Answering Brief for the IRS as Appellee

TAX ANALYSTS,
Appellant/Cross-Appellee
v.
INTERNAL REVENUE SERVICE,
Appellee/Cross-Appellant

ORAL ARGUMENT SCHEDULED FOR MAY 7, 2002

IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

ON APPEAL PROM THE ORDER OF
THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

ANSWERING BRIEF FOR THE INTERNAL REVENUE SERVICE
AS APPELLEE AND OPENING BRIEF FOR THE
INTERNAL REVENUE SERVICE AS CROSS-APPELLANT

EILEEN J. O'CONNOR
Assistant Attorney General

JONATHAN S. COHEN (202) 514-2970
KAREN D. UTIGER (202) 514-2937
Attorneys
Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044

Of Counsel:

ROSCOE C. HOWARD JR.
United States Attorney

JURISDICTIONAL STATEMENT

On October 2, 1996, Tax Analysts brought this action in the United States District Court for the District of Columbia, pursuant to the Freedom of Information Act, 5 U.S.C. § 552 ("FOIA"), to require the Internal Revenue Service (IRS) to disclose to it certain documents produced by the Office of Chief Counsel (OCC). (JA 14.) On March 31, 2000, the District Court issued a decision and order granting, in part, the IRS's motion for summary judgment. (JA 28, 46.) Tax Analysts filed a motion for reconsideration of that decision, and both parties filed renewed motions for summary judgment with respect to the remaining issues. (JA 51.) On March 26, 2001, the District Court issued a decision and order denying Tax Analysts's motion for reconsideration as untimely, and granting in part and denying in part each of the party's cross-motions for summary judgment. (JA 51, 98.) The court's March 26, 2001 order, together with its March 31, 2000 order, disposed of all claims of all parties, constituting a final and appealable judgment.

On April 6, 2001, the IRS timely moved for reconsideration of the March 26, 2001 order, see Fed. R. Civ. P. 59(e), and Tax Analysts responded, also seeking reconsideration. (JA 100.) On May 21, 2001, the court issued an opinion and order denying Tax Analysts's motion for reconsideration as both untimely and meritless, and granting in part and denying in part the IRS's motion for reconsideration. (JA 100, 112.) On June 29, 2001, Tax Analysts filed a timely notice of appeal (JA 130) and, on July 11, 2001, the IRS filed a timely notice of appeal (JA 132). See Fed. R. App. P. 4(a)(1)(B). This Court has jurisdiction over the appeals (which have been consolidated) pursuant to 28 U.S.C. § 1291.

STATEMENT OF THE ISSUES

A. Tax Analysts's appeal

1. Whether the District Court correctly held that the deliberative process privilege incorporated in FOIA Exemption 5 protects from disclosure those portions of Legal Memoranda (LMs) that do not reflect the official position of the OCC.

2. Whether the District Court correctly held that Technical Assistances (TAs) written to advise another component of the OCC, subject to modification or rejection prior to finalization, are part of the deliberative process and are therefore exempt from disclosure under FOIA Exemption 5.

3. Whether the District Court correctly held that the "harm" rule regarding disclosure contained in the Internal Revenue Manual was not intended to, and does not, create rights in a FOIA requester.

4. Whether the District Court correctly held that the IRS was entitled to withhold, in their entirety, TAs conceded to be attorney work-product, and was not required to segregate and disclose "agency working law."

B. The IRS's cross-appeal

1. Whether the District Court erred in holding that TAs that did not focus on a specifically alleged improper act of a particular taxpayer were not records compiled for "law enforcement purposes," exempt from disclosure under FOIA Exemption (7)(E).

2. Whether the District Court erred in holding that TAs to IRS program managers were not exempt under the deliberative process privilege incorporated in FOIA Exemption 5.

STATEMENT OF THE CASE

In 1996, Tax Analysts filed this suit seeking disclosure of a variety of documents authored by individuals in the OCC. (JA 14.) The issues were narrowed via stipulations and/or concessions, and by legislative changes made in 1998. (JA 52.) The parties filed cross-motions for summary judgment.

On March 31, 2000, the District Court (Judge Colleen Kollar-Kotelly) granted the IRS's motion for summary judgment with respect to some of the categories of documents. (JA 48-49.) With respect to the remaining issues, the court set a schedule for submission of a supplemental Vaughn index, as well as renewed motions for summary judgment. Subsequently, Tax Analysts filed a motion for reconsideration, and the parties filed renewed motions tor summary judgment. (JA 51.)

On March 31, 2000, the court issued a second opinion and order, denying Tax Analysts's motion for reconsideration, resolving all of the claims with respect to the remaining categories of documents, and granting in part and denying in part each of the party's renewed motions for summary judgment. (JA 51, 98.) The IRS filed a timely motion for reconsideration and Tax Analysts responded, also seeking reconsideration. (JA 100.)

On May 21, 2001, the District court issued a third opinion and order denying Tax Analysts's motion for reconsideration, and granting in part and denying in part the IRS's motion for reconsideration. (JA 100, 112.) Both parties filed timely notices of appeal. (JA 130, 132.)

STATEMENT OF FACTS

In 1995, Tax Analysts, a publisher of tax news and information, made requests under the FOIA for various documents produced by the OCC, including LMs and TAs. (JA 15.) The IRS granted in part and denied in part those requests. (JA 16.) After unsuccessfully administratively appealing the IRS's decisions, Tax Analysts filed suit in District Court seeking full disclosure of those documents. (JA 16.) The case was narrowed by the parties via stipulations and/or concessions as to certain categories of documents, and was further narrowed by statutory changes made in 1998. (JA 28-29.) The parties filed cross-motions for summary judgment.

On March 31, 2000, the District Court granted, inter alia, the IRS's motion for summary judgment with respect to LMs. (JA 48-49.)¹ As a preliminary matter, the court rejected Tax Analysts's "suggestion that the IRS bears the additional burden of demonstrating that it has complied with the so-called harm rule in the Internal Revenue Manual ("IRM"). . . ." (JA 30 n.3.) The court acknowledged that the IRM provides that the IRS “will grant a request under [FOIA] . . . unless . . . public knowledge of the information contained in the record would significantly impede or nullify IRS action in carrying out a responsibility or function, or would constitute an unwarranted invasion of personal privacy." IRM Part 1230, § 293(2). The court held, however, that "[n]ot everything that an agency publishes has the force of a binding regulation," and that Tax Analysts had "not demonstrated that the IRS intended to be bound by this language." (JA 30 n.3.)

With respect to the IRS's claims that certain portions of the LMs were exempt from disclosure under the deliberative process privilege, the District Court held for the IRS. (JA 31-35.) The court noted that LMs are prepared by attorneys in the OCC to assist in the preparation and review of proposed revenue rulings, which are official interpretations of the Internal Revenue Code and other tax materials. (JA 32.) Before a revenue ruling is published and achieves the status of precedent, it must pass through a multi-faceted review process that is not complete until the Office of the Assistant Secretary (Tax Policy) grants its final approval. (Id.) A LM sometimes (but not always) accompanies a ruling as it works its way through this process, and serves as briefing material for reviewers. Id. Once approved, the accompanying ruling is published, but there is no formal process whereby the LM is conformed to reflect the final published ruling. (JA 33.) The LM (if any) is stored with the rest of the package containing the ruling. It is not indexed or distributed through official channels, nor are copies of LMs separately maintained for research or other purposes. (Id.)

Applying this Circuit's law to these undisputed facts, the Court found that the deliberative process privilege protects from disclosure those portions of the LMs that do not reflect the official position of the OCC (which was the portion of the LMs redacted by the IRS). (JA 33.) The court likened the LMs to background information notes. The court noted that this Court held in Arthur Andersen & Co. v. IRS, 679 F.2d 254, 258 (D.C. Cir. 1982) that such notes are exempt from disclosure because they are drafted by individuals who lack authority to make a final determination, to be used by their superiors in making their decision, and that they are therefore “necessarily predecisional." (JA 33-34.) The court further indicated that the LMs at issue reflect the agency “give-and-take" that is characteristic of the deliberative process privilege. (JA 34.) The District Court distinguished the LMs from the General Counsel Memoranda (GCMs) at issue in Taxation With Representation Fund IRS, 646 F.2d 666 (D.C. Cir. 1981) ("TWRF") and the Field Service Advices (FSAs) at issue in Tax Analysts v. IRS, 117 F.3d 607 (D.C. Cir. 1997), because those documents are used to promote uniform IRS policy, while LMs are tools for formulating policy. (JA 34-35.) Unlike GCMS, LMs are not revised to reflect the final decision of the decisionmaker, are not updated to reflect the IRS's current position, and are not separately retained, cross-indexed and digested; LMs do not necessarily reflect the official position on an issue. (JA 35.) Moreover, while LMs flow upward from staffers to reviewers, FSAs flow "outward" from the OCC to guide personnel in the field. Finally, citing Pies v. IRS, 668 F.2d 1350, 1352 (D.C. Cir. 1981), the court noted that the fact that LMs may be retained by IRS attorneys for future reference does not convert LMs into agency law. (Id.) For these reasons, and because the IRS had redacted only the portions of the LMs containing the opinions and analysis of the authors not ultimately reflecting the basis of the ruling, the Court granted the IRS's motion for summary judgment with respect to the LMs. (JA 35.)

