Memorandum in Opposition

TAX ANALYSTS,
Plaintiff,
v.
INTERNAL REVENUE SERVICE,
Defendant.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

TAX ANALYSTS' MEMORANDUM IN
OPPOSITION TO IRS' MEMORANDUM ON TREATY SECRECY

WILLIAM A. DOBROVIR
D.C. Bar No. 030148
Suite 102
65 Culpeper Street
Warrenton, VA 20186-3305
(540) 341-2183

Attorney for Plaintiff

November 19, 1998

 

STATEMENT OF THE CASE

I. IRS Claims That "Statute" in FOIA Exemption 3 Means "Treaty."

IRS claims that it may delete from FSAs (1) the names of countries; (2) citations to, quotations from and analysis of tax treaties, and (3) legal analysis and interpretation tout court. IRS points to the "Information Exchange" articles of ten tax treaties and one tax information exchange agreement ("TIEA") as the source of the exemption claimed.¹

The word "treaty" does not appear in the original 1966 text of FOIA, any of its amendments and recodifications in 1974, 1976 (in which Exemption 3 itself was amended), 1978, 1984, 1986 and 1996, or the legislative history of any of these enactments.² At the threshold IRS must persuade the court that the word "statute" in Exemption 3 of the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552(b)(3)³ means "statute or treaty."

II. IRS Claims That the Treaties Permit Concealment of the Names of Other Countries, Identities of Treaties and Legal Analysis.

IRS interprets all the treaties and the TIEA as cloaking with secrecy any "information received" by IRS from another country with which the United States has a tax treaty, if the information is received pursuant to the "information exchange" article of that treaty. The secrecy claim has two wings.

Under one wing, the information received is treated as secret in the same way as such information is treated under U.S. law. This wing covers taxpayer information as defined by the D.C. Circuit and this court in this case and as defined by the Congress in Pub. L. 105-206, 105th Cong., 2nd Sess. (1998) § 3509, enacting new § 6110(i).

The record is muddy about whether this issue is yet in dispute in this case. IRS' witnesses contradicted each other and themselves about whether, in redacting the 29 treaty FSAs (see p. 1 n. 1 supra), IRS even attempted to apply applicable "domestic law," i.e., I.R.C. § 6110(c)(1),⁴ or instead relied exclusively on its expansive interpretation of the scope of the secrecy provisions of the tax treaties. The Associate Chief Counsel (International), Michael Danilack, III, who made "the final determination as to what was to be excised and what was to be released" (Deposition of Michael Danilack (October 15, 1998) ("Danilack Dep. I") at 16), said that he did not know: "I am personally not in a position to make a determination as to whether the redactions called for under the formulation of 6103 set forth by the court have been properly made in this case." (Id. at 74). He later added that

there is a lot of factual information that we, in our office, decided should be redacted, not necessarily on the basis of 6103, but on the basis of fact that all that factual information was relayed to us by treaty partner and was, therefore, subject to the nondisclosure provision of the treaty at issue here.

(Id. at 201). (See also Deposition of Michael Danilack (October 23, 1998) ("Danilack Dep. II") at 220-21, 240; cf id. at 254-55; Deposition of Paul S. Manning (October 9, 1998) ("Manning Dep.") at 158-63, 166-68).

Under the other wing, any "information" received from the other country, whether taxpayer information or not, may not be disclosed except to the U.S. authorities responsible for administration and enforcement of the tax laws. Such authorities include the IRS, lawyers for the U.S. Department of Justice ("DOJ") and the courts. IRS claims that the second wing exempts and permits IRS to delete from the FSAs information that would identify the country that transmitted the information, since that identity itself is "information received" by IRS. Disclosure of references in an FSA to the treaty that authorized the foreign countries to transmit and the U.S. to receive "information" would reveal the identity of the country. Therefore, IRS claims, citations to, quotations from and analysis or interpretation of that treaty are exempt from disclosure.⁵ These claims are in dispute.

IRS also claims that it is permitted to delete from "treaty" FSAs all or any portion of the legal analysis, interpretation and conclusion (which is, of course, the raison d'etre for the FSAs and which the law of this case commands IRS to make public) in the FSA, that might reveal information received from the other country; like, for example, a question about how such-and-such a clause of the tax treaty or a section of the Internal Revenue Code is to be construed. This claim also is in dispute.

While IRS makes these claims only for the 29 "treaty" FSAs it has identified, the court's analysis and resolution of the issues will apply to all "treaty" FSAs whenever issued, past or future. Such FSAs, like all other FSAs, are "Chief Counsel Advice" as defined in new I.R.C. § 6110(i) and are covered explicitly by the transition rules also enacted by § 3509 of P.L. 105-206. See, § 3509(d)(2)(B), (C), (D).

III. IRS Fabricated Its Claims and Its Theory Less than a Year Ago and Out of Whole Cloth.

A. IRS' Claims Are of Recent Vintage.

IRS' claims for secrecy of the identities of countries and treaties and for secrecy of legal analysis in FSAs have no antecedents. IRS can point to no precedent. IRS can point to no reference to these items of information in the treaties themselves, in the Technical Explanations of the treaties or the Senate Reports for the treaties. (Danilack Dep. I at 100, 109-10; Manning Dep. at 117-18).

Michael Danilack, Associate Chief Counsel (International) testified that he, with Assistant Commissioner (International) James Lyons, invented the claims and conceived the theory behind them. He testified that they did so solely for the purposes of this lawsuit, and only after the court's rulings, that FSAs had to be disclosed, had become final in November 1997. (Danilack Dep. I. at 86-90, 100-01; Danilack Dep. II. at 252-53).⁶

Mr. Danilack also testified that IRS never asked the 11 countries whose treaties and TIEA invokes here if they shared IRS' "interpretation." (Danilack Dep. I at 93, 147-49). The "administrative burden" of doing so was too "great," (id. at 148), the treaties did not "contemplate" such "consultation," and therefore IRS "decided we would not consult with the treaty partner." (Id. at 149).

