Reply Brief for Appellant

TAX ANALYSTS,
Appellant.
v.
INTERNAL REVENUE SERVICE
Appellee.

ARGUMENT NOT YET SCHEDULED

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

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

REPLY BRIEF FOR APPELLANT TAX ANALYSTS

WILLIAM A. DOBROVIR
P.O. Box 198
Sperryville, VA 22740-0198 

(540) 987-9114

CORNISH F. HITCHCOCK
1100 17th Street, NW
10th Floor
Washington, DC 20036-4601
(202) 974-5111

Attorneys for Appellant

SUMMARY OF ARGUMENT

Section 6110(a) of the Internal Revenue Code ("IRC") provides that all Internal Revenue Service ("IRS') "written determinations," including letter rulings (from IRS' National Office) and determination letters (from IRS' regions and districts) are to be open to public inspection. The documents at issue in this case, IRS letters that deny ("EO denial letters") or revoke ("EO revocation letters") tax exempt status, are "written determinations" within the meaning of § 6110.

Section 6110 includes an exception to its public inspection provisions, for "matters to which  § 6104 applies."§ 6110(1)(1). Section 6104 provides in § 6104(a)(1)(A)for disclosure of written determinations by which tax exemption is granted. Nowhere does § 6104 provide either for disclosure or non-disclosure — indeed, § 6104 is silent about — written determinations that deny or revoke tax exemption: the E0 denial and revocation letters at issue here.

However, IRS has issued regulations purporting to put EO denial and revocation letters "within the ambit" of § 6104, and under those regulations refuses to disclose EO denial and revocation letters. The district court upheld the regulations despite their conflict with the clear and unambiguous language of § 6110(1)(1) and § 6104.

On this appeal, and despite the clear statutory text, IRS argues that the regulations' placing of EO denial and revocation letters outside the disclosure requirements of § 6110 is "plausible. "Plausibility does not meet the test of step one of Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 842-43 (1984). In §§ 6110(1)(1) and 6104 Congress "has directly spoken to the precise question at issue" in unambiguous language. Section 6104 does not "apply" to EO denial and revocation letters; it does not even mention them. IRS' regulations do not pass muster under Chevron step one.

The district court erred. Its judgment should be reversed. IRC §§ 6110 and 6104(a)are unambiguous and require disclosure of EO denial and revocation letters.

ARGUMENT

I. The Governing Statutes vs. IRS Regulations.

A. Section 6110 Is an Exception to the Non-disclosure of § 6103 Return Information.

The statutory scheme that frames the issue and its analysis is straight forward. The content of EO denial and revocation letters is "return information" exempt from disclosure under IRC § 6103 unless an exception to § 6103 applies. (IRS Br. 11-14). The exception to § 6103 relevant here is IRC § 6110(a), which requires disclosure of IRS "written determinations." IRC § 6110(b) defines written determinations to include "ruling[s]" and "determination letter[s]." (IRS Br.13-14). EO denial and revocation letters are rulings or determination letters. See the IRS regulations cited and quoted in Tax Analysts' Brief ("TA Br.") 21-22, and IRS Br. 13-15, 16-17.

B. Section 6110 Covers EO Denial and Revocation Letters, Unless § 6104 "Applies" to Them.

EO denial and revocation letters are disclosable under § 6110(a) unless § 6110 does not "apply" to such written determinations by reason of § 6110(1)(1). (IRS Br. 16-17). The district court's order and opinion do not mention § 6110(1)(1), not even once. (JA 80-92). Section 6110(1) provides that the mandatory disclosure provisions of § 6110

(IRS Br. 16, quoting the statute). The issue, then, is whether § 6104 "applies" to EO denial and revocation letters. (IRS Br. 9).

IRS concedes that § 6104

(IRS Br. 8). IRS also concedes that the core issue here is, as Tax Analysts argues,

(Id.).

C. IRS' Regulations.

Notwithstanding the familiar canon that statutory construction begins with the words of the statute itself, IRS argues that its regulations issued under §§ 6110 and 6104 would trump the plain language of the two statutes. The regulations assert "that any document that the IRS issues in which the qualification or exempt status of an organization is granted, denied or revoked comes within the ambit of section 6104'"(IRS Br. 9), and hence are not open to public inspection under § 6110. The district court held that those regulations are entitled to deference and therefore control the outcome of this case." The District Court found this regulation to be a reasonable interpretation of I.R.C. § 6110, and concluded that the documents Tax Analysts seeks are within the ambit of IRC § 6104 and not subject to disclosure under I.R.C. § 6110."(IRS Br. 9). The district court's holding is reproduced at JA 89. Without saying so, the district court and IRS assert that § 6104 "applies" to EO denial and revocation rulings by virtue of the regulations' declaration that they are "within its ambit."

II. controlling Doctrine.

A. Chevron.

It is undisputed that this case is governed by the rule most famously announced in Chevron U.S.A., Inc. v. Natural Resources Defense Council. The Chevron rule "calls for an initial review of challenged agency regulations to see 'whether Congress has directly spoken to the precise question at issue.'467 U.S. at 842. If so, the reviewing court and the agency must give effect to any 'unambiguously expressed intent of Congress. Ibid."(IRS Br. 17). This is Chevron step one. But "[i]f a statute is 'silent or ambiguous, 'however, the question becomes' whether the agency's answer is based on a permissible construction of the statute.' Ibid." (IRS Br. 17-18). This is Chevron step two. (See TA Br. 11-18).