With respect to the Government's remaining claims, the court found that the Vaughn index of representative samples of the withheld documents was an inadequate basis on which to judge the IRS's claim, and that neither party had developed its position in much detail. (JA 42-46.) The court therefore denied, without prejudice, the parties' cross-motions for summary judgment with respect to the TAs, and set a schedule for submission of a supplemental Vaughn index, as well as renewed motions for summary judgment. (JA 46, 48-49.) Subsequently, Tax Analysts filed a motion tor reconsideration of the court's ruling that the IRS was not bound by the 'harm' rule, and the parties filed renewed cross-motions for summary judgment. (JA 53.)

On March 31, 2000, the Court issued a second opinion and order. The court began by denying Tax Analysts's motion for reconsideration as untimely, on the ground that its March 2000 order was a final judgment denying injunctive relief for purposes of appeal. (JA 53-58.) The court went on, however, to "voluntarily revisit" Tax Analysts's argument on the "harm rule." and again rejected it. (JA 58-61.)

The court then addressed the only remaining category of documents before the court, i.e., TAs other than TAs to the field. (JA 62.) With respect to the TAs withheld pursuant to Exemption 7(E), the court noted that this exemption protects from disclosure information "compiled for law enforcement purposes, but only to the extent" that production "would disclose techniques and procedures for law enforcement investigations or prosecutions, or would disclose guidelines for law enforcement investigations or prosecutions if such disclosure could reasonably be expected to risk circumvention of the law. . . ." 5 U.S.C. § 552(b)(7). (JA 71.) The court indicated that in order to invoke the exemption, the IRS was required to first meet the "threshold" statutory requirement and establish that the TAs were compiled for "law enforcement purposes." (JA 72.) The court acknowledged that the exemption may be claimed for documents generated pursuant to civil enforcement investigations, but it noted that this Circuit has distinguished between criminal law enforcement agencies and agencies having an admixture of law enforcement and administrative functions. (Id.) Because the IRS is a mixed-function agency, the court stated that it was compelled to apply the “more exacting standard" articulated in Rural Housing Alliance v. U.S. Dep't of Agriculture, 498 F.2d 73. 81-82 (D.C. Cir. 1974), that in order for Exemption 7 to apply, the information at issue must have been gathered in the course of “an inquiry as to an identifiable possible violation of law." (JA 72.)

The court found that TAs written in connection with identified cases met this threshold, but that other TAs did not because they did not “focus directly on specifically alleged illegal acts of a particular identified case or individual." (JA 73.) Because, in the court's view, the IRS had failed to meet the threshold requirement with respect to these TAs, the court declined to consider whether the TAs otherwise met the requirements of Exemption 7(E), and it ordered that the TAs be disclosed in their entirety. (JA 74-75.) With respect to the TA that did meet the threshold requirement, however, the court found that the IRS had met its burden of showing that its disclosure would risk circumvention of the law, and the court granted the IRS's renewed motion for summary judgment. (JA 76-78.)

The court also addressed the IRS's claims of exemption under Exemption 5, which protects "inter-agency or intra-agency memorandums or letters which would not be available by law to a party other an agency in litigation with the agency." 5 U.S.C. § 552(b)(5). (JA 78.) The court noted that courts have construed this exemption to include documents that would be protected under the attorney-client privilege, the attorney work-product privilege, and the deliberative process privilege. (Id.) The court granted the IRS's renewed motion for summary judgment with respect to the TAs for which the attorney work-product privilege had been claimed, because the documents were prepared in anticipation of litigation or for trial (which holding Tax Analysts does not challenge on appeal). (JA 78-82.) With respect to the IRS's claim that the TAs were shielded from disclosure by the deliberative process privilege, the court granted in part and denied in part the parties' renewed motions for summary judgment. (JA 82.)

With respect to the TAs from the OCC to program managers, the court relied on Tax Analysts, 117 F.3d 607. (JA 86-87.) The court found little reason to distinguish between the FSAs ordered released in Tax Analysts and TAs to program managers, because, in its view, the IRS "concedes that taxpayer-specific TAs are almost identical to FSAs," and because although the TAs were "open to revision prior to issuance, these TAs are treated as final documents once they leave the Office of Chief Counsel." (JA 97.) The court therefore held that TAs to program managers addressing specific taxpayers or the tax laws generally were not exempt as deliberative materials. The court found, however, that five other TAs to program managers were distinguishable from the FSAs in Tax Analysts and were exempt. (JA 89-91.) The court held that those TAs were part of a larger deliberative process reflecting an ongoing give-and-take discussion between the OCC and program managers regarding proposed tax forms, possible administrative or legislative changes, and proposed amendments to the Internal Revenue Code. (Id.)

Addressing intra-divisional TAs, written when one component of the OCC advises another component that has been assigned to create various documents, or when one component is called on to advise on Issues of concern to more than one of OCC's component offices, the Court agreed with the IRS that these TAs are "by nature predecisional and deliberative, as they are solicited during the deliberative process from a secondary component that does not have authority to issue the final work product.” (JA 91.) The court noted that "[p]erhaps most importantly," the advice contained in these intra-divisional TAs was subject to modification or rejection prior to the finalization into the final work product. (JA 92.) The court also noted that although the recipient would be expected to follow a TA, if the recipient disagreed with the TA, further discussion of the matter would be expected and, indeed, such “internal debate" was anticipated. (Id.) The court therefore viewed these TAs as constituting part of the “give-and-take" discussion between components, i.e., as part of the larger deliberative process. (Id.) The court indicated that the Vaughn index supported this conclusion, and the IRS's in camera submission did not contradict it. (Id.)

Both parties filed motions for reconsideration. (JA 100.) On May 1, 2001, the District Court issued an opinion and order denying Tax Analysts's motion tor reconsideration and granting in part the IRS's motion for reconsideration. (JA 100, 112.) The court noted that Tax Analysts's motion was untimely (JA 103-104), but it nevertheless addressed Tax Analysts's claim that the attorney work-product privilege does not protect agency working law contained in a work-product document. (JA 104-105.) The court rejected the claim as meritless, noting that it had followed the Supreme Court's "express direction" in Federal Open Market Comm. v. Merrill, 443 U.S. 340 (1979) that agency law contained in work-product is privileged under Exemption 5. (Id.)

The court also rejected the IRS's argument that the threshold "investigatory" requirement was eliminated by Congress in 1986, and that the court therefore should not have applied the threshold inquiry set forth in Rural Housing Alliance. (JA 105-108.) Citing Birch v. U.S. Postal Serv., 803 F.2d 1206, 1209-1211 (D.C. Cir. 1986) as authority, the court held that the Rural Housing Alliance standard continued to be valid law even after the 1986 amendments. (Id.) The court did, however, grant the IRS's request that its holdings were to apply to all the TAs in issue (not only the sample TAs in the Vaughn indexes). (JA 109.)

Both parties filed timely notices of appeal. (JA 130, 132.)

SUMMARY OF ARGUMENT

Tax Analysts brought this action seeking disclosure of various documents authored by individuals within the OCC. The District Court correctly held that most of the documents at issue were not disclosable under various FOIA exemptions.

1. The court correctly held that the deliberative process privilege, incorporated in FOIA Exemption 5, protects from disclosure those portions of LMs that do not reflect the official position of the OCC. LMs are prepared by staff attorneys to accompany proposed revenue rulings through the approval process. They serve as briefing materials for reviewers, but they are not subject to approval or adoption by the agency, and they are not reconciled with the agency's final decision. Nor are they distributed to IRS personnel to be relied upon as authority. TAs therefore are distinguishable from other documents that this Court has previously ordered disclosed.

2. Similarly, the court correctly held that TAs written to advise another division of the OCC also are protected from disclosure by the deliberative process privilege. Unless and until incorporated by the recipient in a final work product, the advice is subject to modification or rejection. Indeed, internal debate is expected. Because the intra-divisional TAs are part of that larger deliberative process, the District Court correctly held that the TAs were privileged.

3. The court correctly held that the "ham." rule contained in the IRM is a directory rule of agency procedure that was not intended to, and does not, create rights in Tax Analysts. As numerous courts have recognized, the IRM was created for the IRS's own internal administration, net for the protection of taxpayers, and its provisions do not have the force and effect of law. In any event, as the District Court recognized, the particular manual provisions on which Tax Analysts relies are precatory, not mandatory.

4. The court correctly held that the IRS was not required to segregate and disclose "agency working law" from TAs conceded to be attorney work-product. The Supreme Court and this Court have held that all material prepared by attorneys in anticipation of litigation is protected work product, and this Court has expressly rejected the kind of segregation of work-product proposed by Tax Analysts.

With respect to each of these issues, the court was correct and should be affirmed.

The court, however, erred in holding that certain TAs could not be records compiled for "law enforcement purposes" under FOIA Exemption 7(E), and also erred in holding that certain TAs directed to IRS program managers were not exempt under Exemption 5 as part of the IRS's deliberative process.

