United States Court of Appeals
                            FOR THE EIGHTH CIRCUIT

        ___________

     Nos. 05-3636/05-3835
        ___________

Leonard Snider; National Sales &       *
Service, L.L.C., also known as         *
National Service Sales, L.L.C.,        *
                                       *
        Appellees/Cross-Appellants,    *
                                       *
v.                                     *
                                       *
United States of America,              *
                                       *
        Appellant/Cross-Appellee.      *

        ___________
                                            Appeals from the United States
        No. 05-3639                         District Court for the
        ___________                         Western District of Missouri.

Theresa J. Turley, formerly known as *
Theresa J. Ballister, doing business as *
AA Cleaning; Labor Resources, L.L.C., *
                                        *
      Appellees,                        *
                                        *
v.                                      *
                                        *
United States of America,               *
                                        *
      Appellant.                        *
      ___________

      No. 05-3836
      ___________

Theresa J. Turley, formerly known as *
Theresa J. Ballister, doing business as *
AA Cleaning; Labor Resources, L.L.C., *
                                        *
      Appellants,                       *
                                        *
v.                                      *
                                        *
United States of America,               *
                                        *
      Appellee.                         *

      ___________

      No. 05-4203
      ___________

Leonard Snider; National Sales &          *
Service, L.L.C., also known as            *
National Service Sales, L.L.C.,           *
                                          *
      Appellees,                          *
                                          *
v.                                        *
                                          *
United States of America,                 *
                                          *
     Appellant,                           *
____________________

Theresa J. Turley, formerly known as      *
Theresa J. Ballister, doing business as   *


                                          -2-
AA Cleaning; Labor Resources, L.L.C., *
                                      *
      Appellees,                      *
                                      *
v.                                    *
                                      *
United States of America,             *
                                      *
      Appellant.                      *
                                ___________

                              Submitted: June 12, 2006
                                 Filed: November 8, 2006
                                  ___________

Before SMITH, WOLLMAN,1 and GRUENDER, Circuit Judges.
                           ___________

SMITH, Circuit Judge.

       Certain Taxpayers sued the United States2 alleging numerous disclosures of
taxpayer return information by Special Agent Robert Jackson of the Internal Revenue
Service (IRS), in violation of 26 U.S.C. § 6103. Following a bench trial, the district
court entered judgment in favor of Taxpayers. The court awarded actual, statutory, and
punitive damages, as well as expert witness and attorney's fees. The government
appeals, raising several allegations of error. Taxpayers cross-appeal, arguing that the
district court erred by not finding additional unauthorized disclosures. We affirm in
part and reverse in part.


      1
        The case was submitted for oral argument to Judges Heaney, Smith and
Gruender on June 12, 2006. Judge Heaney retired on August 31, 2006. Judge
Wollman joined the panel on October 27, 2006 for consideration of the matter. See 8th
Cir. R. 47E.
      2
       26 U.S.C. § 7431

                                         -3-
                                    I. Background
       Taxpayer Leonard Snider operated a business called National Sales and Service,
LLC ("NSS"). Taxpayer Theresa Turley operated a business called Labor Resources.
These businesses supplied workers to hotels and businesses near the Lake of the
Ozarks, Missouri. In July of 2001, the IRS opened a criminal administrative
investigation against Snider and Turley after receiving a tip that they were not paying
income and employment taxes, employing illegal aliens, submitting false documents
regarding those illegal aliens, and engaging in money laundering.

      Special Agent Robert Jackson with the IRS Criminal Investigation Division in
Kansas City, Missouri, performed the investigation. In the course of his investigation,
Jackson disclosed certain "return information" regarding the Taxpayers without legal
authorization, in violation of § 6103. Essentially, Jackson told many third parties that
the Taxpayers were being investigated for criminal tax violations and accused the
Taxpayers of several crimes. Jackson also warned some of the Taxpayers' business
customers that they might be liable for the Taxpayers' unpaid taxes.

       In one instance, Jackson interviewed Ineke Kirby, who performed accounting
services for Turley in 2000 and 2001. During the interview, Jackson made the
following affirmative statements, all of which constituted return information: (1)
Turley had a large increase in income from 1999 to 2000 that was questionable; (2)
Turley employed illegal immigrants; (3) Turley was avoiding paying employer taxes;
(4) Turley and Snider were involved in money laundering; and (5) Turley's workers
used fake social security numbers. Jackson also disclosed return information when he
showed Turley's 1999 tax return to Kirby, which was the first time she had seen it.
From this encounter, the district court found one unauthorized disclosure as to Snider
and six unauthorized disclosures as to Turley.

      In the course of his investigation, Jackson approached various employees,
business associates, and customers for interviews. During the interviews, Jackson

                                          -4-
stated to the interviewees that he was conducting a criminal investigation of
Taxpayers. He represented to the interviewees that Taxpayers did not pay employment
taxes, employed and harbored illegal immigrants, and were "involved in a scam" and
a "grand conspiracy." In addition, Jackson repeatedly referred to Snider and Turley
as criminals and stated that Snider had been criminally investigated previously.
Jackson also told customers that they might be liable to the United States for Snider
and Turley's "thousands and thousands of dollars" of unpaid taxes. Jackson showed
numerous people various tax documents that the Taxpayers had filed. Lastly, after the
administrative investigation ended and a grand jury investigation began, Jackson told
interviewees that he was conducting a grand jury investigation of Taxpayers.

