IRS Erroneously Denied Some FOIA Requests in 2018, TIGTA Says

Fiscal Year 2019 Statutory Review of Denials of Freedom of Information Act and Internal Revenue Code Section 6103 Requests

September 5, 2019

This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.

Highlights

Final Report issued on September 5, 2019

Highlights of Reference Number: 2019-10-057 to the Commissioner of Internal Revenue.

IMPACT ON TAXPAYERS

Taxpayers may request information from the IRS through the Freedom of Information Act (FOIA). However, a section of the FOIA, 5 United States Code (U.S.C.) Section (§) 552(b)(7), allows certain records or information compiled for law enforcement purposes to be withheld. Taxpayers may also request information from the IRS through Internal Revenue Code (I.R.C.) § 6103 (c) and (e). While I.R.C. § 6103 protects the confidentiality of taxpayer returns and return information, it does allow the taxpayer, or a person designated by the taxpayer, to request and receive tax information. If the IRS does not process requests under these statutes correctly, taxpayers do not receive the information to which they are entitled.

WHY TIGTA DID THE AUDIT

The overall objective of this audit was to determine whether the IRS improperly withheld information requested by taxpayers in writing based on 5 U.S.C. § 552(b)(7) or I.R.C. § 6103. TIGTA is required to conduct periodic audits in this area and report the results to Congress.

WHAT TIGTA FOUND

TIGTA reviewed a statistical sample of 80 of the 3,547 FOIA requests for Fiscal Year 2018 for which the IRS denied the requested information either partially or fully based on the (b)(7) exemption, replied that no responsive records were available, or closed the request as imperfect. In addition, TIGTA reviewed all 74 Fiscal Year 2018 I.R.C. § 6103 (c) and (e) requests documented in the Automated FOIA system for which the IRS withheld information from the requestor. While TIGTA determined that information was properly withheld in most cases, TIGTA identified seven instances in which information was improperly withheld.

TIGTA identified six (8 percent) of 80 sampled FOIA information requests and one (1 percent) of 74 I.R.C. § 6103 (c) and (e) information requests for which taxpayers did not receive the information to which they were entitled because the IRS improperly withheld information from the requestors.

WHAT TIGTA RECOMMENDED

TIGTA did not make any recommendations because the IRS has already provided training and updated procedures to address the issues identified. Key IRS officials reviewed this report prior to its issuance and agreed with the facts and conclusions presented.

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September 5, 2019

MEMORANDUM FOR
COMMISSIONER OF INTERNAL REVENUE

FROM:
Michael E. McKenney
Deputy Inspector General for Audit

SUBJECT:
Final Audit Report — Fiscal Year 2019 Statutory Review of Denials of Freedom of Information Act and Internal Revenue Code Section 6103 Requests (Audit # 201910010)

The overall objective of this review was to determine whether the Internal Revenue Service (IRS) improperly withheld information requested by taxpayers in writing based on 5 United States Code Section 552(b)(7) or Internal Revenue Code Section 6103. We are required to conduct periodic audits in this area and report the results to Congress. This review is included in our Fiscal Year 2019 Annual Audit Plan and addresses the major management challenge of Protecting Taxpayer Rights.

We did not make any recommendations because the IRS has already provided training and updated procedures to address the issues identified. However, key IRS officials reviewed this report prior to its issuance and agreed with the facts and conclusions presented.

If you have any questions, please contact me or Heather Hill, Acting Assistant Inspector General for Audit (Management Services and Exempt Organizations).

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Table of Contents

Background

Results of Review

Appendices

Abbreviations

AFOIA	Automated Freedom of Information Act
FOIA	Freedom of Information Act
FY	Fiscal Year
I.R.C.	Internal Revenue Code
IRS	Internal Revenue Service
TIGTA	Treasury Inspector General for Tax Administration
U.S.C.	United States Code

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Background

Taxpayers may request information from the Internal Revenue Service (IRS) through the Freedom of Information Act (FOIA)¹ and Internal Revenue Code (I.R.C.) Section (§) 6103.

The FOIA

The FOIA requires Federal Government agencies to make records available to the public upon request unless specifically exempted. For example, United States Code (U.S.C.) § 552(b)(7) allows certain records or information compiled for law enforcement purposes to be withheld, but only to the extent that the production of such law enforcement records or information:²

• Could reasonably be expected to interfere with enforcement proceedings.

• Would deprive a person of a right to a fair trial or an impartial adjudication.

• Could reasonably be expected to constitute an unwarranted invasion of personal privacy.

• Could reasonably be expected to disclose the identity of a confidential source or information furnished by a confidential source.

• Would disclose techniques, procedures, or guidelines for law enforcement investigations or prosecutions, if such disclosure could reasonably be expected to risk circumvention of the law.

