Reply Brief for Appellant

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

ARGUMENT SCHEDULED FOR MAY 7, 2002

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

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

REPLY BRIEF FOR APPELLANT/CROSS-APPELLEE TAX ANALYSTS

WILLIAM A. DOBROVIR
William A. Dobrovir, P.C.
Suite 102
65 Culpeper Street
Warrenton, VA 20186
(540) 341-2183

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

Attorneys for Appellant/Cross-Appellee

SUMMARY OF ARGUMENT

Legal Memoranda (“LMs”)

LMs state the reasons "which did supply the basis for an agency policy actually adopted" in a revenue ruling. NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 152 (1975) (“Sears”). “These reasons, expressed within the agency, constitute the 'working law' of the agency and [are] outside the protection of [Freedom of Information Act ("FOIA")] Exemption 5." Id., quoted in Taxation With Representation Fund v. IRS, 646 F.3d 667, 678 (D.C. Cir. 1981) ("TWRF"). (Argument I.A.).

The Internal Revenue Service ("IRS") must release LMs under the consent decree issued in Tax Analysts v. IRS, 49 AFTR2d ¶ 82-333 (D.D.C. 1981) ("1981 Consent Decree"), on remand from TWRF. LMs today serve "the same function and use" for IRS and U.S. Department of the Treasury ("Treasury") review of proposed revenue rulings as did General Counsel Memoranda ("GCMs"), but "are called by a different name." Id. at 82-424. As did GCMs, LMs provide the reviewers and decisionmakers with expanded statements of the relevant facts, explanations of and reasons for issuing proposed rulings, legal analysis and citation of authorities in support of the rulings and explanations, arguments that may be made contrary to the result of the proposed rulings and rebuttals to such arguments. Serving this function and use, IRS has substituted LMs for GCMs and the 1981 Consent Decree compels their disclosure. (Argument I.B.).

IRS has deleted from the LMs it released in part much more than only those portions of LMs that "did not reflect the basis of the final ruling." IRS deleted anything not stated as "verbatim language from the revenue ruling," including citations to authorities, discussions of authorities, "Law and Analysis," “relevant law" and "legislative history." (Argument I.C.).

On several fact issues the district court made findings of fact on conflicting testimony to award summary judgment to IRS. (Argument I.D.).

Arguments contrary to the holding or conclusion of the revenue ruling and rebuttals to those arguments in LMs are agency working law. Reasons on the other side of the policy promulgated in the ruling, and rebuttals to them, elucidate what IRS thinks the law isn't and why, as much as the reasons marshaled in its favor. Such content is as much agency working law as the statement in the revenue ruling of what IRS thinks the law is or ought to be. Sears; Tax Analysts v. IRS, 117 F.3d 607, 617 (D.C. Cir. 1997) ("the FSA case"). (Argument I.E.).

Pies v. IRS, 668 F.2d 1350 (D.C. Cir. 1981), held that drafts of Treasury regulations never issued or published and Technical Memoranda ("TMs") explaining the drafts were exempt from disclosure. Here Tax Analysts seeks only LMs that accompanied revenue rulings "actually adopted," as in Sears; i.e., those that IRS issued and published. Indeed, Pies, following TWRF, held that TMs that "explain the reasons behind the adoption of final agency action" — published regulations — "are not exempt from disclosure." 668 F.2d at 683. Pies' rationale compels the same result here; the LMs at issue, prepared for published revenue rulings, are not exempt from FOIA disclosure under Exemption 5. (Argument I.F.).

Intradivisional Technical Assistance Memoranda ("TAs”)

TAs issued by one component of IRS' Office of Chief Counsel ("OCC") to another provide the issuing office's analysis of a tax law issue within the issuing office's expertise and for which the former is primarily responsible. See Internal Revenue Manual ("IRM") 39.1.7, attached hereto as Appendix I. The receiving office needs that expert analysis for determination of a taxpayer case by private letter ruling ("PLR"), technical advice memorandum ("TAM") or Field Service Advice Memorandum ("FSA"). Such TAs "provide a broadly applicable interpretation of the tax law," and provide the "reasons which did supply the basis for an agency policy actually adopted" in the PLR, TAM or FSA. As Sears holds, such TAs are agency working law "outside the protection of Exemption 5." Even if they are not "formally binding" "on the recipient component that issues the final decision," they are nonetheless "statements of the agency's legal position." FSA case, 117 F.3d at 617. (Argument II.A.).

