TAX ANALYSTS,
Plaintiff,
v.
INTERNAL REVENUE SERVICE,
Defendant.
IN THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF COLUMBIA
INTERNAL REVENUE SERVICE'S
MEMORANDUM IN OPPOSITION TO PLAINTIFF'S
MOTION TO COMPEL DEFENDANT INTERNAL REVENUE SERVICE
("IRS") TO COMPLY WITH THIS COURT'S ORDER OF APRIL 30, 1998
COMES NOW DEFENDANT, the Internal Revenue Service, by and through its attorneys, and hereby submits this memorandum of points & authorities in opposition to plaintiff's Motion to Compel Defendant Internal Revenue Service ("IRS") to Comply with this Court's Order of April 30, 1998 ("plaintiff's motion").
I. Introduction
Plaintiff, Tax Analysts, commenced this action by filing a complaint on April 26, 1994 seeking access to certain documents and records known as Field Service Advice memoranda ("FSAs") under the Freedom of Information Act ("FOIA"). Defendant Internal Revenue Service timely served an answer to the complaint on May 26, 1994.
On cross-motions for summary judgment, this Court entered a decision which was subsequently appealed by the IRS. The Court of Appeals affirmed in part, reversed in part and remanded. See 117 F.3d 607 (D.C. Cir. 1997).
On April 30,1998, the Court ordered a multiple part injunction, in which it required, inter alia, a three-phased release of the 1300 plus FSAs at issue in this case.
Defendant has complied with the Court's mandate of producing the 1300 plus FSAs. Plaintiff, however, filed the instant motion referencing in excess of forty (40) of the FSAs that it claims do not comply with the Court's order of April 30, 1998. Plaintiff served its Motion to Compel Defendant Internal Revenue Service ("IRS") to Comply With This Court's Order of April 30, 1998 on February 24, 1999. This memorandum of points & authorities is submitted in opposition to plaintiff's motion.
II. Motion For in Camera Review
Plaintiff is understandably at a disadvantage in having to make arguments about redacted material solely on the basis of the text surrounding the redactions. In order to remove this impediment for the Court, filed simultaneously with this opposition to plaintiff's motion is the Internal Revenue Service's Motion for Leave to Submit Documents at Issue in camera. The motion refers to the FSAs that are identified in plaintiff's motion and requests the Court to review each FSA in camera. The reasons supporting the relief requested in the motion are set forth in a memorandum of points & authorities in support thereof. It is defendant's belief that an in camera review will aid the Court in determining the propriety of the redactions on the subject FSAs. Plaintiff does not oppose the relief sought by the motion. See Plaintiff's motion at 7.
III. Declaration of Donald Squires
Many of the issues raised in plaintiff's motion can only be addressed on an FSA by FSA basis, while other issues can be addressed on a global basis. Both types of issues are addressed in the Declaration of Don Squires ("Declaration") which is incorporated in this memorandum of points & authorities in opposition to plaintiff's motion.
IV. The Redactions
A. Introduction
Before turning to the various issues raised by plaintiff's motion, it should be noted that materials redacted from the FSAs were frequently interspersed with discussions of statutes and case law. The interspersing of the protectible material is understandable and not surprising, as these documents were not written with the idea that any portion of any individual FSA would ever be released to the public. See Declaration at 6, ¶ 12. This is in contrast to FSAs that are now issued in the form of Chief Counsel Advice memoranda, the new category of document created by the IRS and referenced in the recent amendment to I.R.C. Sec. 6110, and are designed such that protectible material is segregated when the document is written.
The FOIA provides that when redacting information, "[a]ny reasonably segregable portion of a record shall be provided to any person requesting such record after deletion of the portions which are exempt under this subsection." See 5 U.S.C. Sec. 552(b). The IRS redacted each and every FSA in compliance with this mandate of the FOIA and under the direction of the Court's Order of April 30, 1998.1
B. Redaction of Taxpayer Identifiers
In its motion, plaintiff identifies several categories of redactions that it claims were made improperly under I.R.C. Sec. 6110 (c) (1). Defendant refers the Court to pages 5 through 15 of the Declaration for an FSA by FSA explanation of the redactions made in accordance with the standards of I.R.C. Sec. 6110(c) (1). There are, however, various issues raised by plaintiff's motion with respect to the redaction of taxpayer identifiers that need to be addressed outside of the Declaration.
The Court's Order of April 30, 1998 stated that return information to be redacted from the FSAs was "the return information redacted from Technical Advice Memoranda under I.R.C. Sec. 6110 (c) (1)." Slip op. at 5. Section 6110(c) (1) provides that the IRS shall delete:
(1) the names, addresses, and other identifying details of the person to whom the written determination pertains and of any other person, other than a person with respect to whom a notation is made under subsection (d)(1), identified in the written determination or any background file document . . .
