Appellee's Brief

TAX ANALYSTS,
v.
INTERNAL REVENUE SERVICE,
and
THE CHRISTIAN BROADCASTING NETWORK, INC.
Appellant

ORAL ARGUMENT SCHEDULED FOR MAY 19, 2005

UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA ClRCUIT

Appeal From The United States District Court
for the District of Columbia

The Hon. Thomas Penfield Jackson

BRIEF OF APPELLLEE
THE CHRISTIAN BROADCASTING NETWORK, INC.

J. William Koegel, Jr., No. 323402
Bruce C. Bishop, No. 437225
STEPTOE & JOHNSON LLP
1330 Connecticut Avenue, NW
(202)429-1000

[* * * PAGES MISSING FROM SOURCE * * *]

[Editor's Note: The reference mark for footnote¹ does not appear in the original full text.]

Section 501(c) or (d), does not relate to that organization's application for tax exemption, within the meaning of paragraph (d).²

The above statute and regulation, as well as relevant portions of I.R.C. §6103, are reproduced in the addendum hereto.

The Freedom of Information Act ("FOIA"), 5 U.S C. §552, is contained in the Brief for Tax Analysts. Treas. Reg. §301.6104(d)-1, also reproduced in part in Tax Analysts' Brief, implements a different subsection of §6104, and is not at issue here.

STATEMENT OF THE CASE

A. Nature of the Case

Tax Analysis (“TA") seeks disclosure, under FOIA and IRC. §6104(a), of a closing agreement between the IRS and The Christian Broadcasting Network, Inc. ("CBN"). TA also seeks all written correspondence and memoranda related to that agreement, the tax examination that led to it, or any renewal, revocation, or modification of CBN's tax-exempt status. TA contends all these documents were “submitted in support or or “issued with respect to" CBN's February 1998 application for tax exemption, and thus are disclosable under §6104(a)(1)(A).

In an earlier appeal in this action, this Court remanded for resolution of “the narrow and fact-specific question of whether the closing agreement between the IRS and CBN and any accompanying documentation represent material disclosable under I.R.C. §6104(a)(1)(A), despite their apparent status as material exempt from disclosure under I.R.C. §6103." Tax Analysts v. IRS & CBN, 214 F.3d 179, 185 (D C. Cir. 2000) (reproduced at JA-43, 49). This Court directed the district court to develop an adequate record for this determination, and expressly left to the district court's discretion whether in camera examination of the closing agreement or the filing of a Vaughn index would be sufficient. Id.

On remand, the district court received affidavits from the IRS, and ordered limited discovery. The district court initially found a Vaughn index would be burdensome, as the IRS' initial FOIA search yielded more than 32 boxes of documents. Instead, the court allowed limited depositions of IRS representatives, with the goal of eliciting the type of information that would appear or a Vaughn index while narrowing the number of documents in dispute.

In his deposition, the IPS' chief representative identified six withheld documents as the entire universe of document relating to the subject of CBN applying for exemption. He also identified another two documents that did not relate to any exemption application. The IRS then submitted Vaughn affidavits describing those eight documents, and also submitted the closing agreement for in camera review. TA sought much broader discovery, which was denied.

After reviewing the IRS declarations, the deposition transcript, the Vaughn affadavits, and the closing agreement, the district court granted summary judgment against TA. TA appeals.

B. Course of Proceedings and Disposition Below

1. The Underlying Disclosure Dispute

TA filed its complaint seeking disclosure, under FOIA (5 U.S. C. §552) and I.R.C. §6104(a), of a 1998 closing agreement between the IRS and CBN, as well as all written correspondence, or memos of conversations or meetings, relating to: (i) the closing agreement, (ii) the news release announcing it; (iii) the IRS examination that the agreement resolved; or (iv) any renewal, revocation, or modification of any ruling granting tax-exempt status to CBN. JA-11-23. The IRS had already disclosed CBN's complete application for exempt status, and the IRS letter recognizing exempt status. JA-24. The IRS resisted TA's remaining demands, because the materials sought were confidential return information protected from disclosure by I.R.C. §6103 and FOIA Exemption 3 (5 U.SC. §552(b)(3)). Id; JA-33.

2. The First Appeal

In an earlier round of this litigation, the IRS obtained judgment on the pleadings JA-45. Judge Jackson agreed with the IRS that the information sought was confidential return information, which as a matter of law was outside the scope of §6104(a) and protected from disclosure under §6103JA-47.³

On appeal, this Court ruled that the pleadings did not provide a sufficient record to support the district court's ruling as a matter of law. The Court noted the Tax Code explicitly protects the confidentiality of tax returns and “return information," §6103(a), and that §6103(a)a nondisclosure statute failing within FOIA Exemption 3. JA-46. The Court further observed that §6104(a)(1)(A) requires disclosure of “the application filed by the organization with respect to which the Secretary made his determination that such organization was entitled to exemption. . . . together with any papers submitted in support of such application, or any letter or other document issued by the Internal Revenue Service with respect to such application," JA-46, and that §6104(a) effectively serves as a carve-out to §6103's disclosure bar. JA-47. Thus, “§6104, where it applies, controls §6103” and requires disclosure. Id.

This Court analyzed whether a closing agreement and related documentation, though protected under §6103, might become disclosable under §6104 if it were actually submitted in support of an application for exemption. JA-48. The Court ruled that the label or type of document did not control. Instead, the question was whether the document was actually submitted in support of an exemption application. Id. The IRS conceded, hypothetically, that a dosing agreement “might become disclosable if submitted in support of an exemption application." Id. Whether that happened in this case, however, could not be answered at the pleadings stage. JA-49.

To answer the question, this Court remanded for development of a factual record. The Court left the method for development of that record to the district court 's discretion:

We leave to the district court, in the first instance the question of whether in camera examination or the filing of a Vaughn index is sufficient to create an adequate record upon which to base the disclosability determination.

Id.

The Court's suggestion of in camera examination arose in part from a similar but unrelated Tax Analysts case (Tax Analysts v. IRS, 53 F. Supp 2d 449 (D.D.C. 1999)). In that case, (now Chief) Judge Hogan had ruled the closing agreements at issue were not “''issued' by the IRS,' but were instead bilateral contracts between the IRS and the applicants in question." JA-48. In a passage upon which TA now relies heavily, this Court noted that Judge Hogan's characterization of those closing agreements had been based on his examination of the Agreements in camera: 

[W]e note that the district court in that case conducted an in camera review of the agreements in question before concluding that they did not fall within the scope of I.R.C. §6104(a)(1)(A). That court based its decision principally upon 'the character of the closing agreements themselves'. . . . In other words, far from supporting the IRS's argument that further discovery would be fruitless, that case better supports the conclusion that some review of the content of the documents in question is necessary before the court can adequately determine whether or not I.R.C. §6104(a)(1)(A) applies.

JA-48-49. This Court thus approved the district court's examination of the closing agreement in camera, though it left to Judge Jackson's discretion whether to conduct such a review in this case. JA-49.

3. On Remand, the IRS Moves for Summary Judgment, and the District Court Orders Limited Discovery

After remand, the IRS moved for summary judgment, and submitted supporting declarations. JA-54-81. The IRS' principal declarant, Steven Miller, stated the closing agreement in this case was not submitted in support of CBN's exemption application. JA-72, ¶ 9. Mr. Miller further stated that other than the application itself, its attachments, and the IRS determination letter recognizing exempt status, all of which had already been disclosed, no other documents were either submitted in support of CBN's application, or issued by the IRS with respect to it. JA-80.

CBN moved to intervene, JA-52, was granted permissive intervention, JA-97, and supported the IRS' summary judgment motion. R.50, see JA-7. Responding to TA's request for Rule 56(f) discovery, JA-82-88, CBN recommended that TA be allowed to test the IRS declarations through limited depositions. R.50, JA-107. CBN also urged Judge Jackson to review the closing agreement in camera. JA-106. TA sought much broader discovery, including “a comprehensive Vaughn Rosen index, and depositions and other discovery of IRS, CBN, and individuals with knowledge of the facts including employees agents, accountants or attorneys of IRS and CBN." JA-88.