IRS does not dispute that the district court never applied Chevron step one to IRC § 6110(1)(1) and the regulations that purport to interpret it. (IRS Br.18-19). Instead, IRS suggests that the district court had no obligation to do so because § 6110(1)(1) is not "clear and unambiguous."

IRS suggests that § 6110(1)(1) is ambiguous because, according to the district court,"' IRC § 6110 permits either party's interpretation of the statute.'" (IRS Br. 19, quoting JA 88). The argument is disingenuous. The district court never came to grips with the statutory text. Rather, the district court purported to find an ambiguity, not in the § 6110(1)(1) "matter to which § 6104 applies" language, but  by asserting (JA 88) that § 6110(a),¹ declaring that written determinations, i.e., rulings and determination letters, are open to public inspection, "is ambiguous because Congress did not indicate what types of 'rulings' or 'determination letters' should be considered a' written determination.'" (JA 88; see TA Br.20-24).

This was plain error. As we explained in our opening brief (TA Br. 21-22), Congress made clear in the statute(and IRS has repeated in regulations) that § 6110 makes" any, "i.e., all, rulings and determination letters, save only those excepted in § 6110(1)(1) to which § 6104 "applies," open to public inspection. The district court did not point to anything in § 6110 that limited or modified the universal sweep of § 6110's provision that "any written determination . . . shall be open to public inspection. "The district court thus erred in purporting to find an ambiguity where none exists.

B. Sections 6110(1)(1) and 6104 Are Unambiguous; Section 6104 Does Not Apply to EO Denial and Revocation Rulings.

Unlike the district court, IRS does attempt to deal with the core issue here, i.e., whether there is any ambiguity in § 6110(1)(l)'s language "matter to which § 6104 applies" or in what the provisions of § 6104 "apply" to. (IRS Br. 19-21). The gist of IRS' argument is that it is "plausible" to read § 6104 as "applying" to "all documents that bear on an organization's qualifications for tax-exempt status even though [it] only requires the disclosure of documents that relate to successful applications" (IRS Br. 20 (emphasis added)) — and even though it plainly does not mention at all any other kinds of documents that "bear" on tax exemption, such as the EO denial and revocation letters at issue here.

In sum, IRS' claim that Tax Analysts "thus is wrong in claiming that I.R.C. § 6110(1)(1) unambiguously resolves the controversy here" (IRS Br. 21) is pure bootstrap. The q.e.d. word, "thus," itself depends on IRS' prior assertions, unsupported by authority or logic, that § 6104 "applies" to "matters" that it does not even mention because it is "plausible" that they do so.

C. Legislative History and Statutory Structure.

IRS would stand the Congress' statutory scheme on its head. (IRS Br. 21-26). IRS is mistaken in asserting that Congress provided in § “a specific rule for the disclosure of matters," i.e., in IRS' view all matters, "relating to tax-exempt organizations and pension plans." (IRS Br. 22). Congress did not specify a rule for all such "matters" otherwise undefined. Rather, for charities (the only provisions at issue here), Congress provided "a specific rule for disclosure of" applications filed by and rulings issued to such charities granted tax exemption, and for disclosure of background documents relating to such successful applications and favorable rulings. § 6104(a)(1)(A). Congress provided in § 6104 no "rule" at all for EO denial and revocation letters.

However, Congress did provide (in § 6104(a)(1)(B)) "a specific rule for disclosure of" documents relating to pension plans whether exemption was granted or denied, unless the plans had fewer than 25 participants, in which latter case Congress provided "a specific rule" for non-disclosure. This is significant. It demonstrates that Congress knew how to make § 6104 provide for — and thus "apply to"— the disclosure or non-disclosure of both favorable and unfavorable rulings relating to tax exempt entities. That Congress chose not to do so for EO denial and revocation letters is dispositive, IRS' assertions to the contrary (IRS Br. 20-21 n. 5), notwithstanding.

For charities, in contrast with pension plans. Congress left out of § 6104 any reference either to disclosure, or non-disclosure, of (a) denied applications for tax exemption, (b) rulings or determination letters denying the applications, and (c) rulings or determination letters revoking tax exemption previously enjoyed. The first category, denied applications, are § 6103 "return information" that are subject to no exception to § 6103's prohibition against disclosure. In contrast, the other two categories of documents, those at issue here, are subject to such an exception. They are "written determinations" denying or revoking tax exemption and as such are subject to the exception to § 6103 enacted in the disclosure mandate of § 6110(a). That exception "applies" to such written determinations because § 6104 is altogether silent about them and does not "apply" to them within the meaning of § 6110(1)(1).

That is the only "logical reading" of § 6110(1)(1) (cf. IRS Br. 25). IRS' regulations contradict the specific language of § 6110(1)(1). They do violence to the statutory scheme Congress enacted in 1976 and to Congress' expressed intent.(See TA Br. 13-20). The district court erred in holding that the regulations were valid interpretations of the statutes. (See TA Br. 20-24).

CONCLUSION

The district court's judgment in favor of IRS should be reversed and the cause remanded to the district court with instructions to enter judgment for Tax Analysts.

Respectfully submitted,

WILLIAM A. DOBROVIR
D.C. Bar No.030148
P.O.BOX 198
Sperryville, VA 22740-0198
(540) 987-9114