B. IRS' Earlier Evidence Undermines Its New Claims.

IRS was silent about its claims of Exemption 3 based on the secrecy clauses of tax treaties and executive agreements when this case was here earlier.⁷ At the earlier stage IRS stated a general claim for exemption of "return information . . . exchanged pursuant to income tax treaties" or executive agreements.⁸ At no time did IRS suggest that the treaty secrecy claim covered anything more than what IRS already claimed was exempt under Exemption 3/I.R.C. § 6103.

Cynthia Mattson, Assistant Chief Counsel (International), testified that the "information" to be "exchanged," i.e., received by the IRS from, e.g., Canada pursuant to the U.S.-Canadian tax treaty, "is generally in a very real sense probably taxpayer information of Canada," provided by Canada to the IRS "with the understanding that it will remain and be protected by the disclosure laws of the United States." Mattson Dep. at 123-24. Such "information becomes part of the taxpayer return information here in the United States," and those "facts" in the FSA "could contain information protected under the treaty." Id. at 124-25.

Ms. Mattson provided a list of matters "specifically addressed" in the International FSAs "at issue in this litigation." Mattson Decl. (March 13, 1995) at 5-6 ¶ 9. Conspicuously absent from the list is any mention of the identity of the treaty or the country. Some items, like "analysis" of the "rationale for a proposed adjustment," "discussion of the validity of arguments made by the taxpayer," and "affect [sic] of tax laws of a treaty partner on . . . tax liability" are plainly the kind of legal analysis and interpretation that must be disclosed as IRS' working law. Others refer in part to return information that, as this court holds and Congress commands, should be deleted only under I.R.C. § 6110(c).

Thus, until this court and the D.C. Circuit finally swept from the table IRS' argument that FSAs were exempt taxpayer information "in their entirety," IRS took the same position on treaty secrecy for FSAs that Tax Analysts does. That is, that the treaty secrecy articles protected nothing more in "treaty" FSAs than the taxpayer information already protected, and to the extent that it is protected,⁹ by I.R.C. § 6103. IRS' claims for exemption of identities of countries, identities of treaties and legal analysis did not see the light of day in this case until April 28, 1998. That was the date on which IRS transmitted to Tax Analysts its first installment of nontaxpayer-specific FSAs and a summary of claims of exemption. (See Danilack Dep. I, Ex. 3, Ex. 4 at 3-4; Danilack Dep. I at 35-57, 67-85, 160-202).

IV. Can the "Fact of Communication" From Another Country Be Kept Secret?

IRS dumped a vast volume of documents on Tax Analysts in purported support of its claims,¹⁰ but could identify only one series of documents in those thousands of pages as providing any such support.¹¹ The documents are a series of memoranda (most seem to be earlier drafts of the final memo) from 1979, 1981 and 1983, when IRS was beginning to wrestle with disclosure of written determinations (private letter rulings ("PLRs"), technical assistance memoranda ("TAMs") and determination letters) under the 1976 enactment of I.R.C. § 6110.

The pertinent language in each of the memoranda is identical. They record how IRS decided to avoid compliance with I.R.C. § 6110(d)(1) in international cases.

Section 6110(d) (1) requires IRS to disclose third party contacts about a taxpayer's request for a § 6110 written determination. The memoranda recognize the purpose of § 6110(d)(1), "to protect against impropriety and undue influence in the issuance of written determinations."¹² IRS was worried, however, that § 6110(d)(1) "would require us to note communications from a treaty partner concerning issuance of a written determination as a third party contact."¹³ IRS wanted to conceal such "communications from a treaty partner," including, presumably, the impropriety or undue influence that such communications might reflect. To accomplish this IRS declared that

it is our position that, in light of the importance placed by the treaties upon secrecy, it is reasonable to construe the secrecy clause to include fact of communication as well as the content of communications. Therefore, the treaty secrecy clause overrides section 6110(d)(1), and we would not be required to note the fact that we receive a communication from a treaty partner concerning issuance of a written determination.

Id. (emphasis added).

Nothing but IRS' ipse dixit supports the "reasonable[ness]" of the secrecy of the "fact of communication." IRS musters no authority, precedent, treaty language or ratification history to support what it says is "reasonable." IRS does not even try to explain why it is "reasonable." Yet its "reasonable construction]" is the only support, in thousands of pages of documents spanning nearly three decades, to which IRS can point for secrecy of and deletion from FSAs of the identity of the country or of the treaty itself. (Manning Dep. at 37-38).

ARGUMENT

Tax Analysts contends, as we explain below, that IRS is permitted to delete from its "treaty" FSAs no more than IRS may delete from any other FSA. In this case, that means taxpayer information, defined by this court to mean information specified by I.R.C. § 6110(c): "the names, addresses and other identifying details" of a taxpayer. (Mem. Op. (April 30, 1998) at 5). Congress has codified that test for all FSAs in new I.R.C. § 6110(i).

I. Tax Treaties Are Not the Equivalent of Statutes Under FOIA Exemption 3.

IRS argues that its "interpretation" of tax treaty "information exchange" articles and their "secrecy" clauses prevails over a statute, the FOIA. (IRS Treaty Mem. at 9-19). IRS asserts that the word "statute" in FOIA Exemption 3 must be construed to mean "treaty,"¹⁴ because under Article VI of the Constitution treaties, like statutes, are "the Law of the Land." (Id. at 9-14). It then argues that the usual rule of construction where statutes and treaties conflict, i.e. that the later-in-time prevails,¹⁵ should not apply here. The only reason IRS gives is that "it would contravene the intent of the United States and its treaty partners," which is that "the nondisclosure provisions" should "apply, notwithstanding the FOIA." (Id. at 18 (emphasis added)).¹⁶ Cf. IV., infra.

