Over the past two plus years we have written four posts about Mr. Trump’s returns here, here, here and here. A good argument could be made that this is four posts too many; however, the recent decision of the DC Circuit in a FOIA case seeking those returns brought by the Electronic Privacy Information Center (EPIC) provides an opportunity to go beyond speculation about obtaining those returns and focus on how, in the interaction between FOIA and IRC 6103, the law does not permit third parties to use FOIA as a means of obtaining the returns or return information of others. In the course of ruling on this case the DC Circuit sets the IRS straight on the appropriate standard to apply to those making a FOIA request.
Shortly after the 2016 election EPIC submitted a FOIA request to the IRS seeking the tax returns of Donald Trump for the years 2010 and forward. It also sought “any other indications of financial relations with the Russian government or Russian businesses.” Not surprisingly, the IRS declined to comply with the request. In declining the IRS provided two reasons: 1) the requested “documents, to the extent that any exists, consist of, or contain the tax returns or return information of a third party,” which “may not be disclosed unless specifically authorized by law” and 2) the IRS rules require consent of the third party when a request is made for their tax return. Because the IRS rules require the consent of the third party when a return is requested, the IRS did not even process the FOIA request.
EPIC submitted a second request trying a slightly different tack by citing to IRC 6103(k)(3). This provision allows the IRS to disclose return information to correct a misstatement of fact if correcting the misstatement is necessary to a tax administration purpose. This provision also requires that the IRS obtain the approval of the Joint Committee on Taxation before making a disclosure. The IRS responded to EPIC’s second request by notifying it that the second request also did not cite a basis for turning over to it the returns of President Trump. The IRS concluded this letter by notifying EPIC that it would not process any further requests from it on this topic.
EPIC brought suit seeking relief under both FOIA and the Administrative Procedure Act. The district court dismissed the suit and the DC Circuit affirmed the dismissal but in doing so provided some clarity regarding the reason for denying the request. The circuit court explained the interplay between FOIA and the IRC. It provided an explanation for how and when tax records stand outside the type of government record that can be obtained through a FOIA request. It noted, however, that the district court denied the request for failure to exhaust administrative remedies. That basis for dismissal was wrong but even though it was wrong other reasons for dismissing the case existed making the decision to deny the requested relief correct.
The court points out that this is not an ordinary exhaustion of remedies case where the litigant rushes to court without giving the agency the chance to consider the argument. Here, EPIC tried to get the IRS’ attention and got pushed away. The IRS argues that because EPIC’s request violated its published rules for considering a FOIA request by not obtaining President Trump’s permission to seek his tax returns EPIC did not exhaust the available administrative remedies. This is an interesting interpretation of the exhaustion doctrine which views the requester’s failure to do the impossible, obtain permission from a party who does not want to consent, as a failure to exhaust remedies.
According to the DC Circuit, the IRS “misunderstands its FOIA disclosure obligations. FOIA unambiguously places on an agency the burden of establishing that records are exempt.” To prevail, the IRS cannot rely on a perceived failure by the requester but must show that the information sought is subject to the IRC 6103(a) bar on disclosure. Although the Court agrees with the IRS that it can create published rules regarding the procedures to follow in making a request, the Court disagrees with the IRS that those rules can substantively shift the burden from the agency to the requester regarding the basis for denying the request. Here, “[n]one of the purposes of exhaustion supports barring judicial review of EPIC’s claims.” Still, the IRS has the ability to show that EPIC should not receive the requested documents by making a showing on the merits of the applicable statutes – which it does.
The scope of IRC 6103 in protecting taxpayer records is broad but is still limited in scope. The court notes that “[n]ot all IRS records constitute tax returns or return information.” It cites as an example of material not covered by those definitions the legal analysis contained in IRS Field Service Advice Memoranda. Here, the first part of EPIC’s request, the request for President Trump’s tax returns, clearly falls within the scope of tax returns and return information and “is plainly covered by section 6103(a)’s bar.”
With respect to the requested information concerning financial relations with Russia, the court finds that the request is framed in such a way that answering it reveals the fact that tax returns were filed, making any response one which would disclose tax returns or return information. Therefore, the court denies this request as well.
Moving on to EPIC’s revised request citing to 6103(k)(3), the court finds that this provision was not designed as a provision for parties to make a request to the IRS but rather for the IRS to make a decision to disclose information to avoid problems with tax administration. The court finds “Congress’s omission of any public right to ‘request’ disclosure under section 6103(k)(3) is intentional.” So, this provision affords the requestor no disclosure right. EPIC’s claim based on this provision fails.
Lastly, the court looks at the APA as a basis to disclose the returns. It finds that the APA claim should be dismissed because FOIA, not the APA, provides the basis for the remedy sought by the requestor. The fact that FOIA does not allow disclosure under this circumstance does not mean that the APA provides a separate remedy.
No doubt we have not heard the last of attempts to obtain President Trump’s returns. The harder people try to obtain the returns without success, the more respect I have for the IRS and the states in their administration of the disclosure laws. Maybe one day we will see the returns and learn great secrets. In the meantime we should appreciate that the disclosure laws which were tightened significantly in response to President Nixon’s attempts to misuse the IRS seem to be working well.