes the taxpayer’s name, address, and identifying number as well as the names and identification numbers of other persons associated with the taxpayer, including dependents or partners.
“Tax return information” also includes whether a return was filed, whether it has been or will be examined, and whether there have been collection activities undertaken by the IRS against the taxpayer.
Between 2018 and 2020, Littlejohn illegally accessed and stole the tax return information of thousands of the nation’s wealthiest individuals and entities. He disclosed this information to publications including ProPublica, which published nearly 50 articles using or referencing this stolen data. The Treasury Inspector General for Tax Administration, an office within the federal government with oversight of IRS activities, undertook an investigation. In October 2023, Littlejohn pled guilty to unauthorized disclosure of tax returns and return information and in January 2024 Littlejohn was sentenced to five years in prison.
The US Department of Justice (DOJ) has specific statutory duties to crime victims and has been vocal about its commitment to meeting those obligations. The Attorney General issued new guidelines in 2023 emphasizing DOJ’s support for victim rights. In Littlejohn, DOJ sought and received the court’s approval to provide “alternative notification” by creating a website directed to victims.
Given the nature of Littlejohn’s criminal conduct, however, the overwhelming majority of victims could not have known they were victims prior to receiving the Notices. Therefore, individuals and entities may have standing to assert certain rights in connection with Littlejohn’s criminal case.
In the event that a person is criminally charged with unauthorized inspection or disclosure of a taxpayer’s return or return information, the Secretary of the Treasury is mandated under federal law to notify the affected taxpayers of the inspection or disclosure as soon as practicable. Federal law sets forth the required contents of this notice, which includes the date, the events that occurred, and the related rights of the taxpayer.
Over the last several days, the IRS has begun mailing the Notices to victims (both individuals and entities) informing them that, between 2018 and 2020, they were victimized by a former IRS contractor who illegally inspected and disclosed their tax returns and/or return information. Each Notice sets forth the victim’s rights, including the right to sue Littlejohn and/or the IRS. However, the Notices do not provide any personalized detail regarding what specific tax returns or other information Littlejohn may have disclosed (e.g., what specific documents, what specific information, pertaining to what time period).
Observations
As the Notices provide no information about what exactly Littlejohn disclosed, it is virtually impossible to determine the potential damage resulting from Littlejohn’s crime or if there are obligations for the recipients of the Notices that arise as a result. As such, it is vital for victims to ascertain what precisely was disclosed so as to be able to analyze potential next steps, including possible related obligations. Victims should consult their tax advisor about the best method for obtaining such detailed information.
Once a taxpayer determines what tax information Littlejohn stole and disclosed, to the extent it included personal information (e.g., Social Security numbers), the taxpayer should evaluate the possibility of tax-related identity theft resulting from such disclosure and assess whether to take steps to protect against further exposure to tax identity theft.
Additionally, companies should consider potential notice obligations under applicable laws and contracts. This analysis, however, will depend substantially on what specific information was disclosed and the extent to which relevant individuals already have received notice of the issue directly from the IRS.
The Notice invites taxpayers with questions about the “matter” to email the IRS at notification.7431@irs.gov. Those who contact this mailbox should refrain from emailing sensitive information, including tax identification numbers, addresses, or account numbers.
The Notice does not provide a timeframe for a response to an inquiry or how the IRS will ascertain the identity of the taxpayer. In the event that someone other than the specific taxpayer involved contacts the IRS seeking further information, a Form 2848 (Power of Attorney) will be required.
Morgan Lewis’s team is deeply engaged in this matter and is prepared to advise on issues related to IRS notifications, DOJ victim rights, and litigation options going forward.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following:
[1] United States v. Littlejohn, 23-cr-343 (D.D.C.). See also Criminal Division, U.S. Department of Justice, Victim Notification Program, United States v. Charles E. Littlejohn.
[2] 18 USC § 3771.