Harty, Et Al. v. Commissioner of Internal Revenue

Holding: The Ninth Circuit affirmed the Tax Court's denial of motions to seal documents containing taxpayer return information because the transactional relationship exception to confidentiality rules applied.
Standard: Transactional relationship exception under Section sixty-one zero three
Vote: Unpublished memorandum disposition.
Practical effect: The decision reinforces that courts may order the disclosure of taxpayer return information when it is directly related to a transactional relationship that affects the resolution of a tax proceeding, even if the entity seeking sealing is not a party to the underlying tax case.

The Ninth Circuit affirmed the Tax Court's denial of motions to seal documents containing taxpayer return information. The court held that the transactional relationship exception to confidentiality rules applied because the disputed facts were undisputed and the documents directly related to the resolution of the tax proceedings.

Background

S.Crow Collateral Corporation appealed the Tax Court’s denial of its motions to seal documents containing its return information in two separate tax proceedings. S.Crow Collateral Corporation was not a party to the underlying tax proceedings but sought to prevent the disclosure of documents it claimed were confidential. The Tax Court denied the motions, finding that the documents fell within an exception for transactional relationships.

The court’s reasoning

The Ninth Circuit determined it had jurisdiction over the denials of the motions to seal as final collateral orders. The court noted that the underlying facts concerning the transactional relationships were not in dispute, making the application of the exception a question of law. The court found that the statute required only that the return information directly related to a transactional relationship and that the relationship directly affected the resolution of an issue in the proceeding. Both criteria were met because S.Crow Collateral Corporation facilitated the monetized installment sales at issue, and the court needed to assess the validity of those interrelated transactions to determine if taxpayers misrepresented capital gains.

What it means going forward

The decision reinforces that courts may order the disclosure of taxpayer return information when it is directly related to a transactional relationship that affects the resolution of a tax proceeding, even if the entity seeking sealing is not a party to the underlying tax case.

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