A. Statutes Are Legislation; Treaties Are Contracts.

Treaties are "the Law of the Land" under Art. VI, but all the same they are not statutes. Statutes are legislative acts that "prescribe rules for the regulation of the society." Treaties "are contracts with foreign nations, which have the force of law, but derive it from the obligations of good faith. They are not rules prescribed by the sovereign to the subject, but agreements between sovereign and sovereign." The Federalist No. 75 (Modern Library ed. 1937) at 486 (italics in original), quoted in The Constitution of the United States of America, Analysis and Interpretation, J.H. Killian and L.E. Beck, Co-editors (1987) at 497 n. 1.

B. Tax Treaty Information Exchange and Secrecy Clauses Are Not Self-Executing and Do Not Have the Force of U.S. Domestic Law.

Some treaties create obligations only between "sovereign and sovereign." Congress must enact implementing legislation before the provisions of such treaties bind the citizenry. Without such legislation these treaties are not "self-executing" as enacting enforceable rules of domestic law. A self-executing treaty, in contrast, is "to be regarded in courts of justice as equivalent to an act of the legislature, whenever it operates of itself, without the aid of any legislative provision." Foster v. Neilson, 1 Pet. (27 U.S.) 253, 314 (1829) (Marshall, C.J.).

1. Self-Executing Treaty Provisions Are Those That Affect the Rights of U.S. Individuals or Corporations.

A self-executing treaty, one that "operates of itself," contains provisions that confer rights or impose responsibilities directly upon individual and corporate citizens of parties to the treaty. Foster v. Neilson, id. Self-executing treaties "partake of the nature of municipal law" and "are capable of enforcement as between private parties in the courts of the country." Id. Such treaties, like statutes, "define the rights and obligations of private individuals." The Constitution of the United States of America, Analysis and Interpretation, J.H. Killian and G.A. Costello, Co-editors (1996) at 480. A familiar example of a self-executing treaty, enforceable in U.S. courts, is the Warsaw Convention, which supersedes state tort law to define the kinds of losses and limit the amounts recoverable by international airline passengers (or their estates) after an air disaster. See, e.g., Chan v. Korean Air Lines, Ltd., 490 U.S. 122, 123-25 (1989). Tax treaty information exchange articles and secrecy clauses are not in that class. (See 2. infra).

2. Tax Treaty Secrecy Clauses Create Only Obligations Between Nations.

Other treaties are not self-executing. Such treaties do not "operate of themselves." "[W]hen the terms of the stipulation import a contract — when either of the parties engages to perform a particular act, the treaty addresses itself to the political, not the judicial department; and the legislature must execute the contract, before it can become a rule for the Court." Foster v. Neilson, 1 Pet. at 314. Such "[a] treaty is primarily a compact between independent nations. It depends for the enforcement of its provisions on the interest and the honor of the governments which are parties of it." Head Money Cases, 112 U.S. 580, 598 (1884). Its "obligations are addressed solely to public authorities." If a treaty partner complains that congressional action or inaction is an "infraction" of the treaty, its remedy is "international negotiations and reclamations . . . which may in the end be enforced by actual war. It is obvious that with all this the judicial courts have nothing to do and can give no redress." Head Money Cases, 112 U.S. at 598-99.

Such non-self-executing treaties include "those requiring," inter alia, "the collection and supplying of information." Q. Wright, The Control of American Foreign Relations, 207-08 (1922), quoted in The Constitution of the United States of America, Analysis and Interpretation, J.H. Killian and G.A. Costello, co-editors (1996) at 480. The information exchange clauses of the tax treaties at issue in this case are not self-executing under these long-standing principles. They are contracts "for the collection and supplying of information," and for limits on the disclosure of such information. Their provisions do not bind private parties; legislation by Congress is needed to do that, and Congress has declined so to legislate.

C. Congress Has Not Enacted Legislation That Would Make Tax Treaty Secrecy Provisions Enforceable as Part of U.S. Domestic Law, and Existing and Recent U.S. Disclosure Legislation Expressly Renders Such Secrecy Clauses Unenforceable as Domestic Law.

The legislation governing disclosure of FSAs is FOIA, I.R.C. § 6103 (defined by this court as restricted by § 6110(c)(1)) and new I.R.C. § 6110(i). FOIA does not include treaties as a source of exemption from its disclosure rules. As already interpreted by this court, FOIA and Internal Revenue Code provisions incorporated under FOIA Exemption 3 permit withholding only of taxpayer information and two other limited categories of information not pertinent here. FOIA does not permit withholding of names of countries, citations to, quotations from or discussion of treaties, or legal analysis of treaty provisions or of tax law.

Congress' failure to enact legislation to include treaty secrecy provisions in FOIA, in Exemption 3 or anywhere, is dispositive. Neither FOIA nor Congress' 1998 enactment of I.R.C. § 6110(i) incorporates the exemptions from the U.S. public's right to disclosure of government records that IRS proffers here. Indeed, new § 6110(i) makes crystal-clear the irrelevance of tax treaty secrecy doctrines to disclosure of IRS internal working law documents like FSAs. (See IV. infra).

Congress' enactments of FOIA and new § 6110(i) are exercises of Congress' constitutional legislative powers. See, e.g., Const., Art. I § 1, § 8 cl. 1, 9; § 18; Art. III §§ 1, 2; Amendment XVI. No treaty, including tax treaties, can reduce Congress' constitutional powers. That is a principle that is as old as the republic.

[W]hen a treaty stipulates regulations on any of the subjects submitted by the Constitution to the power of Congress, it must depend for its execution as to such stipulations on a law or laws to be passed by Congress, and it is the constitutional right and duty of the House of Representatives in all such cases to deliberate on the expediency or inexpediency of carrying such treaty into effect, and to determine and act thereon as in their judgment may be most conducive to the public good.