Agency working law in TAs, not exempt from FOIA disclosure, must be segregated out from TAs prepared for cases in litigation that are otherwise subject to the attorney work product privilege. IRS did not so segregate and neither did the district court. Both thus failed to carry out the mandate of the statute, 5 U.S.C. ¶ 552(b), as enforced and explained by this court in numerous decisions. (Argument II.B.).

TAs That the District Court Held Not Entitled to Exemption 7(E).

The district court rejected IRS' Exemption 7 argument for eight TAs because IRS failed to meet the Exemption 7 statutory threshold of proving that the documents were "compiled for law enforcement purposes." IRS mischaracterizes the district court's holding as relying on earlier statutory language specifying “investigatory records.” IRS does not even argue here that the TAs in issue meet the specific requirements of Exemption 7(E): that (1) their release would disclose techniques, guidelines or procedures for law enforcement investigations or prosecutions (2) “whose disclosure would risk circumvention of the law." (Argument III.).

TAs to Program Managers

The district court found as facts that five TAs from OCC to IRS program managers “contained IRS' interpretations of the law in reference to particular issues" and therefore are indistinguishable from the FSAS that this court held not exempt in the FSA case. IRS argues that disclosure of these TAs would inhibit frank discussion. This court discredited arid rejected that argument in the FSA case. (Argument IV.).

Other Issues

Tax Analysts respectfully refers the court to its main brief, Part III, for discussion of IRS' foreseeable harm rule.

ARGUMENT
TAX ANALYSTS' APPEAL

I. LMs

A. IRS Does Not Dispute That LMs Explain the Reasons Behind Agency Policies Actually Adopted in Revenue Rulings. Hence LMs Are Agency working Law.

Tax Analysts' main brief showed how LMs explicate IRS revenue rulings, which are published policy pronouncements of IRS on particular issues of tax law. LMs provide in fuller and more detailed form than in the revenue ruling statements of the facts that give rise to the issue, legal analysis of the arguments and reasons on both sides of the issue and relevant authorities — the Internal Revenue Code ("IRC”) and other statutes, legislative history, case law, regulations and prior revenue rulings. (TA Br. 23-28).

Revenue rulings are published guidance to taxpayers and IRS agents, but lack the force of law of Treasury Decisions, i.e., tax regulations published in the Code of Federal Regulations ("C.F.R."). They are not rules issued after notice and comment and hence lack the extensive background, debate and explanation published in Federal Register announcements of proposed regulations and the final promulgation of the regulation. Publication of LMs would greatly increase the public's understanding of their provisions, just as the comments and responses published in the Federal Register for regulations enhances understanding of them, and thus would enhance the value of revenue rulings as a source of administrative tax law.

IRS does not dispute what LMs contain or the purpose they serve. IRS protests rather that this explanatory content is no more than the opinion of one IRS attorney (IRS Br. 21, 28), ignoring the undisputed testimony that more often than not the LM is conformed to the final version of the revenue ruling as approved and issued after review of the revenue ruling and the LM by the Chief Counsel and Treasury. (Pp. 10-11 infra; TA Br. 14-15, 25-26). The very existence of LMs is indisputable proof that their explanations of the reasons why the proposed revenue ruling should issue is indispensable to these decisionmakers; else why prepare them?

Their nature, content, purpose and use place LMs squarely within the holdings of Sears, 421 U.S. at 152-54, and TWRF:

• that “the public is vitally concerned with the reasons that did support the basis for an agency policy actually adopted;"

• that a document that sets forth those reasons "constitutes the 'working law' of the agency;"

• that such agency working law is "outside the protection of Exemption 5" in light of Congress' "aversion," codified in the FOIA, 5 U.S.C. § 552(a)(2), "to secret (agency) law that explain[s] . . . an agency decision already made'"

• that "the strong public interest in the disclosure of reasons that do supply the basis for an agency policy actually adopted" compel the disclosure of such documents, TWRF, 646 F.2d at 678, following Sears, and

• that, as we show below, LMs are retained and used by OCC attorneys for future work on issues dealt with in revenue rulings just like the GCMs and TMs held disclosable in TWRF.