Judge Jackson found that a Vaughn index would be burdensome and unhelpful given the large volume of documents identified.⁴ JA-102. He also concluded that in camera inspection of the closing agreement alone would not answer the questions before the court. Id. Accordingly, he allowed TA to take limited depositions of the two IRS declarants, and possibly an IRS 30(b)(6) deponent, “with no further discovery of any description to be permitted at this time." JA-101.

The court ordered these depositions to try “to pretermit the necessity of a Vaughn affidavit, which would seem to me to be an extraordinary burden." JA-110. The court believed “a carefully focused deposition would be a much more promising avenue to try to fulfill the mandate from the Court of Appeals, which is to develop a record on which they can make a judgment on my decision.” Id. Accordingly, the court instructed TA to pursue, through depositions, the type of information that would be contained in a Vaughn affidavit. JA-109. The court gave examples of the types of questions that would be permissible:

for example, were separate files maintained for the exemption application and the tax liability; were the decision makers the same, or were different decision makers involved in the two matters, and do the files contain some of the same documents? Nevertheless, I would also expect that there be some discussion as to what was provided during [the IRS'] presubmission [conference with CBN], and what was then, presumably, subsequently submitted in conjunction with the application.

JA-101-I02.

Judge Jackson set one very clear ground rule for the deposition: the questions “would pointedly exclude any inquiry as to the substance of the papers." JA-101. The judge emphasized, “I think it should be underst[ood] that Tax Analysts would, insofar as substance is concerned, make no inquiry which would go beyond what would be disclosed by a Vaughn affidavit.” JA-109.

4. Tax Analysts Deposes the IRS Representative, Moved to Compel Additional Discovery, And Is Denied

Tax Analysts first took the deposition of Steven Miller, the IRS' principal declarant. See JA-67, 116. Mr. Miller, the IRS' Director for Exempt Organizations (id), testified about the manner in which the respective files were kept for the tax examination and for consideration of CBN's new application for exemption; the identity of the IRS decisionmakers with respect to each matter, the documents contained in the files pertaining to each of those matters, and the location of the documents in the files. See JA-119-136; compare JA-101-102 (quoted supra). Mr. Miller further identified the entire universe of documents exchanged between the IRS and CBN, at any time, that had anything to do with the issue of CBN applying for a new recognition of tax-exempt status. JA-124-129,136 (at 82). Following the Miller deposition, the IRS submitted Vaughn affidavits describing the eight documents Mr. Miller identified JA-174-183,195-198.

Despite Judge Jackson's ground rule, JA-101,109, TA went on to question Mr. Miller extensively regarding the substance of the identified documents, including the closing agreement. See, JA-204-222. CBN and the IRS objected that such questions contravened Judge Jackson's order that TA ask no questions “as to the substance of the papers." JA-101. Specifically, CBN objected

to the extent that the question calls for any substantive description of the contents of those documents. We would expect the witness to describe the number and types of such documents in the limited manner that would be consistent with a Vaughn index in accordance with the judge's ruling. To the extent that the description would go beyond that and reveal the contents of any such documents, we object that that is protected information.

JA-123 (at 30-31). Thereafter, the IRS' counsel and Mr. Miller referred to this objection in shorthand fashion as being based on requests for the “content" of the documents. See JA-204-224; cf. JA-231-238.⁵

TA insisted it was entitled to question Mr. Miller about the content of the documents, for three reasons: first, that the district court's order said nothing about the “content" of documents; second, that Judge Jackson had said nothing about the doting agreement; and third, that this Court's opinion and remand order entitled TA to inquire into the contents of the documents. After putting into the record page 184 of this Court's opinion (JA-48, see JA-144 (at 115)), TA urged:

I submit to you that first of all there was no discussion of the closing agreement before Judge Jackson at the hearing. A decision about the Vaughn index and what might be asked and answered related to the documents at the pre-submission conference. And even if there were any such discussion, which there was not, I submit to you that this opinion of the Court of Appeals overrides it, and that therefore the content of the closing agreement, to the extent that it relates to the press release or that it relates to any documents submitted with respect to an application for tax exemption, is property asked and answered in this deposition.

JA-144 (at 116). On that basis, TA moved to compel answers to its questions. JA-200-222, see also R.53, at 7 (Motion to Compel).

The district court denied the motion to compel, JA-240, explaining later that “the information that you sought by your Motion in essence is what you seek by the case itself”. JA-243. Stating that “in terms of discovery I have given you about as much latitude as I can," JA-245, the court concluded it would have to review some documents in camera. JA-243. The court declined to review all documents listed in the Vaughn affidavits, because they totaled nearly 2000 pages. JA-246, 251. Instead, the Court accepted the suggestion of reviewing just the closing agreement, before deciding whether additional review was necessary. JA-253-254.

5. After Inspecting the Closing Agreement In Camera, The District Court Grants Summary Judgment For the IRS

After reviewing the closing agreement in camera, Judge Jackson granted the IRS' motion for summary judgment. J A-260. Stating the issue was “whether the closing agreement in question was submitted in support of CBN's application for tax exempt status," id, the court concluded the answer was no. JA-261, 262.

The court relied on Mr. Miller's “unequivocal” declaration that “CBN's closing agreement was not submitted in support of its application for tax exempt status," and that other than the application and attachments, CBN had “submitted no other documents in support of its application.” JA-261-262. Judge Jackson stated his in camera “[r]eview of the closing agreement reveal[ed] that it makes only passing reference to the application for tax exempt status as having already been approved, and is otherwise nothing more than the expression of the negotiated terms of the settlement” of the CBN tax examination. JA-262. “There is no evidence on the face of the closing agreement itself or elsewhere that it was submitted with, or in support of, the application for an exemption.” Id. In a footnote, the court confirmed that the closing agreement was a bilateral agreement between the parties, and therefore was not “issued by the IRS.” JA-262.

Based on his finding “that the closing agreement was not submitted with, or in support of, CBN's application for tax exempt status," Judge Jackson granted summary judgment for the IRS. Id.

6. The District Court Supplements Its Summary Judgment Order To Cover All Documents Sought

Tax Analysts moved to alter or amend the judgment, renewing its claims on the merits and its demands for additional discovery. JA-263-267. TA also pointed out that the summary judgment order addressed only the closing agreement, but that TA sought other documents, including those identified in the IRS' Vaughn affidavits. JA-264. The IRS and CBN agreed the district court should amend its order to include in its ruling the other documents sought by TA. JA-268-269, 271.

In response, the district court issued an order clarifying that the documents on the IRS' Vaughn index also “were neither submitted in support of, nor made part of," CBN's application for exemption. Consequently, the court ordered that “all remaining claims as to the documents contained in the Vaughn Index are dismissed." JA-272.

STATEMENT OF FACTS

A. The Tax Examination and Closing Agreement

CBN is a nonprofit, tax-exempt organization. In the mid-1980s, the IRS began an examination of CBN's potential tax liability. JA-120. That examination continued from 1985 or 1986 (id.) until March 1998, when it was concluded by a closing agreement between the IRS and CBN. JA-79.

Closing agreements, which are governed by statute, are written agreements between the IRS and any person relating to that person's tax liability for a given tax period. JA-69. The closing agreement in this case resolved all issues in the IRS' examination of CBN's tax liability. JA-79.

