TAX ANALYSTS,
Plaintiff,
v.
INTERNAL REVENUE SERVICE,
Defendant.
IN THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF COLUMBIA
INTERNAL REVENUE SERVICE'S REPLY TO
PLAINTIFF'S MEMORANDUM ON NEW LEGISLATION, ETC.
This is an action under the Freedom of Information Act in which plaintiff seeks to enjoin defendant from continuing to withhold certain documents and records from plaintiff.
STATEMENT & DISCUSSION
1. Introduction. On January 24, 2001, the Internal Revenue Service served, and subsequently filed, the Internal Revenue Service's Notice of Recently Enacted Legislation Bearing on Its Claim of Treaty Secrecy for Certain FSAs, seeking to advise the Court of newly enacted legislation intended by the Congress to govern the outcome of the instant litigation. Plaintiff has responded to the notice. This reply brief is addressed only to those points raised in plaintiff's response which warrant a reply. With respect to those points not discussed herein, the Internal Revenue Service relies upon its notice of recently enacted legislation.
2. Plaintiff's response is erroneous in three particulars. In its response, plaintiff makes three assertions, each of which is erroneous. First plaintiff asserts that the new legislation, 26 U.S.C. § 6105, “is inapplicable to Chief Counsel Advice, including FSAs, and therefore is inapplicable to the 29 'treaty' FSAs.” (Pltfs. Resp. at 1-2.) Next, plaintiff asserts that the application of the newly enacted Sec. 6105 would require a “brand new inquiry” by this Court. (Id. at 3-4.) Last, plaintiff argues that the Internal Revenue Service must consult with each of the United States' treaty partners in order to sustain its claim of exemption for all of the fifteen non-taxpayer specific FSAs at issue, and that the Secretary must thereafter make a “serious impairment” determination with respect to each FSA sought to be withheld under Sec. 6105. (Id. at 6-8.) Each of these assertions is wrong.
3. Section 6110 does not apply to “any matter” to which Sec. 6105 applies and in particular, does not apply to the twenty-nine FSAs remaining at issue here. a. Section 6110 does not apply to “any matter” to which Sec. 6105 applies. In its response to the Internal Revenue Service's notice of recently enacted legislation, plaintiff recites several provisions of 26 U.S.C. § 6110, and contends that Sec. 6105 cannot be used to exempt documents from disclosure under Sec. 6110. (Pltfs. Resp. at 2.) Plaintiff's argument is correct as far as it goes, since no statute contained in the Internal Revenue Code is effective to exempt any document subject to Sec. 6110 from disclosure. See 26 U.S.C. § 6110(c)(3), (i)(3)(B).
But plaintiff's argument does not go far enough in two respects. First, plaintiff neglects or fails or otherwise does not inform the Court that the same legislation which created the new Sec. 6105 also amended Sec. 6110 to dovetail with the new anti-disclosure provision. In this regard, subsec. (c) of Section 304 of the Community Renewal Tax Relief Act of 2000 provides that “[p]aragraph (1) of section 6110(1) is amended by inserting 'or 6105' after '6104'.” As a result, the pertinent provision of Sec. 6110 now reads as follows: “This section shall not apply to — (1) any matter to which section 6104 or 6105 applies * * *.” 26 U.S.C. § 6110(l)(1), as amended. Therefore, Sec. 6110 does not apply to “any matter” to which Sec. 6105 applies.1 Plaintiff is flatly wrong in asserting that the new Sec. 6105 does not apply to FSAs by virtue of Sec. 6110. In point of law the reverse is true. Sec. 6110 does not apply to “any matter” contained in an FSA, or “any matter” contained in any other document, to which Sec. 6105 applies.
b. In particular, Sec. 6110 does not apply to the twenty-nine FSAs remaining at issue here. Second, and more pertinent to the instant case, the FSAs remaining at issue in this case were not intended by Congress to be subject to Sec. 6110 at all. The legislative history of the law which amended Sec. 6110 to include within its coverage “Chief Counsel Advice” makes this plain.
“Chief Counsel Advice,” defined to include FSAs, was added to the coverage of 26 U.S.C. § 6110 by the Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. No. 105-206, § 3509, 112 Stat. 685, 772-774 (1998). While this legislation extended the procedures of Sec. 6110 to FSAs generally, the legislative history to Sec. 3509 of the Restructuring & Reform Act clearly states that the FSAs at issue in this case were intended to be exempt from the new legislation. To be precise, the House Conference Report on the legislation states as follows:
The timetable and the manner in which existing Chief Counsel Advice may ultimately be open to public inspection shall be governed by this provision, except that the provision is inapplicable to Chief Counsel Advice that any federal court has, prior to the date of enactment, ordered be disclosed. Disclosure of any documents that are subject to such a court order is to proceed pursuant to the order rather than this provision.
H.R. Conf. Rep. 105-299, at 302 (1998), reprinted in 1998-3 C.B. 1056. The date of enactment of the Restructuring & Reform Act was July 22, 1998. 112 Stat. 685.