       After noting the extensive training and written instructions that Jackson had
received, the district court concluded that "Jackson repeatedly and intentionally
engaged in conduct outside the standard of conduct for IRS special agents" and
"further f[ound] that Jackson's Section 6103 disclosures were made knowingly,
willfully, and intentionally and were the result of gross negligence as defined by [26
U.S.C. §] 7431(c)(1)(B)(ii)."




                                         -5-
       In total, the district court found Jackson made 793 unauthorized disclosures of
return information to approximately 20 people. As demonstrated by the Kirby
interview, the district court counted each piece of return information as an
unauthorized disclosure. Thus, although Jackson only interviewed Kirby once, the six
pieces of Turley's return information disclosed counted as six violations of § 6103.
Similarly, the district court counted one unauthorized statement that was overheard
by two people as two violations. For example, when Jackson interviewed Jennifer Fry,
her husband, Greg Fry, was present and heard the entire conversation. Therefore, the
district court considered each statement of unauthorized return information as two
violations of § 6103 because two people received the disclosure. Counted in this
fashion, the district court determined that Snider suffered 44 unauthorized disclosures,

      3
        On page 14 of the district court's opinion, the court stated that Jackson made
78 disclosures of return information. The court stated in the paragraphs that
immediately followed that Snider, NSS, and Turley suffered 44, 5, and 29 disclosures
respectively. By our assessment of the record, this is a typographical error, as the
district court in fact found 79 total disclosures. The reason for the discrepancy is that
NSS actually suffered 6 disclosures of return information. On page 25 of the district
court's opinion, the district court, discussing the damages to be awarded to each party,
awarded NSS actual damages for the improper disclosures to Holiday Inn SunSpree
and The Knolls Condominiums. The court then stated, "Having found 4 additional
unlawful disclosures with respect to NSS, other than those made to the Holiday Inn
Sun Spree [sic] and The Knolls Condominiums, the Court awards plaintiff NSS an
additional $4,000 in statutory damages."

        In the district court's recitation of the facts at the beginning of its opinion, it
fails to mention the basis for the disclosure of NSS return information that caused
NSS actual damages under its contract with The Knolls Condominiums. As discussed
infra in Part II.B, the district court heard substantial evidence that NSS did in fact
suffer such a disclosure, causing actual damages.

       Considering the district court's opinion in its entirety, as well as the briefing of
the parties with respect to the disclosures made to The Knolls, we believe that the
actual number of disclosures found by the district court is 79, six of which were made
as to NSS.

                                           -6-
NSS suffered 6 unauthorized disclosures, and Turley suffered 29 unauthorized
disclosures. The court declined to find that Jackson's March 10, 2002 Sworn
Declaration filed with the court contained improper disclosures under § 6103.

        The court found that Taxpayers substantially prevailed within the meaning of
26 U.S.C. § 7430(c)(4), entitling them to reasonable litigation costs and attorney's
fees. The court also found that the government's position was not substantially
justified as defined by § 7430(c)(4)(B). Finding that the actual damages sustained by
Snider and Turley were less than $1,000 for each disclosure, the court awarded them
statutory damages of $44,000 and $29,000, respectively. The court found that four of
the disclosures as to NSS resulted in actual damages less than $1,000 and that the
disclosure to two of NSS's clients resulted in actual damages totaling $9,794.63.
Therefore, the court awarded NSS $4,000 in statutory damages and $9,794.63 in
actual damages.

       After finding that punitive damages were "warranted and necessary to punish
the willful behavior and gross negligence of Jackson and to deter such behavior by
others," the court awarded punitive damages using a ratio of two-to-one.
Consequently, Snider, NSS, and Turley received punitive damages of $88,000,
$27,589.26, and $58,000, respectively. The court also awarded Taxpayers expert
witness fees of $4,050, costs of $4,400, and attorney's fees of $463,777.50.

       The government asks this court to reverse the district court in essentially every
respect, including the merits of the action, the calculation of damages, and the award
of attorney's fees. Taxpayers, in their cross-appeal, ask this court to hold that Jackson's
disclosures before the district court were unauthorized and to increase the damages
award.




                                           -7-
                                    II. Discussion
       The Internal Revenue Code (IRC) provides that "Returns and return information
shall be confidential" and strictly prohibits government employees from disclosing
"any return or return information." 26 U.S.C. § 6103(a). The IRC broadly defines
"return information" as

      a taxpayer's identity, the nature, source, or amount of his income,
      payments, receipts, deductions, exemptions, credits, assets, liabilities, net
      worth, tax liability, tax withheld, deficiencies, overassessments, or tax
      payments, whether the taxpayer's return was, is being, or will be
      examined or subject to other investigation or processing, or any other
      data, received by, recorded by, prepared by, furnished to, or collected by
      the Secretary with respect to a return or with respect to the determination
      of the existence, or possible existence, of liability (or the amount thereof)
      of any person under this title for any tax, penalty, interest, fine,
      forfeiture, or other imposition, or offense . . . .

26 U.S.C. § 6103(b)(2)(A). A revenue officer may properly disclose return
information "in connection with his official duties relating to any . . . civil or criminal
investigation . . . to the extent that such disclosure is necessary in obtaining
information, which is not otherwise reasonably available, with respect to" the
investigation. § 6103(k)(6). The statute further requires that "[s]uch disclosures shall
be made only in such situations and under such conditions as the Secretary may
prescribe by regulation." 

