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Brief for Appellant

Posted on Jan. 6, 2021

Citations: Tax Analysts v. IRS; No. 01-5231; No. 01-5232

SUMMARY BY TAX ANALYSTS

Brief for Appellant, Tax Analysts v. IRS, D.C. Cir., 01-5231, 01-5232 

Tax Analysts v. IRS

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
FOR THE DISTRICT OF COLUMBIA CIRCUIT

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

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

STATEMENT OF THE ISSUES PRESENTED FOR REVIEW

The district court erred in

1. Ruling that United States Internal Revenue Service ("IRS") legal Memoranda ("LMs"), which are prepared by IRS' Office of Chief Counsel ("OCC") and which explain, and provide the legal analysis necessary for IRS decisionmakers to understand, the basis for and effect of IRS revenue rulings, do not contain IRS agency working law and are exempt from disclosure under the Freedom of Information Act ("FOIA") Exemption 5, 5 U.S.C. § 552(b)(5) deliberative process privilege. (Argument I).

2. Ruling that LMs, which now serve the purposes of explaining, and providing IRS decisionmakers with the legal analysis necessary for them to understand the basis and effect of, IRS revenue rulings, a purpose and function that used to be served by the IRS' General Counsel Memoranda ("GCMs”) that IRS has ceased to issue, and which therefore now perform the same function and serve the same use that GCMs used to perform and serve, are not required to be disclosed under the terms of a consent decree by which IRS undertook that if it discontinued generating GCMs, but developed other documents that serve the same function and use as GCMs, but are called by a different name, it would disclose such new documents to the public under the same terms that the consent decree required IRS to apply in disclosing GCMs. (Argument II).

3. Granting IRS' motion for summary judgment with respect to LMs on the basis of facts alleged by IRS but disputed by Tax Analysts, and as to which a genuine issue of material fact existed as to the applicability of the FOIA exemption in issue. (Argument III).

4. Ruling that IRS intradivisional Technical Assistance Memoranda ("TAs"), which are authoritative interpretations of the tax law on particular issues, prepared by subject-matter-expert divisions of the OCC on tax law issues within their expertise, and issued by them to other divisions of the OCC in need of such expert interpretations to prepare private letter rulings ("PLRs"), technical advice memoranda ("TAMs") and Field Service Advice ("FSAs"), all of which state IRS policies actually adopted and apply them to taxpayers,

(a) are not IRS agency working law, which under Supreme Court and Circuit precedent may not be withheld from disclosure under the FOIA Exemption 5 deliberative process privilege (Argument IV);

(b) even if such TAs contain agency working law, if IRS claims the FOIA Exemption 5 attorney work product privilege for them, the principle that true attorney work product may be segregated out and withheld, but that nonexempt agency working law in such TAs must be segregated out and released, as provided in the FOIA and applied by precedent in this Circuit, shall not be applied to such TAs (Argument V).

5. Ruling that the provisions of IRS' Internal Revenue Manual ("IRM"),1 which provides that IRS shall not withhold agency records requested under the FOIA on the basis of discretionary exemptions, e.g., FOIA Exemptions 5 and 7(E), unless IRS determines that such disclosure would significantly impede or nullify IRS actions in carrying out an IRS responsibility or function, provisions called collectively the foreseeable harm rule, are not binding on IRS nor enforceable by the courts in cases in which the issue is properly raised by a FOIA plaintiff (Argument VI).

JURISDICTIONAL STATEMENT

This court has jurisdiction of this appeal under 28 U.S.C. § 1291. On March 31, 2000, the district court granted IRS' motion for summary judgment on Tax Analysts' claims seeking disclosure of LMs, but ordered further briefing on Tax Analysts' claims seeking disclosure of TAs. The district court did not direct the entry of a final judgment with respect to LMs under Fed.R.Civ.P. 54(b). The case is reported at 97 F.Supp.2d 13.

On March 26, 2001, the district court granted in part and denied in part each party's motion for summary judgment with respect to TAs. The case is reported at 152 F.Supp.2d 1. The court "ordered that the case is dismissed and that this is a final, appealable order."152 F.Supp.2d at 27.

On April 6, 2001, within the 10 day period specified in Fed.R.Civ.P. 59(e), IRS moved for reconsideration of the district court's partial denial of its motion for summary judgment and partial grant of Tax Analysts' motion for summary judgment. The district court denied that motion on May 21, 2001. On June 29, 2001, within the 60 day period provided by Fed.R.App.P. 4(a)(1)(B), Tax Analysts filed its notice of appeal of the district court's March 26, 2001, final appealable order, into which the district court's March 31, 2000, grant of IRS' motion for summary judgment as to LMs was merged. Fed.R.Civ.P. 54(b); Jacksonville Port Authority v. Adams, 556 F.2d 552, 557 (D.C. Cir. 1977). On July 22, 2001, IRS timely filed its notice of appeal.

STATUTES AND REGULATIONS

The pertinent statutes and regulations are set out in the addendum.

Statutes

FOIA, 5 U.S.C. § 552(a)(2)(B), (a)(4)(B), (b)(3), (b) (flush language) and (b)(5).

Regulations

26 CFR § 601.701(b)(3).

IRM (30)(15)(10), the Chief Counsel Publications Handbook, §§ 625, 631, 632, 632.1, 632.2, 632.3 and 634.

IRM 1.2.1.

IRM 1.2.1.11.13 P-11-70.

IRM 1.3, Chapter 13, §§ 1.3.13.7.1 (3); 1.3.13.7.1 ¶(5); 1.3.13.7.2 ¶ (1).

STATEMENT OF THE CASE

Proceedings Below

Tax Analysts is a not-for-profit publisher of numerous print, on-line electronic and CD-ROM publications on U.S. Federal, state and international taxation. (See JA 15, ¶3). This case began with requests in February, March, June and October 1995 by Tax Analysts under the FOIA for six kinds of IRS unpublished memoranda on tax law subjects.2 IRS responded by withholding some documents altogether, releasing some in part and failing to respond to one request. (JA 15, ¶ 5; JA 16, ¶ 7).

Tax Analysts filed this suit on October 2, 1996. (JA 14). Tax Analysts took the depositions of seven IRS attorneys in the OCC, including the Chief Counsel himself. In the depositions Tax Analysts questioned the IRS witnesses closely about the character of the documents and portions of documents withheld.

After discovery was completed the parties filed cross-motions for summary judgment. IRS supported its motion with lengthy declarations of eight Chief Counsel attorneys, some of whom had been deposed previously, and voluminous exhibits. Shortly after briefing was completed, intervening legislation by Congress and settlement by the parties resulted in the release of four of the six kinds of memoranda.3

In April 1999, with the parties' agreement and the court's approval, IRS submitted a sample of LMs and intra-national office TAs, the only types of documents still in issue, for in camera inspection along with a Vaughn index. (JA 6, ##58, 60, 61, 63, 64; JA 7, ##67, 68; JA115-124; JA 398-404). Tax Analysts thereupon submitted a new motion for partial summary judgment as to LMs and intra-national office TAs, based on the Vaughn index. (JA 7, ##69, 72, 75).

The court issued its first ruling on the merits and other Issues on March 31, 2000 (the ”2000 decision"). (JA 9, #94). The court granted IRS' motion for summary judgment as to LMs. LMs are IRS memoranda that provide legal analysis explaining, supporting (and often refuting legal arguments contrary to) published revenue rulings. LMs accompany IRS revenue rulings throughout their review and up to publication. (JA 134-135, ¶¶ 1.1, 1.2; JA 148-149, ¶¶ 4, 6). The court held that the LMs did not constitute IRS agency working law and were exempt from disclosure under the FOIA Exemption 5 deliberative process or governmental privilege. (JA 31-35; 97 F.Supp.2d at 15-18). The court also declined to apply IRS' own "foreseeable harm rule" to LMs. 97 F.Supp.2d at 15 n.3.

In reaching this conclusion the court relied entirely on IRS' statements of material facts, 97 F.Supp.2d at 16, which in turn relied almost entire on the declaration of Paul Kugler, an IRS Assistant Chief Counsel (JA 147-162), which IRS did not file until after Tax Analysts' deposition discovery had concluded. Both IRS' statement and the court ignored altogether the deposition testimony on LMs of the Chief Counsel, Stuart Brown, and two other IRS Chief counsel attorneys, Louis Solomon and Jody Jean Brewster, summarized in Tax Analysts' statement of material facts. (JA 134-146). The court also ignored Tax Analysts' rebuttal to IRS' statement of material facts (JA 178-194), where Tax Analysts cited and quoted from that deposition testimony to refute many of IRS' assertions on which the district court relied. The court did not rule on TAs in the 2000 decision. Instead, roundly scoring IRS' Vaughn index as bloated with repetitious boilerplate, the court ordered a further round of Vaughn indices and a third round of motions and briefing on TAs. 97 F.Supp.2d at 21-23.

Tax Analysts moved for reconsideration of the 2000 decision that LMs were exempt. The motion addressed the court's holding that IRS is not bound by its own rule, in its Internal Revenue Manual ("IRM"), that discretionary FOIA exemptions, like the Exemption 5 deliberative process privilege, should not be invoked unless foreseeable harm would result. (Argument VI infra).