1. Exemption 7 was enacted in order to protect the legitimate needs of Government agencies to keep certain records confidential. Exemption 7(E) now applies to records compiled for law enforcement purposes, where production would disclose law enforcement techniques and procedures, or guidelines for law enforcement investigations or prosecutions, "if disclosure could reasonably be expected to risk circumvention of the law." Exemption 7 originally applied only to "investigatory" records, but that requirement was eliminated by Congress in 1986, in order to change the result in cases holding that Exemption 7 did not apply to material not compiled in the course of a specific investigation. Yet, contrary to this intention, the court here held that certain TAs did not meet the "threshold" requirement for Exemption 7 that they be "compiled for law enforcement purposes," because they did not “focus[ ] on a specifically alleged illegal act of any particular identified case or individual."

The court justified this holding on the basis of decisions of this Court prior to the amendment of Exemption 7. Since that time, this Court has recognized that the 1986 amendments broadened Exemption 7 so that the requirement of an investigation is no longer a component of exemption 7's threshold. Further, numerous decisions in this and other circuits have recognized that Exemption 7(E) applies whenever the release of information might create the risk of circumvention of law, without regard to whether the information was compiled in the course of a particular investigation. The court's holding to the contrary is against the weight of authority.

2. The court also erred in holding that certain TAs to IRS program managers were not exempt under Exemption 5 of FOIA. Exemption 5 incorporates the deliberative process privilege, which protects intra-agency advisory opinions that are part of the deliberative process whereby governmental decisions and policies are formulated. The TAs to program managers were part of a "horizontal" dialogue with other IRS offices, and not final agency "working law" flowing from senior authorities to field personnel. Indeed, these TAs are the paradigm of predecisional memoranda, drafted for the consideration of others; the authors make recommendations and attest to justify their conclusions, but the TAs are hardly "secret law." The District Court therefore erred in ordering their disclosure.

ARGUMENT

I
THE DISTRICT COURT CORRECTLY HELD THAT THE DELIBERATIVE PROCESS PRIVILEGE PROTECTS FROM DISCLOSURE THOSE PORTIONS OF LMS THAT DO NOT REFLECT THE OFFICIAL POSITION OF THE OCC

Standard of Review

In FOIA summary judgment cases, this Circuit applies a de novo standard of appellate review. Billington v. U.S. Dep't of Justice, 233 F.3d 581, 584 (D.C. Cir. 2000).

Exemption 5 of the FOIA, which exempts from disclosure “inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency," affords agencies those privileges to which they would be entitled in civil discovery. See, NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 148-150 (1975). Included within this exemption is the deliberative process privilege. Id.

"The deliberative process privilege protects 'confidential intra-agency advisory opinions . . . disclosure of which would be injurious to the consultative functions of government.'" TWRF, 646 F.2d at 677, quoting, Sears, 421 U.S. at 149. As this Court has noted, this privilege has a number of purposes:

[I]t serves to assure that subordinates within an agency will feel free to provide the decisionmaker with their uninhibited opinions and recommendations without tear of later being subject to public ridicule or criticism; to protect against premature disclosure of proposed policies before they have been finally formulated or adopted; and to protect against confusing the issue and misleading the public by dissemination of documents suggesting reasons and rationales for a course of action which were not in fact the ultimate reasons for the agency's action.

Coastal States Gas Corp. v. Dep't of Energy, 617 F.2d 854, 866 (D.C. Cir. 1980). "Thus, the privilege protects documents reflecting advisory opinions, recommendations, and deliberations compromising part of a process by which governmental decisions and policies are formulated . . . TWRF, 646 F.2d at 677.

For the deliberative process privilege to apply to a document, it must be both "predecisional” and "deliberative." Petroleum Info. Corp. v. U.S. Dep't of Interior, 976 F.2d 1429, 1434 (D.C. Cir. 1992). If a document was prepared in order to assist an agency decisionmaker in arriving at a decision, rather than to support a decision already made, it is predecisional. Id. For a document to be "deliberative", it must "reflect[ ] the give-and-take of the consultative process." Coastal States, 617 F.2d at 866. In determining whether documents are "predecisional," a court should consider: (1) the function and significance of the document in the agency's decision making process, (2) the nature of the decision making authority vested in the office or person issuing the document, and (3) the "flow" of the documents, i.e., whether they are from superiors to subordinates, or vice versa. TWRF, 646 F.2d at 678, 679, 681.

As the District Court correctly recognized, in order to evaluate a deliberative process exemption claim “'an understanding of the function the documents serve within the agency is crucial.'" (JA 32, quoting, Coastal States, 617 F.2d at 858.) LMs are memoranda prepared by attorneys in the OCC to assist in the preparation and review of proposed revenue rulings. (JA 32, 148-150.) A revenue ruling is an official interpretation by the IRS of the Internal Revenue Code or other tax materials. (JA 148; see also JA 32.) Rulings are issued by the national office of the IRS, and, once approved by the Office of the Assistant Secretary (Tax Policy), are published in the Internal Revenue Bulletin for the guidance of taxpayers, IRS personnel, and others. (JA 140, 152.) As the District Court recognized, before a proposed ruling is published, it must pass through a multi-faceted review process that is not complete until the Department of Treasury grants its final approval. (JA 32; JA 151-152.)

As a proposed ruling works its way through this process, it is accompanied by a “publication package," which may contain an LM. (Id.) The Chief Counsel Publications handbook indicates that LMs may include: (1) a restatement of the proposed ruling's issue and holding; (2) justification, arguments, and lines of research that are not reflected fully in the proposed ruling; and (3) principal arguments for reaching a contrary position, as well as rebuttal to those arguments. (JA 149.) As the District Court correctly recognized, “[t]he LM serves as briefing material for reviewers. . . ." (JA 32.) As the court also recognized, there is no formal process whereby the LM is conformed to reflect the final published ruling. (JA 33.)

Applying this Circuit's law to the undisputed facts, the court held that those portions of LMs that do not reflect the official position of the OCC were protected from disclosure by the deliberative process privilege. (JA 33.) LMs are clearly prepared in order to assist an agency decisionmaker in arriving at his decision. Petroleum Info. Corp., 976 F.2d at 1434. They are advisory opinions or recommendations that are "part of a process by which governmental decisions and policies are formulated." TWRF, 646 F.2d at 677. Moreover, the IRS redacted only those portions of the LMs that reflected the opinions and analysis of the author and did not reflect the basis of the final ruling. Hence, as the court correctly recognized, the IRS's approach complied with this Court's mandate that the deliberative process privilege be applied as narrowly as possible. (JA 35.) Accordingly, the court correctly granted the IRS's motion for summary judgment as to LMs. (Id.)

A. The * * * District Court correctly held that LMS are distinguishable from the GCMs at issue in TWRF and that LMS are not subject to the consent decree issued in that case

Tax Analysts argues that LMs serve the same function as the GCMs at issue in TWRF, 646 F.2d 666, and that they therefore should be subject to the same disclosure (and that LMs should be subject to the consent decree issued on remand in that case). (Br. 23-25, 31-33.) As the District Court correctly recognized, however, LMs are distinguishable from the GCMs at issue in TWRF. (JA 34-35.)

The GCMs in TWRF were legal memoranda from the OCC, prepared in response to a formal request for legal advice from the Assistant Commissioner (Technical) in connection with the review of proposed private letter rulings, proposed technical advice memoranda, and proposed revenue rulings. 646 F.2d at 669. GCMs accompanied proposed revenue rulings through the approval process. 646 F.2d at 669. After the Assistant Commissioner made his final decision with respect to the substantive issues in a ruling, the GCM was modified and rewritten by the OCC to represent the position take in the ruling. 646 F.2d at 669-670. Any differences between the GCM and the ruling by the Assistant Commissioner were resolved before the GCM was considered complete and before it became available for future reference. 646 F.2d at 670.

The completed and conformed GCMs were then copied and distributed to key officials within the IRS, including the OCC. Id. The OCC separately retained the GCMs and indexed and digested the memoranda for the purpose of creating an in-house research tool, in order to ensure the uniformity of positions taken. Id. The system was available to IRS personnel in field offices. Id. Although not strictly precedential, IRS personnel could rely on the GCMs for guidance, and GCMs were frequently cited by staff attorneys in the OCC. Id.

This Court held in TWRF that disclosure of the GCMs at issue was required under the FOIA. The Court particularly relied upon the fact that GCMs were “reconciled" with the position ultimately taken by the decisionmaker, and that GCMS were used by agency lawyers, as well as by agency field personnel (which reliance was facilitated and encouraged by the extensive indexing and digesting done by the agency). 646 F.2d at 682-683.

The Court noted that in so holding it was not ignoring the decisions of the Supreme Court and this Court that have looked to whether a document was issued by one with authority to make the final decision as to which the document pertains. 646 F.2d at 683. The Court held, however, that the “updating" and “reconciliation" process “transform[ed] the memoranda from merely advisory documents to documents that reflect the agency's current position on a given issue." Id. This Court was also careful to note that Its decision did not apply to GCMs that were not approved and distributed, stating “in such instances assuming that the unapproved document is never released for publication throughout the agency the document would remain predecisional and/or purely deliberative, and thus protected under Exemption 5." 646 F.2d at 681.