Because they relate to tax liability, closing agreements are confidential return information, protected from disclosure under I.R.C. §6103. They are specifically included within §6103's definition of “return information.” JA-72. Section 6103(a) prohibits the IRS from disclosing closing agreements, or even acknowledging the existence of a closing agreement with a specific taxpayer, unless the taxpayer consents or disclosure is otherwise authorized by Code. Id. When it enters a closing agreement, the IRS sometimes negotiates with the taxpayer an agreed-upon public statement concerning the issues resolved by the closing agreement. Such statements allow the IRS to inform the public regarding tax enforcement issues. JA-72-73. The IRS and CBN negotiated such an agreed-upon statement, which informed the public of the salient points resolved in CBN's closing agreement. JA-79-80.

B. The Separate Negotiations Leading to the Closing Agreement and the Application for Exemption

In 1994, the IRS and CBN began a negotiation with the goal of resolving all examination issues. JA-120, 124. After two years, in August 1996, the IRS and CBN came to a “meeting of the minds" to resolve the examination issues. JA-121 (at 25), JA-123 (at 30), JA-148 (at 130, 132).

The closing agreement that ultimately resolved the examination included a lots of CBN's tax exemption for 1986 and 1987. JA-79-80. The IRS believed such a loss would require that CBN file a new application for exempt status if CBN were to be exempt in the future. JA-148 (at 132); see also JA-168-170 (at 210, 213, 215, 218). Accordingly, in August 1996, when it believed it had a resolution of the examination issues, the IRS suggested the possibility of CBN filing a new application. JA-121-123 (at 25, 29-30). Thus, from August 1996 forward, the IRS and CBN turned their attention to the subject of a new application for exemption. JA-122-123, JA-134 (at 77), JA-148.⁶ The IRS and CBN also continued to fine-tune the terms of their agreement on examination issues. See JA-127-129 (at 49-50, 53-54), JA-197. Mr. Miller, who participated in the negotiations and knows more about them than any other individual, JA-98, 118, testified that these two negotiations — regarding examination issues on the one hand, and the possibility of a new application on the other — were “parallel” processesJA-148 (at 130).⁷

The IRS allows parties who are contemplating applying for exemption to discuss with the IRS what items are necessary to submit along with the application. The IRS refers to such meetings or discussions as “presubmission conferences.” JA-74-75. After the IRS and CBN turned to the subject of a new application for exemption, they discussed what CBN would be required to include in order for the new application to be approved. JA-80. Mr. Miller identified one or possibly two such conversations that were in the nature of a presubmission conference (in October 1996 and/or March 1997, JA-137), and also identified eight documents exchanged during that time between the IRS and CBN, of which only six related to the subject of a new application. JA-124-129. Those documents included an undated draft application in Winter 1997, a signed application in April 1997 that was withdrawn in November 1997, an August 1997 “development letter” from the IRS to CBN asking questions regarding the April 1997 application, and an October 1997 draft response from CBN to questions raised in the development letter. See JA-124-127, 140-41, 175-180.

Six of the eight documents Mr. Miller identified were the “entire universe” of documents that had anything to do with the subject of a new application by CBN. JA-136 (at 82). All of these documents concerned only the draft application or the withdrawn application in 1997. JA-124-128 (at 35-36, 41,44-45, 47-48, 51). They are further described in the Vaughn affidavits the IRS submitted after the Miller deposition.⁸ JA-175-180.8 None of them were attached to or submitted in support of the exemption application that was filed in February 1998 and granted in March 1998. JA-80.

Though Mr. Miller described separate negotiations for the closing agreement and the new exemption application, which proceeded in “parallel” after the second was begun, TA mischaracterizes these processes as a “single, overall negotiation.” Br. at 12, 13, 23, 41. TA takes this description from a passage in this Court's earlier opinion, which TA misquotes to suggest this Court held that in fact there was such a single, overall negotiation.” Br. at 7.⁹ TA asserts this supposed “holding govern[s] and [is] the law of this case.” Id.

This Court of course made no such holding. It only observed that such a scenario was one possible reading of the press release attached to TA's Complaint JA-48. The Court had no record before it to show whether that was indeed the case, indeed the Court's holding was that the record was insufficient to make any determination. JA-49.¹⁰

The record developed on remand refutes the “single, overall negotiation" theory. Mr. Miller testified that the resolution of the examination issues (via the closing agreement) and the application for exempt status were distinct processes: the IRS and CBN turned to the subject of a new application after they reached an agreement in principle on the examination issues in August 1996. See supra at 14. To the extent that closing agreement issues continued to be finalized during the time CBN was discussing draft applications with the IRS, these were “parallel” processes — not one and the same. JA-148 (at 130). Judge Jackson confirmed after in camera review that the closing agreement did not address CBN's tax exemption except to state in passing that the application had already been approved. JA-262.

C. The IRS' Disclosure Of All Documents Submitted In Support Of, Or Issued With Respect To, the Application On Which It Determined CBN's Exempt Status

When the IRS grants an application for tax exempt status, as it did in March 1998, it places all of the documents the applicant submitted in support of its application, as well as all of the documents the IRS issued with respect to the application, into a public inspection file. JA-75-76. “If an organization were to submit an executed closing agreement as part of an application for tax exempt status, the entire agreement would become part of the public inspection file.” JA-72 (59). In this case, “CBN did not submit a closing agreement as part of, or in support of, its tax exempt application.” Id.

Mr. Miller testified that the IRS' March 1998 recognition of CBN's tax-exempt status was based only on CBN's February 1998 application for exemption, and all of its required attachments, all of which have been publicly disclosed and provided to TA:

Other than the application itself including attachments, and a letter dated February 6, 1998, forwarding an additional check to cover an increase in the application user fee, CBN submitted no other documents in support of its application. Other than a letter from the Service, dated February 6, 1998, to the taxpayer concerning an increase in the application user fee and the determination letter issued by the Service, dated March 13, 1998, the Service issued no other documents with respect to CBN's application. . . .

JA-80.

The Service's recognition of the tax exempt status of CBN was accomplished by means of a determination letter and was based on the content of the administrative record of the application, both of which are available for public inspection under I.R.C. §6104(a)(1)(A), and which were provided to the plaintiff.

JA-80-81.

D. The Closing Agreement Does Not Concern CBN's Application for Exemption

Mr. Miller also confirmed that "[t]he closing agreement did not deal with the substance of the exempt application nor did the closing agreement recognize such tax exempt status of the organization.” JA-80. That confirmation was borne out by the district court's in camera review. The district court found the closing agreement

makes only passing reference to the application for tax exempt status as having already been approved, and is otherwise nothing more than the expression of the negotiated terms of the settlement between the IRS and CBN absolving CBN of its ongoing tax liability. There is no evidence on the face of the closing agreement itself or elsewhere that it was submitted with, or in support of, the application for an exemption.

JA-262.

SUMMARY OF ARGUMENT

This Court remanded this case for the district court to perform two simple tasks: (a) to determine the “narrow' and fact-specific question” whether the closing agreement and related documents were “submitted in support or or “issued with respect to” CBN's February 1998 application for exemption; and (b) to develop a factual record sufficient for that determination. JA-49. This Court left it to the district court to decide how to develop that record, and whether in camera review or a Vaughn index would be sufficient. Id.

The district court well fulfilled this Court's mandate. Rather than require the IRS to create a massive Vaughn index for 32 boxes plus a file cabinet of documents, the court ordered limited depositions to elicit, more efficiently, the type of information that would be found on a Vaughn index, while narrowing and identifying the documents in dispute. JA-101-I02, 109-110. Once those documents were identified, the IRS submitted Vaughn affidavits describing them. JA-174-181, 195-197. The district court also reviewed the closing agreement in camera (JA-258-259, 262) — thereby fulfilling both of this Court's suggestions for completing the record. JA-49. The district court also considered IRS declarations (JA-64-81, JA-98-99), which directly answered the questions before the court. The Miller declaration established that neither the closing agreement nor any other undisclosed document was submitted in support of or issued with respect to the application on which the IRS determined CBN's exempt status. JA-72 (¶9), JA-80.

