State Law Prevents Disclosure of Tax Returns; Has Bollen Filed a Bank Franchise Tax Return?

A blog reader riffles through South Dakota Codified Law and suggests the following statutes may be the basis for the statement by Department of Revenue Deputy Director Jason Evans that it is illegal for the department to disclose whether it is pursuing unpaid bank franchise taxes from the state’s former EB-5 visa investment czar Joop Bollen.

Turn to SDCL Chapter 10-1, the statutes governing the Department of Revenue, statutes 28.1 through 28.5:

10-1-28.1.   Confidentiality of return information–Definition of terms. Terms used in §§ 10-1-28.1 to 10-1-28.5, inclusive, mean:

1. “Department,” the Department of Revenue;
2. “Return information,” any information collected, prepared or received by the department which relates to a return, including the nature or amount of a taxpayer’s income, receipts, deductions, net worth, tax liability, or deficiencies, or any part of any written determination or background file documents relating to such information. The term does not include data in a form which cannot be associated with or otherwise identify, directly or indirectly, a particular taxpayer;
3. “Returns,” all tax returns, tax reports or claims for refund which are filed with the Department of Revenue, except those returns or claims for refund filed under the provisions of chapters 10-28 to 10-38, inclusive;
4. “Secretary,” the secretary of the Department of Revenue.

SDCL 10-1-28.2.   Lists compiled by department confidential–Unauthorized disclosure as misdemeanor. All lists of taxpayers, licensees, or applicants compiled by the Department of Revenue are confidential except licensees which were licensed under the provisions of chapter 10-47B, 32-6B, 32-6C, 32-7A, or 32-7B. It is a Class 2 misdemeanor to disclose any such list except to the extent necessary to carry out the official duties of the department.

SDCL 10-1-28.2 does not appear to render confidential the list of licensed money lenders, who are licensed under SDCL 54-4 and all of whom should also be bank franchise taxpayers. (Note: the Department of Revenue said it issued a lending license to Bollen’s SDRC Inc. in March, but the current licensed lender list, dated April 1, does not show SDRC Inc.)

SDCL 10-1-28.3.   Return information confidential–Unauthorized disclosure as misdemeanor. Returns and return information are confidential. It is a Class 1 misdemeanor to disclose such information except in accordance with §§ 10-1-28.4 and 10-1-28.5.

So the Department of Revenue can’t show us returns filed by South Dakota taxpayers. O.K. But we are not looking for a return that Joop Bollen has filed to pay taxes on behalf of SDRC Inc. We’re pretty sure there is no such return, and that as John Tsitrian craftily points out, Joop Bollen hasn’t paid the bank franchise taxes. We’re asking whether the Department of Revenue will pursue Bollen for back taxes owed on unlicensed banking activity from 2008 through the first two months of 2015. Even if such a return existed, the Department of Revenue would not have to reveal any information from those returns to tell us that it is pursuing back taxes.

SDCL 10-1-28.4.   Persons to whom return information may be disclosed–Purposes. Returns and return information may be disclosed to the following:

1. The taxpayer who is required to submit the information to the department, or the taxpayer’s designee appointed in writing;
2. Other states, in accordance with agreements executed pursuant to § 10-1-13.1;
3. Any agency, body, commission, or legal representative of the United States charged with the administration of the United States tax laws for the purpose of, and only to the extent necessary in, the administration of such laws;
4. Officers, employees, or legal representatives of the Department of Revenue, but only to the extent necessary to carry out their official duties;
5. Officers, employees, or legal representatives of any other state agency or department or political subdivision of the state for a civil or criminal law enforcement activity, if the agency, department, or political subdivision desiring such information has made a written request to the secretary specifying the particular information desired and the law enforcement activity for which the information is sought;
6. Officers, employees, or legal representatives of the commission on gaming and the lottery commission for the purpose of, and only to the extent necessary for, the administration of chapters 42-7A and 42-7B.

SDCL 10-1-28.5.   Disclosure of return information in judicial or administrative proceedings. Returns and return information may be disclosed in a judicial or administrative proceeding:

1. If the information is directly related to the resolution of an issue in the proceeding; or
2. To the extent required by a proper judicial or administrative order.

Yes, yes, once there’s a return, the Department of Revenue can only pass that document around to public officials for legal purposes. Leaking a tax return to the press would be naughty. But again, there is no return to leak. There is no taxpayer, only an apparent tax dodger, the kind of delinquent the state has no trouble putting in the public spotlight in other cases.

The law is the law. We must follow it, even if (especially if) big money is at stake. But the above law does not appear to prevent us from knowing whether the state is trying to recover the $2.4 million in bank franchise tax that Bollen may owe us for his SDRC Inc/EB-5 banking activities is big money.