Annals of Congress at 771, 782 (1796), quoted in The Constitution of the United States of America, Analysis and Interpretation, J.H. Killian and G.A. Costello, Co-editors (1996) at 476. See also a similar resolution adopted by the House in 1871, Cong. Globe, 42d Cong., 1st sess. (1871) at 835, cited at Killian, et al., id. n. 293.

In sum, while treaties are indeed "the supreme Law of the Land" under Const. Art. VI, Congress did not choose to include treaties in its list of what may be exempt from disclosure under FOIA and has not enacted any legislation to codify IRS' far-fetched theory. The courts are forbidden to add exemptions that Congress did not write into the Act. U.S. Dep't of Justice v. Tax Analysts, 492 U.S. 136, 150-51, 153, 154 (1989).

II. Tax Treaty Information Exchange and Secrecy Provisions Cannot be Construed to Support IRS' Claims for Exemption of Names of Countries, References to the Treaty or Legal Analysis.

A. IRS Concedes That the Treaties, Treasury Department Technical Explanations and Senate Committee Reports Do Not Specifically Support IRS' Claims of Exemption from FOIA Disclosure.

IRS has conceded in discovery that the texts of the 10 treaties and the TIEA do not explicitly command secrecy for the identity of a country providing information to the United States, or the identity of a treaty under which information is provided, or the legal analysis, interpretation and conclusions of law prepared by the Office of Chief Counsel and included in an FSA sent to the Assistant Commissioner (International). (Manning Dep. at 36, 66-67, 70, 95-96, 98-101). IRS likewise has conceded that neither the Treasury Department's Technical Explanations of the treaties and the TIEA ("Technical Explanations") nor the Senate Foreign Relations Committee's reports ("Senate Reports") on them does so. (Id. at 117-18). Finally, IRS concedes (with one exception, see Statement of the Case, IV supra) that nothing in the thousands of pages of documents dumped on Tax Analysts in discovery does so. (Id. at 24-25, 38-54, 88-89, 190-91).¹⁷

B. IRS' Claims Are Derived Only From Its Own "Interpretation" of the Tax Treaties, Which Is Not Entitled to Deference in This FOIA Case.

Lacking any support in the texts themselves, IRS is reduced to asserting that its claims are based on its own "interpretation" of the word "information." That interpretation is that the "information" received by IRS from a treaty partner country includes the name of the country and in many cases the Office of Chief Counsel's legal analysis. (Id. at 72-79, 82-83, 92-95, 101, 107-110, 117-18, 128-29, 135-36, 139, 142-44, 154, 162). IRS argues that its "interpretation" binds this court. (See IRS Treaty Mem. at 20, 32).

To the extent that such one-party constructions may carry weight where a treaty is ambiguous (but cf. contra II.C infra and cases there cited and discussed), they have no weight at all in the context of FOIA Exemption 3. It is the law of this Circuit that an agency's interpretation of a statute (or, here, a treaty) that it invokes to justify withholding under FOIA Exemption 3 is not entitled to Chevron deference.¹⁸ Reporters Committee for Freedom of the Press v. U.S. Dep't of Justice, 816 F.2d 730, 734 (D.C. Cir.), modified on other grounds, 831 F.2d 1124 (D.C. Cir. 1987), rev'd on other grounds, 489 U.S. 749 (1989).

There the court held that because FOIA's purpose

— disclosure of certain information held by the government — creates tension with the understandable reluctance of government agencies to part with that information, Congress intended that the primary interpretive responsibilities rest on the judiciary, whose institutional interests are not in conflict with that statutory purpose.

Reporters Committee, id. at 734. Quoting Exemption 3¹⁹ and emphasizing the word "specifically," the D.C. Circuit noted that "[t]he Supreme Court has equated 'specifically' with 'explicitly,'" citing Baldriqe v. Shapiro, 455 U.S. 345, 355 (1982).

The D.C. Circuit concluded that "a statute that is claimed to qualify as an Exemption 3 withholding statute must, on its face, exempt matters from disclosure." Congress' express purpose to "exempt matters" from disclosure must be found "in the actual words of the statute," not "in an agency's interpretation of the statute." Congress "wished, at least for the purpose of applying Exemption 3, to confine us essentially to the traditional plain meaning rule." Id. (citation and footnote omitted).

C. IRS' Effort to Persuade This Court to Adopt Its "Interpretation" Falls Afoul of Supreme Court Doctrine That the Words of Treaties May Not Be Distorted or Added To.

Time out of mind, the Supreme Court has declared and followed the "clear import," "plain language" rule of construction of treaties.

To alter, amend, or add to any treaty, by inserting any clause, whether small or great, important or trivial, would be on our part an usurpation of power, and not an exercise of judicial functions. It would be to make, and not to construe a treaty. Neither can this Court supply a casus omissus in a treaty, any more than in a law.

The Amiable Isabella, 6 Wheat. 1, 71 (1821) (Story, J.), quoted in Chan v. Korean Air Lines, Ltd., 490 U.S. 122, 135 (1989).

The Court followed Justice Story's teaching 170 years later in United States v. Alvarez-Machain, 504 U.S. 655 (1992). The defendant-petitioner had been abducted from Mexico to the United States, where he was indicted. He argued that he could not be tried in the U.S. because his abduction violated the U.S.-Mexico extradition treaty. The district court and court of appeals agreed. The Supreme Court reversed.

The Court held: "[i]n construing a treaty, as in construing a statute, we first look to its terms to determine its meaning. [Citing Air France v. Saks, inter alia]. The Treaty says nothing about the obligations of the United States and Mexico to refrain from forcible abductions of people from the territory of the other nation, or the consequences under the Treaty if such an abduction occurs." 504 U.S. at 663 (citations omitted).