The court ruled again on March 26, 2001(the "2001 decision"). The court denied Tax Analysts' motion to reconsider its decision allowing IRS to withhold LMs and holding IRS not bound by its IRM's foreseeable harm rule. 152 F.Supp.2d at 7-8. The 2001 decision then took up the parties' renewed cross-motions for summary judgment with respect to TAs. 152 F.Supp.2d at 8-26. After disposing of one TA not in issue in this appeal, id., the court addressed TAs that IRS claimed were exempt under FOIA Exemption 7(E), id. at 14-17, and the Exemption 5 attorney work product, id. at 18-20, and deliberative process, id. at 19-25, privileges.4

The court held that some TAs for which IRS claimed Exemption 7(E) were not exempt because they were not compiled for law enforcement purposes, id. at 15-16. Two others were exempt because they were, id. at 16-17. As to these two TAs the court held that the exemption "protects only the portions of the TAs that specifically correlate to foreseeable harm to law enforcement forts," and "[t]hus, IRS is required to disclose all reasonably segregable, non-exempt information." Id. at 17 n. 27.5

The court held other TAs, for which IRS had claimed both 7(E) and the Exemption 5 attorney work product privilege, exempt under the attorney work product privilege. Therefore the court "had no need to address" 7(E). 152 F.Supp.2d at 16.

The court accepted IRS' arguments that other TAs were exempt in their entirety under the Exemption 5 attorney work product privilege. The court rejected the holding of another Judge of the same District that the privilege did not protect the agency working law content of TAs, which should be disclosed. While attorneys' mental impressions, theories, opinions, etc. should not. Id. at 18-19.

The court then turned to the other groups of TAs: "intradivisional" TAs, id. at 24-25, [MISSING TEXT]. As to program managers, id. at 20-24. "Intradivisional" TAs are prepared by one Office of Chief Counsel division for another. They "provide[ ] the issuing office's expertise on a [tax law] subject [MISSING TEXT] its jurisdiction” to a "requesting office" that has a case in which that subject has arisen. Id. at 24. The court held that such TAs "do not constitute the 'working law' of the agency, [MISSING TEXT]" and hence are exempt under the deliberative process privilege. Id. at 24-26.

The court split the baby on TAs to IRS program managers. It held that TAs concerning particular taxpayer cases were not deliberative or predecisional and should be disclosed, while others were and should not. Id. at 20-24.

IRS moved for reconsideration of the court's holdings that some 7(E) TAs and some TAs to program managers were improperly withheld. Tax Analysts responded, asking the court also to reconsider its holding that six TAs were exempt in their entirety under the FOIA Exemption 5 attorney work product privilege.

On May 21, 2001, the court denied both parties' requests for reconsideration. (JA 100-114).6 The court rejected Tax Analysts' argument "that the segragability requirement (of 5 U.S.C. § 552(b)] applies to documents protected under the attorney work product privilege." 152 F.Supp.2d at 29. The court held that "agency working law contained in a privileged attorney work product is exempt material in and of itself, and therefore, need not be segregated and disclosed." Id.

Statement of Facts

LMs

LMs supply the legal analysis behind the usually compact, terse IRS revenue rulings, which are typically only a few pages long, with a minimum of explanation, no legal analysis and hardly any citations to authority except the Code itself.7 (JA 134-135, ¶ 1.1,; JA 214-215, pp.59-60, 66-68; JA 236-259). Revenue rulings state "official interpretation(s) by the Service of the Internal Revenue Code, related statutes, tax treaties, and regulations." They state "the conclusion of the Service on how the law is applied to a specific set of facts," and state "the Service position on an issue." (JA 148, ¶ A.5). Taxpayers, their lawyers and representatives, IRS and the courts rely on revenue rulings as binding precedent in cases with similar facts. IRM 1.2.1.11.13 P-11-70.Revenue rulings are the law in cases to which they apply.

IRS did not withhold LMs in their entirety. IRS released the husks of the LMs that Tax Analysts had requested, while deleting and withholding the meat. IRS deleted and withheld the legal analysis in the LMs that explained, cited and discussed case law and other authority for the positions and conclusion reached in their corresponding public revenue rulings. IRS also withheld the legal analyses that in many cases explained and refuted legal arguments against that position or conclusion, "contrary arguments." (JA 136, ¶ 1.4; JA 139-144, ¶¶ 1.15, 1.16; JA 149, ¶ 6).8

IRS gave as reasons for withholding this material that to release such material would hinder frank communication within IRS, and its release could confuse the public (JA 136, ¶ 1.4; JA 158-159, ¶¶ 30, 31). IRS' designated witness for LMs, Jody Jean Brewster, who oversaw the the redaction process, testified that her instructions were "to delete anything other than something that was verbatim language from the revenue ruling." (JA 276, p.95). Remarkably, quotations from authorities were not deleted, but the corresponding citations were. (JA 276, pp. 95-96). Ms. Brewster's instructions "included instructions regarding harm." Echoing IRS' official position (JA 136, ¶ 1.4), Ms. Brewster defined that "harm" as creating possible confusion in the public mind. (JA 277, p. 104).

IRS' claim of possible confusion ignores the fact, as testified by Louis Solomon, Publications Manager for P&SI, that the deleted material explains and helps the reader to understand what is in the revenue rulings. (JA 136, ¶ 1.13, 1.14). As the Chief counsel himself admitted, it would not confuse the tax bar and the courts, who indeed would find the deleted material helpful in understanding revenue rulings. (JA 136, ¶ 1.5; JA 137, ¶ 1.7; JA 137-138, ¶ 1.10).

LMs and the legal analysis they contain, especially the analysis of arguments contrary to the interpretation of the tax law, position and conclusion in a revenue ruling, are used by and are helpful to those in IRS and the U.S. Department of the Treasury (Treasury) who must review and approve each issued revenue ruling. (JA 135-136, ¶¶ 1.2, 1.3; JA 137, ¶¶ 1.8, 1.9). If made public, they would be equally useful to the tax bar, taxpayers and the courts. (JA 136, ¶ 1.5; JA 137, ¶ 1.7; JA 137-138, ¶ 1.10; JA 139, ¶ 1.13).

IRS began preparing LMs in 1986. Before then, revenue ruling decision makers' need for legal analysis and rebuttal of contrary arguments was met by GCMs, which IRS kept secret from the public. (JA 144-145, ¶ 1.20). FOIA litigation that ended in 1981 forced IRS to make its GCMs public. (Argument I.B., infra). The number of GCMs prepared and issued declined precipitously once that decision became effective. (JA 144-145, ¶¶ 1.20, 1.21). (Argument II infra). In the rare cases when GCMs were prepared for revenue rulings, LMs were not prepared. (JA 145, ¶ 1.22; JA 192, ¶ 1.22).

LMs now serve the purposes that GCMs used to serve. IRS began preparing LMs to substitute for the fast-vanishing GCMs (JA 146, ¶ 1.26; JA 193, ¶ 1.26) and to serve the sane purposes that GCMs used to serve. (JA 146, ¶ 1.27; JA 194, ¶ 1.27). As GCMs used to, LMs now give to revenue ruling decision makers the needed legal analysis and explanation of the revenue ruling, of the pros and cons of the issue the revenue ruling addresses, the position taken in it and arguments contrary to that position. (JA 145-146, ¶¶ 1.23, 1.24). GCMs in the past and LMs today give anyone reading or trying to apply a revenue ruling a better understanding of the revenue ruling than he or she would gain without it. (JA 139, ¶ 1.14; JA 146, ¶ 1.28; JA 190, ¶ 1.13).

IRS' declarations and IRS 'officials' deposition testimony are in conflict on whether LMs are conformed to the final text of their corresponding revenue rulings or not. The court ignored the deposition testimony and relied exclusively on IRS' Statement of Material Facts, ¶ 21 (JA 154-155, ¶ 21), finding that "[t]here is no formal process . . . whereby the LM is conformed to reflect the final published revenue ruling." 97 F.Supp. at 16.

The court ignored the testimony of Mr.Solomon, that in his division "(w)hen the revenue ruling is changed, the legal memorandum also (is]changed" "every time," so that "the legal memorandum is changed so it accurately relates to the revenue ruling," and "(a)ll of the way through to the point where it goes to Treasury." (JA 215, pp. 76-77).9 The court also ignored the testimony of IRS' Chief Counsel Stuart Brown, that where he wanted substantial changes made to the draft revenue ruling before sending it on to Treasury for final review, "there would have been modifications to the legal memorandum." (JA 263, p.51). Where "major revisions (in the revenue ruling) were necessary . . . the legal memorandum would be changed." (JA 263, p.52).