B. The 1981 Consent Decree Compels Disclosure of LMs.

1. LMs Have the Same Function and Use as GCMs, the Test of the 1981 Consent Decree.

IRS argues that LMs do not have "the same function and use" that GCMs used to and are not disclosable under the 1981 consent decree. (IRS Br. 22-27; see TA Br. 31-31). There is no dispute about that "function and use." They are the same. IRS tells us that "LMs are prepared by attorneys in the OCC to assist in the preparation and review of proposed revenue rulings." (IRS Br. 6); GCMs are prepared "in response” to "a request for legal advice . . . by attorneys in . . . the Office of Chief Counsel . . . in connection with the review of proposed . . . revenue rulings." TWRF, 646 F.2d at 669.

IRS' witnesses testified that the principal function and use of LMs today, as it was for GCMs before IRS ceased to prepare GCMs, is to provide the decision makers at IRS and Treasury with a full explanation of proposed revenue rulings, informed by analysis of their facts and relevant tax law and supported by citation to and discussion of statutes, legislative history, regulations, revenue rulings, decided cases and other authority, and including contrary arguments and rebuttals to them. (JA 260, pp. 20-21;¹ JA 266, p. 113; JA 336, pp. 53-54), and see, e.g., GCM Nos. 39531, 39735, 39819 and 39821 (Appendix II to this Brief). In the Chief Counsel's own words, GCMs and LMs alike provide a 25 to 30 page exegesis of the revenue ruling's two to five page text; an exegesis that in both GCMs and LMs "explain[s], analyze[s] and expand[s] upon" authorities "at much great length" than in the revenue ruling. (JA 266, pp. 115-16).

TWRF held that the deliberative process privilege protected GCMs "merely considered and rejected by the Assistant Commissioner (Technical)" and "never released for publication." 646 F.2d at 661. LMs "considered and rejected" by the decisionmakers, the Chief Counsel or Treasury, are not at issue in this case. Tax Analysts seeks only LMs prepared for revenue rulings that were approved, issued and published in the Internal Revenue Bulletin ("IRB"). See the discussion of Pies (I.F. infra).

2. IRS' Own Directives Equates LMs With GCMs.

The Chief Counsel Directives Manual ("CCDM") is an official, authoritative IRS publication. (JA 266, p. 111) The CCDM provides "that GCMs in a publication package, which are not yet reconciled with the views of the ultimate decision maker regarding a revenue ruling, accomplish the purpose that LMs serve in a publications package." JA 175, ¶ 1.22). The CCDM equates "GCMs and LMs;” they "both . . . contain legal analysis and that legal analysis is generally of greater length than revenue rulings." (JA 176, ¶ 1.23).

The CCDM also provides that in the rare instance that a GCM is still prepared for a proposed revenue ruling, no LM is prepared.² LMs and GCMs are interchangeable; plainly one substitutes for the other.

3. IRS' Makeweight Arguments Do Not Overcome the Identity of Function and Use of GCMs and LMs.

Ignoring GCMs' and LMs' identity of function and use, IRS instead pecks away at marginal differences between them. The supposed differences are not enough to sustain the burden of proof that IRS must carry in a FOIA case.

a. “Reconciliation."

IRS argues that LMs are not "reconciled" between OCC and the Assistant Commissioner (Technical) as GCMs are. TWRF, 646 F.2d at 669. (IRS Br. 22-24). The reason lies in the reorganization of IRS' guidance issuing function and staff since TWRF, not in any change in the function and use that LMs serve.

In 1981, when TWRF was decided, revenue rulings were issued by the Assistant Commissioner (Technical), not by OCC. Shortly after TWRF came down, IRS removed the revenue ruling function from the Assistant Commissioner (Technical) and placed it with OCC. (JA 31O-11). IRS did not begin preparing LMs until 1986. (JA 214, p. 59). The proposed revenue ruling and its accompanying LM now travel through OCC on up to the Chief Counsel and to Treasury for final approval. (JA 317-20). OCC “is not part of the IRS” but an office of Treasury. OCC is the legal adviser to but not a subordinate of the Commissioner. The Chief Counsel is an Assistant Chief Counsel of Treasury. OCC is “independent of IRS." FSA case, 117 F.3d at 608.

No IRS official is in the revenue ruling chain, and there is no time or place for "reconciliation" between OCC and IRS.

b. Rewriting of LMs.