Courts are forbidden to twist treaty language or add to it. "[T]reaties are the subject of careful consideration before they are entered into, and are drawn by persons competent to express their meaning, and to choose apt words in which to embody the purposes of the high contracting parties." Rocca v. Thompson, 223 U.S. 317, 332 (1912). To fit this case into the Rocca Court's next sentence, "[had] it been the intention" to enjoin on each treaty country the secrecy of their identities, identities of treaties or legal analysis, "it would have been very easy to have declared that purpose in unmistakable terms." Id.²⁰

Courts must "be governed by the text — solemnly adopted by the governments of . . . separate nations," Chan, 490 U.S. at 134, unless that "text . . . is ambiguous," id. (citing Air France v. Saks, 470 U.S. 392 (1985)). But "where the text is clear, as it is here, we have no power to insert an amendment." Chan, id. (footnote omitted).²¹ We show in III. infra that the texts of tax treaty information exchange clauses are clear, not ambiguous.²²

The same principle, the primacy of the text, applies equally to tax treaties. See, e.g., Maximov v. United States, 373 U.S. 49 (1963). Maximov states the "plain language" rule in uncompromising terms. There the petitioner, a U.S. trust with U.K. beneficiaries, sought exemption under the U.S.-U.K. tax treaty provision exempting U.K. residents from U.S. taxation. Petitioner prayed the Court to disregard "the plain language" of the treaty in favor of the treaty's "purposes and objectives," which petitioner argued was "equality of tax treatment." 373 U.S. at 352-53.

The Court rejected petitioner's argument:

[I]t is particularly inappropriate for a court to sanction a deviation from the clear import of a solemn treaty between this Nation and a foreign sovereign, when, as here, there is no indication that application of the words of the treaty according to their obvious meaning effects a result inconsistent with the intent of expectations of its signatories.

Id. at 54.

Here IRS cannot specify an "objective" of the tax treaties to support its claims. It simply asserts that it redacted, because it is "'information received' from the treaty partner . . . the identity of the partner itself, as well as other information that would reveal the information received (e.g., a legal conclusion reached in an FSA, that, in and of itself, reveals the information received)." (IRS Treaty Mem. at 28).

As in Maximov, "the language of [the treaties themselves] fails to support [IRS'] view." 373 U.S. at 54. As there, this court here should not "sanction a deviation from the clear import of a solemn treaty." Id. Here, too, as in Maximov, there is "no indication that application of the words of the treaty according to their obvious meaning effects a result inconsistent with the intent of expectations of its signatories." Id. Like the extradition treaty in Alvarez-Machain, the tax treaties on which IRS relies here "say[ ] nothing about the obligations of the United States . . . to refrain" from disclosing country names, identities of treaties or legal analysis. IRS' argument that such words be inserted where they do not exist flies in the face of 177 years of Supreme Court precedent.

III. The Treaties and TIEA, Even if Applicable Under FOIA Exemption 3, Exempt Only Taxpayer Information as Construed by This Court.²³

The "plain language" and "clear import" of the tax treaties support Tax Analysts' argument that the "objective" of information exchange and secrecy clauses is to permit the exchange and protect the confidentiality of taxpayer information, and not country identities or IRS' own legal analysis.

A. The Texts of the Treaty Information Exchange/Secrecy Clauses Demonstrate Their Purposes, to Facilitate Transmittal of Taxpayer Information and to Protect That Kind of Information From Disclosure.

The texts of U.S. tax treaties' provisions for exchange of information and for the secrecy of the information exchanged are clear and direct. They prescribe the rules and conditions that govern transmittal of "tax facts": financial and business information about individuals and entities who may be subject to tax by one or both treaty countries. One country wants the information. The other country has that information or can obtain it by legal proceedings. See United States v. Stuart, 489 U.S. 353 (1989). The purposes for the first country requesting and the second country providing the information is enforcement of the first (the taxing) country's tax laws and its collection of taxes due.

The language that confirms these purposes is repeated time and again in the treaties.

• The information is to be used by officials in the requesting country "concerned with" or "involved in," "assessment, collection, administration . . . enforcement . . . litigation" or "prosecution" respecting taxes. (Australia Treaty, Art. 25 ¶ (1); Austria Treaty, Art. XVI ¶ (1); Barbados Treaty, Art. 26 ¶ 1; Canada Treaty, Art. XXVII ¶ 1; Cyprus Treaty, Art. 28 ¶ (1)(b); Japan Treaty, Art. 26 ¶ (1); Luxembourg Treaty, Art. XVIII ¶ (1); Mexico TIEA, Art. 4 ¶ 1; Spain Treaty, Art. 27 ¶ 1; Sweden Treaty, Art. 26 ¶ 1;²⁴ United Kingdom Treaty, Art. 26 ¶ (1)).

• It is information that the country providing the information "can . . . obtain[ ]" under its own "laws" and regulations, using its own "investigative authority" or "administrative practices". (Australia Treaty, Art. 25 ¶ (4); Barbados Treaty, Art. 26 ¶ 2; Canada Treaty, Art. XXVII ¶ 2; Cyprus Treaty, Art. 28 ¶ (2); Sweden Treaty, Art. 26 ¶ 3),²⁵

• Evidence, in the form of sworn testimony ("depositions") and "original documents," including "books and records," is to be transmitted. (Australia Treaty, Art. 25 ¶ (4); Barbados Treaty, Art. 26 ¶ 2; Canada Treaty, Art. XXVII ¶ 2; Cyprus Treaty, Art. 28 ¶ (2); Mexico TIEA, Art. 4 ¶ 5(f); Sweden Treaty, Art. 26 ¶ 3).