IRS uses LMs for research. Whenever Chief Counsel attorneys are working on a case to which a revenue ruling is relevant, they are "expected" to look up the LM for that revenue ruling to help on that current work. (JA 136-137, 184-187, ¶ 1.6; JA 269, p. 8). Jody Jean Brewster testified that Mr. Solomon's practice "is not much different from the practices in other offices." (JA 271, p. 68). 1.6; JA 269, p. 8). It is "standard procedure" for Chief Counsel lawyers to look up every LM relevant to the issue in the case they are working on. (JA 136-137, 184-187, ¶ 1.6; JA 214, p.64; JA 231).

The district court ignored the evidence summarized above and instead parroted, as if they were uncontested and unrebutted, IRS' statement of material facts and the declaration of Paul Kugler on LMs, which had not been tested by examination in a deposition. (JA 32-35); 97 F.Supp.2d at 15-18.

TAs

Each of the 22 intradivisional TAs subject of Tax Analysts appeal, identified at 152 F.Supp.2d at 18-20, 24-25, was issued by one of six subject matter ("technical") divisions of the OCC to another OCC component. (JA 350-352, ¶¶ 80, 81). The six issuing divisions were those with jurisdiction over tax law subject matters designated as "Corporate," "Financial Institutions & Products" ("FI&P"), "Income Tax and Accounting" ("IT&A"), Passthroughs and Special Industries ("P&SI), "International" ("Int'l") and "Employee Benefits and Exempt Organizations" ("EBEO").

The district court held six of these TAs10 exempt under the FOIA Exemption 5 attorney work product privilege. 152 F.Supp.2d at 18-20. It held the other 16 intradivisional TAs11 exempt under the Exemption 5 deliberative process privilege. 152 F.Supp.2d at 24-25.

The district court relied on IRS' motion papers to find that the 16 "deliberative process" TAs "result when one component of the OCC advises another component, "i.e., either for the latter to incorporate the advice in a PLR, TAM or FSA, or "to advise on issues of concern to more than one of the OCC's component offices." 152 F.Supp.2d at 24.The court's reliance on IRS' assertion was misplaced. Of the 16 "deliberative process" TAs, nine were requested for incorporation in PLRs; but four were for particular taxpayer cases and three related to activities of a class of taxpayers. Nonerent to "more than one" OCC.

Had the court not accepted IRS' characterization at face value, it might well have decided that the seven TAs that apply the tax laws to particular taxpayers or to classes of taxpayers were not exempt under the deliberative process privilege. IRS' Chief Counsel Stuart Brown testified that "to the extent that [TAs in] particular taxpayer cases set out legal analysis and legal advice . . . citing . . . and analyzing authorities and making arguments," they are "similar to" FSAs. (JA 625-626, pp. 131-32). The court had held five TAs to IRS program managers, relating to particular taxpayers or to application of the tax laws generally, to be indistinguishable from the FSAs held disclosable in the FSA case, 152 F.Supp.2d at 22-23, because those TAs "contain the office of Chief Counsel's interpretation of the law in reference to particular issues." Id. at 23.

The record is undisputed12 that

(1) the TAs subject of Tax Analysts' appeal are legal memoranda presenting the answers to legal questions (JA 341, 378 ¶ 3.3);

(2) the recipients of such TAs are expected to follow them, or if not, raise any disagreement and resolve it. (JA 343, 382 ¶ 3.10); 152 F.Supp.2d 24. The Chief Counsel, Stuart Brown, testified that he "would expect the [TA] to be considered and incorporated by the person who requested it." If the recipient did not "comeback" with an express disagreement the Chief Counsel "would expect that they would follow it" (JA 626, pp.141-43);

(3) the only difference between FSAs and TAs that relate to particular taxpayers is the issuing office; that is, FSAs were issued by the Field Service Division, while such TAs are issued by the subject matter or "technical" divisions (JA 344, 383 ¶ 3.12);

(4) TAs provide broadly applicable interpretations of the tax law (JA 345, 384 ¶ 3.18);

(5) are prepared thoroughly and carefully (JA 345, 384 ¶ 3.19);

(6) are issued where there is uncertainty regarding the interpretation of such published IRS guidance as regulations and Revenue Rulings (JA 345, 384 ¶ 3.20);

(7) are issued in order to provide the issuing office's expertise on the subject within its jurisdiction (JA 345, 384 ¶ 3.22); 152 F.Supp.2d at 24, and

(8) components of chief Counsel that issue TAs keep them on file and use them for research on the issues they deal with (JA 347-348, 386 ¶ 3.28).

The record includes a TA released without deletions, a TA issued by P&SI to the U.S. Department of Agriculture ("USDA"). (JA 638-648). This is an example of the kind of TAs subject to Tax Analysts' appeal. IRS' designated witness on TAs, Paul Kugler, testified that the USDA TA is typical of the intradivisional TAs at issue here, insofar as it "is a thorough explanation of the legal issues that it deals with," includes "citations and discussion of I.R.C.sections;" "citations and discussion of sections of the regulations;" "citation and discussion of revenue rulings," "citation and discussion of decided cases," and comes "to conclusions;" "many" TAs are "of that same character." (JA 634, pp. 92-93). Intradivisional TAs of this sort, thorough and analytical, state "the position of the office that is issuing it." (JA 636, pp. 137-38). When that position is incorporated in the requesting office's work product (e.g., a PLR), the TA is "worthy of (the) respect" accorded to the OCC's statement of a "position on the issue." (JA id.).

SUMMARY OF ARGUMENT13

I.

A.

LMs explain and provide legal analysis in support of IRS revenue rulings. Revenue rulings are formal rulings that specify the tax treatment of transactions and facts stated in them. They bind IRS to apply the same treatment to similar facts. They thus are statements of agency policy and interpretations of the tax law adopted by IRS. They are published in the Internal Revenue Bulletin. LMs accompany draft revenue rulings through the review process until final issuance. They provide IRS and Treasury decisionmakers with necessary backup to understand the purpose and effect of the revenue ruling proposed.

The district court held that LMs were exempt from FOIA disclosure under the FOIA Exemption 5 deliberative process privilege. This was error. Documents that contain the reasons for agency policies "actually adopted" by the agency are the "'working law'" of the agency" and are "outside the protection of Exemption 5." NLRB v. Sears. Roebuck &, Co., 421 U.S. 132, 152 (1975), quoted and applied in Taxation With Representation Fund v, IRS.646 F.3d 666, 678 (D.C. Clr. 1981) ("TWRF"), to the GCMs that LMs have replaced.

B.

LMs contain references to and legal analysis of arguments that could be made against the conclusions reached in revenue rulings. They are used for research, and almost always are rewritten to conform to any changes in a draft revenue ruling. They state and explain IRS' legal position taken in the revenue ruling; they do not precede it. They state IRS' national Office of Chief Counsel's considered view on significant tax law issues. Such documents must be made public under the FOIA. FSA case, 117 F.3d at 617-18.

LMs are IRS agency working law and provide reasons behind revenue rulings not included in the revenue rulings. Such documents are disclosable. Arthur Andersen & Co. v. IRS, 679 F.2d 254, 259 (D.C. Cir. 1982).

II.

Prior to the first preparation of LMs in 1986, IRS prepared GCMs to provide the legal analysis needed to aid decisionmakers in understanding draft revenue rulings. In 1981, this court held GCMs disclosable, rejecting IRS' FOIA Exemption 5 argument. TWRF 646 F.2d at 669, 678-82. On remand from this court's decision, the parties entered into a consent decree to govern disclosure of GCMs, inter alia. Tax Analysts v. IRS, 49 AFTR2d ¶ 82-333 (D.D.C. 1981). One provision of that decree was that if IRS ceased to generate GCMs but began generating other documents with the same function and use, the substituted documents would be disclosable under the terms of the consent decree. LMs have the same function and use that GCMs used to have.They are disclosable under the terms of the consent decree.

III.

The district court resolved numerous facts, disputed on the record, in IRS' favor. In doing so it violated fundamental rules about deciding motions for summary judgment. Forman v. Small, 271 F.3d 285 (D.C. Cir. 2001); Gilvin v. Fire, 259 F.3d 749 (D.C. Cir. 2001); McKenzie v. Sawyer, 684 F.2d 62 (D.C. Cir. 1982).

IV.

The district court held that IRS intradivisional TAs did not contain IRS agency working law and hence were exempt under the Exemption 5 deliberative process privilege. Intradivisional TAs are written by a component of the IRS' OCC to another component that has been assigned to issue a binding interpretation, such as a PLR or TAM, in response to a taxpayer's or revenue agent's request. Such TAs respond to the requesting component's needs for advice and guidance on an identified issue within the first component's expertise.

Under the law of this Circuit spelled out in the FSA case, TAs are agency working law as much as FSAs are. Neither are binding on their recipients; both provide legal interpretations of a subject on which the author is expert; they state OCC's position on a legal issue; both interpret statutes, regulations, revenue rulings and case law; both are prepared in response to requests for legal advice and guidance. TAs fall within the Sears doctrine, p.19 supra, that such nominally internal documents are not exempt under FOIA Exemption 5 if they contain the reasons — in the case of TAs, the required legal analysis and conclusions — behind the adopted PLR, TAM or FSA.