       The government argues that the disclosures made by Jackson were authorized.
Specifically, the government contends that § 6103 permits the investigator to identify
himself, state that he is performing a criminal investigation, and name the taxpayer
under investigation. We disagree. Section 6103 clearly defines both "a taxpayer's
identity" and "whether the taxpayer's return was, is being, or will be examined or
subject to other investigation" as "return information." Therefore, the disclosures

                                           -8-
made by Jackson were clearly prohibited by statute. In addition, in a section entitled
"Return Information," the Internal Revenue Manual recognizes that "The statutory
definition of 'return information' is very broad." IRM § 9.3.1.2.2. It goes on to state
that an example of "return information" is "the fact that a person is under
investigation." 

argument that agents should be able to show their badges and
identify themselves as criminal investigators as a necessary part of their investigation
misses the mark. Such conduct is not prohibited by statute and does not constitute a
disclosure of return information. An agent violates the statute, as well as the Internal
Revenue Manual, when he or she identifies the subject of his or her investigation.

       The government has neither shown that the disclosure of the Taxpayers' identity
was necessary nor does the record reveal any necessity for the disclosures. First,
Snider's attorney offered to supply the information that the IRS sought. However,
Officer Jackson never attempted to obtain the documents from Snider. Second, Officer
Jackson maintained throughout the litigation that he never made the disclosures during
his investigation. The district court logically concluded the disclosures could not be
both necessary and yet unmade during Jackson's investigation. We agree with the
district court's analysis.

                                     B. Good Faith
       The government next asserts that it should not be liable because the disclosures
were made in good faith. Even if an unauthorized disclosure is made, the Internal
Revenue Code excludes liability "with respect to any disclosure which results from
a good faith, but erroneous, interpretation of section 6103." 26 U.S.C. § 7431(b)(1).
Under the good-faith defense, a government official may avoid liability for violating
a constitutional or statutory right where that right is not clearly established such that
a reasonable person would have known that his or her conduct violated the right. See
Jones v. United States, 

, 1124 (8th Cir. 1996) (citing Harlow v.

                                          -9-
Fitzgerald, 

, 818 (1982)). The government bears the burden of proving
the good-faith defense. 

.

       We hold that the district court did not err in finding that the government failed
to establish the good-faith defense. As mentioned above, the plain language of the
statute prohibits the disclosure of both "a taxpayer's identity" and "whether the
taxpayer's return was, is being, or will be examined or subject to other investigation,"
as both forms of information constitute "return information." Therefore, it cannot be
said that a reasonable officer would have failed to understand that such a disclosure
would violate a clearly established right of the taxpayer.

                              C. Grand Jury Investigation
       The government next contends that disclosing the fact that Taxpayers were
under grand jury investigation is not a disclosure of return information. However, the
statute plainly provides that the fact that a taxpayer is under grand jury investigation
constitutes "return information" because the statute defines "return information" to
include "whether the taxpayer[ ] . . . is being, or will be . . . subject to other
investigation . . . ." § 6103(b)(2) (emphasis added). While the government is correct
that an agent can disclose that he or she is making an official inquiry, this does not
mean that the agent can disclose the target of the investigation. The same reasons
mentioned above that apply to disclosing the identity of the taxpayer under criminal
investigation apply to disclosing the identity of a taxpayer under grand jury
investigation. Therefore, the disclosure that the taxpayers were under investigation by
a grand jury was not authorized and was not made in good faith.4


      4
        Although the government says that only one district court opinion from another
circuit supports the decision below, this argument misses the point, which is that the
plain text of the statute prohibits Officer Jackson's actions. Therefore, the law was
clearly established, albeit not by a court decision but by legislative pronouncement.
Furthermore, the government fails to point to any case that actually adopted the rule
that the government proposes. As mentioned, the government bears the burden of
proving good faith.
                                         -10-
                                D. Counting Disclosures
       Next, the government challenges the district court's method of counting. The
government urges that we hold that (1) a disclosure to more than one person at a time
amounts to one act of disclosure; and (2) a disclosure of more than one piece of return
information in a single interview constitutes a single act of disclosure. We disagree.
Increased culpability warrants increased punishment. Direct disclosures to multiple
persons multiplies the harm to the taxpayer. Our sister circuit has held that one
disclosure to two people counts as two separate disclosures. Mallas v. United States,

, 1125 (4th Cir. 1993). As Mallas recognized, § 7431(c)(1)(A) imposes
statutory damages for "each act of unauthorized disclosure of . . . return information,"
and § 6103(b)(8) defines "disclosure" as "making known to any person in any manner
whatever a return or return information." 

government's position
would nullify the language "in any manner whatever." 

government official
directly discloses a taxpayer's return information to two listeners at the same time, the
official has informed both listeners and caused as much harm as telling them
separately. 

no reason why the government should benefit from a wider
audience, especially where a wider audience means an increased injury to the
taxpayer's privacy. The same reasoning applies to the quantity of information
disclosed.

        At the same time, we recognize the concerns addressed in Miller v. United
States, 

(9th Cir. 1995). In Miller, the Ninth Circuit held that the IRS's
disclosure of return information to a Los Angeles Times reporter, who subsequently
published 184,000 newspapers containing the information, represented a single act of
disclosure rather than 184,000 acts of disclosure. 