• The information is to be provided "for the prevention of fraud" or "to prevent fraud" or "tax evasion." (Australia Treaty, Art. 25 ¶ (1); Austria Treaty, Art. XVI ¶ (1); Barbados Treaty, Art. 26 ¶ 1; Japan Treaty, Art. 26 ¶ (1); Luxembourg Treaty, Art. XVIII ¶ (1); United Kingdom Treaty, Art. 26 ¶ (1)).

• No country has a duty "or obligation" to carry out "administrative measures" or to collect information by means that are "at variance" with its own "laws," "regulations" and "administrative practice." (Austria Treaty, Art. XVI ¶ (2); Barbados Treaty, Art. 26 ¶ 3(a); Canada Treaty, Art. XXVII ¶ 3(a); Cyprus Treaty, Art. 28 ¶ (3)(a); Japan Treaty, Art. 26 ¶ (2)(a); Luxembourg Treaty, Art. XVIII ¶ (3); Mexico TIEA, Art. 4 ¶ 5(j); Spain Treaty, Art. 27 ¶ 2(a); Sweden Treaty, Art. 26 ¶ 2(a); United Kingdom Treaty, Art. 26 ¶ (3)).²⁶

• A provision common to many (but not all) of the treaties' exchange provisions is a standing obligation to inform the other country of the "publication" of amendments to each country's tax laws, as well as currently issued regulations, rulings and judicial decisions "by transmitting the text of any such materials." (Cyprus Treaty, Art. 28(6); see Japan Treaty, Art. 26(4), (5)). IRS' position well may drive it to declare that the secrecy clauses of tax treaties cover such published tax law materials. (Manning Dep. at 62-64, 132-33; Danilack Dep. II at 233-34). Only IRS logic (an oxymoron) could go so far.

In sum, there simply is nothing in any of the treaties or the TIEA that even suggests that the existence or identity of the treaty and the identity of the requesting country is a secret. Nothing in the treaties or the TIEA suggests that lawyers' explanations of U.S. tax law or how the U.S. interprets a provision on double taxation is to be kept secret. IRS has offered no explanation why any of the treaty partner countries would object to disclosure of such information — except the tautologous declaration that the treaties themselves create an "expectation" of secrecy. (Deposition of W. Edward Williams (October 23, 1998) at 7-10 and id. Ex. 2). As we know (Statement of the Case, III.A. supra), IRS carefully forbore to ask.

B. The Technical Explanations and Senate Reports Also Demonstrate That the Treaties' Purposes Are to Facilitate Transmittal of Taxpayer Information and to Protect That Kind of Information From Disclosure.

Nothing in the Technical Explanations or Senate Reports deals either directly or indirectly with country names, identity of treaty or legal analysis.²⁷ To the contrary, the Technical Explanations and Senate Reports support the holding that the purpose of the treaty information exchange clauses was to permit and promote the exchange of factual information about taxpayer cases, and had no broader reach.

1. Australia

a. The Technical Explanation defines the information to be exchanged as related to the administration of "statutory provisions concerning taxes covered by the Convention." The definition is limited to information that "can be obtained under domestic laws and administrative practices with respect to each State's own taxes." An example of the kind of information covered is that "needed to verify an item of income or expense for income tax purposes." The Technical Explanation explains the treaty as providing for exchange of evidentiary documents, "provided that such documents could be obtained in enforcing its own taxes," and if so, "copies of unedited original documents shall be provided." (Treasury Dep't Technical Explanation: 1982 Australia Income Tax Treaty, Art. 25).

b. The Senate Report states that the purpose of the clause is to aid each country's "attempts to deal with avoidance or evasion of their respective taxes," "for the prevention of fraud." The information to be exchanged is limited to information that can be "obtained under the tax laws and practices of both countries." The report refers to exchange of evidentiary documents "to the extent that they can be obtained under the laws and practices of the requested state in the enforcement of its own laws," including its "administrative process," and even without reciprocity. (S. Exec. Rept. No. 98-16, Art. 25).

2. Barbados

a. The Technical Explanation provides for exchange of information to help carry out "the domestic laws concerning taxes," including information "necessary to prevent fraud or tax evasion in respect of taxes." Evidentiary "original documents," in a form admissible in evidence in the requesting state's courts, are to be provided "to the extent that such forms of information can be obtained under the laws and practices of the State with respect to its own taxes." However, neither the U.S. nor Barbados is obligated "to carry out measures contrary to the laws and administrative practice of either State" in order to obtain information for the other, nor "to supply information which would disclose trade secrets or other information the disclosure of which would be contrary to public policy." (Treasury Dep't Technical Explanation: 1984 Barbados Income Tax Treaty, Art. 26).

b. The Senate Report explains that the purpose of the article is to help each country "deal with avoidance or evasion of their respective taxes," to enforce "the provisions of the domestic laws of the two countries concerning taxes," "in particular, for the prevention of fraud or evasion of the covered taxes." Each country is obligated to provide information "in the same manner and to the same extent as if its tax were at issue."

However, neither country is obligated

to supply information which is not obtainable under the laws or in the normal course of the administration of either country, or to supply information that would disclose any trade, business, industrial, commercial, or professional secret.

Barbados expressly disclaims "bank secrecy." (S. Exec. Rept. No. 99-9, Art. 26).

3. Canada

a. The Technical Explanation explains that the purpose of the clause is to aid each country to carry out "the domestic laws of Canada and the United States concerning taxes covered by the Convention," to "obtain information . . . in the same manner as if its own taxation were involved," and to "provide the information in the particular form requested, such as depositions of witnesses and copies of unedited original documents," if it "can be obtained under the laws or administrative practices of that State."