TAs are intended to provide broadly applicable interpretations of the tax law. They constitute agency working law and are not exempt under the deliberative process privilege. FSA case, 117 r.3d at 617-18.

V.

The district court ruled that FOIA's provision requiring segregation of exempt (in this case attorney work product) material from non-exempt (agency working law) material is inapplicable to TAs for which IRS claimed the Exemption 5 attorney work product privilege. The district court erred. IRS' legal materials are subject to the segregability provision of the FOIA, 5 U.S.C. § 552 (b), just like any agency's. FSA case, 117 F.3d at 611, 620; on remand, C.A. No. 94-0923(GK), Op. (May 1, 1998) at 6; see Billington v. U.S. Dep't of Justice, 233 F.2d 581(D.C. cir. 2000); Trans-Pacific Policing Agreement v. United States Customs Service, 177 F. 3d 1022 (D.C. Cir. 1999), and cases there cited. In this Circuit the FOIA segregability provision applies to the agency work product privilege just as it does to any other claim of exemption. Schiller v. NLRB, 964 F.2d 1205 (D.C. Cir. 1992).

VI.

IRS has published in its IRM, in the chapter on disclosure under the FOIA, IRM 1.3, Ch.13, provisions called the "foreseeable harm rule." When considering whether to assert a discretionary FOIA exemption like Exemption 5 (as opposed to mandatory exemptions for, e.g., taxpayer privacy), IRS must decide whether disclosure would cause foreseeable harm to IRS' conduct of its responsibilities or functions. The district court declined to hold IRS bound by its own rule. This was error. Such provisions of the IRM are statements of policy that have the force and effect of law. Sears, supra. Applying the rule could give a FOIA requester a document that not applying it would deny him. In such circumstances the rule is binding and IRS must apply it in this case. Morton v. Ruiz, 415 U.S. 199 (1974); Service v. Dulles, 353 U.S. 363 (1957).

ARGUMENT

I. IRS' Legal Memoranda, LMs, Are IRS Agency Working Law and Are Not Exempt Under the FOIA Exemption 5 Deliberative Process Privilege.

The principles of law that govern the status of LMs are found in two cases decided by this Court and the authorities on which those decisions built. The cases are TWRF and the FSA case. The district court, while giving lip service to these decisions, rejected their teaching. 97 F.Supp.2d at 17. It did so while painting a one-sided picture of the facts relating to LMs, a picture drawn exclusively from IRS declarations submitted after the close of discovery, to the exclusion of deposition testimony of IRS officials.

A. TWRF.

In TWRF the court had before it, in pertinent part, IRS' claims of deliberative process exemption for GCMs. GCMs were legal memoranda prepared within IRS' OCC for, "inter alia," "the review" within IRS "of" proposed revenue rulings. "The GCM sets forth the issues presented" by the proposed ruling, and "contains a lengthy legal analysis of the substantive issues, and the recommendations and opinions of the Office of Chief Counsel." 646 F.2d at 669.

The court explained the guiding principle for distinguishing between exempt, deliberative documents and agency working law:

In analyzing any document for which protection against disclosure is sought under the deliberative process privilege in Exemption 5, it is well to recall the words of the Court in Sears:

[T]he public is vitally concerned with the reasons which did supply the basis for an agency policy actually adopted. These reasons, if expressed within the agency, constitute the "working law" of the agency and have been held by the lower courts to be outside the protection of Exemption 5. . . .

646 F.2d at 678, quoting Sears, 421 U.S.at 152.

After spelling out the characteristics of GCMs and the process by which they were created, the court concluded:

The GCM explains rulings issued by the Assistant Commissioner, and it serves as an interpretative guide and research tool for agency personnel. We are thus persuaded that GCMs function as a body of "working law" within the IRS.

646 F.2d at 682.

Two factors that particularly influenced the court were (1) that after the final decision on the text of the revenue ruling, "the GCM is modified and rewritten 'to represent the position taken in the ruling,'" 646 F.2d at 669-70, and (2) that GCMs were retained and used for research in later projects. Id. at 670; see id. at 682-83.

The record establishes that LMs have taken the place of GCMs. LMs do, as GMs did, provide explanation and analysis of issues of tax law to be decided in revenue rulings. (Statement of Facts, pp. 11-14 supra). Thus LMs do "supply the basis for an agency policy actually adopted": IRS' revenue rulings. They provide "reasons . . . expressed within the agency." LMs are, by these criteria, "the 'working law' of the agency." TWRF, quoting Sears, supra.

Moreover, while not indexed and widely distributed as GCMs were, 646 F.2d at 670, LMs nonetheless are used for research as a "standard procedure." (Statement of Facts, p. 16 supra). While not always formally "rewritten" to reflect the final IRS position in the revenue ruling, 646 F.2d at 669-70, 682, most LMs are changed in the review process to reflect any changes in the draft revenue ruling as it moves up the line "so it accurately relates to the revenue ruling." (Statement of Facts, pp. 14-15 supra).

B. The FSA case.

The FSA case expands and illuminates the principles announced in TWRF. Under the doctrines there set forth, at the very least those LMs (most of them) that are conformed to the final revenue ruling are agency working law and are not exempt under the deliberative process privilege. Similarly, LMs prepared for draft revenue rulings that survive the review process unscathed are non-exempt agency working law. Such LMs are "considered statements of the agency's legal position," and "cannot be viewed as predecisional." 117 F.3d at 617. These LMs "do not precede the decision regarding the agency's legal position." They are contemporaneous with, parallel to and explanatory of IRS' "legal position," announced to the public in revenue rulings. "Representing the considered view of the Chief Counsel's national office on significant tax law issues, FSAs do not reflect the give-and-take' that characterizes deliberate materials." Id.

LMs, like the FSAs at issue in the FSA case, state, explain, analyze and discuss authority relevant to views contrary or alternative to those expressed in the revenue rulings. They then rebut or refute those contrary views, also with analysis of authority. (Statement of Facts, p. 14 supra).14 Thus like FSAs, LMs

evaluate the strengths and weaknesses of alternative views. But that does not make them deliberative. 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.

117 F.3d at 617.

As it does here for LMs,15 IRS asserted in the FSA case that disclosure would affect the decision making process adversely; " 'unless protected from public disclosure, information of that type would not flow freely within the agency, ' " 117 F.3d at 617, quoting Central, Inc, v. Department of the Air Force, 566 F. 2d 242, 256 (D.C. Cir. 1977). Id. at 617. If they were disclosed,

the argument continues, officials who request and prepare these documents might be subjected to pressure from those who disagree with their reasoning, and to criticism when the advice turns out to be ill-considered. The argument proves too much. Whenever an agency's actions are opened to public view, the agency exposes itself to pressure and criticism.

117 F. 3d at 618.

"To paraphrase the comparison of FSAs and TAMs in the FSA case, "both types of documents," LMs and FSAs, "reflect the law the government is actually applying in its dealings with the taxpaying public." Id. at 618. TAMs, Technical Advice Memoranda, have been public documents since 1976. IRC § 6110(a), (b)(1). The FSA court round that since 1976 "IRS has offered no evidence that disclosing technical advice pursuant to § 6110 has harmed the agency or has inhibited it in reaching legal judgments." Id. at 618. FSAs have been public beginning in 1990. IRS never has claimed that their publication has "harmed the agency or inhibited it in rending legal judgments." IRS' cry of "wolf!" is as misplaced for LMs as it has turned out to be for TAMs and FSAs.

IRS also argued in the FSA case, as it argues here (Statement of Facts, p. 12 supra; p. 27 n. 15 supra). that this court had

identified as purposes of the deliberative process privilege "protect[ion] against premature disclosure of proposed policies" and "protect[ion] against confusing the issues and misleading the public by dissemination of documents suggesting reasons and rationales for a course of action which were not in fact the ultimate reasons for the agency's action."

117 F.3d at 618 (citation omitted). But, as this court continued,

[n]either of these purposes warrants a cloak of secrecy around FSAs. As discussed above, FSAs are statements of the agency's legal position, and there is nothing premature or misleading about disclosing them. Even if an FSA reflects a view eventually rejected by a field official, it still represents the opinion of the national office of the Office of Chief Counsel, and the public can only be enlightened by knowing what the national office believes the law to be.

Id.

All we need do is substitute "LMs" for "FSAs" in that statement. It is as apt for the one as for the other.

C. The District Court Erred in Relying on Arthur Anderson v. IRS.

Instead of following TWRF and the FSA case, the district court equated LMs with the BINs, "Background Information Notes," mentioned in Arthur Andersen v. IRS, 679 F.2d 254 (D.C. Cir. 1982). 97 F.Supp.2d at 16-17. This was error. Unlike LMs, BINs are one or two page forms, a table of contents for the revenue ruling publication package that travels through IRS and Treasury as the draft revenue ruling Is reviewed. (JA 213-214, pp. 55-57). LMs are one of the classes of documents listed in the BIN.16

The district court's reliance on Arthur Andersen is misplaced. The documents at issue in Arthur Andersen were not LMs; they were the drafts of revenue rulings that eventually became Rev. Rule 77-284. Unlike LMs, nothing in the drafts explained the published ruling; they contained "no policy or reasons . . . not contained in the ruling ultimately published." 679 F.2d at 259. Therefore, the court held, "these documents could not and do not serve as agency 'working law, ' providing substantive guidance in future decisions." Id.