As the District Court recognized in this case, the LMs are not "approved" and are not distributed, either within the national office or to field personnel (JA 33); therefore, under this Court's express holding in TWRF, they are protected under Exemption 5. In fact, after a proposed revenue ruling is definitively approved or rejected, the file is stored, containing within it any accompanying LM. (JA 33.) The file may be retrieved by ruling number, but there is no indexing or retrieval system by which one can identify those files containing an LM. (Id.) Thereafter, LMs are not separately retained or distributed throughout the agency, are not indexed, and are not used to guide personnel in the field or elsewhere, as the GCMs were in TWRF (JA 35.) IRS attorneys who draft LMs may retain them for future reference, and LMs may have limited use as a research tool, but that use does not automatically convert LMs to "agency law," as the District Court recognized (JA 35), and as this Court recognized in Pies, 668 F.2d at 1353-1354 (noting that use as a research tool, without more, does not convert unfinalized or unapproved materials into agency working law). Moreover, LMs are not “updated" and “reconciled" with the final decision, end thereby ""transformed" from advisory documents, which express the view of staff attorneys, into documents that reflect the agency's current position on an issue. TWRF, 646 F.2d at 683.² LMs are not used to promote uniformity in IRS policy, but are tools for formulating policy, as the court correctly concluded. (JA 34-35.) Consequently, in accordance with the Court's express holding in TWRF, they are predecisional and deliberative and are protected under Exemption 5.

It therefore is not true that LMs have the same "function and use" as the GCMs at issue in TWRF, as Tax Analysts argues. (Br. 20, 31-33.) Although GCMs could accompany revenue rulings and serve as a briefing tool with respect to those rulings, as LMs do, it was not for that reason that this Court ordered them disclosed in TWRF. Rather, this Court ordered that the GCMs be disclosed because they functioned as the "working law" of the agency. Because LMs, unlike GCMs, are not rewritten to reflect the final position of the agency, and are not distributed within the IRS, they cannot serve as statements of agency law. (JA 35.) LMs serve a different "function and use" than GCMs did, i.e., a purely deliberative one, and they do not fall within the consent decree entered in TWRF. See Tax Analysts v. IRS, 81-1 U.S. Tax Cas. (CCH) ¶ 13,440 at 88,839 (D.D.C. 1981) (if IRS discontinues generating GCMs and develops other documents "which have the same function and use," order shall apply). Moreover, as the District Court correctly recognized, "[n]ot only are LMs distinguishable from GCMs, but the IRS has provided a legitimate explanation for the decline in GCMs since the TWRF decision." (JA 34 n.6.) See JA 313-314, 328 (testimony of Brown that because offices that prepared and received GCMs were eliminated by reorganization, and in light of budgeting and staff concerns, he believed the use of GCMs ought to be curtailed).

Tax Analysts argues that because the LMs "explain" revenue rulings, they are the "working law" of the agency, and must be disclosed under TRWF, (Br. 24-25.) It is true that this Court noted in TRWF that the public is concerned with the reasons which supplied the basis for an agency policy, but this Court and the Supreme Court have also recognized "little public interest in the disclosure of 'reasons supporting a policy which an agency has rejected, or reasons which might have supplied, but did not supply, the basis for a policy which was actually adopted on a different ground.'" TWRF, 646 F.2d at 677-678, quoting, Sears, 421 U.S. at 152. LMs are drafted by staff attorneys, and are not approved by the ultimate decisionmaker or conformed with his decision. As this Court stated in Pies, 668 F.2d at 1353:

Such documents, if released, may actually mislead the public as to the policy of the agency. There is no real public interest in such documents save perhaps for satisfying public curiosity. They are not informational and do not constitute agency "secret law."

Therefore, the deliberative process privilege must be applied in order "to protect against confusing the issues and misleading the public" by dissemination of LMs which may suggest reasons and rationales which were not in fact the ultimate reasons for the agency's action. Coastal States, 617 F.2d at 866.

B. The District Courts decision is in accord with this Court's decision m Tax Analysts, as well as with other decisions, of this Court

Tax Analysts, 117 F.3d 607, holding that FSAs were subject to disclosure, does not contradict the District Court's decision. (JA 34-35.) FSAs are prepared by the OCC in response to requests from field personnel for legal advice, usually with respect to the situation of a specific taxpayer. 117 F.3d at 617. The primary purpose of FSAs is to ensure that field personnel apply the law correctly and uniformly. Id. Although FSAs are not formally binding, they are routinely used and relied upon by field personnel, and this Court has held that they "reflect the law the government is actually applying in its dealings with the taxpaying public." 117 F.3d at 618. As representations of "the considered view of" OCC on significant tax law issues, rather than documents reflecting the "give-and-take" of the deliberative process, the FSAs were held not to be protected by the deliberative process privilege. 117 F.3d at 617.

In this case, it is the finally approved revenue rulings that are "the considered view" of OCC. Nor do LMs serve as legal advice to field personnel, as a means of ensuring that they apply the law correctly and uniformly; they are never sent to the field. As the District Court recognized, LMs flow upward from staffers to reviewers, not "outward" to field personnel, as FSAs do. (JA 35.) Therefore, they do not "reflect the law the government is actually applying in its dealings with the taxpaying public." 117 F.3d at 618. Rather, the LMs are "briefing material for the reviewers," and a starting point for debate concerning the proposed revenue ruling they accompany. (JA 32.) They "'reflect the agency give-and-take leading up to a decision that is characteristic of the deliberative process." (JA 34, quoting, Pies, 668 F.2d at 257.)

Tax Analysts argues that LMs, like FSAs, contain analysis and discussion, including discussion of contrary views, and that LMs therefore should be subject to disclosure, just as FSAs are (Br. 26-27.) But Tax Analysts ignores the point that the redacted (and withheld) portion of the analysis contained in the LMs, including any discussion of contrary views, is merely the analysis of the drafting staff attorney. Those portions of the LMs that were adopted were released. Clearly, the redacted material is not meant to serve as the "considered view" of OCC, as the FSAs at issue in Tax Analysts were. Cf. Common Cause v. IRS, 646 F.2d 656, 659-660 (D.C. Cir. 1981) (internal memorandum which might or might not have embodied the IRS's reasons for rejecting a proposed policy fell within deliberative process privilege).

As the District Court recognized, Arthur Andersen, 679 F.2d 254, supports this conclusion. (JA 33.) In that case, this Court found that Background Information Notes (BINs), which, like LMs, accompanied revenue rulings through the approval process, were exempt from disclosure. In so holding, this Court noted that the "flow" of BINs was "from subordinate to superior." Because approval was required at each higher level, those who participated in writing the notes were without authority to make a final determination. 649 F.2d at 259. This Court held that this established the "predecisional and deliberative nature" of the BINs. (Id.) The "flow" of LMs is identical to the "flow" of BINs; both accompany revenue rulings through the approval process. And while LMs may contain more extensive analysis then the BINs at issue in Arthur Andersen, that analysis is authored by individuals who are without authority to make a final determination. It is not the analysis of the IRS, and it is not treated as such.

Finally, in Pies, 668 F.2d at 1353, this Court held that draft proposed regulations and a draft transmittal memorandum, which were never subjected to final review and never approved by the officials having authority to do so, were predecisional documents exempt under Exemption 5. This Court rejected the contention that because significant portions of the proposed regulations were in fact adopted without material change, the documents should be disclosable, holding that it was obvious that the decisionmaker used them only as a point of reference and not as reflecting agency law. Id. The Court stated:

A decision holding otherwise would be to rule that all similar documents and memoranda that are used as research tools by attorneys in the agency, even though never finalized nor approved to reflect agency policy, would be subject to release to the public. This was not the intention of Congress, such documents being predecisional and protected under Exemption 5.

668 F.2d at 1353-1354. See also, TWRF, 646 F.2d at 681 (same). Similarly, the LMs here were never subject to final approval. They were used by the decisionmaker, as a point of reference, and not as reflecting agency law.

C. The District Court correctly held that Tax Analysts failed to point to any genuine issues of material fact with respect to LMS

As the District Court noted, "[a]fter a period of extensive discovery, both parties generated a vast factual record. . . ." (JA 32 n.4.) Although it is hard to imagine what further evidence now could be adduced, Tax Analysts contends that the District Court erred m deciding this issue on summary judgment. (Br. 34-36.) As the District Court recognized, however, there are no genuine issues in dispute such that summary judgment would be inappropriate. (JA 32 n.4.)

