Aloe Vera of America, Inc. v. United States

The two-year statute of limitations for a taxpayer’s §7431(a) claim only begins to run when the taxpayer is on inquiry notice from “actual or constructive knowledge” of each disclosure of return information. Additionally, the §7431(b) immunity afforded for good faith mistakes of disclosure does not protect the government from knowingly false releases of information.

On its second appeal to the Court of Appeals, this case concerned the viability of claims under 26 U.S.C. §7431 for “wrongful disclosure of a tax return.” Aloe Vera of America Inc. and its associated plaintiffs’ (“Taxpayers”) claims pertained to the alleged disclosure by the United States of the Taxpayers’ tax information to the Japanese National Tax Administration in a joint investigation. Taxpayers’ first appeal of the district court’s granting of the United States Motion for Summary Judgment was remanded to the district court on the basis that the statute of limitations at issue is jurisdictional and that the district court must determine whether subject matter jurisdiction exists. The district court found that some of the Taxpayers’ claims were barred by the statute of limitations, and denied their other claims for lack of subject matter jurisdiction. Addressing the statute of limitations issue, the Court of Appeals distinguished the district court’s analysis of the notice that triggers the two year statute of limitations for the §7431 claims. Contrary to the district court’s holding that inquiry notice was triggered by a generalized event—causing the statute of limitations to begin to run, the Court of Appeals found that the Taxpayers’ “actual or constructive knowledge of each particular disclosure” was required for inquiry notice. Although one of Taxpayers’ claims was thus barred, the other was not. The Court of Appeals also rejected the government’s argument that it is entitled to immunity, under the §7431(b) good faith exception, because that exception would consume the protection afforded to taxpayers against malicious government actions. Finding that the remaining claim contains unresolved issues of material fact pertaining to the government knowledge about the falsehoods relayed to the Japanese authorities, the Court of Appeals reversed the Motion for Summary Judgment. AFFIRMED in part AND REVERSED in part.