LMs, in contrast, are replete with material not contained in the published revenue rulings. They "discuss the pros and cons of the issue involved, both the positions formally adopted and any contrary arguments and rebuttals to those contrary arguments that exist." (JA 214, p. 66). They discuss "policy considerations" (JA 215, p. 67). That kind of material in LMs, what the Arthur Andersen court would have considered disclosable agency working law, is precisely what IRS has refused to disclose in LMs. (JA 217-227, pp. 99-190; JA 281-304).17 IRS' Vaughn index summarizes the type of material deleted: "legal analysis and policy considerations . . . regarding a proposed revenue ruling;" "potential legal and policy arguments that may be made in opposition to the conclusion reached in the proposed revenue ruling, which was ultimately issued " "a legal argument and cites to legislative history;" "relevant to be applied in resolving an issue;" "cites to two Revenue rulings . . . and one section of the Code;" "legislative history;" "argument that may be made to counter the conclusion reached in the memorandum," and "a potential argument to rebut [that] argument."

LMs, in short, explain the content of the published revenue ruling and provide to the reader a better understanding of the revenue rulings and their effect — just as GCMs used to do. (JA 222, pp. 145-147).18

The district court did not even mention these essential facts. 97 F.Supp.2d at 15-18. Doing so, the court twice erred: in holding that LMs are not agency working law standing alone, and in holding that LMs were not substitutes for GCMs and therefore disclosable under the consent decree in TWRF.

II. IRS was substituted LMs for GCMs. The Consent Decree in TWRF Requires That LMs Be Made Public.

As set out in the Statement of Facts and explained in I.B., supra, prior to 1986, the year in which IRS began preparing LMs, IRS' GCMs provided the explanation and legal analysis that IRS decisionmakers needed to review draft revenue rulings, to finalize and approve then for publication. LMs did not yet exist.

After the D.C. Circuit issued its decision and opinion in TWRF. the case went back to the district court to frame relief. Tax Analysts V. IRS,19 49 AFTR2d ¶ 82-333 (D.D.C. 1981) at 82-422. The result was a consent order that provided, in pertinent part, tor release of GCMs, both future, id. at 82-422, 423, and past, back to July 4, 1967, the effective date of FOIA. Id. at 82-423.

The consent order provided that IRS had no obligation to continue to produce GCMs. The consent order recited, however, that

defendant (IRS) agrees that, in the event that it discontinues generating GCMs, . . ., and instead develops other documents which have the same function and use as GCMs, . . ., but are called by a different name, the provisions tale order shall apply to such documents.

Id. at 82-424.

As the consent decree envisioned and provided for, IRS has "discontinue[d] generating GCMs." In 1986, just before LMS were created, IRS had prepared 142 GCMs for 158 revenue rulings. Since then IRS virtually ceased issuing GCMs. By 1995 the number was three GCMs for 81 revenue rulings. (JA 264, p. 75; JA 268). The trend has continued downward. Only one GCM was issued in 1996 and one in 1997. Exactly zero were issued in 1998, 1999 and 2000.20

LMs substitute for, "have the same function and use" as GCMs. They serve the same purposes. (JA 265-266, pp. 110-11). The Chief Counsel, Stuart Brown, testified that both LMs and GCMs "relate to revenue rulings and contain discussions of the facts and the law that is reflected in the revenue rulings." (JA 266, p. 113).21 Both "contain contra-arguments." Id.

There are differences between them, but of form, not of substance. GCMs were a formal "legal opinion" from the Chief Counsel to the IRS official who before 1986 issued revenue rulings, the Assistant Commissioner (Technical). (JA 266, p. 114). That position was abolished and the revenue ruling function was transferred to the Office of Chief Counsel. LMs now serve "the decision making process in the office of Chief Counsel" as "internal law firm memos." (JA 266, pp. 112-14). But both are an expanded discussion of the authorities cited in a revenue ruling:

Q. Those authorities and other authorities were explained and analyzed and expanded upon at much greater length in the GCM when they were being done; isn't that correct?

A. Yes.

Q. Isn't the same thing correct of legal memos?

A. Yes.

(JA 266, p. 116).

The evidence amply demonstrates that LMs "have the same function and use as GCMs," i.e., to provide the revenue ruling decisionmakers with a full discussion of the facts and the law, a legal explanation and analysis of the revenue ruling and its effects, including discussion of contrary arguments and IRS' rebuttal to them. The district court's exegesis of the differences between LMs and GCMs, 97 F.Supp.2d at 17-18, cannot obscure their identical function and use.

The district court's acceptance of IRS' explanation for the demise of LMs, Id. at 17 n. 6, likewise is irrelevant. The issue is not why GCMs were discontinued, but whether LMs "have the same function and use." As we have shown, they do, and the TWRF consent decree requires their disclosure.

III. The District court Erred in Deciding Disputed Issues of Fact in Favor of IRS.

The district court relied for its facts exclusively on IRS' statement of material facts filed pursuant to LCvR 7.1(h), which in turn relied entirely on IRS' declarations. Statement of the Case, PP. supra; 97 F.Supp.2d at 16. The district court ignored disputes in the facts that Tax Analysts spelled out, with citations and quotations from the deposition record, in a response to IRS' opposition to Tax Analysts' statements of material fact. (JA 179-94). The disputes were about facts going to the heart of the question whether LMs are agency working law: whether LMs "supplement the legal analysis in revenue rulings" (JA 179-81); whether publication of LMs would or would not "confuse" knowledgeable tax professionals, including judges of the Tax Court (JA 181-84); whether LMs are or are not used for research (JA 184-87, 189); whether an LM does or does not explain its published revenue ruling or help to understand it (JA 189-91), and whether LMs do or do not serve the same purposes as and substitute for GCMs (JA 193-94). And compare 97 F.Supp.2d at 16 with the facts and supporting record citations in Statement of Facts, pp. 12-15 supra, and I. and II., supra at pp. 25-28, 29-30, 32-33.

The district court plainly erred. Gilvin v. Fire, 259 F.3d at 756:

we may affirm only if "there is no genuine issue as to any material fact (and) the moving party is entitled to judgment as a matter of law." A dispute about a material fact is "genuine" if a reasonable jury, drawing all reasonable inferences in Gilvin's favor, could return a verdict against the defendants.

Applying these standards, we conclude that the district court erred in granting summary judgment. . . .

(Citations omitted).

The district court also erred in its wholly one-sided crediting of IRS' evidence and disregard of Tax Analysts' evidence. "[T]he court must view the record in the light most favorable to the nonmoving party, according that party the benefit of all reasonable inferences." Forman v. Small, 271 F.3d at 291, citing Andersen v. Liberty Lobby, Inc., 477 U.S. 342, 255 (1986). While here both parties moved for summary judgment, the court's grant of IRS' motion and denial of Tax Analysts' motion put Tax Analysts in the position of the nonmoving party for these purposes. see McKenzie v. Sawyer, 684 F.2d at 68 n. 3;22 Vetter v. Frosch, 599 F.2d 630, 632 (5th Cir. 1979).

The Liberty lobby doctrine applied in Forman is not abstract. The quality of the evidence is part of the equation. Tax Analysts' evidence, accumulated by oral examination of adverse witnesses, officials of IRS' OCC, is inherently more reliable and worthy of credit than IRS' canned declarations, submitted after discovery closed, on which the district court exclusively relied. 10A C. wright, A. Miller, M. Kane, Federal Practice and Procedure; Civil § 2722 at 373 (3d ed. 1998).23

This court's "review of the [district court's] grant of summary judgment [to IRS] is de novo." Forman, supra. id. Should the court find that the undisputed facts laid out in the Statement of Facts and Argument I. supra are inadequate to support reversal or the district court's grant of summary judgment to IRS on the we urge the court to reverse and remand for trial on the question whether LMs are agency working law to which the FOIA Exemption a deliberative process privilege does not apply.

IV. Intradivisional TAs Are Agency Working Law and May Not Be withheld Under the POIA Exemption 5 Deliberative Process Privilege.

A. "Agency Law" in This Circuit.

The FSA case establishes the characteristics that make IRS' legal materials IRS working law. TAs have those same characteristics. Where the purposes of legal materials are to ensure that IRS personnel "apply the [tax] law correctly and uniformly," i.e., to ensure "'the promotion of uniformity' throughout the country on significant questions of tax law," id. at 6117, and to provide "legal guidance," 117 F.3d at 609; where they are "generally fallowed," 117 F.3d at 609; where they contain “ legal interpretations and analyses," id. at 612, and "legal interpretations of statutes, rules, regulations and judicial opinions, and the legal conclusions flowing from those interpretations," id. at 613, they are agency working law that must be made public under FOIA.