The court reasoned
that § 7431 "punishes 'disclosure,' not subsequent disseminations" and declined to
extend Mallas to such a situation. 

We agree that the proper limitation of
liability is the initial act of disclosure, not secondary disclosures made by others such
as the media. Because § 7431 represents a waiver of sovereign immunity, it must be
"strictly construed, in terms of its scope, in favor of the sovereign." Lane v. Pena, 

, 192 (1996).

                                          -11-
       However, we do not agree with the Ninth Circuit's holding in Siddiqui v. United
States, 

, 1202–03 (9th Cir. 2004), which extended Miller and declined
to impose liability for an agent's unauthorized disclosure of return information in a
speech to a party of 100 people. As discussed above, we believe that liability should
track culpability and injury. A disclosure to 100 people is certainly more egregious
than a disclosure to one person, and we believe that Congress drafted the statute to
scale damages to injury and culpability with respect to the agent's own acts of
disclosure. The method of counting performed by the district court is affirmed.

                                   E. Actual Damages
       The government also challenges the district court's award of actual damages to
NSS, contending that they are not supported in the record. "'In reviewing a district
court's order entering judgment after a bench trial, we review the court's factual
findings for clear error and its legal conclusions de novo.'" Robinson v. GEICO Gen.
Ins. Co., 

, 1101 (8th Cir. 2006) (quoting Tadlock v. Powell, 

, 546 (8th Cir.2002) (citing Fed. R. Civ.P. 52(a))). A factual finding is clearly
erroneous when "although there is evidence to support a finding, on the entire
evidence we are left with the definite and firm conviction that a mistake has been
committed." Hoefelman v. Conservation Comm'n of Mo. Dept. of Conservation, 

, 285 (8th Cir. 1983). "A factual finding supported by substantial evidence
on the record is not clearly erroneous. A district court's choice between two
permissible views of evidence cannot be clearly erroneous." 

(citation and internal quotations omitted).

       Here, the actual damages award is composed of two sets of damages—one from
the Holiday Inn SunSpree's refusal to pay $3,638 under its contract with NSS and the
other from The Knolls Condominiums' refusal to pay $6,156 under its contract with
NSS. As for Holiday Inn, the district court committed no clear error. The court
specifically found that Jackson made an unauthorized disclosure of NSS return
information to Mark Bowman, the general manager of Holiday Inn SunSpree.
Furthermore, the district court specifically found that "[t]he evidence at trial

                                        -12-
demonstrates that the Holiday Inn terminated its contract with NSS after Jackson
advised the general manager of the potential civil liability for payroll taxes due on
accounts of the workers NSS supplied to the hotel. . . . Holiday Inn Sun Spree [sic]
and The Knolls Condominiums both refused to pay outstanding invoices due and
owing to NSS after meeting with Jackson."

       With regard to The Knolls, the district court did not make specific mention of
any unauthorized disclosure of NSS return information to any representative of the
Knolls. However, Taxpayers point out that the district court heard evidence that on
October 4, 2001, Jackson interviewed Dick Musial, the general manager of The
Knolls, and Marjorie Forbis, the housekeeping supervisor at The Knolls, and that
while Jackson was still on the premises, The Knolls "immediately terminated all
workers supplied by [NSS] even though they were good workers."5 The court also
heard testimony from two witnesses that The Knolls considered NSS to have breached
its contract. On this record, we are not left with a firm conviction that a mistake was
made and affirm.

                                F. Punitive Damages
       The government alleges that punitive damages are not available to the
Taxpayers under § 7431(c)(1). The government is correct. Section 7431(c)(1) allows
either (A) statutory damages; or (B) actual damages plus punitive damages, when
available. Therefore, a plaintiff receiving statutory damages for an unauthorized
disclosure cannot also recover punitive damages. 

–26. Other
than the disclosures made to Holiday Inn SunSpree and The Knolls, the district court
found that "the actual damages sustained by [Tapayers] as a result of the unauthorized
disclosures of return information are less than $1,000 for each disclosure." However,




      5
       Although Jackson made unauthorized disclosures to Marjorie Forbis, the
housekeeping supervisor at The Knolls, the district court found that these disclosures
pertained to Turley and Snider—not to NSS.
                                         -13-
the court awarded punitive damages to Snider in the amount of $88,000, to NSS in the
amount of $27,589.26, and to Turley in the amount of $58,000.

        To the extent that the punitive damages overlap with statutory damages, the
district court erred. We thus vacate the award of punitive damages to Snider and
Turley. However, with respect to the punitive damages awarded to NSS, part of this
award was based on actual damages. Because the district court followed a two-to-one
ratio in assessing punitive damages, we amend the court's award to NSS to $19,589.26
in punitive damages based upon the $9,794.63 in actual damages. The remaining
$8,000 in punitive damages awarded to NSS were based on the $4,000 in statutory
damages awarded, and we vacate this portion of the punitive damages awarded to
NSS.

                                   G. Attorney's Fees
       The government argues that the Taxpayers were not entitled to attorney's fees
because "they did not substantially prevail as to the amount in controversy, and
because the position of the United States was substantially justified." The government
does not challenge the amount of the award. The Taxpayers respond that (1) they are
entitled to fees even if the government's position was substantially justified; (2) they
substantially prevailed with respect to the amount in controversy and the most
significant issue (that Jackson made numerous disclosures of return information); and
(3) the government's position was not substantially justified.

