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The United States appeals the verdict of the district court following a bench trial in which the court found the United States liable for a violation of I.R.C. � 7431. The district court’s findings of fact and conclusions of law are set forth at 91 F.Supp. 2d 1014 (S.D.Tex 1999). In sum, the trial court determined that IRS Special Agent David Batista made unlawful disclosures of taxpayer Jerry S. Payne’s confidential return information in violation of I.R.C. � 6103, and that these violations were not the result of a “good faith, but erroneous” interpretation of law. I.R.C. � 7431(b). The court awarded Payne $1,536,680 in actual damages, $1,000 in punitive damages, and $105,361 in attorneys fees and costs. For reasons hereinafter discussed, we REMAND for further findings.

I. Factual Background

In the fall of 1989, the Internal Revenue Service began a civil audit of 2618, Inc., a Texas corporation that operated a topless dance club under the name Caligula XXI. Jerry Payne, an attorney, became the owner of 2618, Inc. in 1988 as compensation for legal services for the then-owner, Gerhard Helmle. The IRS agent conducting the audit, Colin Levy, suspected fraud and referred the case to the IRS Criminal Investigation Division. The investigation of Payne was assigned to Special Agent Batista.

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