However, neither party is obligated "to carry out administrative measures at variance with [its own] laws and administrative practice" nor to provide information that "is not obtainable under the laws or in the normal course of the administration of either State," nor to "disclose any trade, business, industrial, commercial or professional secret." (Treasury Dep't Technical Explanation: 1980 Canada Income Tax Treaty and 1983 and 1984 Protocols (Final Revision), Art. XXVII).

b. The Senate Report explains that the purposes of the clause is "for the prevention of fraud or for the administration of statutory provisions concerning taxes to which the convention applies," and to aid "the administration and enforcement in respect of, or litigation concerning, the taxes to which the treaty applies." Neither country is required "to carry out administrative measures at variance with its laws or which it cannot obtain in the normal course of administration" or to disclose trade secrets. Each country is to "use its subpoena or summons powers or any other powers that it has under its own laws to collect information requested by the other country." Evidentiary materials in admissible form shall be provided "to the extent that they can be obtained under the laws and practices of the requested state in the enforcement of its own tax laws." (S. Exec. Rept. No. 98-22, Art. XXVII).

4. Cyprus

a. The Technical Explanation defines the exchange of information as intended to help carry out "the domestic laws of the Contracting States concerning the taxes covered by the Convention." The information to be exchanged is defined as including "bank information in the custody of a taxpayer; information in the custody of a bank; information in possession of the Central Bank of Cyprus relating to beneficial stock ownership" and information possessed by others about "beneficial stock ownership." Each country is to provide "depositions of witnesses and authenticated copies of original documents" for admission in evidence, but need not take steps "to carry out administrative measures at variance with the laws or administrative practice of either Contracting State" or "supply information not obtainable under the laws or normal administrative practice of either Contracting State." (Treasury Dep't Technical Explanation: 1984 Cyprus Income Tax Treaty, Art. 28).

b. The Senate Report echoes these statements, adding a requirement that each country "use its subpoena or summons powers or any other powers that it has under its own laws to collect information requested by the other country." (S. Exec. Rept. No. 99-8).

5. Japan

a. The Technical Explanation explains that the purpose of the clause is "to facilitate the administration of the Convention and to prevent fraud and the avoidance of taxes to which the Convention relates." (Treasury Dep't Technical Explanation: 1971 Japan Income Tax Treaty, Art. 26).

b. The Senate Report adds that the information is to be used for "preventing fraud or fiscal evasion with respect to taxes covered by the proposed convention." (S. Exec. Rept. No. 92-12).

6. Luxembourg

a. The Technical Explanation refers to "carrying out the provisions of . . . the domestic laws of the United States or Luxembourg concerning the taxes covered by this Convention." The information to be provided is all information related to the "assessment, collection, or administration of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by the Convention," except for "information of Luxembourg financial institutions." It notes that Luxembourg can obtain "statements of individuals or documents, such as the books and records of a business, located in Luxembourg." However, bank information is not available under the tax treaty. To obtain bank information or records the requesting party must invoke another treaty, one that deals with assistance in criminal matters. (Treasury Dep't Technical Explanation: 1996 Luxembourg Income Tax Treaty, Art. 28).

b. The Senate Report states, as a purpose of disclosure, "to prevent fraud and tax avoidance." (S. Exec. Rept. No. 10.88-2).

7. Spain

a. The Technical Explanation confirms that neither country is obligated "to carry out measures contrary to the laws and administrative practice of either State," or "to supply information not obtainable under the laws or in the normal course of the administration of either State," or trade secrets. (Treasury Dep't Technical Explanation: 1990 Spain Income Tax Treaty, Art. 27).

b. The Senate Report obligates each party to use "its investigative authority and procedures as mandated under its domestic law in order to obtain the information sought by the other country" and to provide

(S. Exec. Rept. No. 101-29, § VI). The purpose of the clause is to prevent "avoidance or evasion of their respective taxes" and "to prevent tax evasion or fraud." (Id., Art. 27).

8. Sweden

a. The Technical Explanation refers to enforcement of "the domestic laws of the United States or Sweden concerning the taxes covered by the Convention." It explains that

if a third-country resident maintains a bank account in Sweden, and the Internal Revenue Service has reason to believe that funds in that account should have been reported for U.S. tax purposes but have not been so reported, information can be requested from Sweden with respect to that person's account.

A country is to furnish to the other "depositions of witnesses and authenticated copies of original documents," but only "to the same extent that it can obtain information in that form under its own laws and administrative practices with respect to its own taxes." (Treasury Dep't Technical Explanation: 1994 Sweden Income Tax Treaty, Art. 26).

b. The Senate Report does not refer to exchange or secrecy of information.

9. United Kingdom

a. The Technical Explanation refers to "the domestic laws of the Contracting States concerning taxes covered by the Convention," and limits the information exchange obligation to information "of a class that can be obtained under the laws and administrative practices of each Contracting State with respect to its own taxes." (Treasury Dep't Technical Explanation: 1975 U.K. Income Tax Treaty, 1976 Notes, and 1976 and 1977 Protocols, Art. 26).

b. The Senate Report does not refer to exchange or secrecy of information.

10. Mexico

a. The Technical Explanation²⁸ refers, as do some others (see, e.g., Sweden, supra), to third country residents who have "a permanent establishment in Mexico that engages in transactions with a U.S. resident," and provides that "the United States could request information with respect to that permanent establishment." (Treasury Dep't Technical Explanation: 1992 Mexico Income Tax Treaty, Art. 27).

b. The Senate Report²⁹ explains the article as intended to help each country "to deal with avoidance or evasion of their respective taxes and to obtain information so that they can properly administer the treaty," to "exchange information to administer and enforce each country's domestic laws concerning covered taxes," to serve the "determination, assessment, and collection of tax, the recovery and enforcement of tax claims, or the investigation or prosecution of tax crimes." The focus of the exchange of information provision is highlighted by the following very detailed provisions:

Under the TIEA, the requested country has the authority to: (1) examine any books, papers, records, or other tangible property which may be relevant or material to the inquiry; (2) question any person having knowledge or in possession, custody or control of information which may be relevant or material to the inquiry; (3) compel any person having knowledge or in possession, custody or control of information which may be relevant or material to the inquiry to appear at a stated time and place and testify under oath and produce books, papers, records, or other tangible property; and (4) take such testimony of any individual any oath.