IRS also asserts that GCMs were, and LMs are not, "rewritten by the OCC to represent the position taken in the ruling." (IRS Br. 22-23). IRS is wrong about LMs. The largest number of LMs were prepared in the office of Assistant Chief Counsel (Passthroughs and Special Industries ("P&SI")).³ (JA 275, p. 90). In P&SI, “when the revenue ruling is changed" the LM is "also changed," "every time." (JA 215, pp. 76-77; JA 322). Jody Jean Brewster, Assistant Chief Counsel (Income Tax and Accounting ["IT&A"]), IRS' designated witness for LMs (JA 269, pp. 4, 13), spoke about LMs on behalf of the agency as a whole. She testified that P&SI's practice "is not much different" from other offices' practices. (JA 278, p. 68). The Chief Counsel's own testimony is in accord. (TA Br. 14-15). At the least, the LMs so conformed to the final, issued revenue rulings must be disclosed.

c. Use of LMs For Research.

IRS emphasizes purported differences between GCMs and LMs as research tools (IRS Br. 23-25). The differences are of degree, not of kind. GCMs were indexed and digested into a system that made them easily available for research (IRS Br. 23); LMs are not indexed or digested, although revenue rulings are, and LMs are retrieved for research by revenue ruling number. IRS concedes that LMs have "use as a research tool." (IRS Br. 24). IRS argues that such use is "limited" (id.), but IRS' testimony on this point is unequivocal. An IRS attorney working on an issue related to a revenue ruling will retrieve and review the LM. (JA 184-87). In this way do LMs, like the agency working law documents in TWRF and the FSA case, serve IRS' mission: to "ensure 'uniform interpretation and application of the tax laws,'” to treat all similarly situated taxpayers alike. FSA case, 117 F.3d at 614.

C. IRS Misstates What It Has Withheld From LMs.

IRS asserts that it has withheld only "those portions of LMs that do not reflect the official position of the OCC," and that it "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," thus complying "with this court's mandate that the deliberative process privilege be applied as narrowly as possible." (IRS Br. 21).

The district court accepted these claims. 97 F.Supp.2d at 17-18. IRS' assertions and the district court's findings do not square with the record.

1. IRS' Testimony.

IRS' designated witness for LMs, Ms. Brewster, testified that IRS deleted from LMs "anything other than something that was verbatim language from the revenue ruling;" everything "other than" “quotes from statutes, regulations, legislative history or case law," and including deletion of "citations to authorities." (JA 276, pp. 95-96). Specifically, IRS deleted citations to court cases and revenue rulings (JA 217, pp. 100-01), citations to and discussions of the holdings and facts of revenue rulings (JA 217, pp. 104-07), a discussion applying the holdings of earlier revenue rulings to the proposed revenue ruling under review (JA 218, p. 108), citations and discussions of court cases and revenue rulings (JA 218, p. 111), quotations from court cases (JA 219, p. 117), citations to the Internal Revenue Code and regulations "in the context of an argument contrary to conclusion of the proposed revenue ruling" (JA 220, pp. 131-32), and entire discussions labeled "Law and Analysis" (JA 221, pp. 138-40).

That is much more than "the opinions and analysis of the author"; it is the very stuff of agency working law.

2. Redaction of One LM.

The record includes a redacted LM, No. 91-61. (JA 252-59). See also IRS' Vaughn index (JA 197-202) and relevant testimony (JA 225-26, pp. 175-82).

Material beginning a little more than halfway down page 5 of the LM, and all of pages 6, 7 and 8 except headings, are deleted. (JA 256-59). The material there deleted includes citations to regulations, recitation of "relevant law to be applied in resolving an issue raised in the memorandum," and "appli[cation of] this law to the facts," citations to revenue rulings, citations to sections of the Internal Revenue Code, "legislative history," "relevant factual background," a contrary argument and rebuttal to that argument. Vaughn index (JA 197-98). IRS thus deleted "many legal authorities," "analysis of the legal authorities" and "interpretation of the legal authorities" — "all related to the issue and holding of the proposed revenue ruling." (JA 225, p. 180).⁴

Plainly IRS has deleted much more than the opinions of the LM's author. IRS has deleted the relevant law that supplies the basis of the final revenue ruling, the application of that law to the facts and "the issue and the holding" of the ruling. If this deleted material is not IRS agency working law, the phrase would be meaningless. (See TA Br. 36-38; I.A. supra).

D. The District court Erred in Making Findings of Fact Based on IRS' One-Sided Description of the Record.

After deposition discovery concluded and Tax Analysts had moved for summary judgment, IRS attempted to paper over the record with the declaration testimony of a different witness on LMs, Paul Kugler, Assistant Chief Counsel (P&SI). On the "reconciliation" issue, Mr. Kugler declared that except for P&SI, which he headed, LMs are "frequently” not conformed to the final revenue ruling (JA 322) (meaning that always in P&SI, but only sometimes elsewhere, LMs are conformed to the final revenue ruling); thus seeming to contradict the testimony of Ms. Brewster, IRS' designated deposition witness on LMs quoted at 3.b. (p. 11) supra.

