Arthur Andersen, Inc. v. INTERNAL REV. SERV.

• Decision Date: 21 May 1981
• Docket Number: Civ. A. No. 80-0705.
• Citation: 514 F. Supp. 1173
• Parties: ARTHUR ANDERSEN, INC., Plaintiff, v. INTERNAL REVENUE SERVICE, Defendant.
• Court: U.S. District Court — District of Columbia

514 F. Supp. 1173

ARTHUR ANDERSEN, INC., Plaintiff, v. INTERNAL REVENUE SERVICE, Defendant.

Civ. A. No. 80-0705.

United States District Court, D.C. District of Columbia.

May 21, 1981.

John J. McGrath, Jr., Donovan, Leisure, Newton & Irvine, Washington, D.C., for plaintiff.

Michael J. Salem, Tax Division, U.S. Dept. of Justice, Washington D.C., for defendant.

MEMORANDUM OPINION AND ORDER

JOYCE HENS GREEN, District Judge.

In this action under the Freedom of Information Act, 5 U.S.C. § 552 ("FOIA"), the parties have both moved for summary judgment and the matter is ripe for disposition. Plaintiff, Arthur Andersen & Co. ("Andersen"), is a national public accounting firm, seeking disclosure under 5 U.S.C. § 552(a)(2)¹ and 26 U.S.C. § 6110(a)² of three groups of documents withheld by the defendant, the Internal Revenue Service ("the Service"), the government agency charged with the administration and enforcement of the nation's tax laws. While the plaintiff asserts that the withholdings disregard the clear mandate of the FOIA to divulge records of government agencies to public illumination, the Service invokes the mantel of Exemption 3³ and 5.⁴

When plaintiff filed its administrative request for materials, the Service responded by classifying the resulting documents into four groups.⁵ Group I documents have been provided to Andersen and are not at issue in the litigation. Group II is comprised of a single General Counsel Memorandum ("GCM"), No. 37099, prepared by the Interpretative Division of the Office of Chief Counsel. The materials in Group III are 14 pages of background documents to Revenue Ruling 77-284 and a Technical Advice Memorandum from the National Office of the Service. Numerous drafts of Revenue Ruling 77-284 and accompanying Background Information Notes constitute Group IV. All of the materials have been submitted to the Court for an in camera review.

General Counsel Memoranda have been the subject of recent litigation in the Court of Appeals for this Circuit. In Taxation with Representation Fund v. Internal Revenue Service, 646 F.2d 666 (D.C.Cir.1981), the Court ruled that whether GCMs would be protected from disclosure under exemption 5 of FOIA, privileged as part of the deliberative process, depended on their position in the course of decision-making. Most GCMs are prepared by the Office of Chief Counsel in response to a formal request from the Assistant Commissioner (Technical), who is seeking advice in connection with a review of a proposed private letter ruling, a proposed technical advice memorandum, or a proposed revenue ruling. Consequently, unless the GCMs were not distributed throughout the agency or disclosure was sought of the GCMs prior to issuance of a final decision on the proposed determinations, they were not considered part of the deliberative process. Accordingly, exemption 5 was held inapplicable because the GCMs "function as a `body of working law' within the IRS." Id., at 682.

An examination of the affidavit describing the GCM at issue here, confirmed by an in camera review, readily demonstrates that the document is precisely the type of GCM which the Court in Taxation with Representation ordered disclosed. The affidavit of John D. Howard, an attorney in the Office of Chief Counsel describes the GCM as follows:

The document at issue in the instant lawsuit is a General Counsel Memorandum (GCM) dated April 20, 1977, from the Acting Chief Counsel of the Internal Revenue Service to the Assistant Commissioner (Technical). The GCM indicates that it was written in response to a request from Technical's Corporation Tax Division that the Office of Chief Counsel review a proposed revenue ruling dealing with certain issues. The GCM identifies the taxpayer whose case gave rise to the proposed revenue ruling.

(Howard Affidavit, ¶ 3.) It is further stated that the GCM

describes the reaction of the Office of Chief Counsel to the proposed revenue ruling submitted for review by the Corporation Tax Division. The GCM states that the Acting Chief Counsel agrees with most of the proposals set forth in the draft revenue ruling, but disagrees with that Division's proposals regarding one particular issue. The GCM also indicates that the Office of Chief Counsel, in one instance where it disagrees with the proposed revenue ruling, has made a proposed revision to that portion of the ruling. The revised proposed ruling is attached to the GCM.

(Id., ¶ 4.)