       Section 7431(c)(2)(3) allows a plaintiff to recover reasonable attorney's fees
against the United States but only if the plaintiff is a "prevailing party" within the
meaning of 26 U.S.C. § 7430(c)(4). Section 7430(c)(4) defines "prevailing party" as
a party who either "has substantially prevailed with respect to the amount in
controversy" or "has substantially prevailed with respect to the most significant issue
or set of issues presented." However, "[a] party shall not be treated as a prevailing
party . . . if the United States establishes that the position of the United States in the
proceeding was substantially justified." § 7430(c)(4)(B). We review the district court's

                                          -14-
award of attorney's fees for an abuse of discretion. Kaffenberger v. United States, 

, 960 (8th Cir. 2003).

       Given the plain language of the statutes, Taxpayers fail in their argument that
they are entitled to attorney's fees notwithstanding whether or not the government's
position was substantially justified. The issues, then, are whether Taxpayers
substantially prevailed and whether the government has shown that its position was
substantially justified. We hold that the Taxpayers substantially prevailed and that the
government's position was not substantially justified. Thus, the award of attorney's
fees stands.

      The Taxpayers substantially prevailed because they established that Jackson
made numerous disclosures of return information. The conduct of Jackson certainly
was "the most significant issue . . . presented" because the entire case turned upon his
conduct, i.e., whether he made unauthorized disclosures of return information. By
prevailing on this point, the Taxpayers substantially prevailed within the meaning of
§ 7430(c)(4)(A).6

       We hold that the government's position was not substantially justified. The
government contends that its position was substantially justified, arguing primarily
that the decisive issue was one of witness credibility. The government cites Jones v.
United States, 

, 512–13 (8th Cir. 2000), which held that the district court

      6
        The government attempts to make a legislative history argument that the
amount in controversy is "determinative." However, the plain language of the statute
says that a "prevailing party" is one that has substantially prevailed "with respect to
the amount in controversy" or "with respect to the most significant issue." 26 U.S.C.
§ 7430(c)(4)(A). Because the statute is clear and unambiguous, we need not resort to
legislative history.

       Similarly, the government's attempt to distinguish legal issues from factual
issues is unpersuasive. The statute says "issues" and does not distinguish between
factual and legal issues.
                                         -15-
correctly found that the government was substantially justified in its position because
the IRS agent asserted that he never told the informant about the search warrant and
the government was warranted in aggressively resisting the taxpayers' excessive
damages claims. The government argues that under Jones, if the issue is witness
credibility, then the government's position is always substantially justified.

       We do not read Jones so broadly. Jones is distinguishable from the case at bar
due to the number of disclosures involved and, more importantly, the number of
witnesses to those disclosures. Jones involved the disclosure of a search warrant to
one person—an informant. Here, Jackson made numerous unauthorized disclosures
of return information to approximately twenty people. After deposing several of the
Taxpayers’ witnesses before trial, the government should have realized that Jackson
lied when he maintained that he never made the alleged disclosures and thus that the
government's position was not substantially justified. To that end, the district court
made the following pointed observation: "At trial, [Taxpayers] produced 20 disclosure
fact witnesses. Their collective testimonies were remarkably consistent in describing
repeated, virtually identical, unnecessary disclosures, and provide compelling
evidence of a pattern of improper disclosures by Jackson." Accordingly, we affirm the
district court's award of attorney's fees.

                            H. Expert Witness Fees
      The district court awarded Taxpayers $4,050 in expert witness fees. The
government posits that expert witness fees are not recoverable, and Taxpayers
concede as much. We therefore vacate the award of expert witness fees.

                      I. Disclosures During Instant Litigation
      In their cross appeal, Taxpayers allege that Jackson made additional
unauthorized disclosures to the Department of Justice in his March 5, 2002 Sworn
Declaration and that these disclosures were then disclosed to the court. Specifically,
Taxpayers argue that (1) the disclosures were "unnecessary to defend a civil damage
claim and are contrary to the scope and purpose of § 6103;" and (2) the government

                                         -16-
failed to "obtain the requisite request to disclose return information" in the
proceedings below.

        The government's most persuasive response is that the Taxpayers raise these
arguments for the first time on appeal. We agree. Taxpayers argued before the district
court that the disclosures were unauthorized because the civil proceedings below were
"not 'tax administration' proceedings as defined in 26 U.S.C. § 6103(b)(4)." We agree
with the government that this is not the same argument advanced on appeal.

       As a general rule, we will not consider issues raised for the first time on appeal.
Norwest Bank of N.D., N.A. v. Doth, 

, 334 (8th Cir. 1998). "We may,
however, consider an issue for the first time on appeal 'when the argument involves
a purely legal issue in which no additional evidence or argument would affect the
outcome of the case,' or where manifest injustice might otherwise result." 

With respect to Taxpayers' argument regarding obtaining the requisite
request for disclosure, the issue is not properly before us. Although Taxpayers aver
that they raise "only issues of law," their opening brief belies this contention by
pointing to the government's failed attempt to establish authorization pursuant to §
6103(h)(3). Taxpayers’ argument regarding the necessity of the disclosure is closer
to a purely legal issue; however, we decline to broadly review issues not raised and
ruled upon by the district court.