With respect to post-publication use of LMs for research and other purposes, Mr. Kugler confirmed that attorneys do retrieve and refer to LMs in their work. Indeed, he added, sometimes attorneys send them out to other IRS attorneys working on the issue. (JA 325).

These are among the several conflicts in and shadings of testimony where the district court adopted IRS' version of the facts in violation of the principles governing summary judgment. (See TA Br., Argument III and references there cited). Under long held principles the district court erred. IRS attempts to explain away the conflicts, but is constrained to admit that IRS attorneys do review LMs that bear on a similar issue (IRS Br. 31), and that LMs sometimes are revised when the revenue ruling is changed. (Id. 34-35). In these circumstances, the evidence sufficiently supports the similarity between GCMs and LMs in "function and use" to hold that the 1981 consent decree compels disclosure of LMs.

E. Contrary Arguments and Rebuttals in LMs Are Disclosable Agency Working Law.

IRS has deleted from LMs statements of and references to contrary arguments and rebuttals to them. (See TA Br. 12, 26-28; IRS Br. 20-21, 28-29). IRS argues that such content is protected by the deliberative process privilege. (Id.).

In TWRF this court repeated Sears' teaching that the Exemption 5 deliberative process privilege does not protect the reasons behind an adopted agency policy and that those reasons must be disclosed. 646 F.2d at 678. Statements of arguments against the position taken in a proposed revenue ruling, and statements of rebuttal shoving why such contrary arguments lack merit, cannot be separated out from among the "reasons for [the] agency policy actually adopted" in the final revenue ruling. Knowledge of challenges that may be made to a ruling and the rebuttals to such challenges are an indispensable part of the reasoning that supports the final conclusion. "The government's opinion about what is not the law and why it is not the law is as much a statement of government policy as its opinion about what the law is." FSA case, 117 F.3d at 617.

Revenue rulings state IRS' "opinion about what the law is." That opinion is not gospel; courts can, and do, reject the conclusions in revenue rulings. See, e.g., AMP, Incorporated United States, 185 F.3d 1333, 1338-39 (Fed. Cir. 1999); Credit Union Insurance Corp. v. United States, 86 F.3d 1326, 1331-33 (4th Cir. 1996). LMs also state IRS' "opinion about what is not the law and why it is not the law." FSA case, 117 F.3d at 617. Surely taxpayers, their lawyers and the courts that must construe and apply the fiendishly complex Internal Revenue Code should not be kept in the dark about those opinions.⁵ The continual development of tax law as it strives for correctness can only be helped by disclosure of such material.

F. IRS' Reliance on Pies v. IRS is Misplaced.

IRS places principal reliance on Pies v. IRS, 668 F.2d 1350 (D.C. Cir. 1981). (IRS' Supplemental Table of Authorities (January 31, 2002)). As we show, Pies' holding and rationale support disclosure of LMs prepared for issued and published revenue rulings: those that Tax Analysts seeks here.

1. TWRF Held That TMs, Explanations of Issued, Published Treasury Regulations, Had To Be Disclosed.

Pies was decided shortly after TWRF held that TMs, the technical (tax law) explanations prepared by IRS for, and sent to, the Treasury Department with proposed Treasury Decisions (regulations), were required to be disclosed when the regulation thus explained was promulgated and became effective. TWRF, 646 F.2d at 671. Just as LMs do for proposed revenue rulings, for proposed Treasury regulations "a TM summarizes or explains the proposed rules, provides background information, states the issues involved, identifies any controversial legal or policy questions, discusses the approach taken by the draftsperson, and gives the reasons for that approach." Id. Just as LMs do for proposed revenue rulings, TMs were prepared "to aid decisionmakers who are responsible for approving or disapproving a Treasury decision or regulation." Id. Just as LMs do for revenue rulings, TMs may "give the options and explain why a particular route was chosen" in a regulation, and like LMs do for revenue rulings, a "TM may "tell more about the regulation than is in the regulation itself." Id.

This court found "that TMs explain the reasons behind the adoption of final agency action." TWRF, 646 F.2d at 683. This court held that TMs prepared for regulations adopted and published "are not exempt from disclosure under the FOIA." Id.