Tax Analysts cites to its own statement of facts, and to the Statement of Undisputed Facts that it filed below, to support its claim that it is “standard procedure" for lawyers in the OCC to use LMs for research purposes. (Br. 18, 25.) The actual testimony, however, was that when a docket attorney is given an assignment involving an issue that is very similar to an issue addressed in a revenue ruling, it would be expected that the attorney would review the ruling file. (JA 272-273.) In doing so, the attorney would review any LM contained in the file, along with any other material m the file, including any drafts of the ruling. (Id.) But attorneys “are not permitted" to rely on LMs, because LMs are not precedential. (JA 273; see also JA 325.) Nor can an attorney "look up" an LM in the same way that a GCM on a particular topic could be located, for LMs are not digested or indexed by means of a system similar to Shepard's. (JA 215, JA 324.) A ruling file first must be pulled in order to determine whether an LM was prepared, and to obtain a copy of an LM. (JA 324.) And LMs are "never released for publication throughout the agency," as the GCMs at issue in TWRF were, or cited or relied on by IRS personnel. Hence, while LMs may have a very limited use in researching the background of a particular revenue ruling (which itself does not convert them into agency law), they cannot be relied upon as GCMs were. There are no disputed facts about the extent to which LMs may (and may not be) used for research purposes. Tax Analysts simply disagrees with the District Court's conclusion that the limited research function that LMs may serve "does not automatically convert LMs to 'agency law.'" (JA 35.)

Similarly, Tax Analysts identifies no disputed facts concerning the purposes served by LMs and GCMs. Tax Analysts does argue that IRS declarations and the deposition testimony of IRS officials (specifically, former Chief Counsel Stuart Brown and Chief Counsel manager Louis Solomon) conflict on whether LMs are conformed to the final text of the rulings to which they correspond. (See Br. 14.) But the evidence is consistent on this issue. Solomon testified that, in his office (Passthroughs and Special Industries), changes were made to an LM when changes were made to the revenue ruling it accompanied, but he did not testify with respect to practices in other offices (JA 215.) Indeed, practices varied within the various offices as to when revisions were made. (JA 270.) Brown testified that where major revisions to a revenue ruling were necessary, a subsequent briefing on the ruling would be set and "the legal memo would be changed in preparation for the subsequent briefing." (JA 263.) But "in cases where the issue might be fairly addressed by the legal memorandum in its then existing state." he did not believe it was required to go back and change the LM. (JA 264.) Significantly, Brown testified:

(JA 264, 330.) Certainly, neither Brown nor Solomon testified that the LM was "conformed" to be in accordance with the final revenue ruling or to reflect the underlying reasoning of the Office of Assistant Secretary (Tax Policy), which had final approval over the ruling. (See JA 152.) As Chief Counsel executive Jody Brewster put it:

[E]ven though the practices vary within the offices, as to when revisions are made and how often they are made, there is one statement that I can make on behalf of the entire organization.

[T]here is no policy, requirement or general practice in any office to revise the legal memoranda to conform to the final document that was published. That is not to say that changes aren't made to the legal memoranda. But there is no requirement or even general practice that they will be revised to the final document.

They are a . . . review tool, and as long as there is another layer of review that will be taking a look at the document, where brief materials will be sent to them, the legal memorandum may, it may not, but it may be revised.

(JA 270; see also 271-272.) The District Court therefore was correct in recognizing that "[a]t various points in the approval process the publication package may be returned to the drafter tor revisions"', but that [t]here is no formal process, however, whereby the LM is conformed to reflect the final published revenue ruling." (JA 33; see also JA 35 (District Court noting that, unlike GCMs, LMs are not "revised to reflect the final position" of decisionmaker). Tax Analysts has pointed to no disputed issue of material fact.

Finally, with respect to the remaining issues identified by Tax Analysts, viz., whether the LMs supplement the legal analysis in rulings, whether their publication would or would not confuse Knowledgeable tax professionals, and whether they help to explain or understand published rulings (see Br. 34), the District Court did not make any findings of fact on these issues, because they are not material. Publication of an LM could confuse tax professionals, where it contains analysis or opinions not ultimately adopted, or it could supplement the legal analysis in a published ruling and help in understanding it, where it does contain analysis or opinions that are adopted. See Sears, 421 U.S. at 152; Pies, 668 F.2d at 1353. But the point, as the District Court recognized, is that "LMs do not necessarily reflect the official position of the Office [of] Chief Counsel on a given issue." (JA 35.) If LMs are not statements of agency policy or "working law," whether they are "helpful" or not is irrelevant.

II
THE DISTRICT COURT CORRECTLY HELD THAT TAs ADVISING ANOTHER DIVISION OF THE OCC, WHICH ARE SUBJECT TO MODIFICATION OR REJECTION PRIOR TO FINALIZATION IN A FINAL PRODUCT, ARE PART OF THE DELIBERATIVE PROCESS

Intra-divisional TAs are responses of the technical divisions of the OCC to requests for advice from other office of OCC. The advice is requested when one component of OCC is assigned to create various documents, such as Technical Advice Memoranda (TAMs), Private Letter Rulings (PLRs), or Field Service Advices (FSAs), or when issues of concern to more than one of OCC's component offices arise. (JA 355, 692, 700.) In such cases, one component may receive an assignment, and, in order to respond to issues other than those within its own jurisdiction, will seen a TA from the component office with jurisdiction over those issues. (JA 702.) The office receiving the TA will use it as part of the internal deliberations that take place prior to the issuance of any TAM, PLR, FSA, or other document. (JA 702-703.) The recommendations or conclusions contained in a TA may be accepted, modified, or rejected prior to the finalization of the document to which the TA relates (assuming the document is finalized). (JA 718.)

The District Court held that these intra-divisional TAs are by nature predecisional and deliberative, as they are solicited during the deliberative process from a secondary component that does not have authority to issue the final work product. (JA 91.) As the District Court recognized, the "function and significance' of the TAs is to provide the issuing office's expertise on an issue within its jurisdiction, so that the requesting office can make the soundest decision regarding the OCC's final position. (JA 91-92.) The issuing office does not have final decisionmaking authority with respect to the issue, and the advice contained in the TAs is subject to modification or rejection prior to finalization in the final work product. (JA 92.) Indeed, the OCC commonly expects internal debate to follow TAs written between component offices of the national office. (Id.: see JA 382.) As the District Court put it:

Until the final work product is issued, the position of the Office of Chief Counsel is still under consideration; the intra-divisional TAs are part of that larger deliberative process. The Vaughn index supports, and the IRS's in camera submission does not contradict, this conclusion.

(JA 92.) The District Court therefore correctly held that the intra-divisional TAs are protected by the deliberative process privilege. (Id.)

Tax Analysts argues repeatedly that intra-divisional TAs must be disclosed as statements of the legal position (and reasoning) of the OCC (Br. 38-42), but, as the District Court recognized, the opinions or interpretations contained in the intra-divisional TAs are not the position of the OCC. (JA 92.) While it may be true that the TAs “provide the issuing office's expertise on a subject within its jurisdiction," the views contained in the TAs are subject to internal debate between component offices, and may be revised, or even rejected, before the position of OCC is established and the final work product is issued. (Id.) Intra-divisional TAs are therefore only part of a “larger deliberative process" to determine the final legal position of the OCC. As such, they are exempt from disclosure.³

III
THE DISTRICT COURT CORRECTLY HELD THAT THE "HARM" RULE CONTAINED IN THE IRM IS A DIRECTORY RULE OF AGENCY PROCEDURE THAT WAS NOT INTENDED TO, AND DOES NOT, CREATE RIGHTS IN A FOIA REQUESTER

As the District Court recognized, "[n]ot everything that an agency publishes has the force of a binding, regulation." (JA 30.) Indeed, this Court has recognized that an agency pronouncement does not bind the agency unless the agency intended to bind itself with the pronouncement. (JA 59-60.) See Doe v. Hampton, 566 F.2d 265, 281 (D.C. Cir. 1977).

Numerous courts have distinguished between procedural guidelines adopted by the IRS to aid in the internal administration of the agreency, such as the IRM, and regulations promulgated by an agency that confer substantive rights on taxpayers. See e.g., United States v. Caceres, 440 U.S. 741 (1979) (distinguishing internal rules of IRS procedure from regulations promulgated pursuant to statutory directive for a taxpayer's benefit); Boulez v. Commissioner, 810 F.2d 209, 215 (D.C. Cir. 1987) (rules issued by IRS Commissioner without need for approval by Secretary, differ significantly from regulations, and serve merely as guidelines in conducting the internal affairs of the agency). None of the cases cited by Tax Analysts addresses such IRS administrative procedures.

Specifically, courts have recognized that the IRM was created for the agency's own internal administration and not for the protection of taxpayers. See e.g., United States v. McKee, 192 F.3d 535, 540 (6th Cir. 1999); United States v. Peters, 153 F.3d 445, 451-452 n.9 (7th Cir. 1998). Therefore, courts have recognized that the internal operating procedures of the IRS as described in IRM do not create rights in taxpayers. See e.g., Matter of Carlson, 126 F.3d 915, 922 (7th Cir. 1997); United States v. Will, 671 F.2d 963, 967 (6th Cir. 1982). Indeed, in Marks v. Commissioner, 947 F.2d 983, 986 n.1 (D.C. Cir. 1991) this Court explicitly recognized that “it is well-settled . . . that the provisions of the (Internal Revenue) manual are directory rather than mandatory, are not codified regulations, and clearly do not have the force and effect of law." Tax Analysts cites no case to the contrary. As the Fourth Circuit noted in Groder v. united States, 816 F.2d 139, 142 (4th Cir. 1987), in addressing audit guidelines contained in the IRM, “[t]here are many such rules and procedures in government which agencies must remain free to adopt without fear of creating a litigable point on the part of every person with whom the agency comes in contact."