If the Office of Chief Counsel renders an interpretation of a certain section in the tax code, whether in an FSA or elsewhere, that Interpretation should apply to all other taxpayers who are, in material respects, similarly situated. Treating like cases alike is, we have said, "the most basic principle of jurisprudence." . . . the principle fully applies to those who administer the federal tax laws. The IRS itself recognizes that to fulfill its mission it must ensure "uniform interpretation and application of the tax laws." When Congress amended the tax code in 1976 to require the IRS to disclose Private setter Rulings and Technical Advice Memoranda, of which more hereafter, it did so because "the secrecy surrounding" these written determinations "has generated suspicion that the tax laws are not being applied on an evenhanded basis."

117 F.3d at 614 (emphasis added; citations omitted).

For those reasons OCC's "legal conclusions . . . constitute agency law, even if those conclusions are not formally binding." Id. at 617. Legal materials that contain "considered statements of the agency's legal position," id., that contain "the considered view of the Chief Counsel's national office on significant tax law issues," id., "represent the opinion of the national office of Chief Counsel, and the public can only be enlightened by knowing what the national office believes the law to be." Id. at 618.

The courts will not permit agencies to keep such materials hidden, "to develop a body of secret law." Id. at 617 (citations and internal quotation marks deleted). For that proposition the FSA court cited, inter alia. Professor Kenneth Culp Davis' seminal treatment of the FOIA. The Information, Act; A Preliminary Analysis. 34 U. Chi. L. Rev. 761 at 797 (1967). There Professor Davis wrote that FOIA requires "disclosure of all 'opinions and interpretations' which embody the agency's effective law and policy."

These principles apply directly to the TAs at issue in this case. TAs are among the "elsewhere" to which the FSA court presciently referred in its core holding, 117 F.3d at 614, quoted at p. 37 supra.

B. Intradivisicnal TAs.

Intradivisional TAs are prepared by one component of the Office of Chief Counsel for another. The component issuing such a TA (say, IT&A for an accounting issue) is providing expert advice and opinion on that issue for another component (say, Corporate) that is preparing a PLR, a TAM or an FSA with respect to a particular case involving a taxpayer or group of taxpayers. See 152 F.Supp.2d at 24. The final product is published; see IRC § 6110(a), (i).

The district court had before it a sample of 16 "intradivisional" TAs. 152 F.Supp.2d at 24-25. IRS' Vaughn index states that each of them relates either to a particular individual taxpayer (JA 440, 448, 461, 467, 473, 480, 487, 507, 518, 525, 532, 538) or to a particular, identifiable group or class of taxpayers (JA 454, 495, 501, 512). At the threshold, therefore, as agreed in the parties' statements of material facts, "the only difference between FSAs and taxpayer-specific TAs is the originating or issuing office; i.e., in Domestic, FSAs are issued by the Field Service Division of Domestic while TAs are issued by the technical divisions." (JA J44, 383, ¶ 3.12). The district court ignored these stipulated facts.

The district court also ignored the many similarities between intradivisional TAs and FSAs. Both are prepared by attorneys in the national office of the Chief Counsel for the IRS. (JA 700-703); 117 F.3d at 609. Both are prepared in response to requests tor legal guidance or legal advice from other Chief Counsel attorneys or from the IRS. (JA 700-703); 117 F.3d at 609, 616. Both contant legal analysis (e.g., JK 440); 117 F.3d at 612. Both provide legal advice about the tax laws (e.g., JA 448); 117 F.3d at 616. Both contain legal interpretations of statutes, rules, regulations, revenue rulings and judicial opinions. (JA 440-542); 117 F.3d at 613.

The district court noted that these intradivisional TAs "provide the issuing office's expertise on a subject within its jurisdiction," 152 F.Supp.2d at 24, as the parties' statements of material facts also agreed.24 Still, the district court held that intradivisional TAs were not disclosable as agency working law and were exempt under the deliberative process privilege. Id. at 24-25. The district court found dispositive the fact that "most importantly, the advice contained in these intradivisional TAs are (sic) subject to modification or rejection prior to the finalization into the final work product." Id. at 24. Thus to rely on the fact that TAs are not binding on the recipient component was error.

The parties' statements of material facts agreed that "[o]ne or the purposes of issuing TAs is to provide a broadly applicable interpretation of the tax law," and therefore TAs "are prepared thoroughly and carefully." (JA 345, 384, ¶¶ 3.18, 3.19). The district court ignored this fact, which establishes that "one of the main functions" of TAs, like of FSAs, "is 'the promotion of uniformity' throughout the country on significant questions of tax law," and their "legal conclusions . . . constitute agency law, even if those conclusions are not formally binding." FSA case, 117 F.3d at 617. It matters not, therefore, that the recipient component “may not necessarily agree with the conclusions contained in" the TAs. Id. As with FSAs, the "interpretation" in a TA "should apply to all other taxpayers who are, in material respects, similarly situated." 117 F.3d at 614. By providing "broadly applicable interpretation(s) of the tax law" in TAs, IRS uses TAs, as it does FSAs, "to develop a body of coherent, consistent interpretations of the federal tax laws nationwide." Id. at 617.

The district court took no account of the testimony of Chief Counsel Stuart Brown on the authoritative character of TAs, that he "would expect the technical assistance to be considered and incorporated by the person who requested it and not to be ignored" (JA 626, p. 141), that "[i]f the person who requested the technical public guidance, as IRS' designated witness testified they do, p. 41, supra, the expert component that prepares and transmits the TA is pronouncing the agency working law on that issue. Intradivisional TAs state "the reasons which did supply the basis for an agency policy actually adopted." Sears, supra. "These reasons," which are "expressed within the agency" in TAs, “constitute the working law" of IRS and are "outside the protection of Exemption 5." Id.

V. The Agency Working Law in TAs Prepared for Use in Litigation Should Be Segregated Out And Disclosed While withholding True Attorney Work Product.

The district court held that IRS was entitled to withhold six TAs in their entirety under the Exemption 5 attorney work product privilege. 152 F.Supp.2d at 18-19. Each of the six was intended for use in a particular individual taxpayer's case. (JA 544, 553, 562, 575, 583, 591). As the parties agree, the only difference between such TAs and FSAs is the identity of the originating component of the Office of Chief Counsel. (JA 344, 383 ¶ 3.12), quoted at pp. (32-33) supra).

In the FSA case, having held that FSAs are agency working law documents, this court declared "[w]e agree with the district court, that no blanket exemption applies to all of the requested FSAs, and they must be released to Tax Analysts except to the extent that they are protected by some specific FOIA exemption." 117 F.3d at 620. This court continued, "[a]s the district court ordered, the IRS may redact any true return information or attorney work product from the FSAs." Id.

On remand, IRS argued that this court had authorized withholding in their entirety of FSAs prepared for cases in litigation under the attorney work product privilege. Tax Analysts v. IRS, C.A. No. 94-0923 (GK), Opinion (May 1, 1998) at 6. The district court disagreed.

[U]nder the IRS analysis, the basic thrust of the Court of Appeals opinion that agency working law is disclosable under FOIA would be eviscerated. This cannot be the result intended by the Court of Appeals. Given the entire tenor of the Court's opinion, it is clear that however "work product" is defined, and therefore redacted, the requester is entitled to the agency working law, legal analysis, and conclusions, so long as "the mental impressions, conclusions, opinions, or legal theories of an attorney" are protected. 117 F.3d at 619.

Id.

The district court below disagreed with the FSA district court, Instead "agree[ing] with IRS that even assuming that portions of the TAs at issue constitute IRS' working law, this information is still protected by the attorney work product privilege." 152 F.Supp.2d at 18-19. The court below relied on Federal Open Market Committee v. Merrill, 443 U.S. 340, 360 n. 23 (1979) ("FOMC"), which reads:

In this respect, we note that Sears itself held that a memorandum subject to the affirmative disclosure requirement of § 552(a)(2) was nevertheless shielded from disclosure under Exemption 5 because it contained a privileged attorney's work product. 421 U.S. [132] at 160 [(1976)].

The holding of the court below was error and its raliance on FOMC wholly misplaced. The district court ignored altogether the seqregability provision of the FOIA at the foot of 5 U.S.C. § 552(b). That flush language is applicable to all the exemptions in § 552(b)(1)-(9), including Exemption 5, § 552(b)(5), and its incorporated privileges. The statute there provides:

Any reasonably segregable portion of a record shall be provided to any person requesting such record after deletion of the portions which are exempt under this subsection. The amount of information deleted shall be indicated on the released portion of the record, unless including that indication would harm an interest protected by the exemption in this subsection under which the deletion is made. If technically feasible, the amount of the information deleted shall be indicated at the place in the record where such deletion is made.

The Senate report explains the purpose of this provision.

[The segregability requirement] emphasizes what is presently understood by most courts but has gone unheeded by agencies; it would not be enough for the government to refuse disclosure of the record merely because, it or the file it was in, contained such exempt information, since deletion of information would provide full protection for the purposes to be served by the exemption. Thus, the government could not refuse to disclose the requested records merely because it finds in those records some portions which may be exempt.