2. Pies Dealt Only With Draft Materials Never Issued or Published.

In contrast to TWRF, Mr. Pies sought draft regulations and a draft TM. 668 F.2d at 1351. IRS had not approved the drafts or sent them to Treasury for its approval. Id. "[C]opies of the unpublished draft regulations were retained in IRS files where they have no official sanction as IRS interpretations or statements of policy." Id.

Pies noted that in TWRF this court had affirmed the order to release TMs for "regulations that had been approved by the Treasury," but not "TMs pertaining to proposed Treasury decisions and regulations that had never been approved." Id. at 1352. Pies quoted TWRF's holding that "the documents subject to disclosure here include materials that reflect 'working law' of the agency, in the form of . . . interpretive reports (explaining decisions or regulations) and the like." Id., quoting 646 F.2d at 681-82. Pies quoted Sears' holding (I.A. supra) that the reasons behind adopted agency policies are agency working law not exempt by the deliberative process privilege of FOIA Exemption 5. 668 F.2d at 1352-53, quoting 421 U.S. at 152-54; see TA Br. 19, 24, 25.

Pies concluded that Exemption 5 does not protect from FOIA disclosure documents "that reflect the working law of the agency in the form of final opinions, statements of policies and interpretations to staff affecting a member of the public or statements which can be said to constitute the legislative history of the regulations," but does protect agency deliberative materials relating to unadopted drafts “that do not reflect agency policy or interpretations of the agency." 668 F.2d at 1353. "There is no real public interest in such documents. . . . They are not informational and. do not constitute agency 'secret law.'" Id.

The draft regulations and TM at issue in Pies were not decisions actually adopted or explanations of adopted decisions. They were "never subject to final review, never approved by the officials having authority to do so, and never [even] approved within . . . OCC. . . ." The documents "never having been approved, did not constitute the working law of IRS." Id.

3. The Rationale of Pies Compels Disclosure of the LMs Sought Here.

Pies confirms TWRF's holding that documents that explain published final agency decisions are agency working law not protected by Exemption 5. Tax Analysts seeks LMs that explain revenue rulings adopted by IRS and Treasury, that "state[ ] the Service position on an issue . . . and are published in the [IRB]” (JA 148), that are "used as precedent” by IRS and by taxpayers (JA 153). Tax Analysts does not seek LMs prepared for draft revenue rulings that do not see the light of day, that are not approved by the Chief Counsel or Treasury (JA 152-53), and are not published in the IRB. Pies supports Tax Analysts' position that LMs,⁶ which explain "the reasons that did supply the basis for an [IRS] policy actually adopted," Sears, quoted at TA Br. 24, are agency working law and therefore are not exempt from FOIA disclosure.

4. Pies Supports the Argument That Use of LMs for Published Revenue Rulings as Research Tools Supports Finding Them Disclosable Agency working Law.

IRS also relies on Pies as holding that use of documents like an unpublished draft regulation or its draft TM as research tools does not alone make them agency working law. (IRS Br. 8, 24-25). True enough. IRS ignores Pies' careful qualification of this holding:

[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 1353-54 (emphasis added). But if documents that explain rulings that comprise a part of IRS administrative law are also used as research tools — as, in fact, LMs are (see pp. 11, 15 supra) — that is another reason in favor of disclosure within "the intention of Congress."

II. TAs That the District court Held Exempt.

A. The Deliberative Process Privilege Does Not Protect Intradivisional TAs From FOIA Disclosure.

Citing no authority, IRS argues that intradivisional TAs are exempt under the deliberative process privilege because the text of the final published product (PLRs, TAMs or FSAs) is issued by the office that requests and receives the TA, which IRS argues is free to reject the TA's analysis and conclusion. (IRS Br. 35-37). The facts refute IRS' argument and establish that TAs are authoritative statements of agency position on the issues they deal with.

IRS concedes twice, as the district court recognized, that TAs "provide the issuing office's expertise on an issue within its jurisdiction." (IRS Br. 36, 37). IRS' official publication, the CCDM, states that the purpose of TAs is "to achieve accuracy, uniformity, and consistency in documents issued by Domestic" (see p. 11 n. 3 supra). IRM 39.1.7.1(1). A TA "should be sought from any Chief Counsel office that has assigned expertise in the subject matter." Id. (2). A request for a TA is a "formal referral," id. (3), (4), (5); IRM 39.1.7.2(1), (2), and where issues under the jurisdiction of International or Exempt Organizations are present, a TA "must" be requested from those offices, IRM 39.1.7.3,.4.