All of the twenty-nine FSAs which remain at issue, along with 1300 others, were ordered released by the Court in its Order of April 30, 1998. The Service released these twenty-nine FSAs, with tax convention information redacted, in accordance with a schedule set by the Court in the April 30, 1998 order. Therefore, since the twenty-nine FSAs from which tax convention information was redacted were already subject to a disclosure order at the time the Restructuring & Reform Act was enacted, it was intended by the Congress that these twenty-nine FSAs not be subject to the 1998 amendment to Sec. 6110.2
4. Application of Sec. 6105 in this case does not entail a “brand new inquiry”. Plaintiff's attempt to persuade the Court that application of Sec. 6105 requires a “brand new inquiry” by this Court is also wrong. As plaintiff points out in its papers, the twenty-nine FSAs remaining at issue are now before this Court for in camera review. The Internal Revenue Service submits that the Court should now examine the twenty-nine FSAs pending before it in camera in order to assure itself that each of the redactions from each of the FSAs is “tax convention information,” as defined in Sec. 6105(c)(1), and as such, exempt from disclosure under Exemption 3 of the Freedom of Information Act. By conducting such an in camera review, a court necessarily establishes an adequate factual basis for determining the applicability of the claimed exemptions. City of Virginia Beach v. Dept. of Commerce, 995 F.2d 1247, 1252n. 12 (4th Cir. 1993); National Wildlife Federation v. U.S. Forest Service, 861 F.2d 1114, 1116 (9th Cir. 1988).
In addition to having the redacted FSAs before it in camera, the Court also has the briefing of the parties3 and two declarations from the Internal Revenue Service officials with personal knowledge of the tax conventions and documents at issue. The Internal Revenue Service's Memorandum re: Redactions on Bases of Treaty Secrecy Clauses & International Agreements, accompanied by the Declaration of Michael Danilack and the Declaration of John T. Lyons, was filed with the Court on June 1, 1998. The brief explains the operation of the secrecy provisions of each of the tax conventions at issue; Appendix I to the brief contains each of the “exchange of information” articles, with corresponding secrecy provisions, for each treaty or tax information exchange agreement at issue. The declarations of Messrs. Danilack and Lyons further explain the treaty provisions and the redacted portions of the FSAs.4
Only in the event the Court cannot determine, by means of the in camera review and/or from the legal discussion and declaration evidence on file, whether the redacted information is “tax convention information,” should the Court order a “brand new inquiry” in this case.
5. Section 6105(b)(3) does not require the Secretary to make a “serious impairment" determination before withholding non-taxpayer specific tax convention information. Last, plaintiff argues that Sec. 6105(b)(3) requires the Secretary to make a “serious impairment" determination, after consulting with foreign treaty partners, before withholding non-taxpayer specific tax convention information.5 Plaintiff makes this assertion based upon its own erroneous construction of the statute.
In its papers, plaintiff asserts that:
* * * IRS must come forward with evidence establishing that
* * * * *
(4) for non-taxpayer-specific information IRS has consulted with the other country to ascertain whether the latter objects to disclosure, § 6105(b)(3), and
(5) after such consultation, IRS has determined that disclosure of information would impair tax administration, id.
(Pltfs. Resp. at 3-4) (emphasis added).
Two points need be made here. First, the non-taxpayer specific tax convention information can become excepted from subsec. (a)'s prohibition against disclosure, but only if the Secretary “determines * * * that such disclosure would not impair tax administration.” 26 U.S.C. § 6105(b)(3) (emphasis added). Thus, the actual language of the law is precisely the converse of that suggested in plaintiff's papers. In its papers, plaintiff argues that the tax convention information in question is excepted from the non-disclosure rule unless the Secretary determines that its disclosure would impair tax administration. The law does not provide for this; rather, it clearly states that the information is excepted from the non-disclosure provision if the Secretary determines after consultation with the foreign partner that release of the information “would not impair tax administration.” If the Secretary does not make an “impairment” determination, the exception to non-disclosure does not apply. The point is, in order to disclose the non-taxpayer specific tax convention information, the Secretary must expressly “determine[ ] * * * that such disclosure would not impair tax administration.” (Emphasis added.) In order to withhold it, the statute requires no determination by the Secretary respecting impairment. Without the express determination that disclosure “would not impair tax administration,” the tax convention information in question remains subject to subsec. (a)'s general rule that “[t]ax convention information shall not be disclosed.” Plaintiff's effort to invert the terms of the statute must be rejected by the Court.6
Second, even if plaintiff were correct that the Secretary must make an impairment determination when faced with a FOIA request for non-taxpayer specific tax convention information, the treaty partner consultation referred to by the statute is clearly necessary only when the Secretary has otherwise determined that there is no such impairment from the United States' perspective. That is, the Secretary can determine, without consulting its treaty partners, that disclosure would impair tax administration regardless of the views of the treaty partners. If, however, the Secretary were inclined to release such information, the statute would require consultation with the appropriate treaty partners to ensure that they do not have any objection to the disclosure and then the Secretary would take such views into account before making the final determination. This is consistent with the working of the statute that speaks of consultation only in the context of making a determination that no impairment would result from disclosure.