S. Rep. No. 854, 93rd Cong., 2nd Sess. (1974) at 31-32.

A. The Dicta in FOMC Relies on Sears.

The court below recognized that the attorney work product privilege was not at issue in FOMC.25 The court below acknowledged that the passage in footnote 23 of FOMC was "dicta." 152 F.Supp.2d at 18 n. 29.

The district court also recognized that footnote 23 in FOMC was in essence a gloss on one of the holdings in Sears, 421 U.S. at 153-54 (1975), that the attorney work product privilege exempted from disclosure even agency working law otherwise disclosable under 5 U.S.C. § 552(a)(2). FOMC, as the language makes clear, merely repeats Sears' holding to bolster the decision in FOMC to recognize a FOIA privilege for confidential commercial information. FOMC, 433 U.S. at 360. There is no reference in the FOMC opinion to FOIA's segregability provision, no indication that the provision was brouqht to the FOMC court's attention or even any indication that it would have been relevant.

B. Sears Is Not Controlling or Even Applicable To Whether FOIA Segregability Applies to Attorney Work Product.

What the court below failed to recognize was that the segregability provision of FOIA, 5 U.S.C. § 552(b) (flush language) was never put in issue in Sears. Neither side argued segregability in the district court or court of appeals, see 346 F.Supp. 751 (D.D.C. 1972), aff'd without opinion, 480 F.2d 1195 (D.C. Cir. 1973), nor in the Supreme Court. Indeed, the amendment to FOIA that included the segregability provision was not enacted until briefing and argument in Sears had been concluded.

The § 552(b) flush language, the segregability provision, as well as the other provisions strengthening FOIA that Congress enacted in 1974 over the President's veto, did not become effective until February 19, 1975. Joint Committee Print, Freedom of Information Act and Amendments of 1974 (P.L. 93-502), Source Book: Legislative History, Texts and Other Documents, 74th Cong., 1st Sess. (1975) at 116. Sears was argued on January 14, 1975. As in the lower courts, the parties' briefs and oral argument before the Supreme Court, completed before the segregability provision became law in the 1974 amendments, did not refer to segregability. On such a record the Sears Court likewise would have had no occasion to mention it, and did not.

C. The Segregability Requirement Applies to IRS and Is Held in This Circuit to Apply to Attorney Work Product Records.

The statutory requirement that nonexempt information be segregated from exempt information and released is stated explicitly in IRS' own regulations, 26 C.F.R. § 601.701(b)(3), cited in the FSA case. The regulation provides:

Segregable portions of records. Any reasonably segregable portion of a record shall be provided to any person making a request for such record, after deletion of the portions which are exempt under 5 U.S.C. 552(b). . . . The term "reasonably segregable portion" as used in this subparagraph means any portion of the record requested which is not exempt from disclosure under 5 U.S.C. 552(b), and which, after deletion of the exempt material, still conveys meaningful information which is not misleading.

117 F.3d at 611 (emphasis added). The segregability principle, explicit in statute and regulation, limits claims of exemption to "discrete units of information." Billington v. U.S. Dep't of Justice, 233 F.3d 581, 586 (D.C. Cir. 2000). To withhold an entire document, all units of information in that document must fall within a statutory exemption. See Trans-Pacific Policing Agreement v. United States Customs Service, 177 F.3d 1022, 1027 (D.C. Cir. 1999), where this court held, citing a long list of its prior decisions, id. at 1026-28, that "[i]t has long been a rule in this Circuit that nonexempt portions of a document must he disclosed unless they are inextricably intertwined with exempt portions."

The rule is emphatically the law in this Circuit. "A district court that simply approves the withholding of an entire document without entering a finding of segregability or the lack thereof, errs." Krikorian v. Dep't of State, 384 F.2d 461, 467 (D.C. Cir. 1993) (internal quotation marks omitted); Schiller v. NLRB, 964 F.2d 1205 (D.C. Cir. 1992),

Schiller holds that the segregability requirement applies to documents for which an agency claims the FOIA Exemption 5 work product privilege. There the agency had withheld some material claiming Exemption 5 attorney work product. The Court of Appeals agreed, 964 F.2d at 1208, and "affirm[ed] the district court to the extent that it found that each of the withheld documents contains information privileged under FOIA." Id. at 1210. However, "[b]ecause the district court approved the withholding of all five documents without entering a finding on segregability or the lack thereof, we remand this case for further proceedings to determine whether or not the documents contain passages that can be segreqated and disclosed." Id. The court held that "the focus in the FOIA is on information, not documents and an agency cannot justify withholding an entire document simply by showing that it contains some exempt material." Id. at 1209.

Both Billington and this court's FSA decision hold IRS bound try the segregability provision of FOIA. Billington holds:

Under FOIA, "any reasonably segregable portion of a record shall be provided to any person requesting such record after deletion of the portions which are exempt under this subsection." 5 U.S.C. § 552(b). This segregability requirement limits claims of exemption to discrete units of information; to withhold an entire document, all units of information in that document must fall within a statutory exemption.

233 F.3d at 586 (emphasis added).

In the FSA case, IRS had contended that FSAs were exempt in their entirety. The court roundly rejected the argument. 117 F.3d at 611. As to IRS' claims of attorney work product, as we noted, pp. 43-44 supra, this court instructed IRS to release the FSAs while redacting "true . . . attorney work product." The district court followed that holding and, applying the segregability provisions of the FOIA, ordered IRS to release the agency working law in FSAs while withholding true attorney work product. Id. IRS has been releasing FSAs ever since, see Pub. L. 105-206, § 3509(d)(2), 112 Stat. 772-74 (1998), without apparent difficulty or ill effect.

The district court below ignored the segregability doctrine of the FOIA, Trans-Pacific, Billington and the FSA case. It did take account of, but declined to follow Schiller. 152 F.Supp.2d at 29 and id. n. 4. It simply ignored Schiller's explicit direction to the district court "to determine whether or not the documents," that the agency had withheld on an attorney work product claim, "contain passages that can be segregated and disclosed." 964 F.2d at 1209.

VI. IRS' Foreseeable Harm Rule Is Binding and Enforceable.

A. The District Court's Decisions.

In its first decision in this case the district court rejected Tax Analysts' argument

that the IRS bears the additional burden of demonstrating that it has complied with the so-called harm rule in the Internal Revenue Manual ("IRM"), which provides in relevant part that the IRS "will grant a request under [FOIA] . . . unless the record is exempt from required disclosure under the FOIA and public knowledge of the information contained in the record would significantly impede or nullify IRS actions in carrying out a responsibility or function, or would constitute an unwarranted invasion of personal privacy." IRM Part 1230, § 293(2).

97 F.Supp.2d at 15 n. 3.

The district court held that the IRM did not show "that the IRS intended to be bound by this language." Id.

After that decision IRS substantially revised and expanded the IRM's foreseeable harm rule provisions. See IRM 1.3, Ch. 13. Tax Analysts moved to reconsider. The district court denied the motion. 152 F.Supp.2d at 7-8. Again the court found that IRS did not intend to be and hence was not bound by its manual rule. Id.26

IRM 1.3, Ch. 13, derives from and cites to an IRS Policy Statement, P-1-192. The policy statement declares:

The Internal Revenue Service will grant a request under the Freedom of Information Act (5 USC 552) for a record which we are not prohibited from disclosing by law or regulations unless: (a) the record is exempt from required disclosure under the Freedom of Information Act; and (b) public knowledge of the information contained in such record would significantly impede or nullify IRS actions in carrying out a responsibility or function, or would constitute an unwarranted invasion of personal privacy.

(Emphasis added). The policy is restated in Ch. 13 in mandatory terms: "Careful consideration of the [nine FOIA] exemptions and the 'harm' standard is required for reviews of responsive records." IRM 1.3.13.7.2 § (1) (emphasis added).

B. The Foreseeable Harm Rule Is an IRS Statement of Policy That Is Enforceable as Law.

The IRM itself refutes the district court's holding. It provides:

1.2.1 Policies of the Internal Revenue Service (03-15-2000) This IRM contains all existing statements of Service policy. . . . [T]he policy statements apply to all Service personnel involved in the type of program, activity, function, or work process covered by the policy statements.

Such policy statements, adopted by IRS, must be (and the IRM is) published as "reading room" material. 5 U.S.C. § 552(a)(2)(B). As such they — including the IRM sections cited here — are objects of "an affirmative congressional purpose to require disclosure of documents which have 'the force and effect of law.'" Sears, 421 U.S. at 153-54, quoting H.R. Rep. No. 89-1497, 89th Cong., 2nd Sess. (1966) at 7. Such published statements of policy "give the public notice of what the law is so that each individual can act accordingly." Smith v. NTSB, 981 F.2d 1326, 1328 (D.C. Cir. 1993). The statements of policy in the IRM, including the foreseeable harm rule, are "law." As such they bind the agency.

C. IRS Is Bound By a Rule That Affects the Rights of the Public to Obtain Documents.

A long-established principle binds agencies to follow their own internal rules if those rules affect the rights of the public. If applying an internal rule would provide a benefit to members of the public that not applying It would deny them, the agency is bound to apply its rule.