TA was not entitled to further discovery. The district court has broad discretion to manage discovery, particularly in FOIA cases, where discovery is disfavored. By definition, the disputed issue in disclosure cases is whether the documents at issue are to be kept confidential. A party cannot demand in discovery what it seeks on the merits — i.e., disclosure of the contents of the documents themselves. Judge Jackson thus was correct to prohibit inquiry into the substance of the documents (JA-101), and to foreclose further discovery when TA made clear that was what it intended to pursue (JA-240, 243, 245). TA's claim that this Court gave it the right to review the contents of the disputed documents is plainly wrong The passage of this Court's prior opinion on which TA relies suggested review of the documents by the district court, in camera — not by the plaintiff. JA-48-49.

The record now answers the question this Court asked. This Court had posited, and the IRS had acknowledged, that a closing agreement might become disclosable if it was actually submitted in support of an application for exemption JA-48. The question was whether that happened in this case. JA-48, 49. The Miller declaration answers that question no. Neither the closing agreement nor any other document sought in this case was submitted in support of CBN's February 1998 application — the application on which the IRS determined CBN's exempt status. JA-72 (¶9), JA 80. This answer was confirmed by the district court's review of the IRS' Vaughn submissions, and by its in camera review of the closing agreement itself. JA-262, 272.

The application that was granted — i.e., the application upon which the IRS made its determination — is the only application that is disclosable (with its supporting materials) under the statute. §6104(a)(1)(A). The implementing regulation makes clear that applications that do not result in determination of exemption are not disclosable, nor are their supporting materials. Treas Reg. §301.6104(a)-1(a), (c), (i)(6). Legislative history specifically confirms this reading of the statutory disclosure requirement.

The distinction between disclosable and protected materials is not chronological as TA contends. Disclosure does not depend on whether material was submitted before or after the granted application. Instead, the distinction is between applications that result in exemption, which are disclosable, and those that do not, which are not. E.g. , JA-131 (at 62-63); JA-163 (at 192-193); JA-248. This is not an ad hoc litigation position. It is set forth in the statute itself and the implementing regulation. The regulation is consistent with the plain meaning of the statute, and is entitled to deference.

STANDARD OF REVIEW

This Court reviews grants of summary judgment de novo. Morgan v. Fed. Home Loan Mortg. Co., 328 F.3d 647, 650 (D.C. Cir.), cert. denied, 540 U.S. 881 (2003). A district court's refusal of additional discovery under Rule 56(f) is reviewed only for abuse of discretion. Stewart v. Evans, 351 F.3d 1239, 1245 (D.C. Cir. 2003).

The district court has broad discretion to manage the scope of discovery. Accordingly, this Court will reverse a decision granting or denying discovery only in unusual circumstances. J. Roderick MacArthur Fdn. v. FBI, 102 F.3d 600, 605 (D.C. Cir. 1996); SafeCard Servs. v. SEC, 926 F.2d 1197, 1200 (D.C. Cir. 1991).

ARGUMENT

I. The District Court Fulfilled This Court's Mandate To Develop An Adequate Record

This Court's mandate in the last appeal was simple: the district court was to determine the “narrow and fact-specific question of whether the closing agreement between the IRS and CBN and any accompanying documentation represent material disclosable under I.R.C. §6104(a)(1)(A), despite their apparent status as material exempt from disclosure under I.R.C. §6103.” JA-49. That is, the court was to determine whether the closing agreement and related documentation were “submitted in support or or “issued with respect to” CBN's application for exempt status. JA-48. To make that determination, the court was directed to develop an adequate factual record. JA-49. This Court suggested two possible methods for developing the record: an in camera examination, or a Vaughn index. Id. The Court left it to the district court to determine whether those methods were sufficient. Id.

A. Exercising Its Broad Discretion to Manage Discovery, The District Court Developed As Adequate Record

District courts enjoy broad discretion in managing discovery, particularly in FOIA cases. See MacArthur Fdn., 102 F.3d at 605; SafeCard, 926 F.2d at 1200.¹¹ This Court's mandate recognized that discretion. JA-49. The district court fully complied with the mandate to develop an adequate record, ultimately employing both of the methods suggested by this Court: in camera review of the closing agreement, and consideration of Vaughn affidavits for the other documents at issue. See id. The district court did not, however, invoke those two methods simply by rote. Instead, Judge Jackson carefully considered what was necessary to fulfill this Court's mandate. See JA-102, 110, 243, 245.

Finding that a full Vaughn index would be burdensome and unhelpful given the large volume of documents potentially at issue, JA-102, 110,¹² Judge Jackson instead ordered limited depositions designed to uncover the type of information a Vaughn index would contain. The court specified that the questions to be asked were to be limited to “what would be disclosed by a Vaughn affidavit,” and that its goal was to “pretermit the necessity of a Vaughn affidavit” covering the many boxes of documents. JA-109, 110. By this method, the court clearly intended for the deposition process to narrow and identify the number of documents actually in dispute.

The court's method was successful. The Miller deposition identified a total of only six undisclosed documents that had anything at all to do with the subject of a new application for exemption. JA-124-127, 140-141; see supra at 15.¹³ Once those documents had been identified, the IRS promptly submitted Vaughn affidavits describing them. JA-175-182, 197.¹⁴

The district court considered the entire Miller deposition (which was submitted with TA's motion to compel), as well as the declarations the IRS submitted with its summary judgment motion. The Miller declaration, in particular, answered the question this Court posed. It establishes that neither the closing agreement nor any other undisclosed document was either submitted in support of, or issued with respect to, CBN's application for exemption. JA-72 (¶9), JA-80.

Even so, Judge Jackson did not accept the Miller declaration at face value. See JA-105-106. Instead, he allowed TA to depose Mr. Miller, JA-101, and he reviewed the closing agreement in camera to confirm what Mr. Miller said about it. JA-258-259,262. Only then did the district court grant summary judgment, concluding from the declarations, the Vaughn affidavits, and to own in camera review chat the documents sought were neither submitted in support of, nor issued with respect to, CBN's exemption application. JA-260-262, 272.

B. Tax Analysts Was Entitled To No Further Discovery

Tax Analysts claims it was unfairly blocked from discovery, by the district court's prohibition on inquiring into the substance of the disputed documents. Br. at 17-21, 35-37. TA insists this Court's mandate gave it the right to discover the contents of the documents in order to ascertain whether they were “submitted in support of" CBN's application. Br. at 36; see also Br. at 7; JA-144.

TA's characterization of this Court's mandate is based on a distortion of the Court's earlier opinion. From the time of this Court's remand, through the deposition process and now again on appeal, TA has seized on this Court's statement that “some review of the content of the documents in question is necessary” (JA-49) to argue that Tax Analysts is entitled to conduct that review. See Br. at 7, 20, 21, 35, 36; JA-144 (quoted supra at 11); JA-152-153 (at 148, 152); see also R.53 (Mot. to Compel) at 4, 7, 20-21.

TA's brief quotes only a small excerpt of this Court's opinion, which it mischaracterizes as a mandate allowing TA to discover the “contents” of documents:

. . . some review of the content of the content of the documents in question is necessary before the court can adequately determine whether or not IRC §6104(a)(1)(A) applies. . . . [Therefore] further discovery is necessary.

Br. at 7 (quoting from JA-49). According to TA, this “holding” is the governing “law of this case.” Id.

The Court's full statement, however, makes clear that it was speaking of review in camera by the district court — not review by TA:

[W]e note that the district court in [Tax Analysts v. IRS, 53 F. Supp 2d 449 (D.D.C. 1999)] conducted an in camera review of the agreements in question before concluding that they did not fall within the scope of I.R.C. §6104(a)(1)(A). That court based its decision principally upon 'the character of the closing agreements themselves'. . . . In other words, far from supporting the IRS's argument that further discovery would be fruitless, that case better supports the conclusion that some review of the content of the documents in question is necessary before the court can adequately determine whether or not I.R.C. §6104(a)(1)(A) applies.