26 U.S.C. Sec. 6110(c)(1) (emphasis added).
The Legislative History of Section 6110 provides further insight into the phrase "other identifying details.
Identifying details consist of names, addresses, and any other information which the Secretary determines could identify any person, including the taxpayer's representative. In some situations, information included in a determination (other than a name or address) may not identify a person as of the time the determination is made open to public inspection, but that information, together with information that is expected to be disclosed by another source at a later date, will serve to identify a person. Consequently, in deciding whether a determination contains identifying information, the Secretary is to take into account information that is available to the public at the time that the determination is made open to public inspection as well as information that is expected to be publicly available from other sources within a reasonable time after the determination is made open to public inspection.
Staff of the Joint Comm, on Taxation, 94th Cong., General Explanation of the Tax Reform Act of 1976, (Comm. Print 1976), reprinted in 1976-3 C.B. (vol. 2) 1, 317.
The regulations implementing Section 6110 also provide guidance on the term "other identifying details." The regulation reads as follows:
Any other information that would permit a person generally knowledgeable with respect to the appropriate community to identify any person. The determination of whether information would permit identification of a particular person will be made in view of information available to the public at the time the written determination or background document is made open or subject to inspection and in view of information that will subsequently become available, provided the Internal Revenue Service is made aware of such information and the potential that such information may identify any person. The "appropriate community" is that group of persons who would be able to associate a particular person with a category of transactions one of which is described in the written determination or background file document.
Treas. Reg. Sec. 301.6110(a) (1) (ii). The regulation explains that the "appropriate community may vary according to the nature of the transaction which is the subject of the written determination." Id.
The legislative history of Section 6110 provides insight into the "appropriate community."
The appropriate community could be, e.g. an industry or a geographical community and will vary for the problem involved. For example, the "community" for a steel company will be all steel producers, but may also be the locale in which, e.g., the main plant is to be located if the determination deals with a land transaction.
General Explanation of the Tax Reform Act of 1976, supra at 5, 94th Cong. 1996-3 C.B. at 317 n.6.
Plaintiff places heavy reliance on the argument that if a particular item, by itself, does not identify a taxpayer then it cannot properly be redacted. See Plaintiff's motion at 11-16, 20-27. As set forth above, however, such a argument does not comport with the IRS' duties in redaction. At a minimum, in order to comply with the mandates of Section 6110(c) (1) and its implementing regulations, the IRS must consider each item of information in conjunction with other unredacted information in the FSA information available to the public, and information which may reasonably be expected to become available to the public in the near term.
Furthermore, when the IRS redacted the taxpayer identifier information, it did so with the knowledge that the taxpayer would not have an opportunity to review the proposed redactions and to inform the IRS if it disagreed with the redactions. Thus, in redacting g taxpayer identifiers, if it was determined that a piece information would permit a person generally knowledgeable in the appropriate community to identify the taxpayer, but that the determination was a "close call," the IRS prudently chose to protect the confidentiality of the taxpayer. See Declaration at 6.
(i) Redactions of the (1) the date of the FSA, (2) the date of the request, (3) the name of the FSA drafter, (4) the drafter's phone number, and (5) the name of reviewer/signer of the FSA
The redactions under this subheading were only done on FSAs issued in docketed cases that corresponded to previously released taxpayer names in FSA monthly reports disclosed to the plaintiff in Tax Analysts v. IRS. No. 1:96cv02285 (D.D.C.). As explained in the declaration, at the time the FSA monthly reports were initially released to plaintiff in that case, while the IRS sought to protect the subject matter of the FSAs pursuant to exemptions originally asserted for the actual FSAs in this case, the IRS did release the date of the FSA request along with the internal control "TLN" number assigned to the FSA, the identification of the docket attorney and reviewer, and most important for these purposes, the taxpayer name for those FSAs requested in docketed cases. The IRS released these taxpayer names under the theory that their docketed cases were a public record and the bare fact that the IRS was preparing an FSA about an issue in their case was not protected under 26 U.S.C. Sec. 6103.