                                     III. Conclusion
       We affirm in part and reverse in part. Jackson's numerous disclosures of return
information, including the fact that Taxpayers were under grand jury investigation,
were unauthorized and were not made in good faith. Additionally, the district court
properly counted the number of violations because the Taxpayers suffered increased
injury to their statutorily protected privacy by the increased volume of information
disclosed and the widened audience to whom the disclosures were made. We hold that
the actual damages awarded are allowed by law and supported by the record. With
regard to the punitive damages, we reverse the award with respect to the disclosures

                                          -17-
for which the district court assessed statutory damages, reducing the punitive damages
to $19,589.26. Because the Taxpayers substantially prevailed and the government's
position was not substantially justified, we affirm the award of attorney's fees. We
vacate the district court's award of expert witness fees. As for Taxpayers' cross appeal,
we decline to reach the merits because the issues were not presented to the district
court.

GRUENDER, Circuit Judge, concurring in part and dissenting in part.

       I respectfully dissent from parts II.A, B, D and G of the Court’s opinion. I
agree with the Court that § 6103(a) does not forbid an agent from showing his badge
and identifying himself as a criminal investigator.7 I also agree that Special Agent
Jackson violated the statute when he disclosed return information beyond the
identities of the Taxpayers under investigation. However, I would hold that Jackson’s
disclosures that the Taxpayers were under investigation do not constitute violations
of § 6103(a) because they were necessary under § 6103(k)(6). In addition to being
necessary, these disclosures were made consistent with the IRS’s good faith
interpretation of § 6103(k)(6) and the corresponding regulation at 26 C.F.R.
§ 301.6103(k)(6)-1 and Jackson’s good faith interpretation of the IRS policy
memorandum. See § 7431(b)(1). I also would hold that the number of disclosures for
statutory damages purposes should be calculated based on each specific act of
Jackson’s disclosure, regardless of the number of individuals who heard each
improper disclosure or the number of pieces of information disclosed in any single act



      7
        While we have held that an agent’s use of “Criminal Investigative Division”
in circular letters to describe his or her position is not necessary, see Diamond v.
United States, 

, 436 (8th Cir. 1991), I agree with the Court that this
disclosure is necessary during a personal interview because an interview is different
than a circular letter. See Payne v. United States, 

, 390-91 (5th Cir.
2002) (Garza, J., dissenting in part) (stating that witnesses have “social expectations
about police identifying themselves” during an interview).
                                          -18-
of disclosure. Finally, I would hold that the Taxpayers are not entitled to attorney’s
fees because the Government’s position was substantially justified.

       Turning first to the question of Jackson’s disclosures that the Taxpayers were
under investigation, I would hold that these disclosures were not violations of
§ 6103(a). I agree with the Court that Jackson disclosed return information as defined
in § 6103(b)(2)(A), but these disclosures were necessary under § 6103(k)(6).
Furthermore, these disclosures were based on the IRS’s good faith interpretation of
§ 6103(k)(6) and the corresponding regulation as well as Jackson’s good faith
interpretation of the IRS policy memorandum. See § 7431(b)(1).

       It frequently will be necessary for a special agent to disclose that a taxpayer is
under investigation when he questions a third-party witness during an investigation.
The term “necessary” in § 6103(k) is undefined by that statute. Two possible
interpretations are “strictly essential” or “appropriate or helpful.” Payne v. United
States, 

, 389 (5th Cir. 2002) (Garza, J., dissenting in part). The “strictly
essential” meaning, which the district court appeared to adopt, would require absolute
proof that there was no other possible means for obtaining information. 

This rigid definition is not commonly used in legal contexts. 

v.
Heininger, 

, 471 (1943)). Instead, the “appropriate or helpful” meaning
of “necessary” is the only practical interpretation in this context. 

just prior
to some of the final interviews at issue in this case, the IRS expressly adopted the
“appropriate or helpful” definition pursuant to Congress’s authorization for the IRS
to identify the situations where a disclosure is necessary. § 6103(k)(6). The
temporary regulation defined “necessary” as “appropriate and helpful in obtaining the
information sought.” 26 C.F.R. § 301.6103(k)(6)-1T(c)(1) (effective July 10, 2003).
The current regulation continues to employ this definition of “necessary.” 26 C.F.R.
§ 301.6103(k)(6)-1(c)(1) (2006). Therefore, I would adopt the “appropriate or
helpful” meaning of “necessary.”



                                           -19-
        A special agent’s disclosure of the taxpayer who is under investigation is almost
always appropriate or helpful during an interview because third-party witnesses expect
an agent to disclose the reason for the interview. See 

(Garza,
J., dissenting in part); Gandy v. United States, 

, 286 (5th Cir. 2000). This
disclosure is helpful because of the spontaneous and personal nature of an interview
and the witness’s apprehension naturally occasioned by the presence of a criminal
investigator. Absent this degree of introductory detail, a third-party witness typically
will fear that he or she is a target of the investigation and, as a result, be less than
candid or exercise his or her right to refuse to answer questions. Setting the witness’s
mind at ease on this point will often be necessary to encourage the witness to speak
freely in response to an agent’s questions.8 See Fostvedt v. United States, 824 F.
Supp. 978, 983 (D. Colo. 1993) (finding the disclosure of “such minimal,
‘nonsensitive’ facts as the taxpayer’s name” during an investigation was necessary),
aff’d 

(10th Cir. 1994) (unpublished); Rhodes v. United States, 903 F.
Supp. 819, 824 (M.D. Pa. 1995) (holding that minimal disclosures such as the name
of the investigated taxpayer fall within the § 6103 exception).