JA-48-49. This Court's approving citation of an earlier example of in camera review suggested that a similar review by the district court might be appropriate in this case. It is far from a mandate that Tax Analysis, the plaintiff seeking disclosure, be allowed to discover the contents of the documents it seeks on the merits.

In this, as in all FOIA Exemption 3 cases, the papers at issue are all assertedly confidential, under a statute prohibiting their disclosure. It would turn disclosure litigation on its head if a plaintiff could obtain in discovery the contents of the documents whose confidentiality it seeks to pierce on the merits. See, eg., Cheney v. U.S. Dist. Ct., 124 S. Ct 2576, 2591 (2004) (disclosure plaintiffs broad discovery demands were “anything but appropriate," where they would have given plaintiffs “all the disclosure to which they would be entitled in the event they prevail on the merits”); Spirko, 147 F 3d at 998 (“Clearly, there are occasions when extensive public justification would threaten to reveal the very information for which a FOIA exemption is claimed."), Pub. Citizen, 997 F. Supp. at 73.”¹⁵

To protect the confidentiality of the documents pending his ultimate merits ruling, it was eminently sensible for Judge Jackson to prohibit TA from inquiring “as to the substance of the papers." J A-101. Tax Analysts brazenly ignored that ruling, contending this Court's prior opinion “overrode" it (JA-144 (at 116)), and demanded the right to discover the contents of the closing agreement itself — a document specifically protected under the Tax Code. See §6103(b)(2)(D); J-72 (¶18). Judge Jackson correctly perceived that “the information [TA] sought in [its] Motion in essence is what [TA] seek[s] by the case itself,” JA-243, and rightly denied TA's discovery motion. JA-240. His ruling was certainly no abuse of discretion. See MacArthur Fdn., 102 F.3d at 605.

II. The Documents Tax Analysts Seeks Were Neither Submitted In Support Of, Nor issued With Respect To, CBN's Successful Application For Exempt Status

A. The Evidence Shows Neither the Closing Agreement, Nor Any Other Undisclosed Documents, Were Submitted In Support of CBN's Exemption Application

This Court remanded for determination of “the narrow and fact-specific question of whether the closing agreement between the IRS and CBN and any accompanying documentation represent material disclosable under I.R.C. §6104(a)(1)(A), despite their apparent status as material exempt from disclosure under I.R.C. §6103.” JA-49. That is, were the closing agreement and any accompanying documentation “submitted in support of” or “issued with respect to” the application upon which the IRS determined CBN's exempt status? JA-46, 48.

In its previous opinion, this Court observed hypothetically that a closing agreement might be submitted in support of an application for exempt status, or that a particular document might be submitted in support of both a closing agreement negotiation and an exemption application. JA-48. The Court posited that if that were so, the agreement would be disclosable under § 6104(a)(1)(A), notwithstanding its otherwise protected status under § 6103. Id. The IRS acknowledged that hypothetical situation at the last oral argument, Id., and again in the Miller declaration to the district court. Mr. Miller stated, “if an organization were to submit an executed closing agreement as part of an application for tax exempt status, the entire agreement would become part of the public inspection file . . ." JA-72 (¶19). The question, however, is whether that actually happened in this case. JA-48,49. Mr. Miller's declaration establishes it did not. Mr. Miller made clear that “[i]n the instant case, CBN did not submit a closing agreement as part of, or in support of, its tax exempt application.” JA-72 (19).

Based on his review of the exemption file at issue, JA-81, and his personal familiarity with CBN's application in this case, JA-98, 118, Mr. Miller confirmed that CBN submitted no documents in support of its application that have not already been disclosed: “Other than the application itself including attachments, and a letter dated February 6, 1998, forwarding an additional check to cover an increase in due application user fee, CBN submitted no other documents in support of its application." JA-80. Mr. Miller further confirmed that “[o]ther than a letter from the Service, dated February 6, 1998, to the taxpayer concerning an increase in the application user fee and the determination letter issued by the Service, dated March 13, 1998, the Service issued no other documents with respect to CBN's application." Id. Those documents have been provided to TA. JA-81.

The documents at the heart of TA's (very expansive) FOIA demand are the closing agreement itself and every writing that led to it. JA-19, 22. Mr. Miller, the IRS official with more knowledge than anyone else about the examination, the closing agreement, and CBN's application for exemption, JA-118, confirmed not only that the closing agreement was not submitted in support of CBN's application, but further that “[t]he closing agreement did not deal with the substance of the exempt application nor did the closing agreement recognize such tax exempt status of the organization. JA-80. Mr. Miller's declaration is entitled to a presumption of good faith, and should be given substantial weight. SafeCard, 926 F.2d at 1200; Hayden v. NSA, 608 F.2d 1381, 1387 (D.C. Cir. 2979)

Judge Jackson confirmed Mr, Miller's statements about the closing agreement by reviewing the agreement himself, in camera. JA-254-259. The judge's review confirmed that the agreement “makes only passing reference to the application for tax exempt status as having already been approved,” and contains no evidence to show “that it was submitted with, or in support of, the application for an exemption.” JA-262.¹⁶ The Miller declaration and Judge Jackson's in camera review answer the remanded question “no”: the documents Tax Analysis seeks were not submitted in support of, or issued with respect to, the application upon which the IRS made its determination that CBN is exempt from taxation.

B. The IRS Fully Met Its Burden of Proof

Tax Analysts faults the IRS declarations and Vaughn affidavits as insufficient to meet the government's burden of proof in a FOIA case. Br at 39-49. TA has an uphill argument, in light of the presumption of good faith and substantial weight ordinarily given to government affidavits. See supra. Indeed, the weight accorded government affidavits in FOIA cases is such that absent a showing of bad faith, FOIA cases are ordinarily decided on summary judgment based on the affidavits, with little if any discovery. See Alyeska Pipeline Servs. v. U.S. E.P.A., 856 F.2d 309, 313-14 (D.C. Cir. 1988); Ex-Im. Bank, 108 F Supp.2d at 25.

As an initial matter, there is no question that all of the documentation sought falls within I.R.C. §6103 and FOIA Exemption 3. TA's request is directed only at obtaining documents that relate to a closing agreement, the tax examination that led to it, and any rulings regarding tax exempt status. Closing agreements are specifically included in § 6103's definition of “return information.” §6103(b)(2)(D); JA-72. Any documents leading to a closing agreement obviously involve the underlying examination and questions of the taxpayer's potential liability. Moreover, any documents concerning an application for, or ruling concerning, exempt status also relate to the organization's liability for tax, and thus constitute protected “return information" under §6103. Lehrfeld v. Richardson, 132 F.3d 1463, 1467 (D.C. Cir. 1998). This court has recognized that all documents falling under §6103 also fall within FOIA Exemption 3. JA-46. Thus, the only question in the case is whether the disputed documents fall within § 6104(a)'s exception to the §6103 disclosure bar. JA-46-47.

TA criticizes the Miller declaration for not addressing the supposed “single, overall negotiation" of both closing agreement and exemption application that TA imagines as a result of this Court's earlier passing observation. Br. at 42; see supra at note 9 and accompanying text. The Miller declaration described, however, both the IRS procedure for negotiating closing agreements, and the IRS procedure for considering applications for exemption, at the time of the events in issue. JA-73-79. Mr. Miller also addressed the relationship (or, better stated, the lack of one) between the closing agreement and the exemption application in this case: the closing agreement resolved the decade-long tax examination of CBN, JA-79, whereas CBN's February 1998 application for exemption was considered and granted only on the basis of the materials that were submitted with it, and nothing else. JA-80-81 (“The Service's recognition of the tax exempt status of CBN . . . was based on the content of the administrative record of the application, both of which are available for public inspection . . .?"); see also JA-158 (at 173) (“What we relied upon to grant exemption was contained within the application.”).¹⁷ Moreover, Mr. Miller testified extensively at his deposition about these different negotiations, as TA concedes. Br. at 42; see Statement of Facts Section B, supra. Contrary to TA's erroneous "single, overall negotiation" characterization, Mr. Miller explained that the resolution of the examination, embodied in the closing agreement, and the discussion of a new application for exemption were separate processes: the subject of an exemption application was taken up after agreement in principle had been reached on the examination issues. JA-121 (at 25); JA-123 (at 30); JA-134 (at 77); JA-148 (at 132). To the extent the closing agreement negotiation continued after August 1996, while a new application was also being discussed, they were “parallel" processes — i.e., simultaneous but separate. JA-148 (at 130); see Statement of Facts Section B, supra. 