IRS ignores the stipulated fact that a purpose of TAs "is to provide a broadly applicable interpretation of the tax law" (TA Br. 40), one reaching beyond the particular case. (JA 632, p. 51). IRS ignores the extensive testimony of its witnesses that the content of TAs is "incorporated" into the final PLR, TAM or FSA. (TA Br. 40-41). IRS ignores the applicability of Sears to TAs' statements of "reasons which did supply the basis for an agency policy actually adopted." (TA Br. 41-42).

IRS ignores the stipulated fact⁷ that "the only difference between FSAs and taxpayer-specific TAs is the originating or issuing office." (TA Br. 38). IRS ignores the many similarities between TAs and FSAs (TA Br. 39). This court held that the legal conclusions in FSAs "constitute agency law, even if those conclusions are not formally binding" on the "offices that make the initial decisions in taxpayer cases" and even though "those decisions may not necessarily agree with the conclusions contained in the FSAs;” i.e., "[t]he fact that FSAs are nominally non-binding is no reason for treating them as something other than statements of the agency's legal position." 117 F.3d at 617 (TA Br. 40). IRS does not even try to explain why this holding does not apply equally to intradivisional TAs.

B. Agency Working Law Must be Segregated Out and Released From Intradivisional TAs For Which IRS Claims the Attorney Work Product Privilege.

1. IRS and the District Court Ignored the Statute and This Court's Precedents That Require Segregation and Release of Non-Exempt Matter, Here Agency Working Law, From Documents Otherwise Exempt.

The district court held and IRS argues that six TAs prepared with respect to cases in litigation are exempt in their entirety under the Exemption 5 attorney work product privilege. (IRS Br. 40-43). Both thus flew in the face of the FOIA statute and the overwhelming authority in this Circuit that requires agencies to segregate out and release nonexempt matter from documents that contain some exempt matter. (TA Br. 42-49).

There is no dispute that IRS failed to perform the required segregability analysis of those TAs. There is no dispute that the district court refused to carry out its obligation to perform that analysis when the agency had failed to do so. See 152 F.Supp.2d at 29 and id. n. 4. "If the parties do not address segregability, the district court must raise it sua sponte." Billington v. U.S. Dep't of Justice, 233 F.2d 581, 586 (D.C. Cir. 2000); see Krikorian v. Dep't of State, 984 F.2d 461, 467 (D.C. Cir. 1993), and Schiller v. NLRB, 964 F.2d 1205 (D.C. Cir. 1992) (TA Br. 47-48). IRS and the district court both ignored the core bolding of the FSA case, 117 F.3d at 611, 620, on this issue (see TA Br. 42-43, 48-49), that agency working law in documents like FSAs must be released, except for redaction of specifically exempted portions like "true" attorney work product. IRS argues that even agency working law stated in a TA prepared for litigation is exempt and that no segregation is required. (IRS Br. 42).

If the FSA case means what its plain language says and what the district court on remand held that it meant (TA Br. 43), IRS' argument must be rejected. This issue should be remanded with instructions to IRS to segregate out and release from the six TAs in issue any statements of agency working law as defined and explained in the FSA case (see TA Br. 36-38).

2. Lutheran Social Services Is Not on Point.

IRS cites EEOC v. Lutheran Social Services, 186 F.3d 959 (D.C. Cir. 1999), in support of its argument that the six TAs are exempt from FOIA disclosure in their entirety under the Exemption 5 attorney work product privilege and not subject to segregation and redaction. (B.A. supra). The case is not at all on point. Neither a FOIA request nor agency working law was involved. The case arose on a challenge to a subpoena issued by the EEOC for a law firm's report of its investigation of charges of "hostile work environment," a report "protected by the work product privilege because it reveals [the law firm's] 'mental impressions, conclusions, opinions, or legal theories.'" 186 F.3d at 960, 968. Nor did this Court consider a redaction issue. The district court had ruled only on Lutheran's alternative claim of attorney client privilege and ordered the report produced but with redaction of "legal advice or conclusions." 186 F.3d at 962. The Court of Appeals found the attorney work product privilege dispositive, id. at 968, and did not consider the attorney client privilege or the district court's ruling on redaction.