      Jackson’s disclosures that the Taxpayers were under investigation were
necessary despite the Taxpayers’ witnesses’ post hoc testimony at trial that they would
have been cooperative without these disclosures by Jackson. The district court
incorrectly determined that these disclosures were unnecessary based on a “strictly
essential” definition of “necessary.” However, under the “appropriate or helpful”
meaning of “necessary,” Jackson’s disclosures were “helpful” in establishing the


      8
        It is true that a special agent could inform the witness that he or she is not
being investigated without identifying the taxpayer who is being investigated.
However, such evasiveness by the special agent about the true target of the criminal
investigation would likely leave some doubt in the witness’s mind about his or her
status as a potential target and create an untrustworthy environment for the ensuing
interview. Instead, an agent’s specific disclosure of the actual taxpayer being
investigated is more likely to reassure the witness and result in a successful and candid
interview.
                                          -20-
needed trust of the witnesses at the outset of the interviews. If Jackson had missed an
introductory opportunity to gain this trust, the interview may not have been
salvageable. While there might have been another way to gain this trust, evidence
showing “some [other] possible way” to obtain information cannot render an oral
disclosure unnecessary under the “appropriate or helpful” definition. 

(Garza, J., dissenting in part). Therefore, Jackson’s disclosures of the identities
of the Taxpayers under investigation were necessary.

       The Court and the district court incorrectly dismiss Jackson’s necessity defense
based on the assertion that Jackson denied making these disclosures. This reasoning
is flawed in its premise because Jackson, in fact, did testify at trial that he began his
interviews by disclosing the names of the taxpayers being investigated.9 Trial
Transcript at 783-84, 824. Because Jackson did, in fact, acknowledge disclosing that
the Taxpayers were under investigation, his necessity defense cannot be denied on that
basis.

       Even if I were to find that the disclosures were not necessary, I would find that
Jackson’s disclosures that the Taxpayers were under investigation also resulted from
the IRS’s and Jackson’s good faith interpretations that such disclosures were
necessary under § 6103(k)(6). When an agent discloses return information that is not
necessary under § 6103(k)(6), the IRS and its agent will not be liable if the disclosure
“results from a good faith, but erroneous, interpretation of § 6103.” § 7431(b)(1). We
have expressed two different viewpoints regarding this good faith exception. Under
one view, the good faith exception only applies when the IRS, not the special agent,
interprets the statute in good faith. 

. Under the second
view, the good faith exception also applies when the special agent interprets the IRS

      9
        Jackson did deny disclosing other facts to the third-party witnesses, such as the
facts that one Taxpayer employed illegal immigrants and that two Taxpayers did not
pay taxes on workers. Trial Transcript at 861-62, 865-66. However, these facts are
not at issue.

                                          -21-
guidelines in good faith. Jones v. United States, 

, 1125 (8th Cir. 1996).
Under either viewpoint, Jackson’s disclosures that the Taxpayers were under
investigation resulted from a good faith interpretation of § 6103(k)(6) and the
corresponding regulation.

       At the time of Jackson’s disclosures, the courts had not provided clear guidance
concerning the necessity of orally disclosing the identity of the taxpayer under
investigation. See 

; 

. The Fifth
Circuit in Gandy avoided the question and simply stated that the necessity of
disclosing the identity of the taxpayer under criminal investigation during an interview
with a witness was a “difficult legal question.” 

addressing that
difficult question, the Fifth Circuit instead affirmed the oral disclosures based on the
agent’s good faith in making the disclosures. 

.

       In the absence of controlling authority, the IRS interpreted § 6103(k)(6) and the
corresponding regulation in good faith and determined that it was necessary for its
special agents to disclose the identity of the taxpayer under investigation during third-
party interviews. The IRS released a memorandum based on this good faith
interpretation of § 6103(k)(6) that provided direction to special agents as to the
appropriate method of introducing themselves at a third-party witness interview. The
memorandum directed special agents to identify themselves as follows:

           Mr. or Ms. XXXXXX my name is John Doe, I am a special agent
           with Internal Revenue Service, Criminal Investigation (display
           credentials for examination and introduce any other officials
           present). I am conducting an investigation of Mr. or Ms. XXXXX
           and I would like to ask you some questions regarding this matter.

Memorandum for CI Special Agents in Charge, Internal Revenue Service, Criminal
Investigation, Feb. 2, 2001 (Def. Exhibit 51). The memorandum, along with the lack
of clear guidance by the courts, suggests that the IRS interpreted the necessary
exception of § 6103(k)(6) in good faith. In Diamond, we applied this good faith

                                          -22-
exception to the IRS in a similar manner. Although we held that the use of “Criminal
Investigation Division” in circular letters was not necessary, we still found that the
IRS interpreted § 6103(k)(6) in good faith. 

. The IRS
made a similar good faith interpretation in this case.