Claims of privilege under the laws and practices of the requesting country are to be determined exclusively by the courts of that country, and claims of privilege under the laws and practices of the requested country are to be determined exclusively by the courts of that country.

. . . if specifically requested . . . the other country is to (1) specify the time and place for the taking of testimony or the production of books, papers, records, and other tangible property; (2) place the individual giving testimony or producing books, papers, records and other tangible property under oath; (3) permit the presence of individuals (who may be accompanied by their attorneys) designated by the competent authority of the country requesting assistance as being involved in or affected by execution of the request; (4) provide individuals described in (3) with an opportunity to question the individual giving testimony or producing books, papers, records and other tangible property through the executing authority (or if Mexico is the requesting country, directly); (5) secure original and unedited books, papers, and records, and other tangible property; (6) secure or produce true and correct copies of original and unedited books, papers, and records; (7) determine the authenticity of books, papers, records, and other tangible property produced; (8) examine the individual producing books, papers, records, and other tangible property regarding the purpose for which and the manner in which the item produced is or was maintained; (9) permit the competent authority of the requesting country to provide written questions through the executing authorities of the requested country to which the individual producing books, papers, records, and other tangible property is to respond regarding the item produced; (10) perform any other act not in violation of the laws or at variance with the administrative practice of the requested country; (11) certify either that procedures requested by the competent authority of the requesting country were followed or that the procedures requested could not be followed, with an explanation of the deviation and the reason therefor.

IV. IRS' Withholdings from FSAs Under Its Treaty Secrecy "Interpretation" Are Improper.

Despite IRS' elaborately constructed theories, "treaty" FSAs still are FSAs. Like all other FSAs, they are memoranda of law prepared by a component of the Office of Chief Counsel for the IRS and "represent[ ] the considered view of the Chief Counsel's national office on significant tax law issues." Tax Analysts v. IRS, 117 F.3d 607, 617 (D.C. Cir. 1997).

When Congress recently codified the D.C. Circuit's and this court's decisions in this case for FSAs and other such "Chief Counsel Advice," it defined what must be disclosed. It includes "any legal interpretation of a revenue provision," or of "foreign law," or of a "tax treaty." P.L. 105-206, § 3509, enacting new I.R.C. § 6110(i)(1). Section 3509 is a command of positive law. IRS must disclose all the legal analysis and interpretation in "treaty" FSAs. The statute does not excuse withholding of interpretations of U.S. tax law, foreign law or a tax treaty because disclosure may reveal the name of or a question asked by another country.

Even if these tax treaties could be construed as covering country names or questions asked (but cf. II. and III. supra). Congress has overruled any such construction in favor of providing IRS internal working law to the U.S. taxpaying public. There is no doubt that § 3509 is an act of Congress later in time than all U.S. tax treaties. "Congress by legislation, and so far as the people and authorities of the United States are concerned, could abrogate a treaty made between this country and another country which had been negotiated by the President and approved by the Senate." La Abra Silver Mining Co. v. United States, 175 U.S. 423, 460 (1899); see IRS Treaty Mem. at 16-17 and cases there cited. For such congressional refusal to enforce what IRS argues the treaties provide (but about which IRS decided not to ask for other countries' views), "the judicial courts have nothing to do and can give no redress." Head Money Cases, I.A.2. supra.

Applying its flawed and unsupported positions, IRS has deleted from the 29 "treaty" FSAs the names of other countries; citations to, quotations from, descriptions of and analyses of substantive tax treaty provisions and discussion of foreign law. IRS has deleted interpretations and analyses of provisions of the U.S. Internal Revenue Code and other sources of U.S. tax law. It has deleted conclusions of the effect of U.S. tax law on taxpayer facts and tax law issues. See Appendix B.³⁰

For example, as described by the Associate Chief Counsel (International), Michael Danilack, IRS has deleted from the 29 "treaty" FSAs, "a summary legal conclusion" of the office of Associate Chief Counsel (International) (Danilack Dep. II at 214); a "summary conclusion" about how a "particular" transaction "would be" treated "under a provision of the [Internal Revenue] Code" (id. at 223-24); an explanation of "how the authorities, the [tax] code and the regulation apply to [a] set of facts" and "a conclusion as to whether or not a gain would be recognized on the facts given" (Danilack Dep. I at 48-49); a description of "particular provisions of the treaty" (id. at 70-71); a "generalized . . . lawyerly discussion" (id. at 168); a "legal analysis" tied to "a particular treaty" (id. at 175-76); identification of a type of taxpaying "entity" (id. at 180); "discussion of [an] inquiry by [a] treaty partner regarding the taxation of certain corporations" (id. at 182); an "interpretation . . . of the treaty" (id. at 188); a "restatement" of "how" a treaty provision "may work" (id. at 193); and, most bizarre of all, "information described in the article written by Ernst & Young . . . that directly relates to information about a particular treaty partner that made this request" (id. at 196).

CONCLUSION

This court should reject IRS' arguments that U.S. tax treaties permit deletion from FSAs of references to other countries and tax treaties, and of legal analysis, interpretation and conclusions about U.S. tax law, foreign law or tax treaties. Nothing in any of the tax treaties or TIEA, even if applicable under FOIA Exemption 3, permits withholding of anything but taxpayers' names, addresses and identifying details. I.R.C. § 6110(c)(1).

Respectfully submitted,

WILLIAM A. DOBROVIR
D.C. Bar No. 030148
Suite 102
65 Culpeper Street
Warrenton, VA 20186-3305
(540) 341-2183

Attorney for Plaintiff

November 19, 1998