In any event, as the District Court recognized, the relevant language of the “harm" provisions “speaks not of mandatory binding 'regulation,' but merely of precatory internal procedures." (JA 60.) See IRM 1.3.13.7.2.5(b)(5) ¶¶ 6, 7, 8 (attorney “is recommended to ascertain' foreseeable harm and referring to "discretionary disclosure policy"); IRM 1.3.13.7.1(5) (discretionary exemption "should not be" asserted unless foreseeable harm may result); IRM 1.3.13.1(6) (containing directory “will" rather than “shall' or “must"). Such procedures are not binding on the agency. Marks. 947 F.2d at 986 n.1. See also Spannaus v. U.S. Dep't of Justice, 942 F. Supp. 656. 658 (D.D.C. 1996) (refusing to apply Department of Justice's “foreseeable harm" rule in FOIA case); but see. Tax Analysts, 98-1 U.S. Tax Cas. (CCH: ¶ 50,407 at 84,120 (D.D.C. 1998) (finding support in IRS "harm" rule).

IV
THE DISTRICT COURT CORRECTLY HELD THAT THE IRS WAS ENTITLED TO WITHHOLD IN THEIR ENTIRETY TAs CONCEDED TO BE WORK-PRODUCT

The work-product privilege incorporated in Exemption 5 of the FOIA protects documents prepared by an attorney m contemplation of litigation. See Hickman v. Taylor, 329 U.S. 495 (1947). Thus, the privilege "provides a working attorney with a 'zone of privacy' within which to think, plan, weigh facts and evidence, candidly evaluate a client's case, and prepare legal theories Coastal States, 617 P.2d at 864. Tax Analysts contends, however, that “agency working law" in the TAs it now concedes to be work-product should be segregated and disclosed. (Br. 42.)

The District Court was correct in holding that the IRS was entitled to withhold six TAs in their entirety. As the District Court noted, the Supreme Court has explicitly indicated that "a memorandum subject to the affirmative disclosure requirement of § 552(a)(2), [is] nevertheless shielded from disclosure under Exemption 5 [if] it contain[s] a privileged attorney's work product." (JA 29, quoting, Federal Open Market Comm. v. Merrill, 443 U.S. 340, 360-361 n.23 (1979).)

Moreover, this Court addressed the scope of the work-product doctrine in Tax Analysts, 117 F.3d at 620. Because there was no dispute in Tax Analysts that certain FSAs were protected work-product under Exemption 5, the District Court had permitted the IRS to redact "all attorney work-product." Id. This Court explicitly found, however, that the district court had interpreted the scope of the work-product privilege "too narrowly" to exclude only text concerning "the mental impressions, conclusions, opinions, or legal theories of an attorney." Id. The Court noted that the work-product doctrine protects such deliberative materials, but that it also protects other materials, including factual materials, prepared in anticipation of litigation. Id. This Court therefore held that "[a]ny part of an FSA prepared in anticipation of litigation, not just the portions concerning opinions, legal theories, and the like, is protected by the work product doctrine and fall under exemption 5." Id. See EEOC v. Lutheran Soc. Servs., 186 F. 3d 959, 960, 969 (D.C. Cir. 1999) (reversing district order directing that certain reports be produced with portion constituting legal advice redacted, and holding entire report protected).

Therefore, in accordance with Tax Analysts, any portion of the TAs prepared in anticipation of litigation is protected and falls within Exemption 5. An analysis of the law is part and parcel of an attorney's mental impressions of the case and his legal opinion, prepared in anticipation of litigation. As the Supreme Court and this Court have recognized, the entire document is protected under the work-product privilege. Indeed, the kind of redaction of work-product proposed Dy Tax Analysts was expressly rejected by this Court in Tax Analysts (and Lutheran Social Services).

Tax Analysts argues that the FOIA's "segregability" regulations require that any non-exempt "reasonably segregable" portions of a document should be disclosed. (Br. 43-47.) This begs the question. If an entire document is shielded, there is no "reasonably segregable" portion containing "working law" to disclose. Tax Analysts gains no support from cases such as Schiller v. NLRB, 964 F.2d 1205 (D.C. Cir. 1992), which held only that a court must consider whether a document contains non-exempt portions that may be segregated and disclosed. In this case, the District Court did consider (on two occasions) whether the TAs contained non-exempt portions containing agency "working law" that could be segregated, and held that they did not. (See JA 79-81, 104-105.) Finally, as the District Court recognized (JA 80-81), any statement made on remand by the District Court in Tax Analysts, 98-1 U.S. Tax Cas. (CCH) ¶ 50,407, cannot overcome this Court's clear holding in Tax Analysts, 117 F.3d at 620, that “[a]ny part of [a document] prepared in anticipation of litigation" “is protected by the work product doctrine and falls under exemption 5."

THE IRS's CROSS-APPEAL

I
THE DISTRICT COURT ERRED IN HOLDING THAT TAs THAT DID NOT FOCUS ON A SPECIFICALLY ALLEGED IMPROPER ACT OF ANY PARTICULAR TAXPAYER WERE NOT RECORDS COMPILED FOR "LAW ENFORCEMENT PURPOSES"

“In originally enacting [FOIA] Exemption 7, Congress recognized that law enforcement agencies had legitimate needs to keep certain records confidential, lest the agencies be hindered m their investigations or placed at a disadvantage when it came time to present their case." NLRB v. Robbins Tixe & Rubber Co., 437 U.S. 214, 224 (1978). As originally enacted, Section 552(b)(7) permitted nondisclosure of "investigatory files compiled for law enforcement purposes except to the extent available by law to a private party." Pub. L. No. 90-23, 60 Stat. 54, 55 (1967). in 1974, the exemption was amended to permit the nondisclosure of "investigatory records compiled for law enforcement purposes," "but only to the extent that producing those records would involve one of six specified dangers." Robbins Tire & Rubber Co., 437 U.S. at 222; see Pub. L. No. 93-502, 99 Stat. 1561 (1974). These changes were enacted in response to a series of four decisions by this Court that had interpreted the exemption rigidly to exclude any documents contained in an investigatory file. See FBI v. Abramson, 456 U.S. 615, 626-628 (1982) (discussing 1974 changes). As amended. Section 552(b)(7)(E) exempted from the FOIA "investigatory records compiled for law enforcement purposes' to the extent that "production of such records would" “disclose investigative techniques and procedures." Robbins Tire & Rubber Co., 437 U.S. at 223. It is clear that the term "law enforcement purposes" encompasses more than criminal law enforcement; it also encompasses civil, administrative and regulatory responsibilities. See Mappther v. U.S. Dep't of Justice, 3 F.3d 1533, 1540 (D.C. Cir. 1993).

Both before and after the 1974 amendments, some courts interpreted the term "investigatory records compiled for law enforcement purposes" contained in Exemption 7 as applying only to material compiled in the course of a specific investigation. See Sladek v. Bensinger, 605 F.2d 899, 903 (5th Cir. 1979); Cox v. U.S. Dep't of Justice, 576 F.2d 1302, 1310 (8th Cir. 1978). But in 1983, after extensive hearings, the Committee on the Judiciary of the Senate found that Exemption 7, in practice, had created problems, inter alia, "with respect to the disclosure of sensitive non-investigative law enforcement materials." S. Rept. No. 221, 98th Cong., 1st Sess., 23 (1983) [emphasis added]. The Committee therefore recommended that the term “records or information" be substituted for the term "investigatory records" stating:

This amendment would broaden the scope of the exemption to include "records or information compiled for law enforcement purposes," regardless of whether they may be investigatory or non-investigatory. . . . It should also resolve any doubt that law enforcement manuals and other non-investigatory material can be withheld under (b)(7) if they were compiled for law enforcement purposes and their disclosure would result in one of the six recognized harms to law enforcement interests set forth in the subparagraphs of the exemption. See, contra, Sladek . . .; Cox. . . .

S. Rept. No. 221, at 23. The proposed amendments were clearly intended to reverse the result in cases which had held that Exemption 7 did not apply to materials “not compiled in the course of a specific investigation." There is no suggestion in the legislative history that Congress did not intend the amended exemption to apply to all agencies. See also, S. Rep. No. 221, at 24-25 (recommending that term "investigative" be deleted from Section 522(b)(7)(E) in order “to make clear that 'techniques and procedures for law enforcement investigations and prosecutions' can be protected, regardless of whether they are 'investigative' or non-investigative"); 132 Cong. Rec. S14039 (daily ed. Sept. 27, 1986) (Senator Hatch expressing dissatisfaction with fact that record "could be disclosed simply because it does not satisfy the formalistic test of being an investigatory record").

The Committee also recommended that Exemption 7 be amended by expanding (b)(7)(E) to permit withholding of "guidelines for law enforcement investigations and prosecutions if such disclosure could reasonably be expected to risk circumvention of the law." S. Rept. No. 221, at 25. There was no indication that Congress intended to limit the exemption to guidelines addressing individual violations of the law.