In order to protect the confidentiality of the taxpayers whose names were disclosed in the FSA Monthly Report to plaintiff, the IRS was required to redact those items of information in the FSA that could be used to cross reference the FSA to the FSA Monthly Report and reveal the taxpayer's identity.2 These items include (1) the date of the FSA, (2) the date of the request, (3) the drafter's name, (4) the drafter's phone number, and (5) the name of the reviewer/signer of the FSA.3
(ii) State or Foreign Law
Plaintiff alleges that the IRS improperly redacted from, seven FSAs (nos. 1210, 277, 596, 316, 717, 904, and 340) discussions of state or foreign law. Along those lines, Plaintiff also asserts that the state of the taxpayer, either referenced directly in an FSA or by citation to a state court decision, cannot be properly redacted from a FSA as a taxpayer identifier. The Declaration confirms that the redactions are of citations and discussion of state court decisions and citations and quotations of statutes and thus plaintiff is correct in its surmise of the redacted material. See Declaration at 9. Plaintiff, however, fails to consider that the state of the taxpayer (either revealed directly or as part of a citation to a state Court opinion) along with other facts not redacted in the FSA could permit an individual generally knowledgeable in the appropriate community to identify the taxpayer. See Declaration at 6. Thus redactions were done in accordance with Section 6110(c). See Declaration at 9.
Upon further review, the IRS has decided to release the two references to the Department of Justice on pages 2 and 5 previously claimed as exempt as taxpayer identifying information in FSA #332.
(iii) Redactions of References to Court Decisions and Other Public Documents
In footnote 16 of its motion, plaintiff asserts that the IRS improperly redacted citations to published court decisions in four (4) FSAs (nos. 64, 83, 527 and 904). As the Declaration explains, the IRS properly deleted such references in three of the four FSAs as revealing the information contained therein could reasonably be expected to permit a person generally knowledgeable with respect to the appropriate community. See Declaration at 9-11. With respect to FSA 64, there are no redactions based upon published Tax Court and U.S. Court of Appeals decisions as the plaintiff asserts.
(iv) "Other Deletions"
Under the caption "Other Improper Deletions of IRS Working Law: No Exemption Specified," plaintiff asserts the IRS improperly used 26 U.S.C. Sec. 6103 to redact legal analysis, conclusions, or working law from eight FSAs (nos. 375, 947, 83, 393,651, 66, 667, 882).
All of the referenced FSAs (with the exception of FSA 375 which was redacted under the 7(E) exemption) were redacted because other information available to the public, together with the redacted material, reasonably could be expected to allow a person generally knowledgeable with the appropriate community to identify the taxpayer. See Declaration at 11-14.
(v) Redaction of the "Facts" Portion of the FSAs
Certain of the FSAs contain unusual or particularly distinctive fact situations such that even small portions of the fact descriptions would make the taxpayers' situations recognizable to those in the relevant community. See Declaration at 14-15. For example, with information found in other FSAs, taxpayers may have unusual or distinctive aspects of their businesses identified by certain descriptive terms throughout the FSA. See e.g., Declaration at 14 (describing the redactions on FSA 901). Together with other facts in the FSA, such terms can be easily accessed in legal research databases to identify the taxpayer. In fact, many of the FSAs were tested by this very means by IRS attorneys or reviewers. See Declaration at 14-15. These distinctive items were so interspersed throughout the facts section of certain FSAs (See Declaration at 14-15 describing the redactions on FSAs 901, 1035-A, and 93), there would have been no reasonably segregable non-exempt portion of the facts section capable of disclosure. See 5 U.S.C. Sec. 552(b).
C. Exemption (5)
(i) Attorney/client Privilege
In its motion, plaintiff alleges that the IRS improperly used the claim of attorney/client privilege to redact legal analysis from FSA number 285 and 453. See Plaintiff's motion at 7-10.4
On appeal in this case, the D.C. Circuit ruled that FSAs with communications regarding "the scope, direction, or emphasis of audit activity . . . are clearly covered by the attorney-client privilege." Tax Analysts v. Internal Revenue Service, 117 F.3d 607, 619 (D.C. Cir. 1997))
Defendant asserts that its redactions in FSAs 285 and 453 are in compliance with the mandate of the Court of Appeals and this Court's Order of April 30, 1998 and refers the Court to the Declaration pages 16-17 for support thereof. Defendant asserts that the redactions from FSAs 285 and 453 all concern the "scope, direction, or emphasis of audit activity," as they deal with information that may or may not be relied upon in the audit of the particular taxpayer. As such, the redactions on these two FSAs fall squarely within the coverage of attorney/client privilege as defined by the Court of Appeals.
Plaintiff further alleges that the IRS improperly redacted FSA 453 by using the attorney/client privilege to redact information originating from communications that are not "inter-agency or intra-agency memorandums or letters." See Plaintiff's motion at 10. Plaintiff's surmise to the contrary, the "client" for which the IRS asserts the attorney/client privilege is the District Counsel attorney, who is being instructed on the issues affecting the scope and direction of the audit. See Declaration at 17. As such. Exemption 5 applies to the redactions on FSA 453 as the redactions are used to protect "inter-agency memorandums," not communications outside the government.