Finally, at all events, the Court need not rule on this issue since the Service has initiated the consultation process with its treaty partners respecting each of the fifteen non-taxpayer specific FSAs.
CONCLUSION
It is the position of the Internal Revenue Service that the assertion of Exemption 3 with respect to parts of twenty-nine FSAs subject to tax treaties and/or TIEAs should be sustained.
DATE: February 22, 2001.
Respectfully submitted,
DAVID A. HUBBERT
MICHAEL J. SALEM
CHRISTOPHER R. ZAETTA
Trial Attorneys, Tax Division
U.S. Department of Justice
Post Office Box 227
Washington, DC 20044
Telephone: (202) 307-6438
FOOTNOTES
1The House Conference Report on this aspect of the legislation states that “under the provision, section 6110 would not apply to material covered by section 6105.” H.R. Conf. Rep. 106-1033, at 1012 (2000) (emphasis added). Thus, the legislative history indicates that the terms “matter” and “material” should be construed similarly.
2Plaintiff's assertion that Sec. 6110 covers the twenty-nine FSAs at issue herein is difficult to understand. Plaintiff was one of the principal players in the consultative and cooperative process which resulted in the enactment of Sec. 3509 of the Restructuring & Reform Act. Plaintiff was deeply involved, with the Internal Revenue Service, in crafting the transition rules of Sec. 3509 and was well aware of the legislative intent reflected in the House Conference Report on the legislation. Moreover, if plaintiff were correct in its argument that the twenty-nine FSAs at issue in this litigation are subject to Sec. 3509's transition rules (Pltfs. Resp. at 2), the FSAs would not be scheduled for release until July 22, 2001. Section 3509(d)(2)(C) specifies that FSAs issued between January 1, 1992 and January 1, 1994 are to be released three years after the date of enactment of Sec. 3509. Three years from the date of enactment of Sec. 3509 will be July 22, 2001.
3As noted above, plaintiff has redacted copies of the twenty-nine FSAs. Therefore, plaintiff's ability to present its arguments to the Court was presumably informed at least to that extent.
4Plaintiff also attempts to reargue its point regarding the necessity to disclose the identities of treaty partners in respect of specific FSAs. (Pltfs. Resp. at 4-6.) In so arguing, plaintiff ignores the clear import of the legislative history of Sec. 6105: “The conferees intend that tax convention information would include documents and any other information that reflects tax convention information, including the association of a particular treaty partner with a specific issue or matter.” H.R. Conf. Rep. 106-1033, at 1011 (2000) (emphasis added). Unless the Court intends to ignore this rather clear expression of legislative intent, the Court must conclude that the Service is correct in its insistence that the association of a particular treaty partner with a particular issue or matter in an FSA is “tax convention information” that is barred from disclosure.
5Plaintiff's attempt to persuade the Court that an affirmative determination of “serious impairment” is subtle in some respects and rather bold in others. As for the former, plaintiff never forthrightly states that the Secretary's determination must be one of “serious impairment;” plaintiff only states that the Secretary must affirmatively determine that “impairment” would result from release of a given document. (Pltfs. Resp. at 7-8.) But plaintiff later suggests that there is no difference between “impairment” and “serious impairment.” (Pltfs. Resp. at 8&n.6.) Thus, plaintiff would have this Court give no effect whatever to the omission of the adjective “serious” from Sec. 6105(b)(3). Compare 26 U.S.C. § 6105(b)(3) with 26 U.S.C. § 6103(c) & (e)(7). The Internal Revenue Service submits that such a construction of Sec. 6105(b)(3) would be erroneous. This Court should properly construe the standard for Sec. 6105(b)(3)'s “impairment” determination to be more liberal than the “serious impairment” determinations that are made under 26 U.S.C. § 6103(c) & (e)(7). See also, H.R. Conf. Rep. 106-1033, at 1012, discussed infra.
6Although it will not become relevant unless and until the Secretary makes a “no impairment” determination, plaintiff's attempt to persuade the Court that the “impairment” determination requires serious interference with tax administration is also off base. (See Pltfs. Resp. at 13-14.) The legislative history of Sec. 6105(b)(5) indicates that the “impairment” determination is not intended to have a high factual threshold. “The conferees intend that the 'impairment of tax administration' for purposes of this provision include, but not be limited to, the release of documents that would adversely affect the working relationship of the treaty partners.” H.R. Conf. Rep. 106-1033, at 1012 (emphasis added). The Internal Revenue Service submits that this language indicates that the factual threshold for impairment of tax administration is intended to be quite low.
END FOOTNOTES