• Could reasonably be expected to endanger the life or physical safety of any individual.

For Fiscal Year (FY)³ 2018, the IRS's Automated Freedom of Information Act (AFOIA) system shows that the IRS Disclosure Office closed 8,042 information requests as FOIA requests.⁴

I.R.C. § 6103

I.R.C. § 6103 protects the confidentiality of taxpayer returns and return information. However, it does allow the taxpayer, or a person designated by the taxpayer, to request and receive the taxpayer's tax return and return information. The IRS's AFOIA system shows that the IRS Disclosure Office closed 328 I.R.C. § 6103(c) or (e) requests in FY 2018.⁵ However, the IRS does not track I.R.C. § 6103 information requests received and processed by IRS offices other than the IRS Disclosure Office. Therefore, the complete population of I.R.C. § 6103 requests processed by the IRS in FY 2018 is unknown.

Processing FOIA and I.R.C. § 6103 information requests

The IRS Disclosure Office accepts FOIA information requests via FAX or mail. Requestors can also send I.R.C. § 6103 information requests to the IRS Disclosure Office. When a request is received, IRS personnel scan the request into the AFOIA system and a disclosure manager assigns the request to a disclosure caseworker. If the request includes all necessary information, the disclosure caseworker will conduct a search for responsive records. If there are no records that are responsive to the request, the IRS will send a letter notifying the requestor. If responsive records are located, the disclosure caseworker will review to determine if any information should be withheld. The IRS then responds to the requestor via letter providing all requested information or providing partial information and explaining why certain parts of the requested documentation have been redacted.

Although the IRS Disclosure Office is tasked with responding to written requests for IRS information, other IRS offices having custody of taxpayer records may also process written requests for information made under I.R.C. § 6103. The IRS does not track I.R.C. § 6103 information requests received and processed by other offices.

Treasury Inspector General for Tax Administration (TIGTA) requirements and limitations

Section 1102 (d)(3)(a) of the IRS Restructuring and Reform Act of 1998 requires TIGTA to conduct periodic audits of determinations made by the IRS to deny written requests to disclose information to taxpayers on the basis of I.R.C. § 6103 or FOIA exemption (b)(7).⁶ In accordance with this statutory requirement, the scope of our review addressed closed FOIA requests for which the information requested was either denied in full or in part under FOIA exemption (b)(7). In addition to requests denied in full or in part under FOIA exemption (b)(7), we evaluated requests for which no information was provided because the IRS determined that no responsive records existed or the request was imperfect.⁷ For I.R.C. § 6103 requests, we reviewed requests that were tracked on the AFOIA system and denied under sections (c) or (e), which are requests for tax return information made by either the individual taxpayer or by a designee of the taxpayer.⁸

This review was performed with information obtained from the Office of Privacy, Governmental Liaison, and Disclosure in Washington, D.C., during the period December 2018 through June 2019. We conducted this performance audit in accordance with generally accepted government auditing standards. These standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objective. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. Detailed information on our audit objective, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.

Results of Review

We reviewed a statistical sample of 80 of the 3,547 FOIA exemption (b)(7) requests for FY 2018 as well as all 74 FY 2018 I.R.C. § 6103 (c) and (e) requests documented in the AFOIA system for which the IRS withheld information from the requestor.⁹ We determined that information was properly withheld in most cases. However, we identified seven requests for which information was improperly withheld under either FOIA exemption (b)(7) (6 cases) or I.R.C. § 6103(c) and (e) (one case).

Information Was Properly Withheld in Most Cases

We determined that the IRS incorrectly withheld information using FOIA exemption (b)(7) for six (8 percent) of the 80 FOIA information requests we sampled. While FOIA exemption (b)(7) exempts from disclosure information compiled for law enforcement purposes, in one case, the IRS withheld information on IRS examination techniques even though this information is available to the public on the IRS's webpage. IRS management stated that the information was erroneously withheld due to employee error. In the other five cases, the IRS withheld information under exemption (b)(7), but the information did not disclose law enforcement techniques that would risk circumvention of the law. IRS management stated that there was confusion on applying the exemption in this area and has provided additional training to employees who process FOIA requests. We also noted that a manager reviewed all six cases for accuracy and completeness but did not identify that the information was improperly withheld. Based on our sample results, we estimate that the IRS erroneously applied FOIA exemption (b)(7) on approximately 282 FOIA information requests in FY 2018.¹⁰

In addition, case review results showed that the IRS incorrectly withheld information using I.R.C. § 6103 (c) and (e) for one (less than 1 percent) of the 74 § 6103 information requests.¹¹ In this case, the disclosure caseworker responded to the requestor that no responsive records were available because the disclosure caseworker believed that the records were beyond the retention period for the information requested. However, the information was available due to a change in the retention period that the disclosure caseworker was unaware of at the time. The disclosure caseworker followed procedures that had not yet been updated when processing the case. IRS management stated that the information was erroneously withheld due to employee error. We also noted that a manager reviewed the information request for accuracy and completeness prior to closing the case. If the IRS does not process requests under these statutes correctly, taxpayers do not receive the information to which they are entitled.