Nevertheless, the District Court in effect resurrected the "investigatory" requirement, holding that TAs that did not focus on a specifically alleged improper act of a particular individual could not meet the “law enforcement purposes" threshold requirement of Exemption 7(E). (JA 74.) This is contrary to the stated purpose of the 1986 amendments and the text of Section 552(b)(7)(E), which exempts “records or information that would disclose techniques and procedures for law enforcement investigations or prosecutions, or would disclose guidelines for law enforcement investigations or prosecutions."

The District Court justified its holding on the basis of this Court's decisions in Rural Housing Alliance v. U.S. Dep't of Agriculture, 498 F.2d 73 (D.C. Cir. 1974), and Birch v. U.S. Postal Serv., 803 F.2d 1206 (D.C. Cir. 1986), which it viewed as affirming the continuing validity of Rural Housing Alliance. (JA 106-107.)

But Rural Housing Alliance does not compel the District Court's decision. In that case, the plaintiffs sought to obtain a report describing an investigation of their claim that the FHA had discriminated on the basis of race and national origin. 498 F.2d at 75. The question for this Court was whether "an agency's internal monitoring to insure that its employees are acting in accordance with statutory mandate and the agency's own regulations [was] an investigation 'for law enforcement purposes' within the meaning of exemption 7." 498 F.2d at 81. The Court noted that, on its face, Exemption 7 appeared broad enough to include all records concerning internal audits, since any such audit might lead to disciplinary or criminal charges, but that if such a broad interpretation were given to the exemption in cases involving internal audits, it would defeat one of the central purposes of FOIA, viz., to provide public access to information concerning the Government's own activities. (Id.) Therefore, it held that only records regarding investigations which focused on identifiable possible violations of law should be exempt, while records reflecting the Government's customary administrative oversight of its employees' performance should not. 498 F.2d at 81-82.

Although this Court in Birch cited Rural Housing Alliance as articulating a standard with respect to “mixed-function" agencies. Rural Housing Alliance did not in fact do so. Rather, it addressed the standard to be applied to records regarding internal audits. Indeed, in Rural Housing Alliance this Court did not use the term "mixed-function agency," or even suggest that different standards should apply to different agencies. Some subsequent decisions have (correctly) characterized Rural Housing Alliance as establishing a standard applicable to internal agency investigations (rather than to "mixed-function" agencies generally). See, e.g., Kimberlin v. U.S. Dep't of Justice, 139 F.3d 944, 947 (D.C. Cir. 1998); Patterson v. IRS, 56 F.3d 832, 837 (7th Cir. 1995).

In fact, it was in Pratt v. Webster, 673 F.2d 408 (D.C. Cir. 1982), which like Rural Housing Alliance was decided prior to the 1986 FOIA amendments, that the "mixed-function" distinction was first made. There, this Court explicitly addressed the standard to be applied to criminal law enforcement agencies (e.g., the FBI), as distinguished from “mixed function" agencies. The Court noted that although “FOIA makes no distinction on its face between agencies whose principal function is law enforcement and agencies with both law enforcement and administrative functions," courts often have accorded different treatment to Exemption 7 claims from different agencies. 673 F.2d at 416. The Court cited Rural Housing Alliance as a case involving a “mixed-function" agency and which had identified law enforcement investigations as those investigations which focus on specifically alleged illegal acts. 673 F.2d at 419. But because the Court's holding addressed the standard applicable to criminal enforcement agencies, its statements with regard to “mixed-function" agencies are dicta. See In re Executive Office of the President. 215 F.3d 20, 24 (D.C. Cir. 2000) (dicta is of no moment, and is not binding as matter of stare decisis).

in Birch, this Court held that because the Postal Service was a “mixed-function" agency, the standard to be applied was the one set forth in Rural Housing Alliance, i.e., that the information must have been gathered in the course of an inquiry as to an identifiable possible violation of law in order to fall within the exemption. 803 F.2d at 1210. In so holding, this Court stated in a footnote that it had “no reason to doubt the continuing vitality of Rural Housing Alliance" because, while the FOIA had been amended after that opinion was issued, the phrase "law enforcement purpose," was left unchanged. 803 F.2d at 1210 n.39. This Court also reasoned that "while the legislative history echoes congressional dissatisfaction with four decisions in this circuit expanding the scope of Exemption 7, Rural Hous. Alliance was not one of them." Id., citing, Pratt, 673 F.2d at 417 ns. 20-22, and at 419 n.27.

It is important to recognize, however, that Birch was decided on October 24, 1986, which was three days before the 1986 amendments were enacted. Indeed, this Court clearly indicated in its opinion that it was considering the 1982 version of the statute. 803 F.2d at 1207 n.1, at 1208 & n. 13, and at 1209 ns. 23, 26. Therefore, Birch reflects the state of the law prior to the 1986 amendments, and cannot speak to the new statutory language of Exemption 7. Moreover, the legislative history to which the Court referred in Birch was the legislative history of the 1974 changes to the FOIA (as evidenced by the fact that that history was cited in Pratt, which was decided years prior to the 1986 amendments). It was the 1974 legislative history that addressed four decisions of this Court that Congress believed applied the FOIA too narrowly (not too expansively, as the District Court indicated). See Abramson, 456 U.S. at 626-628. Consequently, the FOIA was amended in 1974 to restrict the exemption (and so broaden the reach of FOIA), by excepting records, rather than files, and by requiring that six enumerated injuries be established in order for the exemption to apply. Id.

In 1986, however, Congress acted to broaden the exemption (and thus to narrow the reach of the FOIA) by eliminating the "investigatory" requirement to legislatively overrule cases that had held that Exemption 7 did not apply to information not compiled in the course of a particular investigation. See S. Rept. No. 221, at 23. Birch, therefore, does not support the District Court's conclusion that an "investigatory" requirement may be applied to "mixed-function" agencies after the 1986 amendments. Moreover, contrary to the District Court's view, this Court in Rural Housing Alliance did focus on the pre-1986 term "investigatory," which requirement was later eliminated. 498 F.2d at 81 (addressing the meaning of the term "investigatory files compiled for law enforcement purposes"); 498 F.2d at 82 (stating that "the purpose of the 'investigatory files' is thus the crucial factor"). The same is true with respect to Pratt. See 673 F. 2d at 413 (statutory language on its face requires that records be "investigatory records," and that they be "compiled for law enforcement purposes").

Finally, although the District Court distinguished various cases cited by the IRS as not "binding" in this Circuit (JA 107), this Court itself has recognized that the 1986 amendments changed the threshold requirement of Exemption 7. In Keys v. U.S. Dep't of Justice, 830 F. 2d 337, 343 (D.C. Cir. 1987), which was decided after the 1986 amendments, this Court explicitly recognized that the statute had been changed to broaden the scope of the Exemption 7 threshold by replacing "investigatory records" with the more general term "records or information." This Court therefore stated "that the requirement of an 'investigation' [is] no longer a component of exemption 7's threshold." 830 F.2d at 340. This Court went on to find that the holding in Pratt, viz., that a criminal law enforcement agency's invocation of law enforcement purposes warrants greater deference, survived the 1996 amendments, but this Court indicated that the threshold "investigatory" requirement did not survive.⁴ (Id.) Similarly, in North v. Walsh, 881 F.2d 1088, 1098 n.14 (D.C. Cir. 1989), this Court recognized that in 1986 Congress "changed the threshold requirement for withholding information under exemption 7: the exemption formerly covered 'investigatory records compiled for law enforcement purposes'; it now applies more broadly to 'records or information compiled for law enforcement purposes.'" See also Reporters Comm. for Freedom of the Press v. U.S. Dep't of Justice, 816 F.2d 730, 738 n.10 (D.C. Cir. 1987), rev'd on other grounds, 489 U.S. 749 (1989); McCall v. U.S. Marshals Serv., 36 F. Supp. 2d 3, 6 (D.D.C. 1999); Coleman v. FBI, 13 F. Supp. 2d 75, 83 n. 12 (D.D.C. 1998); Kuffel v. U.S. Bureau of Prisons, 882 F. Supp. 1116, 1124 (D.D.C. 1995); Simon v. U.S. Dep't of Justice, 752 F. Supp. 14, 17 n.1 (D.D.C. 1990), aff'd, 980 F.2d 782 (D.C. Cir. 1992); Korkala v. U.S. Dep't of Justice, 1987 WL 15693, *4 n.4 (D.D.C. 1987). These authorities are directly contrary to the District Court's holding that the investigatory "threshold" standard continues to apply after the 1986 amendments.