(ii) Attorney Work Product Privilege
In its motion, plaintiff alleges that the deletions in FSAs 120, 66, 119 are "plainly legal analysis" not falling within the Court's definition of the attorney work product privilege. See Plaintiff's motion at 10-11.
Pursuant to the Court's Order of April 30, 1998, redactions based upon "the mental impressions, conclusions, opinions, or legal theories of an attorney" are protected, while references to agency working law, legal analysis, and conclusions were not protected if they did not reveal mental impressions, conclusions etc. Slip op. at 6 (citing Tax Analysts v. Internal Revenue Service, 117 F.3d at 619). Defendant asserts that its redactions in FSAs 120, 66, 119 are in compliance with this Court's Order of April 30,1998 and refers the Court to the Declaration pages 17-19 for support thereof. The redactions on FSAs 120, 66, 119 under the work product exception consist only of mental impressions, legal opinion and litigating strategy. See Declaration at 17-19. None of the redacted information in the three FSAs analyze case law, statutes, regulations or other legal authorities that would not fall under the definition of "work product" as narrowly defined in the Court's Order of April 30, 1998.
D. Exemption (7)(E)
In its motion, plaintiff asserts that the IRS improperly used the claim of exemption 7(E) to redact legal analysis and agency working law from thirteen FSAs (nos. 979-A, 106, 1173, 295, 64, 345, 307, 274, 861, 184, 935, 299, 716). See Plaintiff's motion at 17-20. Defendant asserts that, with the exception of FSAs 184 and 345, the redactions in these FSAs are in compliance with this Court's Order of April 30, 1998 and refers the Court to the Declaration pages 19-24 for support thereof. The disclosure of the information redacted in these FSAs would disclose guidelines for future IRS investigations or prosecutions and could reasonably be expected to risk circumvention of the law by enabling taxpayers to structure their transactions in such a way as to avoid or evade Internal Revenue laws but escape detection or enforcement activity.
With respect to FSA 345, the IRS has determined that it was released to plaintiff in the context of another FOIA request and that the information redacted on page five of the FSA on the basis of Exemption (7)(E) was previously disclosed to plaintiff. Accordingly, a re-redacted version of FSA 345 is attached to the Declaration as Exhibit 5.
With respect to FSA 184, the IRS has, upon further review, decided to release material previously claimed as exempt under exemption (b)(5).
Conclusion
For all the reasons set forth herein, it is the position of the Internal Revenue Service that plaintiff's Motion to Compel Defendant Internal Revenue Service ("IRS") to Comply With This Court's Order of April 30, 1998 ought to be denied
DATE: March 24,1999
Respectfully submitted.
DAVID A HUBBERT
MICHAEL J. SALEM
CHRISTOPHER R. ZAETTA
Trial Attorneys, Tax Division
U. S. Department of Justice
Post Office Box 227
Washington, DC 20044
Telephone: (202) 307-6438
OF COUNSEL:
WILMA A. LEWIS
United States Attorney
FOOTNOTES
1 Contrary to plaintiff's assertion, the United States has not abandoned its claim for exemption under (b) (6) for FSA 391. Defendant submitted a Vaughn index to plaintiff along with the first release of the FSAs claiming (b)(6) as an exemption or 391. This exemption claim has not been dropped, nor does. plaintiff challenge the propriety of the exemption in its motion.
2 As plaintiff notes in its brief, the IRS had offered to take back the FSA Monthly Reports and redact the names of the taxpayers in order that more information could be released in the FSAs themselves. However, plaintiff has not only not responded to this offer, it has gone so far as to publish the name of one of the taxpayers for this group of FSAs, an action that the government warned plaintiff would make the offer impossible to carry through.
3 Under the heading "Improper (and Haphazard) Deletion of Miscellaneous Information That Does Not Identify a Taxpayer Under Sec. 6110(c)(1)," plaintiff cavalierly suggests that the redactions of dates, drafter's names and phone numbers, and names of the reviewers/signers were done as the product of "inadequate training," "inadequate review," and "lousy quality control." See Plaintiff's motion at 21. In response to this suggestion, the declaration of Don Squires explains the process undertaken by the IRS to comply with the Court's April 30, 1998 Order. Declaration at 1-5. In particular, each assertion of a discretionary exemption was coordinated with attorneys in the field officers of the Office of Chief Counsel. These individuals would have first hand knowledge of the cases to which the FSAs pertained and were in a position to tell whether there was any identifiable harm to the IRS or the taxpayer that would occur as a result of the disclosure of any portion of a FSA.
4 As plaintiff recognized in its brief, the IRS does not claim the redactions on FSA 979-A are protected by the attorney-client privilege. Rather, the IRS claims exemption (7)(E) as the basis for the redactions on FSA 979-A.
END FOOTNOTES