        Jackson also acted in good faith by adhering to this IRS policy. Jackson
testified that he generally followed the IRS’s recommended method of introducing
himself to witnesses, including the disclosure of the identity of the taxpayer under
investigation. Jackson gave the following description of his method of introducing
himself to witnesses: “I would introduce myself as Rob Jackson. I’m a special agent
with IRS Criminal Investigation and I’m conducting an interview [sic] of Mr. Snider
and Ms. Turley and I would show them my credentials.” Trial Transcript at 782. This
testimony demonstrates that Jackson’s disclosure that the Taxpayers were under
investigation was consistent with the IRS’s policy. Therefore, because both the IRS’s
interpretation of § 6103 and Jackson’s interpretation of the IRS’s policy were in good
faith, I would find no liability for Jackson’s disclosures that the Taxpayers were under
investigation.10




      10
        The IRS memorandum suggests that agents should disclose that the taxpayers
are under investigation, but not under criminal investigation. The district court found
that Jackson disclosed that one or more of the Taxpayers were “under criminal
investigation” in some interviews and that one or more of the Taxpayers were “under
investigation” in other interviews. I find no reason to distinguish between the two
situations because Jackson, in both situations, interpreted the IRS memorandum in
good faith. Jackson could reasonably believe that it was appropriate to disclose that
the Taxpayers were under criminal investigation when he was also authorized to state
(1) he was a special agent in the Criminal Investigation Division and (2) he was
investigating the Taxpayers. Any reasonable person would deduce that a special agent
working in the Criminal Investigation Division was conducting a criminal
investigation. Thus, in light of the conclusion that § 6103(a) allows Jackson to
identify himself as an agent in the Criminal Investigation Division, the distinction
between a criminal investigation and an investigation is insignificant.
                                         -23-
       Next, I would find that § 7431(c)(1)(A) limits the statutory damages for
disclosures to the number of specific acts of disclosure. When there are no actual
damages, the number of violations for purposes of determining statutory damages is
based on “each act of unauthorized inspection or disclosure of a return or return
information with respect to which such defendant is found liable.” 26 U.S.C.
§ 7431(c)(1)(A) (emphasis added). A statement by a special agent is a single “act,”
regardless of the number of people who hear the statement or the number of separate
items of return information included in the statement. Even if one oral disclosure is
heard by numerous people, it is still one “act” of disclosure. Siddiqui v. United States,

, 1202-03 (9th Cir. 2004) (holding that an oral disclosure to 100 people
did not equal 100 disclosures). I agree with the Ninth Circuit’s reasoning in Siddiqui
that this interpretation of § 7431(c)(1)(A) is based on the “plain meaning of the
language used by Congress in § 6103.” 

Additionally, if one oral
disclosure includes numerous items of return information, it is still one “act” of
disclosure. See Rorex v. Traynor, 

(8th Cir. 1985).

       Under the Court’s expansive reading of the statute, the statutory damages for
a single act of disclosure could result in an unimaginable windfall to a taxpayer for a
disclosure disseminated to a large number of recipients over the internet, television
or radio. For instance, a single disclosure of a taxpayer’s return information to one
million people on national television would result in $1,000,000,000 in statutory
damages. This surely was not the result Congress intended when it provided for
statutory damages of $1,000 per act of improper disclosure in the absence of actual
damages. The Court’s concern that counting only the agent’s “act” would “nullify the
language ‘in any manner whatever’” and not adequately “track culpability and injury”
is unfounded. Ante at 10-11. The statute provides for actual damages where
dissemination to multiple listeners or of multiple items of return information results
in more substantial injury. Because a taxpayer can use evidence of widespread
dissemination to prove actual damages, there is no disproportionality to culpability or
injury. The taxpayer is free to prove that the disclosure resulted in actual damages to
the extent that actual damages exceed the statutory damage amount of $1,000 for the

                                          -24-
act of improper disclosure. In the instant case, applying the plain language of the
statute would reduce significantly the number of disclosures found by the district court
for which statutory damages are appropriate. For example, the district court found
seven unauthorized disclosures of Leonard Snider’s return information from Jackson’s
interview with Mark Bowman when it should have only found one unauthorized “act”
of disclosure.

       Finally, I would hold that the Taxpayers are not entitled to attorney’s fees
because the Government’s position was substantially justified under § 7430(c)(4)(B).11
The Government’s position is substantially justified “if a reasonable person could
think it correct, that is, if it has a reasonable basis in law and fact.” Pierce v.
Underwood, 

, 556 n.2 (1988). Where the Government relies on its
witness’s credibility, its position is substantially justified. See, e.g., Jones v. United
States, 

, 512-13 (8th Cir. 2000). The Government correctly argued that
Jackson’s credibility was a key issue in the case. While Jackson admitted to
disclosing both his position with the IRS and the Taxpayers’ identities in interviews,
he denied any further disclosure of the Taxpayers’ return information. As the district
court stated, this was a case of witness credibility, and a reasonable person could agree
with the Government’s position. Consequently, the Government’s position was
substantially justified.

       The Court incorrectly holds that the Government’s position was not
substantially justified because the Taxpayers’ witnesses consistently refuted Jackson’s
testimony. However, the Government reasonably could believe that the district court
would find these witnesses unreliable because of their biases and relationships with
the Taxpayers. Additionally, the Government could also reasonably believe that the
district court would find the special agent’s testimony credible. Because a reasonable



      11
       In addition, if the district court applied my analysis on remand, Taxpayers
may not have substantially prevailed in this case. See §§ 7431(c)(3), 7430(c)(4).
                                          -25-
person could believe the Government’s position, it was substantially justified.
Therefore, the taxpayers should not be entitled to $463,777.50 in attorney’s fees.

      For these reasons, I respectfully dissent in part and would remand for a
determination of the correct number of violations and damages consistent with this
opinion.
                       ______________________________




                                      -26-