Moreover, this Court's holding in Keys and North is in accord with numerous decisions in this and other circuits recognizing that, under Exemption 7(E), where the release of information might create a risk of circumvention of the law, the information need not be disclosed, whether or not it was compiled in the course of a particular investigation. For example, in PHE, Inc. v. U.S. Dep't of Justice, 983 F.2d 248 (D.C. Cir. 1993), this Court held that documents not generated in the course of a particular investigation, including portions of the FBI manual, were exempt because their release might have created risk of circumvention of the law. This rule has been applied to IRS materials. See, Tax Analysts v. IRS, 1999 U.S. Dist. LEXIS 19514 (D.D.C. 1999) (because release of material would inform taxpayers about a weakness in IRS enforcement methods that could be exploited to circumvent the tax laws, material was exempt under Exemption 7(E)); see also Becker v. IRS, 34 F.3d 398, 405 (7th Cir. 1994); Ferguson v. IRS, 1990 U.S. Dist. LEXIS 15293 (N.D. Cal. Oct. 31, 1990), aff'd without opinion, 228 F.3d 417 (9th Cir. 1991); Klunzinqer v. IRS, 27 F. Supp. 2d 1015, 1027-1028 (W.D. Mich. 1998) ; Buckner v. IRS, 25 F. Supp. 2d 893, 898-899 (N.D. Ind. 1998); Pully v. IRS, 939 F. Supp. 429, 438 (E.D. Va. 1996); Foster v. U.S. Dep't of Justice, 933 F. Supp. 687, 693 (E.D. Mich. 1996); Church of Scientology Int'l v. IRS, 845 F. Supp. 714, 722-723 (C.D. Cal. 1993); Small v. IRS, 820 F. Supp. 163, 165-166 (D.N.J. 1992). The District Court's holding to the contrary thus is against the great weight of authority.

II
THE DISTRICT COURT ERRED IN HOLDING THAT TAs TO PROGRAM MANAGERS, WHICH ARE NOT "WORKING LAW," WERE NOT EXEMPT UNDER THE DELIBERATIVE PROCESS PRIVILEGE

As discussed infra. pp. 18-19, Exemption 5 of the FOIA incorporates the deliberative process privilege, which “protects documents reflecting advisory opinions, recommendations, and deliberations comprising part of a process by which governmental decisions and policies are formulated. . . ." TWRF, 646 F.2d at 677. Like intra-divisional TAs, TAs to program managers within the national office of the IRS are advisory opinions or recommendations “by which governmental decisions and policies are formulated," and not "working law." That they are not “working law" is evidenced by the fact that the TAS are not distributed to be relied upon as authority by OCC personnel or as guidance to field personnel. (JA 699, 708-709.) Rather, these TAs are simply advice from OCC to program managers, for use in formulating program policies. (See JA 699 (program managers use TAs to develop the content of other publicly available documents or programs).)

In holding that the deliberative process privilege was not applicable to the TAs issued to program managers addressing a specific taxpayer or the interpretation or application of the internal revenue laws generally, the District Court relied on Tax Analysts, 117 F.3d 607. (JA 86-87.)

There, this Court held that FSAs, which are issued by the national office of the OCC in response to questions posed by field personnel, were not privileged because they were post-decisional statements representing the legal position and considered view of the national office, 117 F.3d at 617. In so holding, this Court noted that although FSAs may not have been formally binding, they routinely were used and followed by field personnel, and properly were viewed as statements of the agency's legal position. Id. The District Court in this case found little reason to distinguish between the FSAs in Tax Analysts and the TAs at issue, because “[e]ven the IRS concedes that taxpayer-specific TAs are almost identical to FSAs" and because "even though [the TAs] are open to revision prior to issuance, these TAs are treated as final documents once they leave the Office of Chief Counsel." (JA 86, 87.) These holdings are not supported by the record and are erroneous.

It is true that the IRS did not object to plaintiff's statement that: "In many cases the only difference between FSAs and taxpayer-specific TAs is the originating or issuing office." (JA 344.) Contrary to the District Court's implication, however, the difference cited is not insignificant. Indeed, it is crucial. This Court has recognized that the "flow" of a document is an important factor in determining whether a it is "predecisional" and "deliberative." As this Court stated in Access Reports v. U.S. Dep't of Justice, 926 F.2d 1192, 1195 (D.C. Cir. 1991):

A key feature under both the "predecisional" and "deliberative" criteria is the relation between the author and recipients of the document. A document from a junior to a senior is likely to reflect his or her own subjective opinions and will clearly have no binding effect on the recipient. By contrast, one moving from senior to junior is far more likely to manifest decisionmaking authority and to be the denouement of the decisionmaking rather than part of its give-and-take.

With respect to the TAs at issue, the "flow" was not from a "senior" to a "junior," but from one of the four technical divisions within OCC to program managers within the national Office of the IRS. See TR 45-2233-93 (JA 654); TR 45-2473-93 (JA 616); TR 45-2820-92 (JA 660). The "flow" of these TAs was horizontal.⁵ Like the TAs sent between component offices of OCC, the TAs therefore are properly viewed as part of a dialogue with other components of the national office. In this important respect, the TAs at issue differ from the FSAs in Tax Analysts, which "flowed" outward (and authoritatively) from the OCC to IRS field offices, to be applied with respect to a particular taxpayer. The District Court correctly recognized that some of the TAs to program managers (those addressing proposed tax forms, possible administrative or legislative changes, and proposed amendments to the Code) were part of a larger deliberative process (JA 89-91), but it failed to recognize that the fact that TAs were sent from OCC to program managers (and not field personnel or OCC personnel), establishes that all of the TAs are part of the deliberative process by which program policies are developed.

The District Court also erred in holding that "these TAs are treated as final documents once they leave the Office of Chief Counsel." (JA 87.) Tax Analysts originally did indicate in its Statement of Material Facts that certain "long form" TAs are intended to state the position of the OCC. (JA 346-347.) The IRS indicated in its response that:

The Office of Chief Counsel would stand behind a TA sent to another government agency. . . . However, TAs within the Office of Chief Counsel or to other offices of the national office of the Service are only the position of the component office that issued them and are subject to further review and development before they become the position of the Office of Chief Counsel or the Service. (Id. at 137-33). [Emphasis added.]

(JA 385.) And that is entirely in accordance with the testimony of Paul Kugler, who testified that, with respect to TAs sent to another government agency, "we would stand behind it," but that with respect to TAs sent to other offices of the national office, "it was the position of the office issuing it," "until there may be further development," or that product is incorporated into a letter ruling or other document that is subject to further review. (JA 636; see also JA 385-386 (all TAs, including TAs to program managers, are subject to further review.) In this respect, too, the TAs differ from the FSAs in Tax Analysts, 117 F.3d at 617, which were routinely relied on by field personnel in making decisions with respect to individual taxpayers. The exchange of views among subordinates, and the presentation of those views to decisionmakers, is the paradigm of the deliberative process. The TAs to program managers, like intra-divisional TAs, are therefore properly viewed as part of that process.

And, while a recipient of a TA ordinarily would be expected to act in accordance with the views contained therein, TAs are not binding even on the recipient; if the recipient disagrees, the issue may be discussed with the office that issued the TA. (JA 626, 631-632.) Significantly, in the event that those views are changed, TAs are not revised to reconcile them with the decision made by the recipients on the matter to which they relate. (JA 709.) See Vietnam Veterans of America v. Dep't of Navy, 876 F.2d 164, 165 (D.C. Cir. 1989) (critical characteristic of GCMs at issue in TWRF was that they were rewritten to reflect the positions taken in final rulings by officers with the authority to make those rulings). Accordingly, the TAs are not the IRS's "working law," but are part of a predecisional process to formulate policy decisions.

Finally, a review of the portion of the Vaughn index describing the TAs at issue (as well as the underlying TAs themselves) supports this conclusion. For example, TA TR-45-2233-93 addresses "the application of a section of the Internal Revenue Code to . . . a class of taxpayers as part of agency deliberations as to whether and how to address a perceived inequity among different groups of taxpayers within a specific industry." (JA 654.) The TA reviews the Treasury's position with respect to the statute and the regulations, "states a proposed action by the Department of Treasury to resolve an issue raised by those regulations," and sets forth a recommendation as to how the activities "should be treated for tax purposes at the present time given the current uncertain state of the law. . . ." (JA 654-655.) See also TA TR-45-2820-92 (containing "analysis and recommendation as to whether certain action would be permitted," as well as discussing potential congressional action). (JA 660-661.)

Hence, these TAs provide "opinions and recommendations" which could be inhibited if subjected to public scrutiny, "proposed policies" not yet "finally formulated or adopted" disclosure of which could be premature, and "reasons and rationales" which may not in fact be the ultimate reasons for any future IRS action. See Coastal States, 617 F.2d at 866. In short, all of the TAs are the paradigm of predecisional memoranda, drafted for the consideration of others; the authors make recommendations and justify (or attempt to justify) their conclusions, but they are hardly the IRS's "secret law." To hold that these TAs must be disclosed would deprive the IRS of the opportunity to privately deliberate program policies before making any decision.

CONCLUSION

For the reasons stated above, the District Court's holding should be affirmed in part and reversed in part.

Respectfully submitted,

EILEEN J. O'CONNOR
Assistant Attorney General

JONATHAN COHEN (202) 514-2970
KAREN D. UTIGER (202) 514-2937
Attorneys
Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044

Of Counsel:

ROSCOE C. HOWARD, JR.
United States Attorney

JANUARY 2002