Although the IRS properly releases thousands of pages in response to information requests each year, information was improperly withheld in these seven cases. Figure 1 illustrates our audit results for the last five fiscal years and shows that there have been inconsistencies when responding to information requests from year to year.

We are not making any recommendations to correct the improper withholding of information identified in our samples because the IRS has already provided training and updated procedures to address the issues identified.

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Appendix I
Detailed Objective, Scope, and Methodology

The overall objective of this audit was to determine whether the IRS improperly withheld information requested by taxpayers in writing based on 5 U.S.C. § 552(b)(7) or I.R.C. § 6103. To accomplish our objective, we:

I. Determined the applicable policies, procedures, and controls that are in place to provide reasonable assurance that the IRS complies with the FOIA and I.R.C. § 6103 when denying information.

II. Determined whether IRS disclosure officers are adhering to statutory requirements when denying written requests received from taxpayers under the FOIA.

III. Determined whether IRS disclosure officers are adhering to legal requirements when denying written requests received from taxpayers under I.R.C. § 6103.

Internal controls methodology

Internal controls relate to management's plans, methods, and procedures used to meet their mission, goals, and objectives. Internal controls include the processes and procedures for planning, organizing, directing, and controlling program operations. They include the systems for measuring, reporting, and monitoring program performance. We determined that the following internal controls were relevant to our audit objective: IRS policies, operating procedures, laws, and regulations related to the receipt, disposition, and resolution or denials of requests for information made under the FOIA or I.R.C. § 6103. We evaluated these controls by reviewing source documents, interviewing management, and reviewing I.R.C. § 6103 (c) and (e) information requests and a statistically valid sample of closed FOIA information requests based on exemption (b)(7).

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Appendix II
Major Contributors to This Report

Deann Baiza, Acting Assistant Inspector General for Audit (Management Services and Exempt Organizations)

Heather Hill, Acting Assistant Inspector General for Audit (Management Services and Exempt Organizations)

Carl Aley, Director

Cheryl Medina, Audit Manager

Jennifer Burgess, Lead Auditor

Donald Martineau, Auditor

Vikram Singh, Auditor

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Appendix III
Report Distribution List

Deputy Commissioner for Operations Support

Chief Privacy Officer

Director, Office of Audit Coordination

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Appendix IV
Outcome Measure

This appendix presents detailed information on the measurable impact that our recommended corrective action will have on tax administration. This benefit will be incorporated into our Semiannual Report to Congress.

Type and Value of Outcome Measure:

• Taxpayer Rights and Entitlement — Potential; 282 responses to FOIA information requests for which information may have been improperly withheld during FY¹ 2018 (see page 4).²

Methodology Used to Measure the Reported Benefit:

We reviewed a statistically valid sample of 80 information requests from a population of 3,547 FOIA requests closed during FY 2018 as either of the following:

We identified six requests for which a disclosure caseworker improperly withheld the requested information. As shown in Figure 1, we estimate the number of FOIA requests for which information was improperly denied in FY 2018 to be 282.

Figure 1: Calculation of Estimated Number of FOIA Requests for Which Information Was Improperly Withheld

Strata	Sample Size	Total Population of FOIA Information Requests	Responses for Which the IRS Improperly Withheld Information
			Total Number in Sample	Percentage in Sample	Estimated Number in Total Population
Denials	5	38	0	0.00%	0
Partial Denials	36	1,693	6	16.67%	282
No Responsive Records	13	614	0	0.00%	0
Imperfect	26	1,202	0	0.00%	0
Totals	80	3,547	6		282
Source: Statistician projections provided based on audit results.

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Appendix V
Previous Audit Reports Related to This Statutory Review

TIGTA, Ref. No. 2015-30-084, Fiscal Year 2015 Statutory Review of Compliance With the Freedom of Information Act (Sept. 2015).

TIGTA, Ref. No. 2016-30-072, Fiscal Year 2016 Statutory Review of Compliance With the Freedom of Information Act (Sept. 2016).

TIGTA, Ref. No. 2017-30-075, Fiscal Year 2017 Statutory Review of Compliance With the Freedom of Information Act (Sept. 2017).

TIGTA, Ref. No. 2018-10-058, Fiscal Year 2018 Statutory Review of Compliance With the Freedom of Information Act (Sept. 2018).