The instant case's GCMs are apparently similar to those in Taxation with Representation, which tellingly described them as:

.... memoranda from the Chief Counsel to the Commissioner written originally for the purpose of guiding the Assistant Commissioner (Technical) concerning substantive issues on proposed revenue rulings, private letter rulings, and technical advice memoranda. The evidence also reveals that the same qualities that make these memoranda useful to the Assistant Commissioner (Technical) recommend the memoranda to agency lawyers for legal research and to agency field personnel in need of guidance in dealing with the public on certain tax liability issues. Moreover, the fact that earlier GCMs are constantly updated to reflect the current status of an issue within the Office of Chief Counsel, combined with the "reconciliation" of positions taken by the Chief Counsel in GCMs with those ultimately adopted by the decisionmaker in the formal rulings, eliminates whatever deliberative character these documents may have had prior to their being "updated" or "reconciled." In essence, after a decision has been reached, a completed GCM becomes an expression of agency policy.

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.

Taxation with Representation, supra, at 682. A comparison of the Howard affidavit with the description in Taxation with Representation reveals that the GCM in the instant suit was an attempt to guide "the Assistant Commissioner concerning a substantive issue on a proposed revenue ruling ..." Id.

A review of the material in camera corroborates the need for disclosure. Judge Richey, in the District Court opinion in Taxation with Representation Fund, Inc. v. Internal Revenue Service, 485 F.Supp. 263 (D.D.C.1980), aff'd in part and remanded in part, 646 F.2d 666 (D.C.Cir.1981), noted that

GCM's are maintained by the Office of General Counsel and frequently cited by subsequent GCM's to insure consistency, avoid duplication of research, provide a reference source, and update earlier memoranda when a position on an issue is sustained, modified, or changed within the Office of Chief Counsel.

Id. at 266. The particular GCM in this dispute contains two citations to prior GCMs and two recommendations from the Chief Counsel for alterations in the proposed revenue ruling. It is then appropriately subject to the disclosure requirements of FOIA, save for the name of the taxpayer which should be redacted from that GCM to protect the confidentiality guaranteed by 26 U.S.C. § 6103(b)(2)(A).

The documents in Group III, background material and a Technical Advice memorandum concerning Revenue Ruling 77-284, are claimed by the Service as protected by exemption 3 of FOIA, which refers to information protected from disclosure by another statute. See note 3, supra. The Service contends that the material is "return information" and confidential under 26 U.S.C. § 6103. Andersen maintains that the only "return information" in the documents are references which identify the particular taxpayer who is soliciting the ruling. Thus, 26 U.S.C. § 6103(b)(2)(A), which defines return information, by the "Haskell amendment," to "not include data in a form which cannot be associated with, or otherwise identify, directly or indirectly, a particular taxpayer," permits release of the material with the identity redacted from the text. Under the view of the Service, this interpretation of the definition embodied in § 6103(b)(2)(A) sweeps too broadly; it claims that Congress only meant to exclude from confidentiality statistical compilations of general tax information, not particular background material with the taxpayer's identity merely excluded.

Our Circuit has recently dispelled the Service's rigid stance. In Neufeld v. Internal Revenue Service, 646 F.2d 661 (D.C.Cir. 1981), the Court determined that "return information, properly defined, includes only information that directly or indirectly identifies a particular taxpayer...." Id., at 665, accepting the interpretation of § 6103(b)(2)(A) articulated by the Ninth Circuit in Long v. Internal Revenue Service, 596 F.2d 362 (9th Cir. 1979), cert. denied, 446 U.S. 917, 100 S.Ct. 1851, 64 L.Ed.2d 271 (1980), see Neufeld, supra, at 665 ("we hold ... in accordance with the Ninth Circuit's holding in Long ...."). The Court in Long declared

by the terms of § 6103 data that do not identify is disclosable ... It is the clear purpose of section 6103 to protect the privacy of taxpayers. At the same time the amendment demonstrates a purpose to permit the disclosure of compilations of useful data in circumstances which do not pose a serious risk of a privacy breach. Our reading of the statute implements these dual purposes.

Long, supra, at 368.

Neufeld decided that the District Court was to exercise discretion to determine which aspects of a document might pose a risk of identifying the taxpayer. An examination of the Group III documents reveals that not only must the name of the taxpayer be redacted, but also names of any individuals employed by the taxpayer, the taxpayer's parent company, and all precise dates indicated by month and date, although the year of a particular transaction appears to pose no risk of identification. Other than these particulars, however, the materials in Group III should be disclosed to the plaintiff.

Group IV...