Inexplicably, TA claims that “[n]owhere does (Miller] address this Court's question, was the closing agreement 'submitted in support of [the] exemption application.'" Br. at 42. TA overlooks Mr. Miller's flat, negative answer: “In the instant case, CBN did not submit a closing agreement as part of, or in support of, its tax exempt application” JA-72 (79).

As Judge Jackson found, the Miller declaration is fully sufficient to establish that the documents sought in this case were neither submitted in support of, nor issued with respect to, CBN's application for exemption. JA-260-262; see Statement of Facts Sections C & D, supra. While focusing on its dissatisfaction with the IRS practices Mr. Miller described in his declaration and deposition, Br. at 43-45, TA ignores Mr. Miller's plain factual statement that no undisclosed documents were either submitted in support of, or issued with respect to, CBN's application. JA-30. That is a statement of fact, not a conclusion of law (Br. at 44). It completely answers the question in dispute in this case.

TA's challenge to the Vaughn affidavits likewise misses the mark. Br. at 45-49. The Vaughn affidavits accurately describe the withheld documents, and properly invoke the ground for withholding under FOIA — Exemption 3 (§552(b)(3)), in conjunction w I.R.C. §6103(a). JA-175-181, 197. As discussed above, there is no serious contention that the documents sought are not within §6103. See supra at 30; see also JA-46 (discussed supra at 5). TA faults the affidavits for not establishing that the documents were not submitted in support of CBN's final application, Br. at 46, 47-48, but that fact is established by the Miller declaration (JA-80-81), not the Vaughn affidavits. TA's attack on Mr Daly's personal knowledge and competence to sign the Vaughn affidavits is weak: Mr. Daly certified that the affidavits are based on his review of the withheld documents, their descriptions in the Vaughn index, and the Service's explanations for withholding. JA-182, 198. While Mr. Miller may know more than anyone else about the facts of this case, that fact does not give reason to doubt Mr. Daly's credibility. Nor is TA entitled to its Vaughn affiant of choice.

Finally, TA mounts no credible challenge to the sufficiency of the IRS' FOIA search. Br. at 49-50. “Mere speculation that as yet uncovered documents may exist does not undermine the finding that the agency conducted a reasonable search for them." SafeCard, 926 F.2d at 1201. The Ayers and Miller declarations describe a diligent search of all relevant files, that yielded 32 boxes plus a file cabinet full of documents potentially responsive to TA's broad requests. The overwhelming majority of those documents, which concern only the tax examination and the closing agreement, are completely irrelevant, given Mr. Miller's testimony that the closing agreement did not address, decide, or support the application for tax-exempt status. JA-80, JA-145-148 (at 121. 125-126, 129-30). To index them would have been burdensome and futile. See Spirko, 147 F.3d at 998, Section LA & n. 14, supra. Mr. Miller identified the “entire universe” of documents that had anything to do with the idea of a new application for tax exempt status (JA-136, at 82; see JA-140-141), and those six documents have been indexed. JA-175-180. No more is required.

C. Applications Or Supporting Documents That Do Not Result In Determination of Exemption Are Not Disclosable

Tax Analysts' chief complaint is with the IRS' refusal to disclose documents that may have related to the topic of exempt status, but were not submitted in support of the granted application. Br. at 28-33. TA's claim of entitlement to every document that might have related to any discussion of exempt status goes far beyond the narrow disclosure requirements of the §6104(a) statute itself, and the IRS' implementing regulation.

Section 6104(a)'s disclosure obligation is limited to the application upon which exempt status is recognized, together with materials submitted in support of that application:

If an organization . . . is exempt from taxation . . . for any taxable year, the application filed by the organization with respect to which the Secretary made his determination that such organization was entitled to exemption . . ., together with any papers submitted in support of such application . . . and any letter or other document issued by the Internal Revenue Service with respect to such application . . . shall be open to public inspection . . .

§6104(a)(1)(A) (emphasis added). Applications or documents other than the ones on which the IRS makes its exemption determination are not within §6104(a)'s disclosure requirement.

The IRS regulation implementing §6104(a) confirms that only documents relating to the application that is granted are required to be disclosed:

If the Internal Revenue Service determines that an organization described in section 501(c) or (d) is exempt from taxation for any taxable year, the application for tax exemption upon which the determination Is based, together with any supporting documents, is open to public inspection . . .

Treas. Reg. §301.6104(a)-1(a) (emphasis added).¹⁸

TA broadly demands all documents that relate to any application for tax exemption (Br. at 31-32), overlooking that the disclosure requirement under the statute and regulation applies only to the application upon which exempt status is granted.¹⁹ Not only is that requirement contained in §301.6104(a)-1(a)'s definition of what documents are required to be disclosed; it is reinforced by §301.6104(a)-1(c), which specifically states that an application and supporting documents are not disclosable unless they result in recognition of exempt status.

(c) Requirement of exempt status. An application for tax exemption, supporting documents, and letters or documents issued by the Internal Revenue Service that relate to the application will not be open to public inspection before the organization filing the application is determined, on the basis of the application, to be exempt from taxation. . . .

§301.6104(i)-1(c) (emphasis added). Thus, applications that are not granted — such as, here, draft applications, or applications withdrawn before action — are specifically protected from disclosure under §301.6104(a)-1(c).

TA claims §301.6104(a)-1(e) mandates disclosure of every document that supports any application. Br. at 32. But Subsection (e) contains no disclosure mandate. It merely defines “supporting documents," as used in Subsection (a), to include any document “submitted by an organization in support of its application.” The disclosure mandate is contained in Subsection (a), not (e). It does not reach every application and supporting document. Instead, it is limited only to “the application for tax exemption upon which the [exemption] determination is based." §301.6104(a)-1(a) (emphasis added).

TA further claims disclosure is mandated by §301.6104(a)-1(i)(6). Br. at 31-32. On the contrary: Subsection (i)(6) expressly forbids disclosure of any document that relates in any way to an organization's exempt status, unless the document relates to the organization's application upon which exemption is determined:

(i) Material not open to public inspection under section 6104. . . . Some determination letters and other documents relating to tax exempt organizations . . . are not open to public inspection under section 6104(a)(1)(A) . . . . They include but are not limited to — 

. . . .

(6) Any other letter or document filed with or issued by the Internal Revenue Service which, although it relates to an organization's tax exempt status as an organization described in section 501 (c) or (d), does not relate to that organization's application for tax exemption, within the meaning of paragraph (d).

§301.6104(a)-1(i)(6). TA erroneously reasons that any document relating to an exemption application “within the meaning of paragraph (d)” — i.e, any application on the prescribed Form 1023 — must be disclosable. But that interpretation conflicts with §301.6104(a)-1(c) (quoted and discussed supra at 35). Instead, Subsection (i)6), including its reference to paragraph (d), refers back to the "application for tax exemption” whose disclosure is mandated by §301.6104(a)-1(a) — i.e., the application “upon which the [exemption] determination is based.”²⁰

Thus, contrary to its broad demands, Tax Analysts is not entitled to disclosure of every document that ever addressed the topic of a possible new recognition of exempt status. It is certainly not entitled to disclosure of draft or withdrawn applications that did not result in exemption determinations, nor to documents that supported those unacted  upon applications²¹ The publicly disclosable documents are narrowly defined by statute and regulation the application that was granted, together with documents that were submitted in support of that application. I.R.C. §6104(a)(1)(A); Treas. Reg. §301.6104(a)-1(a), (c).

