IRS Notifies Thousands of Taxpayers After Personal Information Disclosed

The Internal Revenue Service (IRS) sent thousands of taxpayers a letter, alerting them of an unauthorized inspection or disclosure of their tax return or return information by a former IRS contractor, Charles Littlejohn.

The Disclosure

Littlejohn served as an IRS contractor from 2017 until about 2021. During that time, Littlejohn stole tax return information associated with then-President Donald Trump and thousands of other taxpayers. Littlejohn disclosed the stolen tax information to Pro Publica and The New York Times, which published articles describing the tax information obtained from Littlejohn. Littlejohn was charged with one count of disclosure of tax return and return information. Littlejohn pleaded guilty and was sentenced to five years in prison, beginning his sentence on May 1, 2024.

IRS' Communication with Affected Taxpayers

The initial letter the IRS sent to affected taxpayers notified them of the disclosure. It included copies of Littlejohn's criminal charges and Section 7431 of the Internal Revenue Code, which addresses civil damages for unauthorized inspection or disclosure of returns and return information. The letter also directed taxpayers to an email address to ask any questions.

The initial letter left many questions unanswered, such as what specific information was stolen, what was disclosed and how widely the stolen information was disseminated. Subsequently, the IRS issued a supplemental letter, emphasizing that the disclosure incident was unacceptable and other additional details:

• The IRS is unaware of the full scope of the specific information that Littlejohn unlawfully disclosed.
• The IRS has no indication thus far that any of the stolen information has been disclosed by Littlejohn to any persons outside of the two news organizations referenced above, nor that these organizations have disclosed this information to any additional persons (other than through their published articles).
• The IRS has not seen any indication that this taxpayer information was used in any way for identity theft or any related type of fraud.
• The government has recovered the taxpayer information that was in Littlejohn's possession.

What Now?

Two affected taxpayers filed suit in connection to the disclosures. Kenneth Griffin sued the IRS and the U.S. Department of Treasury, alleging a failure to establish safeguards to ensure the security of tax return information. The case was resolved on June 25, 2024, with the IRS issuing a statement apologizing to Griffin and the thousands of other Americans whose personal information was leaked to the press. In the statement, the IRS states that it "takes its responsibilities seriously and acknowledges that is failed to prevent Mr. Littlejohn's criminal conduct and unlawful disclosure of Mr. Griffin's confidential data." The IRS also reassured taxpayers that it will continue to work with the Treasury Inspector General for Tax Administration, the Government Accountability Office, other government agencies and independent third parties to assess the IRS' systems for potential vulnerabilities.

The second taxpayer, Kelcy Warren, sued Booz Allen, Littlejohn's employer at the time of the disclosures. Warren alleged a failure to monitor Littlejohn, resulting in a violation of Section 7431. Section 7431 provides taxpayers a private right of action for damages against any person who is not an officer or employee of the United States for the knowing or negligent unauthorized inspection or disclosure of tax return information in violation of Section 6103. Although litigation remains underway in the Warren case, the legal remedy available under Section 7431 presents issues for affected taxpayers looking to file suit. The statute provides for liability of only $1,000 or actual damages sustained as a result of the unauthorized inspection or disclosure of a return or return information. Actual damages will be difficult to prove, especially for taxpayers whose information was not published.

Holland & Knight is closely monitoring developments and will continue advising clients on ways to navigate the tax return information disclosures. For additional information or questions, please contact the authors or another member of Holland & Knight's Tax Practice.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.