Court Allows Tax Leak Class Action to Proceed, Finding IRS Contractor May Be Federal Employee Under 'Control Test'

BALTIMORE (LN) — U.S. District Judge Lydia Kay Griggsby on April 1 denied motions to dismiss a class action lawsuit against the Internal Revenue Service and Booz Allen Hamilton, ruling that the government contractor’s employee may qualify as a federal employee under the control test and that the firm faces a plausible claim for vicarious liability.

The plaintiffs, including Safe Harbor International LLC, Alarm Concepts Inc., and Belpointe Sleepovation Investment LP, sued the IRS and Booz Allen for violations of 26 U.S.C. §§ 6103(a) and 7431(a) arising access and disclosure of their tax information by Charles Edward Littlejohn.

Littlejohn, a former Booz Allen employee, was criminally charged in September 2023 with unlawfully disclosing return information in violation of 26 U.S.C. § 7213(a)(1). He pleaded guilty and was sentenced to five years in prison.

The plaintiffs allege Littlejohn accessed and leaked the tax returns of President Donald Trump and other high-net-worth individuals to the New York Times and ProPublica between 2019 and 2020.

The IRS moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), arguing it retains sovereign immunity because Littlejohn was a contractor, not a government employee. Booz Allen moved to dismiss under Rule 12(b)(6), arguing the statute forecloses vicarious liability and that Littlejohn acted outside the scope of his employment.

Griggsby rejected both arguments, writing that the plain language of Section 7431(a)(1) does not preclude the plaintiffs from relying on common law agency principles to establish Littlejohn’s status as a federal employee.

The court noted that Section 7431 does not define “officer or employee of the United States,” requiring the court to interpret the term under common-law agency doctrine.

Griggsby applied the Fourth Circuit’s “control test,” which examines whether the government has the authority to supervise a contractor’s day-to-day operations and control the detailed physical performance of the work.

The plaintiffs alleged that the IRS issued Littlejohn an IRS laptop and an IRS.gov email address, and that the agency “maintained control over the detailed physical performance of [Mr. Littlejohn’s] work.”

The complaint alleges the IRS exercised “extensive, detailed, day-to-day supervision” by managing the scope of his tasks, monitoring his technical performance, and controlling his access to IRS data.

“The aforementioned factual allegations, taken as true, are sufficient to plausibly allege that Mr. Littlejohn was an employee of the United States,” Griggsby wrote.

The court also denied Booz Allen’s motion to dismiss, finding that Section 7431(a)(2) does not preclude a vicarious liability theory.

The plaintiffs alleged that Littlejohn acted within the scope of his employment with Booz Allen and that the firm caused the unlawful disclosures by providing unrestricted access to IRS databases and failing to establish appropriate safeguards.

The plaintiffs seek declaratory relief and monetary damages, attorney’s fees, and costs from the defendants.

The case is Safe Harbor International LLC v. Booz Allen Hamilton, Inc., Civil Action No. 25-cv-00139-LKG, in the U.S. District Court for the District of Maryland.