Here, that document was the Form 1023 application that CBN submitted in February 1998, together with all of the attachments submitted with that application. J A-80-81.²² Those documents were the sole basis for the IRS' consideration and grant of the new recognition of exempt status in March 1998. JA-80-81. They have all been provided to TA. JA-81. No further disclosure is required by §6104(a). Indeed, disclosure of other documents dealing with CBN's exempt status (which were not submitted in support of the granted application) is expressly prohibited by Treas Reg. §301.6104(a)-1(c) and (i)(6) (as well as I.R.C. §6103).

III. The IRS' Implementing Regulation, Which Restricts Disclosure To The Application On Which Exempt Status Is Determined, Is Entitled to Deference.

A. The Policies To Which The IRS Has Adhered Are the Statute and Regulations Themselves

As discussed above, the Tax Code and regulations clearly require that the only materials to be disclosed under §6104(a) are the application that is granted, together with materials submitted in support of that application. Draft applications, withdrawn applications, and documents that relate only generally to the subject of exemption, which are not submitted in support of a granted application, are outside §6104(a)'s disclosure obligation, and are protected from disclosure under Treas. Reg §301.6104(a)-1(c), (i)(6), and I.R.C. §6103.

Tax Analysts lakes the IRS to task for adhering to this practice. It argues this practice is an unwritten, ad hoc litigation position, that first appeared in the IRS' summary judgment papers, Br. at 28-30, and characterizes Mr Miller's description of this practice as a series of unsupported legal conclusions, Br. at 43-44.

The distinction between protected and disclosable materials to which the IRS adheres is not a chronological one, as TA mischaracterizes it Br at 29. The IRS is not withholding documents simply because they pre-date the application that was granted in 1998. Rather, the distinction is between the application that was granted (i.e, the February 1998 application), and earlier applications that were not granted (either because they were submitted only in draft, for presubmission discussion, or because they were withdrawn before being acted upon). See JA-131 (at 62-63); J A-154, 163, 248. The application that was granted, and its supporting materials, are disclosable under the statute and regulation, and have been disclosed. J A-75,80-81; see §6104(a)(1)(A). Earlier unacted-upon applications, and any other papers that relate to the topic of exemption but not to the granted application, are protected from disclosure. See §301.6104(a)-1 (discussed in Section II.C, supra). The IRS has scrupulously adhered to this distinction set out in statute and regulation.

The fact that Mr. Miller did not recite the statute and regulation at his deposition does not make the policy an unwritten one. Br. at 29. Mr Miller was called as a fact witness, not as a legal advocate to defend the IRS' interpretation of the Code and Regulations. The questioning of Mr. Miller to which TA refers (Br. at 29) was focused on IRS internal operating procedures, manuals, or practices, and not on the statute and regulations themselves. JA-164-165. Any such internal policy documents are irrelevant in light of the clear statutory and regulatory commands. Elsewhere in his deposition, Mr. Miller testified that under §6104(a)(1)-(A). We are to make available for public inspection the approved application and documents filed in support of such application, which ties to the application that is approved in my mind, but I'll leave [that] to you and the lawyers . . ." JA-163 (at 192-193). Contrary to TA's assertion, the IRS did not “later confirm on the record that the policy or position . . . was unwritten.” Br. at 29. The IRS' letter to which TA refers stated plainly that “No such written policies are necessary since the Service's longstanding policies are supported by the plain meaning of I.R C. §6104 and its implementing regulations.” JA-226 (emphasis added).

B. The Implementing Regulation Is Entitled To Deference

Tax Analysts does not disagree that the question of disclosure is governed by Treas Reg. §301.6104(a)-1. TA merely interprets that regulation in a manner 180 degrees opposite the IRS' interpretation. Br. at 31-32. The IRS of course is the agency charged with implementation of the Tax Code, and is the author of the implementing regulation. In this situation, “[a]pplication of the Chevron framework is the beginning of the legal analysis." United Slates v Haggar Apparel Co., 526 U.S. 380, 394 (1999); accord INS v. Aguirre-Aguirre, 526 U.S. 415, 424-25 (1999).

The regulation at issue, §301.6104(a)-1, has been the subject of two Chevron deference rulings that superficially might appear to conflict In Lehrfeld v. Richardson, 132 F.3d 1463, 1465-66 (D.C. Cir. 1998), this Court deferred to §301 6104(e), holding it a permissible construction of §6104(a)(1)(A). By contrast, in Tax Analysts v. IRS, 350 F.3d 100, 103-04 (D.C. Cir. 2003) (an unrelated case), this Court refused deference, and invalidated portions of §301.6104(a)-1(i), insofar as they conflicted with the disclosure requirements of I.R.C. §6110. Any seeming conflict between these decisions disappears, however, when one focuses on the different statutes interpreted in each case. The 2003 Tax Analysts opinion interpreted I.R.C. §6110, a statute not relevant here, and invalidated §301.6104(a)-1(i)(1),(2) & (3) only insofar as those provisions prohibited disclosure of redacted revocation determinations under §6110.23 Tax Analysts, 350 F.3d at 104. Lehrfeld, on the other hand, was a case like this one, that involved a demand for disclosure of supporting materials for an exempt organization's application, under §6104(a)(1)(A). Lehrfeld, 132 F.3d at 1464-65.

Neither case involved the specific subsections at issue here: §301.6104(a)-1(a), (b), (c), and (i)(6). Nonetheless, Lehrfeld, the §6104(a) case, is the much more analogous precedent. The above sections of §301 6104(a)-1 are entitled to deference for the same reasons discussed in Lehrfeld. Indeed, even the textual statutory analysis in the 2003 Tax Analysts decision, 350 F.3d at 103-104, supports deference. See Subsection 1, infra.

Under “the familiar two-step test of Chevron,”

if the Congress has “directly spoken to the precise question at issue,” then the court “must give effect to the unambiguously expressed intent of Congress”; otherwise the court will defer to the administering agency's interpretation if it is reasonable in light of the structure and purpose of the statute.

Lehrfeld, 132 F.3d at 1465. Here, the IRS' interpretation must be upheld under Chevron step one. Step two, though unnecessary also supports the IRS position.

1. The Regulation Is Consistent With the Clear Command of the Statute

The clear command of the §6104(a)(1) statute is the beginning and end of analysis in this case. If Congress has directly spoken to the precise question at issue, the Court's inquiry is at an end. Chevron U.S.A, v. Nat'l Res Def. Council, 467 U.S. 837, 842-43 (1984). Here, §6104(a)(1)(A) unambiguously specifies the documents it requires to be disclosed: “the application filed by the organization with respect to which the Secretary made his determination” of tax exemption, “together with any papers submitted in support of such application, and any letter or other document issued by the Internal Revenue Service with respect to such application. § 6104(a)(1)(A) (emphasis added). Under the statutory language, the only application that triggers disclosure is the actual application upon which the Secretary grants exemption. Draft applications, withdrawn applications, or any other documents not submitted in support of the granted application fall outside § 6104(a)'s disclosure obligation. See Section II.C, supra.

A comparison to §6104(a)(1)(B) illustrates the limits of §6104(a)(1)(A)'s disclosure mandate. Unlike §6104(1)(1)(A), §6104(a)(1)(B)(ii) requires disclosure of all applications for exemption, whether or not granted, that are filed by certain pension plans. Tax Analysts, 350 F.3d at 103. This provision “demonstrates that Congress knew exactly how to refer to denials and revocations when it so intended.” Id. The distinction between the two subsections, and Congress' focus in Subsection (a)(1)(A) on applications upon which exemption is granted, demonstrate clear congressional intent that only those applications and supporting documents, and no others, are to be disclosed. Set id. at 104 (“Where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.") (citation omitted).