IRS' CROSS-APPEAL

III. The District Court Correctly Ordered TAs Disclosed Despite IRS' Claims of Exemption 7(E).

A. The District Court correctly Applied the Threshold “Law Enforcement” Test of FOIA Exemption 7.

IRS grossly mischaracterizes the district court's decision on the Exemption 7(E) issue. (IRS Br. 43-54). IRS continually repeats the misstatement that the district court required that records be "investigatory" to qualify for Exemption 7 protection at all. Rather, the district court opened its discussion by citing controlling authority. "To invoke Exemption 7(E), IRS must first meet the 'threshold' statutory requirement and prove that the documents in question were compiled for 'law enforcement purposes.'" See John Doe Agency v. John Doe Corp., 493 U.S. 146, 153, 110 S.Ct. 471, 107 L.Ed.2d 462 (1989)." 152 F.Supp.2d at 14 (footnote omitted). The district court found from IRS' own Vaughn index that none of the eight TAs for which IRS claimed Exemption 7(E) were "compiled for 'law enforcement purposes.'" Id. at 15. “Legal advice" about "filing of documents;" "proposed changes to an . . . income tax form;" whether the holding of one case should extend "to other areas;" more "comments on changes to an . . . income tax form," and discussion of a draft of Appeals Settlement Guidelines — the subjects of the eight TAs, 152 F.Supp.2nd at 15 — are plainly documents IRS prepared for performing its role of tax administration, not its law enforcement role.⁸ To find otherwise would cloak everything IRS does under "law enforcement" and make every document it prepares exempt under Exemption 7(E).

B. IRS Has Not Triad Nor Could It Establish That the Eight TAs Satisfy Subsection (E) of Exemption 7.

The Vaughn index descriptions submitted by IRS and cited by the court show that the eight TAs fail altogether to meet the specific requirement of Exemption 7(E): that their release

(E) 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)(E), IRS' brief here likewise is silent about how disclosure of any of the eight TAs would have any of the effects specified in 7(E). Legal memoranda like these TAs about how, e.g., an income tax form should look, do not implicate “techniques and procedures for law enforcement investigations or prosecutions," or "disclose guidelines for such investigations." Surely there is no way in which disclosure of such memoranda would “risk circumvention of the law.”

IRS has failed altogether to make out an Exemption 7(E) case for these eight TAs.

IV. The District Court Correctly Ruled That TAs to Program Managers Must Be Disclosed.

The district court rejected IRS' claim that five identified TAs from OCC to IRS program managers (as distinguished from TAs within OCC, see II.A supra) were exempt under the deliberative process privilege. 152 F.supp.2d at 22-23. The court found, after examination of IRS' Vaughn index and the TAs themselves in camera, that these five TAs "contain [OCC's] interpretation of the law in reference to particular issues," as distinguished from five other TAs to program managers that the district court ruled exempt because they "reflect[ed] a give-and-take discussion." Id. at 23. Hence. the district court ruled, these five TAs were indistinguishable from FSAs and had to be disclosed. Id. at 22. They "contain the national office's answers to legal questions submitted by IRS personnel, specifically program managers." They "consist of legal advice, including reviews of the proper interpretation of sources of tax law, such as, the I.R.C., regulations, revenue rulings, revenue procedures, court decisions and other legal authorities or precedents." There was no way in which "TAs to program managers relating to specific taxpayer situations” or those "TAs to program managers interpreting internal revenue laws are any different from FSAs that were at issue in Tax Analysts." Id.⁹

IRS attempts to distinguish these TAs from FSAs by arguing that FSAs went "outward . . . to IRS field offices" while the TAs at issue went to the IRS National Office in Washington, D.C. (IRS Br. 55-56). This distinction-without-a-difference in no way refutes the district court's conclusions quoted above.

IRS finally is reduced to arguing that "these TAs provide 'opinions and recommendations' which could be inhibited if subjected to public scrutiny." (IRS Br. 60). This court roundly rejected this very argument in the FSA case (see TA Br. 27-28, 36-38 and references there cited).

CONCLUSION

The district court's decisions approving IRS' withholding of LMs and intradivisional TAs should be reversed. The district court's decisions overruling the withholding of TAs based on a claim of Exemption 7(E) and of TAs to program managers should be affirmed.

Respectfully submitted,

WILLIAM A. DOBROVIR D.C. Bar No. 030148
Suite 102
65 Culpeper Street
Warrenton, VA 20186
(540) 341-2183

CORNISH F. HITCHCOCK D.C. Bar No. 238824
10th Floor
1100 17th Street, NW
Washington, DC 20036-4601
(202) 974-5111

Attorneys for Appellant/Cross Appellee

March 1, 2002