This principle requires IRS to apply its foreseeable harm rule to, inter alia, LMs and TAs. IRS' foreseeable harm rule is outcome determinative. That is, if it is applied and no harm is found, a member of the public, a FOIA requester, could receive a benefit — release of requested documents — that he would not receive if it were not applied. The rule affects the rights of individuals, and, the Supreme Court holds, "where the rights of individuals are affected, it is incumbent upon agencies to follow their own procedures. This is so even where the internal procedures are possibly more rigorous than otherwise would be required." Morton v. Ruiz, 415 U.S. at 235. In such a case an agency "must comply, at a minimum, with its own internal procedures." Id.

Morton cited and relied on Service v. Dulles, 353 U.S. at 388, and Vitarelli v. Seaton, 359 U.S. 535, 539-40 (1959). In Service the Court required the Secretary of State to abide by Department rules relating to removal of employees for security reasons, even though the rules were more rigorous than statutory law required and even though the Department's action was discretionary. The Court there declared that 'regulations validly prescribed by a government administrator are binding upon him as well as the citizen, and . . . this principle holds even when the administrative action under review is discretionary in nature." Service, 354 U.S. at 372. FOIA Exemption 5, which IRS claims to exempt LMs and TAs, is "of a discretionary nature," IRM 1.3.13.7.1, ¶ (3), and "should not be asserted unless . . . a foreseeable harm can result from the disclosure.” Id. ¶ (5).

Like the Department of State in Service, here IRS "was not obligated to impose on [itself] those more rigorous . . . standards," by which it binds itself not to invoke FOIA exemptions except where disclosure would result in foreseeable harm. However, "neither was [it] prohibited from doing so . . . and having done so [it] could not, as long as the regulations remained unchanged, proceed without regard to them." Service, 354 U.S. at 388 (emphasis added).

The rule announced in Morton and Service is embedded in our law. See Webster v. Doe, 486 U.S. 592, 602 n. 7 (1988); EEOC v. Shel Oil Co., 466 U.S. 54, 67 (1984); United States v. Nixon, 418 U.S. 689, 695-96 (1974); Vitarelli v. Seaton, 359 U.S. at 539; U.S. ex rel. Accardi v. Shaughnessy, 347 U.S. 260 (1954).27

CONCLUSION

The decisions of the district court approving IRS' withholding of LMs and intradivisional TAs should be reversed.

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

December 21, 2001

FOOTNOTES

1The IRM is available in IRS' reading room as provided in 5 U.S.C. § 552(a)(2)(B) and (C) and is published commercially in print and CD-ROM formats.

2The documents were LMs; TAs, both those transmitted within IRS' national office (Washington, D.C. headquarters) ("intra-national office TAs") and those sent to "the field," i.e., IRS regional and district offices; Field Service Advice Monthly Reports ("FSA Reports"); Pending Issue Reports ("PIRs"); Litigation Guideline Memoranda ("LGMs"), and Tax Litigation Bulletins ("TLBs").

3The legislation came about after IRS had tried and failed to persuade the House Ways and Means Committee to adopt a bill drafted by IRS that would have overturned in major part the decision of this court in Tax Analysts v. IRS, 117 F.3d 607 (D.C. Cir. 1997) ("the FSA case). Immediately thereafter Tax Analysts and IRS engaged in negotiations brokered and overseen by then Assistant Secretary of the Treasury for Tax Policy Donald Lubick. The negotiations resulted in agreement on legislation to be proposed to Congress via the Joint Committee on Taxation. Congress enacted the legislation as § 3509 of Pub. L. 105-206, the Internal Revenue Service Restructuring and Reform Act of 1998, 112 Stat. 685, 772-74 (July 22, 1998). Section 3509 provided for disclosure of future LGMs, TLBs and TAs to the field through a new code section, §6110(i), and, through transition rules, of past LGMs, TLBs and TAs to the field including those then at issue in this case. Pub. L. 105-206, § 3509(d)(2). See H. Rep. 105-599, Internal Revenue Service Restructuring and Reform Act of 1998, Conference Report to Accompany H. R. 2676, 105th Cong., 2nd Sess. at 298-302 (1998). The parties later agreed to disclosure of FSA Reports and PIRs (JA 125-129).

These events left disclosure only of LMs and intra-national office TAs for decision by the district court, and those records are at issue in these appeals.

4The court also ruled on IRS' Exemption 5 attorney-client privilege, claims. Tax Analysts does not appeal that ruling.

5In this case that segregable, non-exempt information is agency working law contained in the two 7(E) TAs. See the district court's citation in support of its holding to PHE, Inc. v. United States Dep't of Justice, 983 F.2d 248, 252 (D.C. Cir. 1993), one of a line of cases holding that agencies may not invoke 7(E) to withhold agency working law.

Reported at 152 F.Supp.2d at 27-32.

7Compare Rev. Ruls. 91-61, 92-3 and 91-27 with the redacted versions of their corresponding LMs (JA 236-59) and IRS' Vaughn index descriptions (JA 197-99, 203-08). LMs are identified by the same number as that assigned to their corresponding revenue rulings.

8See IRS' Vaughn index (JA 197-198), for a complete listing of the material deleted from one LM.

9Jody Jean Brewster testified that Mr. Solomon's practice "is not much different from the practices in other offices." (JA 271, p. 68).

10(JA 544, 553, 562, 575, 583, 591).

11(JA 440, 448, 454, 461, 467, 473, 480, 487, 495, 501, 507, 512, 518, 525, 532, 538).

12Citations are to assertions by Tax Analysts in its Statement of Material Facts and to IRS' specific admissions of those assertions.

13Roman numerals match sections of the argument.

14IRS' Statement of Material Facts cites IRS' Chief Counsel Publications Handbook as providing that LMs may include the following:

(4) principal arguments (if any) for reaching a position contrary to that proposed in the revenue ruling. . . . and

(5) a rebuttal to the contra arguments.

(JA 149, ¶ 6).

15If LMs were disclosed, it could discourage open, frank written communication between superiors and subordinates because the drafters of LMs would not want to create the opportunity for problems to arise from taxpayer reliance or use of material that was not intended to be the position of the Service or Che office of Chief Counsel.

(JA 159, ¶ 31).

16See Chief Counsel Publication Handbook (30)(15)(10), §§ 625, 632.1-3, 634, reproduced in the Addendum of Statutes and Regulations bound with this brief pursuant to Circuit Rule 28(a)(5).

17References are to the Solomon deposition and to a summary of deletions from the LMs at issue in this case. See Fed.R.Evid. 1006.

18Q. To you, looking at [LM] 90-7, does that give you a better understanding of Revenue Ruling 90-7 and what its effect is?

(Colloquy omitted.]

A. Yes.

Q. Is that true of all these legal memorandums?

A. Yes.

Q. When a GCM is published . . . does it also give the reader of both together an enhanced understanding, a greater understanding, of the Revenue Ruling)?

(Colloquy omitted.)

A. Yes.

19By then Taxation With Representation Fund, which had earlier been named Tax Analysts i Advocates, had changed its name to Tax Analysts.

20Marion Marshall, Sheryl Stratton and Christopher Bergin, "The Changing Landscape of IRS Guidance: A Downward Slope," Tax Notes (January 29, 2001) at 675, Table 2.

21The GCM sets forth the issues presented by [the proposed revenue ruling] under review, the conclusions reached and a brief summary of the facts." TWRF, 646 F.2d at 669, quoting IRS' affidavit.

22On cross-motion for summary judgment, "each side concedes that no material facts are at issue only for the purposes of its own motion. If a motion is based on a legal theory later rejected — as here — the movant retains whatever right the party otherwise has to a trial on the merits."

23"Because a deposition is taken under oath and the deponent's responses are relatively spontaneous, it is one of the best forms of evidence for supporting or opposing a summary judgment motion."

24The reason for the large number of TAs from one OCC component to other OCC components, which today is more than 75 percent of all TAs issued, is to provide the issuing office's expertise on a subject within its jurisdiction.

(JA 345, 384, ¶ 3.22).

25The documents sought in FOMC were Federal Reserve Board "Domestic Policy Directives," documents that established Board monetary policy. 443 U.S. at 343-45. FOMC holds that FOIA Exemption 5 "incorporated a qualified privilege for confidential commercial information, at least to the extent that this information is generated by the Government itself in the process leading up to awarding a contract." 443 U.S. at 360.

26The district court below disagreed with the FSA district court, which had held that under IRS' "foreseeable harm rule," then in IRM 1230 § 293(2), "IRS would have the burden of establishing that disclosure of agency working law in docketed case FSAs 'would significantly impede or nullify IRS actions in carrying out a responsibility or function.'" Opinion (May 1, 1998) at 7, quoting § 293(2).

27The holding of the court below also is contrary to decisions of the same district court in the FSA case on remand. Tax Analysts v. IRS, C.A. No. 94-0923 (GK), Op. (May 1, 1998) at 6-7 (1998 WL419755); id. Mem. Op. (September 3, 1999) at 2-4 (1999 U.S. Dist. Lexis 14950).

END FOOTNOTES

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