“Given the clarity of the statute's language and structure," resort to legislative history is unnecessary. Id. However, the legislative history of §6104 expressly confirms Congress' intent: “Any application, and any papers submitted in support of such application, are not to be open for any public inspection if a determination has not been made with respect to such application that the organization is exempt under section 501(a) for any taxable year." S. Rep. 85-1983, at 231, reprinted in 1958 U.S.C.C.A.N. 4791, 5019-20.

The clear command of §6104(a(1)(A) answers the question before the Court. “If the intent of Congress is clear, that is the end of the matter, for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." Chevron, 467 U.S. at 842-43. §6104(a)(1)(A) unambiguously requires the disclosure only of documents submitted in support of the application upon which the IRS makes its exemption determination, and not ungranted applications or other documents. Because §301.6104(a)-1(a), (b), (c), and (i)(6) are plainly consistent with the statutory command of §6104(a)(1)(A), the IRS' adherence to them must be upheld.

2. The Distinction Between Applications That Are Granted, And Those That Are Not, Is a Reasonable Policy Choice by the IRS

Because the plain language of the statute controls, the Court should not reach Chevron step two. However, even if the statute could be thought ambiguous, the IRS' considered interpretation — as expressed in the regulation and explained in the Miller declaration — is a reasonable one. The Treasury Regulations limiting disclosure to documents submitted or issued with respect to the granted application, § 301.6104(a)-1(a), (d), (e), and baiting disclosure of exemption-related documents that are not related to the granted application, § 301.6104(a)-1(c), (i)(6), are reasonable in light of the statutory scheme.²⁴

Section 6104, coupled with Section 6103, and the regulations thereunder, strike a balance between public disclosure of the basis for tax exemptions, and protection of the confidentiality of taxpayers' return information regarding their tax liability. Section 6104 is intended to furnish the public a means of examining the representations made in applications that actually constitute the basis for rulings exempting organizations from taxation. See S. Rep. No. 85-1983, at 95, reprinted in 1958 U.S.C.C.A.N. 4791, 4884. But it is not intended to be an unlimited tool for prying into the otherwise confidential information of taxpayers whose applications are granted, much less those whose applications are withdrawn, denied, revoked or modified. Section 6104(a) exists at * * * the background of Section 6103, which was enacted to preserve the confidentiality of taxpayers' information, and provide strong protection against unwarranted disclosure. See Church of Scientology v. IRS, 484 U.S. 9, 16 (1987) (“One of the major purposes in revising § 6103 was to tighten the restrictions on the use of return information by entities other than [the IRS]."); S. Rep No. 94-938, at 19, reprinted in 1976 U.S.C.C.A.N. 3438, 3455 (§6103 was passed to provide “definitive rules relating to the confidentiality of tax returns, an area where there has been much abuse in the past. It strictly limits disclosure of information from tax returns").

Section 6103, part of the Tax Reform Act of 1976, was an acknowledgment of taxpayers privacy interest in their return information, and a response to concern that such information was subject to widespread abuse. S. Rep. 94-938, at 19, 316-17, reprinted in 1976 U.S.C.C.A.N. at 3455, 3746-47. Congress was sufficiently concerned with taxpayer privacy that it created felony criminal penalties, as well as a civil action for damages, against anyone who improperly discloses confidential taxpayer information. See S. Rep. 94-938, at * * * 47-49, reprinted in 1976 U.S.C.C.A.N. at 3777-78. In the 2003 Tax Analysts case, this Court observed that “Congress passed the Tax Reform Act to protect taxpayer privacy while requiring the IRS to disclose written determinations,” and held that purpose was advanced by requiring disclosure of the results of unsuccessful applications only in § 6110 actions, where identifying taxpayer information is redacted. 350 F.3d at 104. The converse is also true: in a §6104(a) action, where redaction would be futile because the case concerns a single identified taxpayer, the policy balance struck by the Tax Reform Act must tip in favor of the taxpayer's privacy. For organizations that are granted exemption, the statute pierces that privacy only with respect to the application that is granted. As to any other documents bearing on exempt status (including ungranted applications), the taxpayer's privacy is preserved.

The rule TA urges, requiring disclosure of every document relating to any request for exemption, whether or not granted, would impose profound practical difficulties for compliance. If an organization had previously discussed or applied for exempt status, but not obtained it, the IRS and the organization would have no certainty as to what would be considered “in support or a later, granted application, within the meaning of the statute.

Consider a situation where an organization submits a draft application, not intended to be acted upon, and then submits a formal application, but withdraws it before action is taken. Under the statute and regulation, confirmed by clear legislative history, neither of those applications, nor any documents exchanged with respect to them, are disclosable. See Section II.C, supra. Then, perhaps years later, the organization submits a different application, with attachments, that results in a determination of exemption by the IRS. Section 6104(a)(1)(A) plainly requires disclosure of the successful application and its supporting documents. Now — does that obligation also reach back to require disclosure of documents exchanged years earlier, that were never intended to be acted upon? Can documents long since disposed of rise from the ashes, to become “supporting documents" with respect to the years-later granted application? If so, how are the IRS and the taxpayer to know which documents will be considered “supporting documents," or how far back the obligation reaches? Even though applications and documents that do not result in an exemption determination are not disclosable, must the IRS and the organization always preserve such documents, against the possibility that exemption might be applied for and granted even long in the future? Under this approach, the IRS and the taxpayer could never know, during any informal discussion of potential exemption, whether any documents exchanged would be subject to future statutory disclosure.

The IRS' approach, by contrast, allows for practical and certain compliance. The application process begins with the submission of an application for exemption, and an administrative file is compiled with respect to that application. JA74-77 (¶ 12, 14-15); JA-154. Any documents submitted by the organization, or issued by the IRS, with respect to that application go into the administrative file. The IRS considers only those documents, and no others, in evaluating the application. JA-80-81, 158-159, 171 (discussed in note 17, supra). If the application is granted, the documents become open to public inspection. See JA-75-77 (¶¶ 14-15). If the application is withdrawn or denied, the file is closed. JA-75 (¶13, last two sentences). Under this procedure, neither the IRS nor the taxpayer is ever in doubt as to what documents will be considered, and what documents must be disclosed.

In these circumstances, the appropriate balance is to afford disclosure under §6104 of the documentary basis for the grant of tax-exempt status, while preserving confidentiality for other materials that, though they may have been exchanged earlier, do not constitute the IRS' basis for determining exemption. That result is achieved, under the IRS' implementation of the statutory mandate, by disclosing the actual application upon which exemption is granted, together with all material submitted in support of that application. Treas. Reg. § 301.6104(a)-1(a)-(e), (i)(6), JA-75-76. The disclosure of further information, including informal pre-submission discussions with the Service (JA-74-75), would have a chilling effect on the ability of applying organizations to consult with the IRS prior to applying for exemption. It would also create uncertainty in the application and disclosure processes, and would impose an undue burden on both the IRS and the exempt organization to retain and produce materials extraneous to the exemption application.

Given these considerations, it strikes a reasonable balance to require disclosure only of documents that are part of a successful application for tax-exempt status, while preserving confidentiality as to other documents relating to exempt status (which by definition are “return information” under § 6103, Lehrfeld, 132 F.3d at 1467) that were not submitted in support of the granted application. See Treas. Reg. § 301.614(a)-1(i)(6). The balance the IRS has struck is a reasonable one, which must be upheld. See Lehrfeld, 132 F.3d at 1465-67.

CONCLUSION

For all of the foregoing reasons, this Court should affirm the judgment in all respects.

Respectfully submitted,

J. William Koegel, Jr., No. 323402
Bruce C. Bishop, No. 437225
STEPTOE & JOHNSON LLP
1330 Connecticut Ave NW
Washington, D.C. 20036
(202) 429-3000

Counsel for Appellee
The Christian Broadcasting Network, Inc.